The Agricultural Depression
When Paul Warburg resigned from the Federal Reserve Board of
Governors in 1918, his place was taken by Albert Strauss, partner in
the international banking house of J & W Seligman.
house had large interests in Cuba and South America, and played a
prominent part in financing the many revolutions in those countries.
Its most notorious publicity came during the Senate Finance
Committee’s investigation in 1933, when it was brought out that J &
W Seligman had given a $415,000 bribe to Juan Leguia, son of the
President of Peru, in order to get that nation to accept a loan.
A partial list of Albert Strauss’ directorships, according to "Who’s
Who", shows that he was:
Governor Delano resigned in August, 1918, to be commissioned a
Colonel in the Army. The war ended on November 11, 1918.
William McAdoo was replaced in 1918 by Carter Glass as Secretary of
the Treasury. Both Strauss and Glass were present during the secret
meeting of the Federal Reserve Board on May 18, 1920, when the
Agricultural Depression of 1920-21 was made possible.
One of the main lies about the Federal Reserve Act when it was being
ballyhooed in 1913 was its promise to take care of the farmer.
Actually, it has never taken care of anybody but a few big bankers.
Prof. O.M.W. Sprague, Harvard economist, writing in the Quarterly
Journal of Economics of February, 1914, said:
"The primary purpose of the Federal Reserve Act is to make sure that
there will always be an
available supply of money and credit in this country to meet unusual
There is nothing in that wording to help the farmer.
The First World War had introduced into this country a general
prosperity, as revealed by the stocks of heavy industry on the New
York Exchange in 1917-1918, by the increase in the amount of money
circulated, and by the enormous bank clearings during the whole of
1918. It was the assigned duty of the Federal Reserve System to get
back the vast amount
of money and credit which had escaped their control during this time
of prosperity. This was done by the Agricultural Depression of
The operations of the Federal Reserve Open Market Committee in
1917-18, while Paul Warburg was still Chairman, show a tremendous
increase in purchases of bankers’ and trade acceptances. There was
also a great increase in the purchase of United States Government
securities, under the leadership of the able Eugene Meyer, Jr. A
large part of the stock market speculation in 1919, at the end of
the War when the market was very unsettled, was financed with funds
borrowed from Federal Reserve Banks with Government securities as
Thus the Federal Reserve System set up the Depression,
first by causing inflation, and then raising the discount rate and
making money dear.
In 1914, Federal Reserve Bank rates had dropped from six percent to
four percent, had gone to a further low of three percent in 1916,
and had stayed at that level until 1920. The reason for the low
interest rate was the necessity for floating the billion dollar
Liberty Loans. At the beginning of each Liberty Loan Drive, the
Federal Reserve Board put a hundred million dollars into the New
York money market through its open market operations, in order to
provide a cash impetus for the drive.
The most important role of the Liberty Bonds was to soak up the increase in circulation of the
medium of exchange (integer of account) brought about by the large
amount of currency and credit put out during the war. Laborers were
paid high wages, and farmers received the highest prices for their
produce they had ever known. These two groups accumulated millions
of dollars in cash which they did not put into Liberty Bonds.
money was effectively out of the hands of the Wall Street group
which controlled the money and credit of the United States. They
wanted it back, and that is why we had the Agricultural Depression
Much of the money was deposited in small country banks in the Middle
West and West which had refused to have any part of the Federal
Reserve System, the farmers and ranchers of those regions seeing no
good reason why they should give a group of international financiers
control of their money. The main job of the Federal Reserve System
was to break these small country banks and get back the money which
had been paid out to the farmers during the war, in effect, ruin
them, and this it proceeded to do.
First of all, a Federal Farm Loan Board was set up which encouraged
the farmers to invest their accrued money in land on long term
loans, which the farmers were eager to do. Then inflation was
allowed to take its course in this country and in Europe in 1919 and
1920. The purpose of the inflation in Europe was to cancel out a
large portion of the war debts owed by the Allies to the American
people, and its purpose in this country was to draw in the excess
moneys which had been distributed to
the working people in the form of higher wages and bonuses for
As prices went higher and higher, the money which the
workers had accumulated became worth less and less, inflicting upon
them an unfair drain, while the propertied classes were enriched by
the inflation because of the enormous increase in the value of land
and manufactured goods. The workers were thus effectively
impoverished, but the farmers, who were as a class more thrifty, and
who were more self-sufficient, had to be handled more harshly.
G.W. Norris, in "Collier’s Magazine" of March 20, 1920, said:
"Rumor has it that two members of the
Federal Reserve Board had a
plain talk with some New
York bankers and financiers in December, 1919. Immediately
afterwards, there was a notable
decline in transactions on the stock market and a cessation of
company promotions. It is
understood that action in the same general direction has already
been taken in other sections of the country, as evidence of the
abuse of the Federal Reserve System to promote speculation in land
and commodities appeared."
Senator Robert L. Owen, Chairman of the Senate Banking and Currency
Committee, testified at the Senate Silver Hearings in 1939 that:
"In the early part of 1920, the farmers were exceedingly prosperous.
They were paying off the
mortgages and buying a lot of new land, at the instance of the
Government--had borrowed money
to do it--and then they were bankrupted by a sudden contraction of
credit and currency which
took place in 1920. What took place in 1920 was just the reverse of
what should have been taking
place. Instead of liquidating the excess of credits created by the
war through a period of years, the
Federal Reserve Board met in a meeting which was not disclosed to
They met on the
18th of May, 1920, and it was a secret meeting. They spent all day
conferring; the minutes made
sixty printed pages, and they appear in Senate Document 310 of
February 19, 1923. The Class A
Directors, the Federal Reserve Advisory Council, were present, but
the Class B Directors, who
represented business, commerce, and agriculture, were not present.
The Class C Directors,
representing the people of the United States, were not present and
were not invited to be present.
Only the big bankers were there, and their work of that day resulted
in a contraction of credit
which had the effect the next year of reducing the national income
fifteen billion dollars,
throwing millions of people out of employment, and reducing the
value of lands and ranches by
twenty billion dollars."
Carter Glass, member of the Board in 1920 as Secretary of the
Treasury, wrote in his autobiography, Adventure in Constructive
Finance published in 1928:
"Reporters were not present, of course,
as they should not have been and as they never are at any bank board
meeting in the world." 85
85 Carter Glass, Adventure in Constructive Finance, Doubleday, N.Y.
Carter Glass (image left) who had complained that, if a suggested
amendment by Senator LaFollette were passed, on the Federal Reserve
Act of 1913, to the effect that no member of the Federal Reserve
Board should be an official or director or stockholder of any bank,
trust company, or insurance company, we would end up by having
mechanics and farm laborers on the Board.
Certainly mechanics and
farm laborers could have caused no more damage to the country than
did Glass, Strauss, and Warburg at the secret meeting of the Federal
Senator Brookhart of Iowa testified that at that secret meeting
Warburg, also President of the Federal Advisory Council, had a
resolution passed to send a committee of five to the Interstate
Commerce Commission and ask for an increase in railroad rates.
head of Kuhn, Loeb Co. which owned most of the railway mileage in
the United States, he was already missing the huge profits which the
United States Government had paid during the war, and he wanted to
inflict new price raises on the American people.
Senator Brookhart also testified that:
"I went into Myron T. Herrick’s office in Paris, and told him that I
came there to study
cooperative banking. He said to me, ‘as you go over the countries of
Europe, you will find that
the United States is the only civilized country in the world that by
law is prohibiting its people
from organizing a cooperative system.’ I went up to New York and
talked to about two hundred people. After talking cooperation and
standing around waiting for my train -- I did not specifically mention
cooperative banking, it was cooperation in general -- a man called me
off to one side and said,
‘I think Paul Warburg is the greatest
financier we have ever produced. He believes a lot more of your
cooperative ideas than you think he does, and if you want to consult
anybody about the business of cooperation, he is the man to consult,
because he believes in you, and you can rely on him.’
A few minutes
later I was steered up against Mr. Warburg himself, and he said to
‘You are absolutely right about this cooperative idea. I want to
let you know that the big bankers are with you. I want to let you
know that now, so that you will not start anything on cooperative
banking and turn them against you.’
‘Mr. Warburg, I have
already prepared and tomorrow
I am going to offer an amendment to the Lant Bill authorizing the
establishment of cooperative
That was the intermediate credit act which was then
pending to authorize the
establishment of cooperative national banks. That was the extent of
my conversation with Mr.
Warburg, and we have not had any since."
Mr. Wingo testified that in April, May, June and July of 1920, the
manufacturers and merchants were allowed a very large increase in
credits. This was to tide them through the contraction of credit
which was intended to ruin the American farmers, who, during this
period, were denied all credit.
At the Senate Hearings in 1923, Eugene Meyer, Jr. put his finger on
a primary reason for the Federal Reserve Board’s action in raising
the interest rate to 7% on agricultural and livestock paper:
"I believe," he said, "that a great deal of trouble would have been
avoided if a larger number of
the eligible non-member banks had been members of the Federal
Meyer was correct in pointing this out. The purpose of the Board’s
action was to break those state and joint land stock banks which had
steadfastly refused to surrender their freedom to the banker’s
dictatorship set up by the System. Kemmerer in the ABC of the
Federal Reserve System had written in 1919 that:
"The tendency will be toward unification and simplicity which will
be brought about by the state
institutions, in increasing numbers, becoming stockholders and
depositors in the reserve banks."
However, the state banks had not responded.
The Senate Hearings of 1923 investigating the causes of the
Agricultural Depression of 1920-21 had been demanded by the American
people. The complete record of the secret meeting of the Federal
Reserve Board on May 18, 1920 had been printed in the
"Manufacturers’ Record" of Baltimore, Maryland, a magazine devoted
to the interests of small Southern manufacturers.
Benjamin Strong, Governor of the Federal Reserve Bank of New York,
and close friend of Montagu Norman, the Governor of the Bank of
England, claimed at these Hearings:
"The Federal Reserve System has done more for the farmer than he has
yet begun to realize."
Emmanuel Goldenweiser, Director of Research for the Board of
Governors, claimed that the discount rate was raised purely as an
anti-inflationary measure, but he failed to explain why it was a
raise aimed solely at farmers and workers, while at the same time
the System protected the manufacturers and merchants by assuring
them increased credits.
The final statement on the Federal Reserve Board’s causing the
Agricultural Depression of 1920-21 was made by William Jennings
Bryan. In "Hearst’s Magazine" of November, 1923, he wrote:
"The Federal Reserve Bank that should have been the farmer’s
greatest protection has become his
greatest foe. The deflation of the farmer was a crime deliberately
The Money Creators
The editorial page of The New York Times, January 18, 1920, carried
an interesting comment on the Federal Reserve System. The
unidentified writer, perhaps Paul Warburg, stated,
Reserve is a fount of credit, not of capital."
This is one of the
most revealing statements ever made about the Federal Reserve
System. It says that the Federal Reserve System will never add
anything to our capital structure, or to the formation of capital,
because it is organized to produce credit, to create money for
credit money and speculations, instead of providing capital funds
for the improvement of commerce and industry. Simply stated,
capitalization would mean the providing of notes backed by a
precious metal or other commodity. Reserve notes are unbacked paper
loaned at interest.
On July 25, 1921, Senator Owen stated on the editorial page of
New York Times,
"The Federal Reserve Board is the most gigantic
financial power in all the world. Instead of using this great power
as the Federal Reserve Act intended that it should, the
board....delegated this power to the banks, threw the weight of its
influence toward the support of the policy of German inflation."
senator whose name was on the Act saw that it was not performing as
After the Agricultural Depression of 1920-21, the Federal Reserve
Board of Governors settled down to eight years of providing rapid
credit expansion of the New York bankers, a policy which culminated
in the Great Depression of 1929-31 and helped paralyze the economic
structure of the world.
Paul Warburg had resigned in May, 1918,
after the monetary system of the United States had been changed from
a bond-secured currency to a currency based upon commercial paper
and the shares of the Federal Reserve Banks. Warburg returned to his
five hundred thousand dollar a year job with Kuhn, Loeb Company, but
he continued to determine the policy of the Federal Reserve System,
as President of the Federal Advisory Council and as Chairman of the
Executive Committee of the American Acceptance Council.
From 1921 to 1929, Paul Warburg organized three of the greatest
trusts in the United States, the International Acceptance Bank,
largest acceptance bank in the world, Agfa Ansco Film Corporation,
with headquarters in Belgium, and
branch Warburg set up as I.G. Chemical Corporation. The
Corporation is also one of his creations.
In the early 1920s, the Federal Reserve System played the decisive
role in the re-entry of Russia into the international finance
structure. Winthrop and Stimson continued to be the correspondents
between Russian and American bankers, and Henry L. Stimson handled
the negotiations concluding in our recognition of the Soviet after
Roosevelt’s election in 1932. This was an anti-climax, because we
had long before resumed exchange relations with Russian financiers.
The Federal Reserve System began purchasing Russian gold in 1920,
and Russian currency was accepted on the Exchanges. According to
Colonel Ely Garrison, in his autobiography, and according to the
United States Naval Secret Service Report on Paul Warburg, the
Russian Revolution had been financed by the
Warburgs, with a member of the Warburg family carrying the actual
funds used by Lenin and Trotsky in Stockholm in 1918.
An article in the English monthly "Fortnightly", July, 1922, says:
"During the past year, practically every single capitalistic
institution has been restored. This is
true of the State Bank, private banking, the Stock Exchange, the
right to possess money to
unlimited amount, the right of inheritance, the bill of exchange
system, and other institutions and
practices involved in the conduct of private industry and trade. A
great part of the former
nationalized industries are now found in semi-independent trusts."
The organization of powerful trusts in
Russia under the guise of
Communism made possible the receipt of large amounts of financial
and technical help from the United States.
The Russian aristocracy
had been wiped out because it was too inefficient to manage a modern
industrial state. The international financiers provided funds for
Lenin and Trotsky to overthrow the Czarist regime and keep Russia in
the First World War.
(image left), spokesman for the oligarchy in
America, declared in an article in the Saturday Evening Post in
"RUSSIA IS THE IDEAL OF THE MANAGED ECONOMY TOWARDS WHICH WE ARE
In Russia, the issuance of sufficient currency to handle the needs
of their economy occurred only after a government had been put in
power which had absolute control of the people. During the 1920s,
Russia issued large quantities of so-called "inflation money", a
The same "Fortnightly" article (of July, 1922)
"As economic pressure produced the ‘astronomical dimensions system’
of currency; it can never
destroy it. Taken alone, the system is self-contained, logically
perfected, even intelligent. And it
can perish only through the collapse or destruction of the political
edifice which it decorates."
"Fortnightly" also remarked, in 1929, that:
"Since 1921, the daily life of the Soviet citizen is no different
from that of the American citizen,
and the Soviet system of government is more economical."
Admiral Kolchak (image right), leader of the White Russian armies, was supported
by the international bankers, who sent British and American troops
to Siberia in order to have a pretext for printing Kolchak rubles.
At one time in 1920, the bankers were manipulating on the London
Exchange the old Czarist rubles, Kerensky rubles and Kolchak rubles,
the values of all three fluctuating according to the movements of
the Allied troops aiding Kolchak. Kolchak also was in possession of
considerable amounts of gold which had been seized by his armies.
After his defeat, a trainload of this gold disappeared in Siberia.
At the Senate Hearings in 1921 on the Federal Reserve System, it was
brought out that the System had been receiving this gold. Congressman Dunbar questioned Governor W.P.G. Harding of the Federal
Reserve Board as follows:
DUNBAR: "In other words, Russia is sending a great deal of gold to
the European countries, which in turn send it to us?"
HARDING: "This is done to pay for the stuff bought in this country
and to create dollar exchange."
DUNBAR: "At the same time, that gold came from Russia through
HARDING: "Some of it is thought to be Kolchak gold, coming through
Siberia, but it is none of the Federal Reserve Banks’ business. The
Secretary of the Treasury has issued instructions to the assay
office not to take any gold which does not bear the mint mark of a
Just what Governor Harding meant by "a friendly nation" is not
clear. In 1921, we were not at war with any country, but Congress
was already beginning to question the international gold dealings of
the Federal Reserve System. Governor Harding could very well shrug
his shoulders and say that it was none of the Federal Reserve Banks’
business where the gold came from. Gold knows no nationality or
The United States by law had ceased to be interested in where
its gold came from in 1906, when Secretary of the Treasury Shaw made
arrangements with several of the larger New York banks (ones in
which he had interests) to purchase gold with advances of cash from
the United States Treasury, which would then purchase the gold from
these banks. The Treasury could claim that it did not know where its
gold came from since their office only registers the bank from which
it made the purchase. Since 1906, the Treasury has not known from
which of the international gold merchants it was buying its gold.
The international gold dealings of the Federal Reserve System, and
its active support in helping the League of Nations to force all the
of Europe and South America back on the gold standard for the
benefit of international gold merchants like Eugene Meyer, Jr.
and Albert Strauss, is best demonstrated by a classic incident, the
sterling credit of 1925.
J.E. Darling wrote, in the English periodical, "Spectator", on
January 10, 1925 that:
"Obviously, it is of the first importance to the United States to
induce England to resume the gold
standard as early as possible. An American controlled Gold Standard,
which must inevitably
result in the United States becoming the world’s supreme financial
power, makes England a
tributary and satellite, and New York the world’s financial centre."
Mr. Darling fails to point out that the American people have as
little to do with this as the British people, and that resumption of
the gold standard by Britain would benefit only that small group of
international gold merchants who own the world’s gold. No wonder
that "Banker’s Magazine" gleefully remarked in July, 1925 that:
"The outstanding event of the past half year in the banking world
was the restoration of the gold
The First World War changed the status of the United States from
that of a debtor nation to the position of the world’s greatest
creditor nation, a title formerly occupied by England. Since debt is
money, according to the Governor Marriner Eccles of the Federal
Reserve Board, this also made us the richest nation of the world.
The war also caused the removal of the headquarters of the world’s
acceptance market from London to New York, and Paul Warburg became
the most powerful trade acceptance banker in the world. The mainstay
of the international financiers, however, remained the same. The
gold standard was still the basis of foreign exchange, and the small
group of internationals who owned the gold controlled the monetary
system of the Western nations.
Professor Gustav Cassel wrote in 1928:
"The American dollar, not the gold standard, is the world’s monetary
standard. The American
Federal Reserve Board has the power to determine the purchasing
power of the dollar by making
changes in the rate of discount, and thus controls the monetary
standard of the world."
If this were true, the members of the Federal Reserve Board would be
the most powerful financiers in the world. Occasionally their
membership includes such influential men as Paul Warburg or
Meyer, Jr., but usually they are a rubber-stamp committee for the
Federal Advisory Council and the London bankers.
In May, 1925, the British Parliament passed the Gold Standard Act,
putting Great Britain back on the gold standard.
The Federal Reserve
System’s major role in this event came out on March 16, 1926, when George Seay, Governor of the Federal Reserve Bank of Richmond,
testified before the House Banking and Currency Committee that:
"A verbal understanding confirmed by correspondence, extended Great
Britain a two hundred
million dollar gold loan or credit. All negotiations were conducted
between Benjamin Strong,
Governor of the Federal Reserve Bank of New York and Mr. Montagu
Norman, Governor of the
Bank of England. The purpose of this loan was to help England get
back on the gold standard,
and the loan was to be met by investment of Federal Reserve funds in
bills of exchange and
The Federal Reserve Bulletin of June, 1925, stated that:
"Under its arrangement with the
Bank of England the Federal Reserve
Bank of New York
undertakes to sell gold on credit to the Bank of England from time
to time during the next two
years, but not to exceed $200,000,000 outstanding at any one time."
A two hundred million dollar gold credit had been arranged by a
verbal understanding between the international bankers, Benjamin
Strong and Montagu Norman. It was apparent by this time that the
Federal Reserve System had other interests at heart than the
financial needs of American business and industry. Great Britain’s
return to the gold standard was further facilitated by an additional
gold loan of a hundred million dollars from J.P. Morgan Company.
Winston Churchill, British Chancellor of the Exchequer, complained
later that the cost to the British government of this loan was
$1,125,000 the first year, this sum representing the profit to J.P.
Morgan Company in that time.
The matter of changing the discount rate, for instance, has never
been satisfactorily explained. Inquiry at the Federal Reserve Board
in Washington elicited the reply that "the condition of the money
market is the prime consideration behind changes in the rate." Since
the money market is in New York, it takes no imagination to deduce
that New York bankers may be interested in changes of the rate and
often attempt to influence it.
Norman Lombard, in the periodical "World’s Work" writes that:
"In their consideration and disposal of proposed changes of policy,
the Federal Reserve Board
should follow the procedure and ethics observed by our court of law.
Suggestions that there
should be a change of rate or that the Reserve Banks should buy or
sell securities may come from
anyone and with no formality or written argument. The suggestion may
be made to a Governor or
Director of the Federal Reserve System over the telephone or at his
club over the luncheon table,
or it may be made in the course of a casual call on a member of the
Federal Reserve Board.
interests of the one proposing the change need not be revealed, and
his name and any suggestions
he makes are usually kept secret. If it concerns the matter of open
market operations, the public
has no inkling of the decision until the regular weekly statement
appears, showing changes in the
holdings of the Federal Reserve Banks. Meanwhile, there is no public
discussion, there is no
statement of the reasons for the decision, or of the names of those
opposing or favoring it."
The chances of the average citizen meeting a Governor of the Federal
Reserve System at his club are also slight.
The House Hearings on Stabilization of the Purchasing Power of the
Dollar in 1928 proved conclusively that the Federal Reserve Board
worked in close cooperation with the heads of European central
banks, and that the Depression of 1929-31 was planned at a secret
luncheon of the Federal Reserve Board and those heads of European
central banks in 1927. The Board has never been made responsible to
the public for its decisions or actions. The constitutional checks
and balances seem not to operate in finance.
The true allegiance of the members of the Federal Reserve Board has
always been to the central bankers. The three features of the
central bank, its ownership by private stockholders who receive rent
and profit for their use of the nation’s credit, absolute control of
the nation’s financial resources, and mobilization of the nation’s
credit to finance foreigners, all were demonstrated by the Federal
Reserve System during the first fifteen years of its operations.
Further demonstration of the international purposes of the Federal
Reserve Act of 1913 is provided by the "Edge Amendment" of December
24, 1919, which authorizes the organization of corporations
"engaging in international foreign banking and other
international or foreign financial operations, including the dealing
in gold or bullion, and the holding of stock in foreign
In commenting on this amendment, E.W. Kemmerer,
economist from Princeton University, remarked that:
"The federal reserve system is proving to be a great influence in
the internationalizing of
American trade and American finance."
The fact that this internationalizing of American trade and American
finance has been a direct cause for involving us in two world wars
does not disturb Mr. Kemmerer. There is plenty of evidence to show
how Paul Warburg used the Federal Reserve System as the instrument
for getting trade acceptance adopted on a wide scale by American
The use of trade acceptances, (which are the currency of
international trade) by bankers and corporations in the United
States prior to 1915 was practically unknown. The rise of the
Federal Reserve System exactly parallels the increase in the use of
acceptances in this country, nor is this a coincidence. The men who
wanted the Federal Reserve System were the men who set up acceptance
banks and profited by the use of acceptances.
As early as 1910, the National Monetary Commission began to issue
pamphlets and other propaganda urging bankers and businessmen in
this country to adopt trade acceptances in their transactions. For
years the Commission carried on this campaign, and the Aldrich Plan
included a broad provision authorizing the introduction and use of
bankers’ acceptances into the American system of commercial paper.
The Federal Reserve Act of 1913 as passed by Congress did not
specifically authorize the use of acceptances, but the Federal
Reserve Board in 1915 and 1916 defined "trade acceptance", further
defined by Regulation A Series of 1920, and further defined by
One of the first official acts of the Board of
Governors in 1914 was to grant acceptances a preferentially low rate
of discount at Federal Reserve Banks. Since acceptances were not
being used in this country at that time, no explanation of business
exigency could be advanced for this action. It was apparent that
someone in power on the Board of Governors wanted the adoptance of
The National Bank Act of 1864, which was the determining financial
authority of the United States until November, 1914, did not permit
banks to lend their credit. Consequently, the power of banks to
create money was greatly limited. We did not have a bank of issue,
that is, a central bank, which could create money. To get a central
bank, the bankers caused money panic after money panic on the
business people of the United States, by shipping gold out of the
country, creating a money shortage, and then importing it back.
After we got our central bank, the Federal Reserve System, there was
no longer any need for a money panic, because the banks could create
money. However, the panic as an instrument of power over the
business and financial community was used again on two important
occasions, in 1920, causing the Agricultural Depression, because
state banks and trust companies had refused to join the Federal
Reserve System, and in 1929, causing the Great Depression, which
centralized nearly all power in this country in the hands of a few
A trade acceptance is a draft drawn by the seller of goods on the
purchaser, and accepted by the purchaser, with a time of expiration
stamped upon it. The use of trade acceptances in the wholesale
market supplies short-term, assured credit to carry goods in process
of production, storage, transit, and marketing. It facilitates
domestic and foreign commerce. Seemingly, then, the bankers who
wished to replace the open-book account system with the trade
acceptance system were progressive men who wished to help American
import-export trade. Much propaganda was issued to that effect, but
this was not really the story.
The open-book system, heretofore used entirely by American business
people, allowed a discount for cash. The acceptance system
discourages the use of cash, by allowing a discount for credit. The
open-book system also allowed much easier terms of payment, with
liberal extensions on the debt. The acceptance does not allow this,
since it is
a short-term credit with the time-date stamped upon it. It is out of
the seller’s hands, and in the hands of a bank, usually an
acceptance bank, which does not allow any extension of time.
the adoption of acceptances by American businessmen during the
1920’s greatly facilitated the domination and swallowing up of small
business into huge trusts, which accelerated the crash of 1929.
Trade acceptances had been used to some extent in the United States
before the Civil War. During that war, exigencies of trade had
destroyed the acceptance as a credit medium, and it had not come
back into favor in this country, our people preferring the
simplicity and generosity of the open-book system. Open-book
accounts are a single-name commercial paper, bearing only the name
of the debtor. Acceptances are two-name paper, bearing the name of
the debtor and the creditor.
Thus they became commodities to be
bought and sold by banks. To the creditor, under the open-book
system, the debt is a liability. To the acceptance bank holding an
acceptance, the debt is an asset. The men who set up acceptance
banks in this country, under the leadership of Paul Warburg, secured
control of the billions of dollars of credit existing as open
accounts on the books of American businessmen.
Governor Marriner Eccles of the Federal Reserve Board stated before
the House Banking and Currency Committee that:
"Debt is the basis
for the creation of money."
Large holders of trade acceptances got the use of billions of
dollars worth of credit-money, besides the rate of interest charged
upon the acceptance itself. It is obvious why Paul Warburg should
have devoted so much time, money, and energy to getting acceptances
adopted by this country’s banking machinery.
On September 4, 1914, the National City Bank accepted the first
time-draft drawn on a national bank under provisions of the Federal
Reserve Act of 1913. This was the beginning of the end of the
open-book account system as an important factor in wholesale trade.
Beverly Harris, vice-president of the National City Bank of New
York, issued a pamphlet in 1915 stating that:
"Merchants using the open account system are usurping the functions
In The New York Times on June 14, 1920,
Paul Warburg, Chairman of
the American Acceptance Council, said:
"Unless the Federal Reserve Board puts itself heart and soul behind
development of acceptances as a prime investment for banks of the
Federal Reserve Banks the
future safe and sound development of the system will be
This was a statement of the purpose of
Warburg and his bunch who
wanted "monetary reform" in this country. They were out to get
of all credit in the United States, and they got it, by means of the
Federal Reserve System, the acceptance system, and the lack of
concern by the citizens.
The First World War was a boon to the introduction of trade
acceptances, and the volume jumped to four hundred million dollars
in 1917, growing through the 1920s to more than a billion dollars a
year, which culminated in a high peak just before the Great
Depression of 1929-31. The Federal Reserve Bank of New York’s charts
show that its use of acceptances reached a peak in November, 1929,
the month of the stock market crash, and declined sharply
thereafter. The acceptance people by then had gotten what they
wanted, which was control of American business and industry.
"Fortune Magazine" in February of 1950 pointed out that:
"Volume of acceptances declined from $1,732 million in 1929 to $209
million in 1940, because
of the concentration of acceptance banking in a few hands, and the
policy, which made direct loans cheaper than acceptance. There has
been a slight upturn since
the war, but it is often cheaper for large companies to finance
imports from their own coffers."
In other words, the "large companies" more accurately, the great
trusts, now have control of credit and have not needed acceptances.
Besides the barrage of propaganda issued by the Federal Reserve
System itself, the National Association of Credit Men, the American
Bankers’ Association, and other fraternal organizations of the New
York bankers devoted much time and money to distributing acceptance
propaganda. Even their flood of lectures and pamphlets proved
insufficient, and in 1919 Paul Warburg organized the American
Acceptance Council, which was devoted entirely to acceptance
The first convention held by this association at Detroit, Michigan,
on June 9, 1919, coincided with the annual convention of the
National Association of Credit Men, held there on that date, so that
"interested observers might with facility participate in the
lectures and meetings of both groups," according to a pamphlet
issued by the American Acceptance Council.
Paul Warburg was elected President of this organization, and later
became chairman of the Executive Committee of the American
Acceptance Council, a position which he held until his death in
1932. The Council published lists of corporations using trade
acceptances, all of them businesses in which Kuhn, Loeb Co. or its
affiliates held control. Lectures given before the Council or by
members of the Council were attractively bound and distributed free
by the National City Bank of New York to the country’s businessmen.
Louis T. McFadden, Chairman of the House Banking and Currency
Committee, charged in 1922 that the American Acceptance Council was
exercising undue influence on the Federal Reserve Board and called
for a Congressional investigation, but Congress was not interested.
At the second annual convention of the American Acceptance Council,
held in New York on December 2, 1920, President Paul Warburg stated:
"It is a great satisfaction to report that during the year under
review it was possible for the
American Acceptance Council to further develop and strengthen its
relations with the Federal
During the 1920s Paul Warburg, who had resigned from the Federal
Reserve Board after holding a position as Governor for a year in
wartime, continued to exercise direct personal influence on the
Federal Reserve Board by meeting with the Board as President of the
Federal Advisory Council and as President of the American Acceptance
Council. He was, from its organization in 1920 until his death in
1932, Chairman of the Board of the International Acceptance Bank of
New York, the largest acceptance bank in the world.
His brother, Felix M. Warburg, also a partner in Kuhn, Loeb Co., was director of
the International Acceptance Bank and Paul’s son, James Paul
Warburg, was Vice-President. Paul Warburg was also a director on
other important acceptance banks in this country, such as
Westinghouse Acceptance Bank, which were organized in the United
States immediately after the World War, when the headquarters of the
international acceptance market was moved from London to New York,
and Paul Warburg became the most powerful acceptance banker in the
Paul Warburg became an even more legendary figure by his memorialization as "Daddy Warbucks" in the comic strip, "Little
Orphan Annie" (left image). The strip celebrated a homeless waif and her dog who
are adopted by "the richest man in the world", Daddy Warbucks, a
takeoff on "Warburg", who has almost magical powers and can
accomplish anything by the power of his limitless wealth.
the know snickered when "Annie", the musical comedy version of this
story, had a highly successful run of several years on Broadway,
because the vast majority of the audience had no idea that this was
merely another Warburg operation.
It was the transference of the acceptance market from England to
this country which gave rise to Thomas Lamont’s ecstatic speech
before the Academy of Political Science in 1917 that:
"The dollar, not the pound, is now the basis for international
Americans were proud to hear that, but they did not realize at what
Visible proof of the undue influence of the American Acceptance
Council on the Federal Reserve Board, about which Congressman
McFadden complained, is the chart showing the rate-pattern of the
Federal Reserve Bank of New York during the 1920s. The Bank’s
official discount rate follows exactly for nine years the ninety-day
bankers’ acceptance rate, and the Federal Reserve Bank of New York
sets the discount rate for the rest of the Reserve Banks.
Throughout the 1920s the Board of Governors retained two of its
first members, C.S. Hamlin and Adolph C. Miller.
These men found
themselves careers as arbiters of the nation’s monetary policy. Hamlin was on the Board from 1914 until 1936, when he was appointed
Special Counsel to the Board, while Miller served from 1914 until
1931. These two men were allowed to stay on the Board so many years
because they were both eminently respectable men who gave the Board
a certain prestige in the eyes of the public. During these years one
important banker after another came on the Board, served for awhile,
and went on to better things. Neither Miller nor Hamlin ever
objected to anything that the New York bankers wanted.
the discount rate and they performed open market operation with
Government securities whenever Wall Street wanted them to. Behind
them was the figure of Paul Warburg, who exercised a continuous and
dominant influence as President of the Federal Advisory Council, on
which he had such men of common interests with himself as Winthrop
Aldrich and J.P. Morgan. Warburg was never too occupied with his
duties of organizing the big international trusts to supervise the
nation’s financial structures.
His influence from 1902, when he
arrived in this country as immigrant from Germany, until 1932, the
year of his death, was dependent on his European alliance with the
banking cartel. Warburg’s son, James Paul Warburg, continued to
exercise such influence, being appointed Franklin D. Roosevelt’s
Director of the Budget when that great man assumed office in 1933,
and setting up the Office of War Information, our official
propaganda agency during the Second World War.
The Fight for Financial Supremacy,
Paul Einzig, editorial writer
for the London Economist, wrote that:
"Almost immediately after World War I a close cooperation was
established between the Bank of
England and the Federal Reserve authorities, and more especially
with the Federal Reserve Bank
of New York.* This cooperation was largely due to the cordial
relations existing between Mr. Montagu Norman of the Bank of England and
Mr. Benjamin Strong,
Governor of the Federal
Reserve Bank of New York until 1928.
On several occasions the
discount rate policy of the
Federal Reserve Bank of New York was guided by a desire to help the
Bank of England.
There has been close cooperation in the fixing of discount rates
between London and New
* William Boyce Thompson (Wall Street operator) commented to
Clarence Barron, Nov. 27, 1920, "Why should the Federal Reserve Bank
have private wires all over the country and talk daily by cable with
the Bank of England?" p. 327 "They Told Barron".
86 Paul Einzig, The Fight For Financial Supremacy, Macmillan, 1931