The Founding of the Federal Reserve | Murray N. Rothbard

Lecture presented by Murray N. Rothbard at the Ludwig von Mises Institute’s “Money and Government” seminar; the University of Houston in Texas, October 27, 1984.

Source: The Founding of the Federal Reserve | Murray N. Rothbard – YouTube

http://www.readrothbard.com/the-founding-of-the-federal-reserve-murray-n-rothbard

TRANSCRIPT
00:01
there was a there was a statement I
00:03
think somebody asks professor peden
00:06
earlier what was this naivete about the
00:10
part on the part of the people
00:11
advocating inflation and he answered
00:16
basically people kind of seemed to be
00:18
naive in their own self-interest and
00:20
this is very relevant to what I’m
00:23
talking about today namely the origin of
00:25
the federal reserve system the the
00:28
Orthodox view so to speak or the
00:30
mainstream view of the history of the
00:32
Federal Reserve System is very similar
00:34
to the mainstream view of the history of
00:35
all government regulation progressive
00:39
institutions so this so-called history
00:43
of the public school system although all
00:44
the history is written before about
00:45
nineteen sixty essentially to exercise
00:51
and hagiography which is those of you
00:53
not familiar with theology the history
00:55
of the lives of the Saints heroic
00:59
enlightened people and something else um
01:01
county in zilch County North Dakota
01:03
whatever the side there should be a
01:05
public schools and they agitate for it
01:08
and backward types and don’t want to pay
01:10
more taxes or against it and finally the
01:12
enlightened people went out and it’s
01:15
that sort of approach and progressive
01:19
regulation it’s things things like those
01:22
who want to those who think they’re we
01:25
shouldn’t have disease meet agitate for
01:26
it and finally they went out over a
01:29
narrow selfish businessman who were
01:31
against against the me control
01:34
regulation so that’s sort of that sort
01:37
of approach to the history of regulation
01:39
is so now even by us the best it turns
01:44
out in the last 20 years or so
01:46
historians have revised this whole
01:48
picture of history of government
01:50
regulation in the United States the and
01:53
the same thing goes for history of the
01:55
of the Federal Reserve’s founding the
01:57
federal reserve system the thing one
02:00
thing we have to realize the first place
02:01
is that is that the Federal Reserve Act
02:05
was a part of the Progressive Era
02:07
probably progressive package so-called
02:10
progressive legislation which started
02:13
around 1900
02:14
and continuing on it’ll through World
02:17
War one and the if we realize that the
02:23
nature of the progressive movement and
02:25
progressive sister s abysm was not
02:28
simply we discover enlightenment we
02:31
realize the public good requires the
02:33
untrammeled businessmen be regulated for
02:35
them made to serve the public interest
02:37
that sort of stuff we realize the holes
02:40
the whole history is totally different
02:41
then we can we’re more apt to have a
02:43
better picture of a founding the federal
02:46
reserve system the basically the the
02:52
insight into the history of progressive
02:54
era can be related to something like
02:58
this for example when tariffs go up when
03:01
the steel industry but this way say the
03:03
government is a higher tariff on steel
03:05
which is that’s doing most of the time
03:07
anyway since about 1820 when the
03:12
government Institutes of higher tariffs
03:13
on steel or import quotas on steel
03:14
nobody really thinks that this is done
03:16
because of farsighted enlightened people
03:20
think we really need it and therefore we
03:23
come in at least and they persuade
03:24
businessmen to go along with it and
03:26
persuade the government go home with it
03:28
nobody really believes that everybody
03:29
realizes that if a steel and steel
03:32
tariff goes up it’s probably because of
03:34
steel industry is agitated for it and if
03:36
you and then if you check on this
03:37
hypothesis you’re fine of course that’s
03:39
exactly what happened not every person
03:43
in the steel industry but basically the
03:44
steel industrialists realizing that
03:46
they’re inefficient being out competed
03:48
by foreign steel decide agitate for
03:51
higher tariffs so in things like tariffs
03:54
this is common practice you’re not
03:57
called an economic determinist or a
03:59
Marxist if you if you make the statement
04:01
that tariff went up because of
04:04
industrialism this and that particular
04:05
industry agitator for it and yet for for
04:08
anything else somehow becomes a no-no ER
04:11
for boton kind of proposition entertain
04:14
for any other kind of regulation banking
04:18
regulation or whatever down to things
04:21
like foreign aid and war to make the
04:23
similar statement in other words to go a
04:25
little bit deeper and just tariffs we’re
04:27
the thing is I’m
04:28
obvious the terrorists are agitated for
04:30
by the particular industry to expand the
04:33
analysis a little bit becomes a
04:36
uncertain deserve unrespectable to say
04:38
the least and both among historians
04:40
among everybody else so people engaging
04:45
this sort of analysis of power elite
04:46
analysis for cause it’s not very common
04:50
either an even history historical
04:52
profession or in the rest of scholarship
04:54
or on the public and in the last 20
04:57
years or so it has been quite a bit of
04:58
it and it’s been revised its helped to
05:01
revise our whole viewpoint what happened
05:03
in government regulation in general and
05:07
progressive period in particular the
05:10
basically what happened was in the
05:11
progressive period by the end of the
05:15
19th century business first of all was
05:16
were extremely competitive all during
05:18
the late 19th century this is as a broad
05:21
generalization and prices were falling
05:25
throughout in other words from Civil War
05:26
down down to about 1918 night late 1890s
05:30
prices were generally falling they were
05:32
falling for good reason namely the
05:34
business was so competitive and the
05:36
economy was so productive the supply of
05:38
goods and services with increasing in a
05:40
rapid rate in other words this one
05:41
America industrialized was the biggest
05:44
period of economic growth history of the
05:46
world and a standard of living went up
05:49
and productivity went up and prices fell
05:53
did not being the businesses businesses
05:55
were suffering because course were also
05:57
falling as the productivity increase the
05:59
mass production increased but so in this
06:02
situation the many business groups of
06:06
hotels to be inefficient try to correct
06:09
this try to try to correct the spice
06:11
falling situation by organizing cartels
06:13
in other words my organizing a cartel of
06:15
each industry so that they could cut
06:18
production and raise prices and this was
06:21
tried in an industry after industry
06:23
starting with the railroads which were
06:25
the first big business in United States
06:26
first large-scale business and
06:28
continuing on through manufacturing by
06:30
the late 1890s either trying to cartels
06:34
formal cartels or through mergers and a
06:37
late night late 1890s theory was well
06:41
just
06:41
one big will have one big confirm for
06:43
the entire steel industry the oil
06:44
industry etc and then we’ll be able to
06:46
cut production and raise prices and
06:48
raise profits the same time so they try
06:54
the systemically this is the ideology
06:55
sort of speak among businessmen that the
06:59
way to benefit for all of us has to have
07:02
quotas either formal quotas and cartels
07:04
are in mergers where you you just agree
07:06
that you will have certain shares of
07:07
this corporation and then we’ll cut
07:10
production raise prices I was the great
07:11
goal all of this was a total flop
07:13
a–rewin case after case hundred
07:15
literally hundreds of cases of this kind
07:17
of merger or cartel they all flopped and
07:19
they flopped for two basic reasons one
07:23
is that an economic theory can predict
07:25
this and this is confirmed time and time
07:27
again two basic reasons one is well the
07:31
basic reasons of the industry is free
07:33
government cannot the next step in and
07:35
and force people except the cartel or
07:37
accept the merger so what happens is
07:39
that when the as soon as the cartel is
07:41
formed all the merger is completed and
07:44
we have and then they cut production
07:46
raise prices and profits go up other
07:48
business might come and say hey this it
07:49
looks like great industry here the zinc
07:51
the zinc and whatever the zinc industry
07:53
or the oil industry or whatever
07:55
railroads and making a lot of profits
07:57
let’s nip in there and now compete them
07:58
because they’re raising prices there and
08:01
we’re gonna come in with a new firm a
08:03
new factory new railroad and we’ll we’ll
08:06
bust them and that’s exactly what
08:07
happened so you had new competition
08:10
always coming in and out competing the
08:13
younger firms and then the older friends
08:15
are stuck with a new firm then you have
08:17
a permanent competitor which is big pain
08:18
in the neck as they come in with later
08:20
equipment with new factories and new
08:22
equipment the latest latest technology
08:26
etc now they have a permanent new
08:27
competitor on our hands so it became the
08:29
whole thing became a big pain in the
08:30
neck four of them and that’s one reason
08:33
and then internally what happened what
08:35
happened was that individual firms will
08:37
start breaking in the cartel to say look
08:39
we’ve raised in other words the cartel
08:41
restricted production raises prices
08:43
prices are very high on the individual
08:45
firm says look I’m not supposed to do
08:47
this is I have a cartel agreement with
08:48
less than my buddies in the industry but
08:51
here’s what we’re going to do for you my
08:53
old pal and drink
08:54
buddy would I rather my buyer I will
08:57
sell you love steel or whatever titanium
08:59
etc for twenty percent off list provided
09:02
you don’t tell anybody about it okay so
09:04
to have us a secret price cutting and
09:09
and if we’re and then this firm gains
09:11
profit gain sales and of course the
09:13
secret leaks out pretty quickly after
09:16
about six months or a year and then the
09:17
other firm get very mad about this they
09:19
call your rate Buster which is in
09:21
business terms of the equivalent of scab
09:23
and union terms and the whole cartel
09:26
falls apart with mutual recrimination
09:28
and hatred in their back where they
09:30
start except now they’ve got more hatred
09:31
than they had before so this in other
09:34
words this system didn’t work but cartel
09:36
policy and a merger policy flopped and
09:40
at that point some of the each step of
09:45
the way some of the farsighted in a
09:47
sense of realizing this was a flop among
09:50
the business groups decided the only way
09:51
to preserve a cartel preserve a mergers
09:54
for have the government and force it the
09:56
term turn of the political arm to create
09:59
the cartel for you and this this was the
10:02
origin of progressive regulation
10:04
progressive system was not a group of
10:06
farsighted essentially was not a group
10:09
of farsighted intellectuals of santa ana
10:11
said we have to plan we have to curb
10:12
businessman for the sake of a public
10:13
interest it’s a group of groups of
10:15
businessman saying we have to impose
10:17
cartels through the government and
10:19
thereby eliminating our competition
10:21
curbing Lee the Maverick firm which
10:24
doesn’t want to engage in a cartel and
10:26
and again e profits that way so for
10:31
example within railroad regulation the
10:33
first things they did after the business
10:36
put in the railroad business businesses
10:37
put in the ICC the Interstate Commerce
10:39
Commission the first thing I CC divis
10:42
outlaw a secret price-cutting cific a
10:44
secret price county is always the great
10:45
instrument by which an individual firm
10:47
can bust the cartel and you do you do it
10:50
you do in the name of publicity you say
10:52
well it’s terrible thing to have a
10:53
secret price cutting all prices should
10:54
be the book should be open up all firms
10:57
should have them should release
10:58
publicity about their prices and costs
11:00
and suffers at cetera so the public will
11:02
know the right to know and a lot of jazz
11:04
what it really meant was we want to know
11:06
what our competitors are charging we do
11:08
if I’m making
11:08
make all of us release Nia open the
11:10
books so anyway this is that of course
11:14
you do this in the name of openness or
11:17
democracy or whatever in the name of the
11:19
public interest because America was born
11:22
an anti-monopoly ideology hatred of
11:25
monopoly meaning by the way monopoly
11:27
meant for centuries until modern
11:30
economics came in and poison the well so
11:33
to speak what monopoly meant was very
11:35
simple men a grand of special privilege
11:37
on the part of the government to
11:38
different businesses too exclusive for
11:40
exclusive production or sale of a
11:42
product period it didn’t mean a large
11:44
firm it didn’t mean differentiated
11:47
product in all the rest of it and it’s
11:48
read very simply grant by the government
11:50
of exclusive privilege it’s very much
11:54
like we’ve got during the discussion
11:56
press repeating before that when the
11:58
church fathers attack the rich they
12:00
didn’t mean the rich period I meant that
12:01
tax collectors and so forth it’s a
12:04
similar situation a shift in the
12:05
language so how do they sell this to the
12:09
American public alcohol these business
12:11
groups Ellis a compulsory cartel system
12:14
to the American public I can’t say we
12:16
want compulsory cartels so what they did
12:19
was they created the ideology of the
12:22
public interest this is the public good
12:23
we have the curve evil business groups
12:25
and sort of stuff and the businessman a
12:28
tip his position was uncool enlightened
12:29
by their other allies by the media
12:32
whatever the media that Bach these are
12:35
enlightened businessman who rise above
12:36
their own self-interest look at the
12:38
larger good they have the far vision of
12:40
not like Diocletian they want to curb
12:44
their selfish profits for the good of
12:46
the entire industry and a good of a
12:47
country now how was this ideology push
12:50
the audiology was pushed very simply by
12:52
intellectuals who are rising up
12:55
throughout history the state ISM has
12:58
been imposed by two groups in alliance
13:00
of two groups the state itself state
13:04
apparatus the king of throne and the
13:07
opinion molding groups intellectuals we
13:09
should which in most cases in history
13:11
than the churches state church and so
13:14
this is the alliance of throne and older
13:15
have the church in the state a church
13:18
the function of the church was to tell
13:20
the so
13:21
tell people who obey the state the state
13:22
is God in many cases the king is God the
13:25
king is divinely sanctioned and returned
13:28
for this and then the public believes
13:30
them because they are the intellectual
13:31
opinion moulders and and in return for
13:36
that the the church gets part of the
13:37
boodle they get part of the state
13:38
revenue in form of tax subsidies and so
13:42
forth so this is a very cozy alliance
13:44
until essentially Western Europe until
13:46
the age of Western Europe and a church
13:49
and state were separated and essentially
13:52
what you in the progressive period in
13:53
the early 20th century you begin to
13:55
reform the Auld Alliance of
13:57
intellectuals and government big
13:59
government intellectuals or perform the
14:01
function of court court apologists for
14:04
the new regime and informing the public
14:07
caesura on your this is the public
14:08
interest a common good general welfare
14:10
and all the rest of it the intellectuals
14:12
are ready for this alliances are a lot
14:14
of them coming up unless there’s a
14:15
multiplication the number of
14:17
intellectuals in the world and in this
14:19
country in late 19th century the PhD the
14:23
ph.d program came in suddenly PhDs
14:27
poured on the market Engineers Portland
14:30
market various gill groups physicians
14:32
all that and looking for looking for
14:34
jobs and also looking at a special
14:35
privilege looking for ways to keep their
14:37
competitors out and so this alliance
14:41
became very cozy one because the
14:42
intellectual then became state of
14:44
elections it became planners apologist
14:47
for planning and so 4 and so on ok so
14:51
this is a general background of a
14:53
banking situation so we have to realize
14:57
the Federal Reserve System was a
14:58
progressive measure 1913 was part of the
15:02
Wilson progressive package Woodrow
15:04
Wilson being the Acme of progressivism
15:05
up to that point and once again we have
15:08
a similar situation there was no before
15:10
the federal reserve system as though
15:12
free banking there’s a quasi centralized
15:14
system free banking or an approximation
15:18
of free banking was before the Civil War
15:19
approximately from 18 in 1840s after
15:22
Andrew Jackson destroy the bus the
15:24
central bank of his up park until the
15:26
Civil War during those 20 years or so is
15:29
more or less free banking system
15:30
competitive no centralized system
15:33
and it worked it worked pretty well and
15:36
one of the really to the extent it
15:38
didn’t work is because it was still
15:39
government interference but basically a
15:42
free system during the Civil War the
15:44
Republican Party took the opportunity of
15:47
a one party congress is that the South
15:50
had seceded to enact their their beloved
15:53
economic legislation one of which was
15:57
high tariffs and other which was the
16:02
greenbacks and eliminating gold standard
16:03
for many years and a third was the was
16:07
eliminate the free banking system the
16:10
way they did it was by imposing a very
16:13
prohibitive tax on state bank notes in
16:15
other words of banks private banks and
16:20
centralizing them and optimizing the
16:22
issue of bank notes or paper money in
16:23
the hands of a few nationally chartered
16:25
banks there were no nationally charter
16:26
back before that a few very few large
16:29
wall street banks and then tying this so
16:33
that so any other bank had to in order
16:34
to get paper money had to go to the had
16:36
to have deposits in the national banks
16:38
and in order to buy paper money so to
16:41
speak the individual banks couldn’t
16:43
issue it themselves and tying that of
16:46
the federal to the public debt in other
16:48
words national banks to determine their
16:50
credit on top of government US
16:53
government bonds and this was done in
16:55
order in order to sell the government
16:57
bonds of during the war the Civil War
16:59
and specifically to give it even more
17:02
specific than that Jay Cooke was the
17:06
main instigator of this jay cooke was uh
17:09
being a friend of Secretary of Treasury
17:12
chase and political ally managed to get
17:16
the monopoly of all government bond
17:18
underwriting during the during the Civil
17:20
War remember there was hardly any
17:21
underwriting at all before that and so
17:24
this is a tremendous bonanza to cook and
17:26
he gets the monopoly of all government
17:28
bond issue he then he then he was the
17:31
first one to engage in modern propaganda
17:32
efforts he had the higher path of tears
17:34
to talk about the glories of government
17:36
bonds and all the rest of it and in
17:39
addition of that he’s actually pushed
17:41
through the national banking systems has
17:43
not been talking about founding there so
17:46
every national bank is
17:47
has the permanent credit on top of
17:49
government bonds which they own thereby
17:51
forcing the banks to buy government
17:52
bonds from him jay cooke since he has a
17:55
controllable government bond and then he
17:57
himself set up several of these national
17:58
banks himself as part of this system so
18:01
at any rate we had this is the big after
18:03
that the system continues after the
18:06
Civil War and the hard money people were
18:09
had to spend them but at least 15 years
18:10
trying to get back to gold period it
18:12
couldn’t worry about the banking system
18:13
and so the their energies were well
18:17
restricted or confined to the to
18:18
eliminating greenbacks or getting here
18:20
getting back ago so that this system
18:24
that continues on we then have a quasi
18:26
centralized system based on walls on
18:28
Wall Street national multinational banks
18:31
but still is not central as a halfway
18:33
house to the Federal Reserve System okay
18:36
in this in this situation the bank’s
18:39
become unhappy especially the large wall
18:42
street banks become unhappy because the
18:45
beginning to be out competed by other
18:46
other regional bank banking structures
18:48
Chicago and becomes a central reserve
18:53
City Kansas City banks become important
18:56
and the whole of the banking credit
18:58
system because more and more
18:59
decentralized as late as the economy
19:00
grows and the Wall Street became we max
19:03
become more and more unhappy about the
19:05
situation this the control is slipping
19:07
away from them gradually but very
19:10
rapidly and another problem was and the
19:15
this is a problem Heron an old
19:17
fractional reserve banking fractional
19:18
reserve banking and my view is
19:20
inherently bankrupt them it’s it’s
19:21
always a ready to go bust the reason is
19:25
fairly simple most businesses are all
19:27
businesses foreign I know try to try to
19:29
adjust the time structure of their
19:31
assets to to follow the time structure
19:34
of our liabilities in other words if you
19:36
have a 1 million dollar debt coming up
19:38
in lex july first you make sure that
19:40
many dollars you have coming in OT you
19:42
will come in before july first not after
19:44
you’ll have the million bucks to pay pay
19:47
the your own your own creditor so most
19:50
businesses try to have the time
19:51
structure of their assets shorter than
19:54
the time structure of our liabilities
19:56
certainly not longer have the money
19:58
flowing in before they have to pay the
20:00
money out
20:00
but banks however just the opposite
20:02
banks are owned banks liabilities are
20:04
zero time structure I’m grizzly you have
20:06
to pay immediate i’m not talking about
20:08
certificates of deposit or time to pop
20:09
talking about demand deposits and
20:11
banknotes these have to be paid on
20:13
demand immediately it’s a zero time
20:15
structure whereas their assets of course
20:17
or something else flow into the future
20:19
so all banks are inherently bankrupt all
20:22
of these for the public to find out
20:24
about it essentially it’s a structure
20:26
based on mythology more than anything
20:28
else and so all banks are subject to
20:34
bank runs and history historically when
20:37
confidence is lost i don’t know if
20:38
you’ve seen these old movies on
20:39
television were made in the 30s or a lot
20:42
of movies in that period where the small
20:45
town there’s a big line up from five in
20:47
the morning lining up at the bank the
20:48
public had heard a rumor of the bank was
20:50
really didn’t have the money they
20:51
thought they’d have and they want to get
20:53
their money out fast before the other
20:55
guy got the money at this is a long line
20:57
of the bankers of course very
20:59
respectable looking usually fat those
21:00
days fatness meant respectability and
21:04
yeah the bank was sure them null is a
21:06
bunch of it’s a pack of lies and we I
21:08
assure you madam mr. that you the money
21:10
is there don’t worry about it you don’t
21:12
have to take it out and if the people
21:14
were student off or scared enough
21:16
they’ll say no no we wanted money out we
21:17
don’t listen list of course the banker
21:19
was a big liar says he didn’t have the
21:20
money and by eight o’clock or nine
21:22
o’clock the bank is bust so so the
21:27
bank’s understand the situation there
21:29
were there inherently instead of in bad
21:31
shape plus the fact that any banks
21:33
expand their credit banks that don’t
21:36
expand will have liabilities upon them
21:39
will try to cash them in not because
21:40
they have no confidence subpoena in the
21:42
daily matter of business and they might
21:44
go bust for that for that reason any
21:46
bank that expands beyond what his fellow
21:48
bankers are expanding will will quickly
21:52
go under so for those reasons became
21:56
evident to the banker banking community
21:58
that they in order for the bank’s these
22:00
facts Reserve Banks is survived you have
22:02
a central bank a lender of last resort
22:04
it’s called which will have the
22:06
resources to bail them out of the case
22:09
of trouble and also will be able to
22:13
centralize reserves that
22:14
all banks with mobilize expand reserves
22:16
together you don’t have a problem with
22:18
one bank expanding and suddenly being
22:20
caught up short by the sounder and more
22:22
conservative banks old banks will expand
22:24
through the central banking system
22:26
central bank buying assets and the
22:28
reserves flooding into the system of
22:30
credits everything ballooning and
22:32
wafting upward nicely and harmoniously
22:34
uniformly other words the bank’s
22:37
realized in order in order to in order
22:39
to preserve their their soundness and
22:41
structure they have to have a compulsory
22:44
Carter light system because voluntary
22:46
cartels don’t work in banking much very
22:48
well either so in other words the turn
22:52
toward compulsory cartels and banking
22:54
was very similar of a piece with the
22:57
turn toward compulsory cartels on the
22:58
rest of the business industry railroads
23:00
manufacturing meatpacking insurance and
23:03
everything else um okay the and also the
23:10
wall street banks were particularly
23:11
interested in getting control over the
23:13
rest of the economy and as a second
23:15
factor here not just to save themselves
23:16
but also to get control of the Maverick
23:19
western and regional banks that were
23:22
proliferating and in particular the the
23:25
person of the banking firm of the most
23:28
vision on the subject the one which
23:30
always took the lead in cartelisation
23:32
and regulatory commissions and all rest
23:33
of it was the firm of the interest
23:36
centered around JP Morgan and company
23:39
Morgan being the largest investment
23:42
banker after Jake cooked by the way that
23:43
justice doesn’t always triumph in the
23:45
world in the case of jay cooke justice
23:47
triumphs he went bust in the panic of
23:48
1873 after after controlling the banking
23:52
system inflating and so forth and so on
23:54
he finally he finally went under after
23:57
that JPMorgan becomes the preeminent
23:59
investment banker and first on the
24:02
railroads and then in manufacturing
24:03
Morgan takes the lead in in this vision
24:07
of a new car collides system including
24:09
new car lines banking system okay just
24:12
to give you an idea is a quote here on
24:17
the role of the Fed and what the people
24:19
the time thought the role hub is going
24:20
to be oh just just another point that
24:25
the the theory profound
24:27
for the public was and the public again
24:30
is not going to fall for this very well
24:31
so the theory profound propeller before
24:34
the public was we need the Fed one to
24:36
catch up of the world is everybody else
24:38
had about all other major countries in a
24:39
central bank therefore we should have it
24:42
and secondly in order to stop Wildcat
24:47
banks from inflating too much we need a
24:49
central bank in order and post stability
24:51
and make sure there’s not to limit any
24:53
inflationary potential of the private
24:55
banks it’s very somewhat early to the
24:57
saying the IC we need an interstate
24:59
commerce commission of control the
25:00
railroads they won’t they won’t moco
25:02
public by higher freight rates actually
25:04
the real reason wasn’t one of the raised
25:06
private freight freight rates railroad
25:08
freight rates through the ICC and not
25:10
the not the lower them similarly here
25:13
the propaganda is that we need if the
25:15
Fed and what are the control the
25:17
individual private banks make sure that
25:18
they don’t expand credit too much the
25:20
rear was reason why they want to expect
25:22
they need the Fed to expand credit and
25:24
maintain the expanded credit so the
25:26
banks wouldn’t go under we need a lender
25:28
of last resort but he used the phrase
25:30
and the very common of that period we
25:32
need the my supply needs to be more
25:34
elastic that was a big fray we need a
25:36
Fed because we need moneys might be more
25:38
elastic in other words moneys license is
25:41
too too rigid you need to expand it more
25:43
especially during recessions and the
25:46
bank panics need to fed to expand money
25:48
and credit and so this is yeah this is
25:51
what they know Cicely was a sort of
25:53
euphemism for the for inflation any rate
25:56
the quote dub which is just one area
26:00
here that show the criterion of the
26:03
whole system every 1n Hurley when the
26:06
federal trade commission was established
26:07
about the same time the federal reserve
26:09
was established the vice chairman as
26:12
they facto head of the Federal Trade
26:14
Commission was Edward n Hurley he was
26:16
the president the Illinois Manufacturers
26:18
Association and he was appointed and
26:21
whose actions an appointment was hell
26:23
and subsequent actions were hailed for
26:25
out the business community he addressed
26:26
the association of national advertisers
26:28
december 1915 a couple of years after
26:32
the fed the Federal Reserve an FFA
26:33
Commission were put through about the
26:35
same time he exulted quote the through a
26:38
period of years the government has been
26:39
gradually extending its machinery of
26:41
health
26:41
two different classes and groups upon
26:44
whose prosperity depends in a large
26:46
degree the prosperity of a country and
26:47
then he says the railroads and the
26:50
shippers had the ICC they have their ICC
26:53
Interstate Commerce Commission the
26:55
farmers have the agriculture agriculture
26:56
department and the bankers now have the
26:58
Federal Reserve Board he concluded quote
27:02
that to do for general business that
27:04
which these other agencies do for the
27:06
groups to which I have referred was the
27:08
thought behind the creation of the
27:09
Federal Trade Commission okay what does
27:11
the fire reserve do for the nation’s
27:12
bankers that then becomes the question
27:18
ok the it starts this the idea of
27:23
central banking before the Federal
27:24
Reserve comes then the the first thought
27:26
was the Treasury would do it instead of
27:28
creating a fertilizer maybe this is the
27:30
Treasury Department could act as a
27:32
central bank on its own and then for
27:36
example and in 1900 Secretary of
27:43
Treasury lime engage coal for the
27:45
establishment of regional central banks
27:47
and a 1906 Secretary of Treasury Leslie
27:51
sure I suggested in his annual report
27:53
that he be given total power to regulate
27:55
the nation’s banks it didn’t work but
27:58
this was the and they tried to intervene
28:00
they tried to both of them try to expand
28:02
Treasury bills and so forth during
28:04
recessions it they didn’t work and the
28:10
question then is who are these people
28:11
who are more Gaugin and sure do they do
28:14
this that they either call for central
28:17
banks or trial and poza act as a central
28:20
back on their own hook or the isolated
28:22
bureaucrats we’re power went to their
28:25
head and in order to analyze that we
28:28
have to realize that most historians
28:30
unfortunately they do it when I deal
28:32
with government action they just deal
28:33
with the Secretary of Treasury or the
28:36
Federal Reserve Chairman or whatever at
28:37
the time he exists in other words it’s
28:39
as if somebody bought from heaven become
28:41
secretary of the Treasury for four years
28:43
or eight year to something and then
28:44
disappears and his life then is sort of
28:47
like a like a self-contained
28:49
hermetically sealed vacuum and he does
28:52
various things and he disappears and if
28:54
however you examine what he did before
28:56
he was secretary of treasury what he did
28:58
after a very different perspective I
29:00
don’t mean just on these people I’m a
29:02
little top bureaucrats we could examine
29:04
what their life was before and after
29:05
they were in office the whole viewpoint
29:08
you hope you point about them against
29:09
the shift they turned out to be isolated
29:10
bureaucrats were part of a whole
29:12
financial network of power a leap for
29:16
example gage first secretary of treasury
29:19
under akin late you try to do this
29:23
before he was appointed secretary
29:25
treasurer who is the head of a powerful
29:26
First National Bank of Chicago one of
29:29
the major banks in those days on the
29:30
Rockefeller orbit now we have to say
29:32
that there are two big financial orbits
29:34
at this point Morgan’s and Rockefellers
29:36
both of whom we’re a favor for a frank
29:38
of central banking by this point okay he
29:42
was also president of American Bankers
29:44
Association gage after he left the
29:46
Treasury Department after a couple of
29:47
years he becomes president of the u.s.
29:49
trust company which was
29:50
rockefeller-controlled and his
29:52
hand-picked the system of the Treasury
29:54
Frank Vanderlip who one of the major
29:57
figures in creating a federal reserve
29:58
system goes on to become a top executive
30:01
of the Rockefeller flagship bank of that
30:03
period the National City Bank of New
30:04
York he was appointed at the Treasury
30:09
not because he was his name was plucked
30:11
out of a hat but because mark Hanna has
30:14
close friend and political mastermind a
30:16
financial backer of President McKinley
30:18
chairman of the Ohio Republican Party
30:20
and in the National Republican Party
30:22
cool magnate and iron manufacturer Anna
30:24
was also close business associate of an
30:27
old high school friend high school
30:29
classmate of john d rockefeller senior
30:31
so when you begin to realize that you
30:32
begin to realize is not an accident
30:34
these things are not something hannah
30:35
somehow has a theory and our reveal the
30:38
thing just it work somehow right by a
30:40
random selection of people uh okay
30:47
Leslie sure was the next
30:49
secretary-treasurer I mentioned on the
30:50
under who’s on the Theodore Roosevelt
30:52
was a small-town Iowa banker who became
30:55
governor of his state he continued as
30:58
president of a bank while he was
30:59
governor those days it was not none of
31:01
this nonsense about blind trust or worry
31:04
about conflict of interest
31:07
and he was a friend and ally of a so
31:10
called the Moines Regency which was
31:11
running the Iowa Republican Party for
31:13
many years and the head of the Iowa Iowa
31:18
Regency senator Allison wasn’t turned
31:21
tied closely to Charles Perkins was the
31:23
clothes Morgan Ally and president of
31:25
Morgan control Chicago burlington and
31:27
quincy railroad okay after the after the
31:30
failure these two attempts by Cajun
31:33
shore to use the Treasury as a fulcrum
31:35
of a central bank comes the panic of
31:37
1907 I was at that point when the large
31:39
bankers decided we needed no more
31:42
fooling around Falls we need a central
31:43
bank and but even before the pang of
31:47
1907 the dry for several bank was
31:50
launched officially by jacob schiff who
31:51
was head of the powerful investment
31:53
banking firm cool element company who
31:56
urged a New York Chamber of Commerce
31:57
advocate fundamental banking reforms
31:59
january nineteen oh six okay a new york
32:01
commerce newly established a special
32:03
committee to investigate the problem the
32:05
prize of leaders from commercial
32:07
investment banking including Israel of
32:10
rh Macy’s with a close friend of ship
32:11
and Frank Vanderlip I’ve already
32:13
mentioned whose name appears pops up
32:14
constantly of a national city bank and
32:20
March the special committee
32:21
unsurprisingly bio and all of you know
32:23
about committees in general and all of
32:24
the committee’s aside nothing it’s all
32:26
decided ahead of time when committee
32:28
ratified sit the special committee and
32:31
reports yes yes we need a central bank
32:33
and as they put it we need a strong
32:34
central bank quote similar to the back
32:35
of Germany on quote which was the which
32:37
is the mole model for them well the New
32:41
York chamber was kind of reluctance is
32:42
kind of radical for them and they didn’t
32:44
endorse it but the big bankers took up
32:46
the cry and in mid nineteen oh six the
32:49
American banking Comerica bankers
32:51
association named the commission of
32:53
inquiry of leading bankers to study the
32:56
question and the report again calls for
32:59
radical changes and more or less of a
33:01
central bank by that time after the
33:05
panic of 1907 as I said only then they
33:07
realized we really need a central back
33:09
we have to start get going on this and
33:12
the one of the things that were passed
33:15
during this Bank panicum 1907 was the
33:17
old rich Breeland Act which
33:20
provide off the issuance of soquel
33:22
emergency currency by groups of bankers
33:24
cluster and national currency
33:25
associations the regional cartels scheme
33:29
for each night each region but it was
33:32
supposed to be a stopgap for the
33:33
emergency but it was the emergency was
33:35
seven years which I’ll the long
33:36
emergency period during which they could
33:39
issue these these notes however old rich
33:44
revealing what really wasn’t used as
33:45
only used once the main thing that came
33:47
out of the old rich reelin act of
33:49
nineteen was the setting up of a
33:55
national monetary commissioned by the
33:57
Prime Minister for the over trivial
33:59
enact the study the American and foreign
34:01
banking systems and emerged with a
34:04
planet for reform the Commission
34:05
consisted of nine represent nine
34:07
senators and I representatives the usual
34:08
government commission or and the
34:12
standard bureaucratic procedure the
34:14
Chairman was Senator Aldrich who passed
34:17
the act on the vice chairman
34:18
representative real and who’s you know
34:19
the other co-sponsor Avilan is
34:22
unimportant it was a buffalo banker and
34:23
we could see it nice ain’t no more about
34:25
old rich is a person of a different
34:26
stamp extremely powerful senator from
34:29
Rhode Island Republican senator who made
34:31
millions during his long service in the
34:32
US Senate it’s not quite know exactly
34:34
how he did it he started off as philly
34:36
humble grocer and he winds up after you
34:41
know 30 years in set up as a
34:42
multimillionaire which those days meant
34:43
Multi multi million minions meant a lot
34:45
that uh old rich again it’s not an
34:49
accident one of the one of the prime
34:50
movers in the creation of Federal
34:52
Reserve System he was also the
34:53
father-in-law of john john d rockefeller
34:55
jr. and may be fairly said i think to be
34:58
Rockefellers person his man the Sun US
35:00
Senate was from Nelson to avert our
35:03
beloved governor of New York come from
35:05
New York Nelson Aldrich Rockefeller took
35:07
his first two names okay from the
35:13
inception of this national monetary
35:14
commission I’m totally until the old
35:16
rich plan was presented to Congress for
35:17
years later it was nineteen oh nine
35:20
nineteen thirteen old rich and the
35:22
Commissioner were vital key in the drive
35:24
for a central bank particularly
35:27
influential in the liberation of the
35:29
Commission were two men who are not
35:30
official members this often happens of
35:32
course most of the Senators the
35:33
congressmen
35:34
really really showed up at the sessions
35:36
oldrich ask JP Morgan to recommend a
35:39
banking expert who else who better than
35:40
Morgan recommend max mirnyi recommended
35:42
very happily with happily responded with
35:44
Henry P Davison a morgan partner and
35:47
George Reynolds was president of the
35:48
American Bankers Association and
35:50
realized the way the Morgans worked in
35:52
that period investment banks are
35:55
partnerships partnerships are not
35:57
corporations I think it’s still true and
35:59
the Morgan firm assigned several
36:02
partners to be their political arm so to
36:04
speak their their their people in
36:06
politics and Henry davison was one of
36:09
them though it was George W Perkins of
36:10
winds up as head of the Progressive
36:12
Party of America and a bunch of others
36:17
Thomas W Lamont etc so that was one big
36:23
focus the old rich Rockefeller
36:24
connection and now Morgan coming in with
36:27
with Morgan partner as a key person here
36:30
another another prime foco for the full
36:33
of the dry for central bankers pull more
36:35
rats Warburg who was a scion of the
36:39
great international banking family
36:40
german banking firm a more burger
36:42
company of home bored well emma grace
36:44
the United States 1902 to become a
36:46
partner in the influential banking house
36:48
of canola vent company but you have to
36:50
realize by Warburg is he spent all of
36:52
his time apparently his full-time not an
36:54
investment banking but I’m pushing the
36:56
idea of a central bank in print and
36:58
lectures and all that sort of stuff he
37:01
was being paid I think about 600,000 a
37:02
year which you know meant about I don’t
37:04
know whether there’s now six million or
37:05
something like that more than that just
37:08
for the purpose of propagandizing for
37:10
central bank the he was he was sensitive
37:19
to the the idea to the reviewed idea
37:23
that if the public didn’t like central
37:26
banks and like a several control was
37:28
suspicious of Wall Street and so forth
37:30
and you then had a certain amount of
37:33
jockeying for power influence on the
37:35
part of our specifics in the part of the
37:37
various pro central bankers they had to
37:38
work out a whole bunch of things here
37:40
and they had a workout the provisions
37:44
they had to work out the general
37:45
situation interesting enough Aldrich
37:47
the politician one of the straight
37:49
central banget said back in the United
37:51
States whatever and period and warburg
37:54
the banker so no no the American public
37:56
won’t accept this we need a phony
37:57
decentralization we did the Atlee the
38:00
idea of regional banks of the Federal
38:01
Reserve Board which would be only
38:02
supervised it because the public won’t
38:04
accept a straight out right
38:05
centralization we need the content of
38:08
centralization with a form of
38:09
decentralization so which of course you
38:11
know the thing that eventually happens
38:16
in order to finally iron out their
38:19
differences in in November I think 1910
38:22
I think it was the the top the top Pro
38:28
central banking people met in a famous
38:30
secret medium clandestine meetings
38:31
famous now Jekyll Island Georgia Jekyll
38:35
Island Club of Jekyll Island Georgia
38:36
which was a duck shooting retreat uh uh
38:39
and there was a big secrecy involved
38:41
think the press was all interested in
38:43
the activity through the all these
38:44
people and they told the press no no no
38:46
we’re just going for we’re taking a
38:47
special railroad chartering a special
38:48
railroad car going down Georgia for duck
38:50
shooting we’re not got to talk about
38:52
anything specific anything my comic and
38:56
they all they all travel under assumed
38:58
names in this railroad car which aldrich
39:01
chartered and somehow they managed to
39:04
talk the press out of publicizing lists
39:06
and don’t investigate this too I don’t
39:09
know how they did it that’s how
39:10
transactions occurred gentle persuasion
39:12
occurred and nothing was mentioned at
39:14
the time okay so they met it for about a
39:16
week at Jekyll Island the people met or
39:19
symbolized the power elite involved in
39:22
pushing for the Federal Reserve System
39:23
senator oil-rich was their fourth he had
39:26
short of a car from a railroad car it’s
39:28
not really know who got them in there
39:30
because none of these guys were club
39:32
members of the Jekyll Island Club and
39:33
somebody had to reserve the space for
39:35
them it was probably JP Morgan who was a
39:38
member of Jekyll Island Club these other
39:40
guys weren’t big shot a enough
39:41
remembrance so senator old r issues
39:44
there Henry Davis and the Morgan partner
39:46
was there have already mentioned Paul
39:47
Warburg a culo important I was there
39:49
Frank Vanderlip vice president of
39:51
aquifers the national city bank Charles
39:53
Norton was president Morgan’s first
39:55
national bank of new york and a pion
39:57
Andrew who’s the economist see the
39:58
Harvard economist you have have some
40:01
Shin to work out the specifics staff
40:03
assistant to Aldridge this against
40:05
symbolizes the unity of business
40:08
government and economics or economists
40:12
okay so it’s a living embodiment as I
40:15
say of Akutan rockefeller kuhn loeb
40:16
morgan interests allied on this great
40:19
struggle are aided by economic
40:22
technicians okay they draft the bill for
40:24
the central bank they baffle it was
40:26
later to become the Federal Reserve Act
40:27
almost almost word for word makes up the
40:29
tiny details the draft was essentially
40:33
written by Warburg with a decentralized
40:35
soup song added from others final
40:39
writing the actual writing is
40:40
contributed by Vanderlip and say the
40:43
main disagreement by the oldest one a
40:44
straight central bank Warburg so not
40:45
only have a phony facade of
40:47
decentralization ok and Ulrich finally
40:49
they make the agreement orders oldrich
40:51
presents the draft of the National
40:53
monetary Commission in January 1911 and
40:55
slightly revised was introduced as a
40:57
commission report or a commission bill
40:59
as the old rich bill a year later and
41:03
then which in turn became the federal
41:04
final observe Act ok the now the
41:10
interesting thing is the older to the
41:11
monetary Commission and we’re ready for
41:12
the report by January 1911 as I said
41:14
they delayed it for a whole year why did
41:17
they delay it because by this time in
41:18
the elections of 1910 the Democrats one
41:20
of the Congress and so at this point
41:27
they realized I had to do some more
41:29
spade work they had to convert the
41:30
Democrats and he was how to convert the
41:31
rest of the public they couldn’t just
41:32
drive the thing through so we needed
41:35
them a year of propaganda and agitation
41:38
before they actually presented the
41:40
Federal Reserve bill so at the beginning
41:43
of night to febri 1911 this educational
41:46
campaign starts 22 top bankers from 12
41:48
cities meet in Atlantic City consider
41:51
the oil-rich plan they will only endorse
41:54
it of course and the as the James for
41:59
gun was presently First National Bank of
42:00
Chicago which was Rockefeller control as
42:02
he put it the real purpose of this
42:06
conference was a discuss winning the
42:08
banking community over to government
42:09
control directed by the bankers for
42:11
their own ends I’m going to repeat that
42:12
the real purpose of this
42:14
for us is to discuss winning the banking
42:16
community over to government control
42:18
directed by the bankers for their own
42:20
ends okay ah educating the bankers this
42:24
is this isn’t really this is not the
42:25
kind of government reventon you don’t
42:27
like folks fellas this is this is it
42:29
right good stuff it was generally
42:33
appreciated by the conference this would
42:35
increase the power of the big national
42:36
banks to compete with a rapidly growing
42:37
state banks privately in other states
42:40
shorter private banks helped bring those
42:42
state banks under control and strengthen
42:44
the position of national banks and
42:45
foreign banking activities okay by
42:47
November 1911 aldrich combined with the
42:49
big bankers win the support of the
42:50
American Bankers Association the big
42:52
trade association bankers and aldrich
42:56
addresses the Association and a speech
42:59
he says the organization proposed is not
43:01
a bank but a cooperative union of all
43:03
the banks of a country for definite
43:04
purposes for the late public old Richard
43:08
his colleagues created an organization
43:09
in the spring of nineteen eleven call
43:11
this national citizens League for the
43:13
creation of a sound banking system the
43:17
League rule out of a resolution which
43:18
paul warburg had pushed through a
43:19
meeting of national board of trade in
43:20
January 1910 setting aside January 18th
43:23
of 1911 to be monetary day devoted to a
43:27
quote businessmen’s monetary conference
43:29
at that January 1911 meeting the
43:32
conference appointed committee of seven
43:33
headed by Warburg organized a
43:35
businessman monetary reform Lee a group
43:38
of leading Chicago businessman were then
43:40
organized the idea was that should
43:41
establish the Citizens League not in New
43:43
York which is suspect on in Chicago the
43:45
heartland of America it looks like a
43:47
grassroots the organization and Jean
43:50
Lawrence walk alone The Economist was
43:51
the operating had been admitted that
43:53
later you know later years yeah yes
43:54
whole thing as a banker’s front but she
43:56
course was in favor of so the stated
44:03
purpose of the league for example to
44:04
advance the cause of quote cooperation
44:05
with dominant centralization of old
44:07
banks by an evolution out of our
44:08
clearinghouse experience and then there
44:13
was various splits and they were
44:14
personality conflicts shutter around the
44:16
fact that the Democrats and will unlock
44:18
on it was a Democrat I wanted to get rid
44:19
of the evil name oldrich because oldest
44:21
was a big shot Republican from the bill
44:24
and so what finally happened since the
44:26
Democrats
44:26
and Congress at the time it became a
44:29
glass bail us out of the old rich bill I
44:30
was a big big fight if a couple years to
44:33
work that work that out any rate there
44:37
were all the big bankers in favour of
44:38
they didn’t really care about the name
44:39
on the bill it’s a matter of personal
44:41
prestige or you know that sort of stuff
44:45
at the annual meeting of American
44:47
Bankers Association August 1913 a Barton
44:50
Hepburn of the chase National Bank
44:51
exalted about a successful effort to get
44:54
the bankers to endorse the glass bill
44:56
quote the measure recognizes and adopts
44:58
the principles of a central bank indeed
45:00
if it works out as the sponsors of the
45:01
law hope it will make all incorporated
45:03
banks together joint owners of a central
45:05
dominating power ok so the Federal
45:10
Reserve System was then enacted in
45:11
December 1913 and open its doors the
45:14
following november and i can remember 14
45:17
one of the same time a carta lysing and
45:20
inflationary organization ok the the
45:25
bank structure was such as the banks
45:27
that banks themselves were very powerful
45:29
in selecting Federal Reserve officials
45:31
there’s a whole different structure of
45:33
different regional structure and all
45:34
that the the chief executive officer of
45:38
each bank which those days is called the
45:40
governor and alcohol the president was
45:42
selected by the bank directors
45:43
themselves in other words the the
45:46
regional bank directors will mostly
45:47
bankers and and then we have of course
45:52
the Federal Reserve Board and the
45:55
governor of the Federals are back in New
45:56
York which those days ran the system for
45:58
tell 1929 next step is to analyze who
46:03
these guys were and of course becomes
46:05
important the another thing that
46:08
happened by the way is the reserves was
46:09
centralized and throws or system photo
46:11
serve banks become the monopolist of old
46:14
paper money not just natural back for
46:15
now only a Federal Reserve can print
46:17
paper money and the reserve requirements
46:19
were cut in half there by many great
46:22
inflationary potential to the whole
46:23
system or reserve a point before that
46:25
we’re about twenty percent and I go down
46:27
about ten the okay this the banker is
46:31
all hail the enactment of the Federal
46:33
Reserve System this is great stuff an
46:34
ally they said we have to see who’s
46:35
going to run it the next step is the
46:37
personnel are okay there was seven
46:39
members of the federal
46:40
board in that period of whom tour
46:45
exofficio nose day the Secretary of
46:47
Treasury and a control of the currency
46:50
so who are they well secretary Treasury
46:53
control of the currency before they
46:54
assume their posts again who are they
46:56
before they became big shots no Wilson
46:58
administration they were close
47:00
associates business and financial
47:01
associates themselves secretary of the
47:03
Treasury William gives McAdoo had been a
47:05
failing business man in New York City
47:07
there was a loser he set up several
47:09
enterprises and his life and they all
47:11
collapsed for some reason he would
47:14
befriend that he was he was taking a
47:16
personal liking to by JP Morgan which is
47:18
something you want to have happen to you
47:19
in those that period and Morgan the side
47:23
of the bail McAdoo out and he set McAdoo
47:26
wapas president of New York’s patna
47:28
what’s in a Manhattan railroad which ran
47:29
the tubes under the Hudson River which
47:33
he was was before he became Secretary of
47:36
Treasury he spent his entire life the
47:39
rest of his life in the financial Morgan
47:40
financial ambit his fellow board members
47:44
and officers of Hudson Manhattan
47:45
Transfer old Morgan people that were
47:46
president Morgan companies there were
47:49
presidents of Morgan cartel Morgan
47:52
Morgan merged companies in industry like
47:54
international harvester and US Steel
47:56
which were originally by the way
47:58
monopoly I’m supposed to be in
47:59
monopolies of a steel industry in
48:00
agricultural machinery industry it
48:02
didn’t work the whole thing was a
48:03
flopper Oh from my perspective so all
48:08
these guys were on his board and then
48:09
when he after he becomes secretary of
48:10
the Treasury Wilson cement I mean
48:12
McAdoo’s cements his political stature
48:14
by marrying the daughter of President
48:15
Wilson there’s a second best thing for
48:17
you to do if you’re Wilson’s president
48:18
why don’t you become a pal of Morgan
48:20
until you become the son-in-law of
48:22
Wilson controller of the currency was a
48:26
longtime associate of McAdoo’s he was in
48:27
Virginia banker a present of the
48:29
Richmond trust safe-deposit company John
48:32
Skelton Williams had been a director of
48:34
McAdoo’s Hudson Manhattan railroad and
48:36
president of Morgan oriented seaboard
48:38
air line railway okay so that’s suppose
48:41
that’s those two God who were the other
48:42
five appointees who were the other five
48:44
people who Wilson appointed the federal
48:46
reserve board well those charles hamelin
48:48
who was another close associate of
48:50
McAdoo I was a Boston attorney would
48:53
married into the wealthy
48:54
fine family of Albany a family won’t
48:56
connected with a New York Central
48:57
Railroad which had been run by the
48:59
Morgans for about four decades by this
49:00
point the other three the other four
49:05
point keys were poor Warburton we’ve
49:07
already talked about Frederick Delano is
49:10
the uncle of franklin d roosevelt
49:11
president of rockefeller-controlled
49:12
Wabash railway known as uncle uncle
49:15
uncle fred i think in the meal period
49:19
william p g harding was presently First
49:21
National Bank of Birmingham Alabama and
49:24
someone law of Joseph Woodward as head
49:26
of the wood were iron company was which
49:28
had several prominent morgan and
49:29
rockefeller people on the board of
49:31
directors and finally an economist
49:34
professor Adolph similarly receive
49:35
Chicago and when economic technician
49:38
prestige he however he wasn’t just an
49:41
ordinary economist he was also he had
49:43
married into the wealthy Morgan
49:44
connected spray family of Chicago his
49:47
father-in-law auto spray given a
49:49
prominent businessman and server the
49:51
director of the Morgan dominated Pullman
49:52
Company and his his wife’s uncle
49:54
Albert’s prego director of the Chicago
49:56
telephone company city area the American
49:59
tell em tell which is essentially was a
50:00
Morgan control monopoly so so then we
50:05
have in other words the Federal Reserve
50:06
Board beginning its existence with three
50:08
morgan men one rockefeller pipe and a
50:10
coon low of a lie with Rockefellers a
50:13
prominent Alabama banker on an economist
50:15
with vague Morgan family connections as
50:17
this interested public simple my
50:19
interest at work okay the guy who
50:23
control the federal reserve system with
50:25
an iron hand from from the beginning
50:27
until he died 1928 with Governor ferrouz
50:29
er bag of New York Benjamin’s strong he
50:33
ran the system much of this dislike of
50:35
the Federal Reserve Board in Washington
50:36
and after he died the law was changed to
50:39
ensure the fair Reserve Board was
50:40
running things and up the governor of
50:42
photos of Magna york who was Benjamin
50:44
strong his policies were inflationary
50:48
throughout and lat so that’s when the
50:50
tour by was possible who was he where
50:51
did he come from again he didn’t drop
50:53
out of the sky by divine edict he spent
50:57
he had spent before this virtually his
50:58
entire business and personal life on the
51:00
circle of top aides of JP Morgan he was
51:04
secretary of several trust companies in
51:05
New York City and he was
51:06
we live in a suburb New York Englewood
51:09
New Jersey which those days are very
51:10
wealthy suburb it’s come down a bit
51:12
since then an angle what he became close
51:16
friends of three top morgan partners
51:18
which is the next best thing if you not
51:19
a friend of morgan it be a friend of
51:21
feet top morgan partners and repeat
51:23
Davison and we mentioned already Thomas
51:25
W Lamont and Dwight Morrow Davison
51:28
became Strong’s mentor and offered him
51:31
the post of Secretary of the new Morgan
51:33
created Bankers Trust Company what was
51:34
happening was the trust companies were
51:36
popping up in that period the banks
51:37
wanted to get some a piece of the action
51:39
and so Morgan created Bankers Trust for
51:42
that purpose soon after that strong
51:45
against cemented his alliances by
51:47
marrying the daughter of the wealthy
51:48
Edmond converse president of Bankers
51:50
Trust and he soon succeeded Thomas
51:53
Lamont as vice presidents he marry the
51:55
daughter of the president your pal of
51:57
three morgan partners okay and and not
52:04
long after where Congress was getting
52:05
old he becomes the the virtual president
52:08
vice president virtual president okay
52:12
the strong and favored central banking
52:15
until Lisa’s 1907 and August 1911 II
52:18
participated Nelson Aldrich and lengthy
52:20
meeting on the old rich plan with
52:22
Davison Vanderlip and a few other big
52:24
shots on Aldrich’s yacht again when the
52:31
federal reserve system was established
52:33
Warburg was also close friend of strong
52:36
offer the post of governor of new york
52:37
fed too strong and he first he said no
52:39
he refuse he doesn’t likely because not
52:41
enough of a central bank he wants to run
52:43
from New York as he said by board of
52:45
directors on the ground Wall Street
52:48
after a week in the country Davison and
52:50
Warburg persuaded strong don’t worry
52:52
about it follow this will be a central
52:53
bank and you’ll be running it and at
52:57
that point he accepted the job became
52:59
governor of New York Fed we proceeded to
53:02
assume absolute power okay that’s
53:05
essentially the story of the founding of
53:07
a Fed is he put a strong put it in the
53:11
he was he put a for example that when
53:15
he’s worried the state banks refused to
53:17
join the system you know state banks
53:18
have the option of either joining
53:20
the Fed or not and he was worried about
53:22
it and he said he said in a letter in
53:26
October 1916 frankly our bankers are
53:28
more or less an unorganized mob until
53:30
they are educated by experience of the
53:31
advantages of cooperation through the
53:33
reserve system i believe is unsafe for a
53:35
life on reserve contributed by the
53:36
voluntary action which forced them into
53:37
the system and in that way every car
53:40
tell us is always complaining about
53:41
individual businessman kick over the
53:44
traces and don’t accept the collective
53:46
discipline of the cards help the ok
53:54
senator Carter glass said when he drew
53:56
up the glass bill final Federal Reserve
53:59
bill and he said after what he looked
54:01
back on his handy working something full
54:02
was great stuff about two years later
54:04
and he said the proponents of the
54:06
Federal Reserve Act had no idea of
54:07
impairing the rightful prestige of new
54:09
york as the financial metropolis of this
54:10
hemisphere they’d rather expected to
54:13
confirm that its distinction and even
54:15
hope to assist powerfully in rusting the
54:16
scepter from London eventually making
54:18
New York the fascial center of the world
54:20
indeed momentarily this has come to pass
54:22
and we may point out he goes up Carla
54:25
glass goes on to the amazing contrast
54:27
between New York under the old system in
54:28
1907 shaken to its very foundations
54:31
because of two bank failures and New
54:33
York of the present time under the new
54:34
system serenely secure as domestic bank
54:37
banking operations and confidently
54:39
financing the great enterprises of
54:41
European nations at war ok who’s like
54:45
okay
54:53
Murray thank you very much in a most
54:57
informative and detailed an interesting
55:01
discussion I think we can piece some
55:03
things together from what we’ve seen
55:05
thus far um professor peden was up here
55:08
telling us about government and
55:10
inflation and how the government
55:11
inflates in one of the major messages I
55:14
think we found in what Murray said is
55:16
that when government becomes partner the
55:19
banking community then that inflation
55:22
becomes even more inevitable and the
55:24
incentive system becomes one where it’s
55:27
in everybody’s incentive who controls
55:29
money and credit for even more inflation
55:32
I’ve been saving this question up for a
55:34
long time I and I haven’t had a chance
55:36
to ask it to you and it’s related to
55:38
money money but not necessarily the
55:40
history the Federal Reserve right now
55:42
there’s a lot of banks or have been over
55:43
the last few years failing and if FDIC
55:45
comes in and bails them out and I’m I
55:49
haven’t figured out what the effect of
55:51
that is on the economy when money is
55:54
taken out of the system goes to the
55:56
failure of the bank and then the FDIC
55:59
comes back and put some new money back
56:01
in with t-bills or whatever it does to
56:02
prop it up I I know it has something to
56:05
do with the business cycle but I’m
56:07
confused about exactly I mean and this
56:09
is monetary inflation but you’re not
56:11
necessarily seeing a whole bunch of
56:12
price inflation and I I’m one of the
56:14
things i think i’m confused about is
56:16
which causes the business cycle what
56:18
courses causes distortions in the
56:20
economy I guess the there’s a lot of
56:22
questions and all rocked up into that
56:23
but what is the effect of banks failing
56:25
today with the existing system where the
56:27
FDIC comes back in and props it up what
56:30
is it going to do the economy what can
56:31
we expect from here on out deflation and
56:33
if prices inflation of prices or what
56:36
kind of distortions well I think what’s
56:38
happened since see something I see chain
56:40
habsi change happen in 1933 namely the
56:44
Fed always been hampered and its
56:45
inflationary potential and saving at the
56:47
banks by the fact they had a gold
56:49
standard to worry about the Fed couldn’t
56:50
inflate too much they had a they had to
56:52
pay in goal also and so there were
56:55
literally thousands of bank failures and
56:56
during the early 30s with the federal
56:59
Jimmy with the going off of old Sarah
57:02
and with the FDIC
57:04
the Fed now unlimited power to expand
57:07
and inflate and when the FDIC a bailout
57:11
for example a continental Illinois
57:12
National Bank and that they only had to
57:14
bail out the people with the positive
57:16
100,000 and under they decided bailout
57:19
everybody so they’ve already expanded
57:21
now the FBI’s here as universal Deposit
57:24
Insurance the use of insurance of course
57:26
the euphemism it means the government
57:28
prints money and Ben and bails out the
57:30
banks the key thing is the Federal
57:32
Reserve’s the unlimited power of print
57:33
money that’s the key create the
57:35
manufacturer money instead of money
57:37
being minted by in gold or whatever I
57:39
got of Mines and painfully minted making
57:42
it therefore very scarce which preserves
57:45
the soundness of a money unit instead of
57:48
that but the government just a Federal
57:49
Reserve has the in limited power print
57:51
whatever it wants and so what it does is
57:52
pence 8 billion 30 billion whatever and
57:54
bails bails out banks buys assets or
57:56
whatever the technical they do it to the
58:00
tune of a lot of crises a lot of jetting
58:04
back and forth across the world to save
58:05
the third world nations but basically
58:07
what it means is it’s very simple
58:08
basically it is the Fed Prince of
58:09
dollars and hands it out okay so this is
58:12
monetary inflation expanding the supply
58:14
of dollars nicely and that’s the
58:15
distortion that creates the business
58:17
cycle and in order to try to eliminate
58:21
recessions which are the cause of which
58:23
is a result of inflation they try to
58:25
inflate more so it’s a it’s a sort of
58:28
spiral operation and i dont i I’ve been
58:32
on a custom argument with my hard money
58:35
colleagues now for at least 10 years
58:36
about whether deflationary inflation is
58:38
on the horizon and one of the sort of in
58:41
a sense they have proclaimed victory
58:43
recently they redefine deflation
58:45
deflation now means that any inflation
58:47
any inflation less than ten percent a
58:49
year okay talking about changing
58:53
linguistics I think the old-fashioned
58:57
view of the fascia means are for
58:59
substantial falling and the cost of
59:00
living okay not the fall and zinc prices
59:03
or something like that for cost of
59:05
living and that of course hasn’t
59:06
happened and won’t happen and so it
59:08
won’t happen as long as the Federal
59:09
Reserve is the and in infinite power to
59:12
create money which they which they have
59:14
until a fine if you have the power to
59:16
create money the power of print money
59:18
do it it’s one of rock bars laws i have
59:19
my own laws one is if you have the power
59:21
to print money I’ll do it okay
59:23
regardless of any ideology or statements
59:25
that you should limit your counterfeit
59:27
operations the three percent of years
59:28
the free my Knights want to do basically
59:30
it will print it and you find various
59:32
reasons for you saved banks and say
59:33
people you save the people of Argentina
59:35
whatever there’s lots of reasons for
59:38
creating more money and that’s the
59:40
really the problem well the Federal
59:42
Reserve has the power to the print money
59:44
but they don’t really print very much
59:46
money that they print credit and that’s
59:48
very different from money because it
59:50
draws interest it looked like a good
59:52
deal going in but the interest becomes
59:54
such a weight burden at some point they
59:57
can’t expand credit then what efforts
60:00
well they can expand cry they print
60:01
money and they create they usually the
60:03
money goes out the form of buying assets
60:07
of one or another so if they buy they
60:11
buy government bonds for example this
60:14
means the government bond dealer gets
60:15
whatever the money for the same minyan
60:17
say the federal buy civ might sound a
60:19
check four million dollars of government
60:20
bonds the bond dealer gets the
60:22
million-dollar check which means the
60:24
federalist says the Federal Reserve
60:24
System promises the pay to the bear or a
60:27
million-dollar he can’t do it because
60:28
only banks can can have deposit accounts
60:31
of the federal reserve bank he deposits
60:33
in his bank or else he tears it up what
60:35
you won’t do he deposits in chase or
60:37
citibank whatever they get a reserve
60:39
increase of a million dollars a pyramid
60:41
credit ten to one on top of it it’s
60:43
basically what happened in other words
60:44
it’s a creation of money through the
60:46
fact of the federal reserve as the power
60:47
of print if anybody ask the Fed the
60:49
redeem your deposits in dollars they’ll
60:52
print the dollars in the redeem it so
60:53
that the power to actually print the
60:55
money is the basis for the whole
60:57
inflationary system doesn’t mean they
60:59
actually put the money in spender that’s
61:00
what the Treasury used to do in the
61:01
Civil War it’s a more sophisticated way
61:04
of doing it they create they write out
61:06
checks out of thin air by bonds with it
61:09
and then the checks of the deposits on
61:11
the Fed and go out into the system
61:12
circulating the system and say if
61:13
anybody wants to redeem their deposit in
61:15
cash the federal print the cash to pay
61:17
back pay it back pay award so that’s the
61:21
process is equivalent it’s less honest
61:23
but equivalent to the old all the idea
61:26
of the Treasury prints money and spend
61:27
it on missiles
61:28
go on forever because because the
61:31
interest burden well the interest burden
61:33
can be yeah if his friends increase the
61:35
interest burden can always be it always
61:38
be your alleviated so to speak by
61:40
inflation in other words the more you
61:41
want flight lower the interest burden
61:43
but not a few inflate with credit
61:44
they’re inflating with it’s right there
61:45
not inflating with money well it’s not
61:47
any money it’s the result of creditors
61:49
money dollars okay I call money dollars
61:52
and dollars is what pays for goods and
61:55
services well the amount of dollars in
61:57
circulation very small compared to the
61:59
metacritic well I mean I I mean I don’t
62:02
know how you pay for stuff I paper stuff
62:04
by writing out a check that’s dollars
62:07
and this check this check is accepted by
62:09
my people I by ISIL spend money on
62:11
that’s I call out money most people call
62:14
it my very point is that it’s better
62:16
than easily be forgotten about the
62:18
Hawaii well I used to scold bankers for
62:23
being part of this inflation problem
62:24
argued that when they made these loans
62:27
out of they fabricated them on the books
62:30
that that contributed inflation because
62:32
it expand the money supply their
62:34
argument was no that doesn’t expand the
62:37
money supply because the loans will be
62:38
paid off now argued back no they don’t
62:41
ever pay them off they just substitute
62:42
collateral five more and more money
62:44
which is what we’ve done up to a point
62:47
but there comes a point where people
62:49
can’t service the dead any longer and
62:50
then the banks they would like to get
62:53
some of that money back that they loaned
62:54
out and it looks like there’s a
62:57
limitation on how much credit you can
62:59
extend in the system and we’re somewhere
63:00
near that the credit can continue to
63:04
expand somewhat but under the present
63:07
system we don’t have the capacity to
63:08
inflate substantially not like we’ve
63:10
done in the past and we’re we’re sorry I
63:12
just don’t understand your state minds
63:14
of Israel now is a nine hundred percent
63:15
inflation rate per annum yeah but they
63:17
don’t they don’t do it with credit they
63:18
do it with money they’re printing money
63:20
you can you can have unlimited base they
63:22
do impress long as you’re running Creek
63:23
I’m sorry I think it’s the bank of
63:25
israel buys government bonds pay the
63:28
deficit you do have problems and we see
63:30
some domestic
63:31
banks experiencing them now when they’ve
63:34
ran in large loans or increase their
63:36
loans outstanding over the years and the
63:39
anticipation that inflation will keep
63:41
rising they kind of the debtor is able
63:44
to service the loan debt get all of a
63:47
sudden you get a downturn in the economy
63:48
many people can service the death that’s
63:51
what we’ve done for example with first
63:53
Chicago continental boys legs like that
63:56
but Marie’s point of course is that as
63:59
long as you don’t have that unexpected
64:01
downturn thanks can keep rolling over
64:04
there yet as long as the Federal Reserve
64:06
is providing them the wherewithal to do
64:08
it I think we all agree there are some
64:11
upper limits for example we saw this
64:13
hyperinflation in Germany after World
64:15
War Two this is what Mary come professor
64:17
feed we’re talking about this morning
64:19
the inflation so racks the society and
64:22
the controls put on not together root
64:25
cause of it but to try and make it out
64:28
politicians palatable for the citizens
64:30
to live with ultimately brings down the
64:33
society there’s a major factor not
64:35
inside of the limit i think you’re
64:37
referring to as well think we all hope
64:39
and pray you don’t get to that position
64:41
in united states good dialogue like
64:44
we’ve had here today and very
64:46
informative presentations perhaps we can
64:48
strengthen the message we need to send
64:51
so that those events won’t occur
64:57
you

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