Woodrow Wilson on Morgan and Panics and the Federal Reserve

So You Think Your Life Was Wasted — Part Three (9)

March 9, 2010

(9:40 p.m.) A first, a “by request” attempt to reach a specific historical individual. In this case it is Woodrow Wilson, at my brother Paul’s suggestion.

“Here is the quote. If you reach Mr. Wilson, before you ask him about the late amendment ask first if he ever actually said this:

“`I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men.’ -Woodrow Wilson”

Mr. Wilson, my brother makes the excellent suggestion that I try to contact you to see if we can get the truth about the creation of the Federal Reserve System. We see that this will be valuable for two reasons if successful. First, because I don’t know the answer and so will know that this information (not just opinion) did not come from me, and second because we would like to know the facts. Many a conspiracy theory has been spun around the Federal Reserve system and it would be valuable to get to someone whose knowledge and word we trust.

You know perhaps that I have admired your work for years, though not without reservation. And we were told years ago that there is a direct connection between the author of any book and anyone who ever reads it. So let us see if that is so. I read your Division and Reunion at least twice – very interesting book, by the way.

Did you say it, or write it, and if so, where and when, and if not did you say anything like it?

No, I did not say all that, and did not say it in any one time or place. I said pieces of it here and there, some pieces many times. The tendentious sentences are the ones I did not say. “I have unwittingly ruined my country,” especially, and to a lesser extent the long final sentence, though I did say it in substance, and more than once. But that paragraph has been manipulated to make it appear that I thought that the Federal Reserve Act had ruined the country, and that our nation’s credit being in a few hands – which was true – was a result of that act. Many but not all of the people putting out that statement know that the implication is false.

To explain the background would require a lesson in economic and political history. Your time has almost no grasp of the basics of the subject. I am seen as an impractical scholar, but I assure you, scholars who get themselves elected and re-elected President of the United States may be fortunate, but they are not impractical. It is important to know how things really work, and financiers as well as common hoodlums and congressmen generally know that. But it is equally important to know the underlying theory so as to understand the dynamics of the system. If a given financial system supposedly works in this manner, but is actuality works in this manner, the discrepancy tells you more about the existence and nature of the hidden levers of power than you will learn by knowing practice or theory in isolation.

This is one of the things the bosses hated about me. I was not impractical. I could be as tough as they, and I had the advantage that I extended into dimensions they disregarded out of ignorance or contempt, much like Napoleon asking “how many legions has the pope?” Ask Smith [the political boss who made Wilson governor and then was defeated by Wilson in a test of who was going to really be governor]. He saw it as ingratitude. I saw it as not only necessity but an opportunity for the people.

This, by the way, was the secret of my appeal to the people, and my early successes in office – until we were inveigled into war – and both the friends and enemies I made in public life: I could understand how the system was being operated, and could deduce what reforms might be meaningful and practicable. Therefore I could not be diverted by baubles and could not be isolated from the people’s support. I promised them that if elected I would open the doors behind which decisions were being made, and, as far as I was able, I did that. But the war ruined all reform, as it always does.

Specifically you wish me to speak of the Federal Reserve. Let me have you cast backward to the administration of Grover Cleveland, when J.P. Morgan dictated the terms to the President of the United States by which the United States would be allowed to continue conducting business. Was that the fault of the Federal Reserve? Remarkable if so, given that it took place more than 20 years before the Federal Reserve Act was written into law.

The quotation – or paraphrase, or pastiche of quotations – attributed to me speaks of our system of credit being in the hands of a few men. This was so. J.P. Morgan and his associates, and a network of satellite banks and subordinates, primarily concentrated in the northeast, and closely tied to England, ultimately held the economy in a stranglehold. Interlocking directorates guaranteed that many large corporations would function at will as one giant loosely confederated entity. Thus credit, employment, investment, production – and governance – were all in the few hands that met at the work tables of Morgan.

I say “and governance” because it goes without saying that these corporations, among them, controlled government from the congress to the statehouses to city hall if need be. And if they did not, their satraps did. It is in this sense that I said we were governed by a very small cabal, a group of men who could be gathered around a long dinner table, and no doubt sometimes were. I repeat, this came into being long before the creation of the Federal Reserve system. It was the intent of the creators of the Federal Reserve system to loosen this stranglehold, in fact.

That which was envisaged was a system of temporary and self-liquidating credit to be created and retired as farmers – particularly – required capital and then were able to repay it. The intent was to free them from the virtual debt peonage Morgan and his associates had placed them in.

Consider: Morgan could create a panic any time he wished, merely by calling in credit. Every politician – I assure you, every President – knew it. Upon Morgan’s displeasure, credit disappeared, businesses failed, suffering was everywhere – and how were you to explain it to the people, when every organ of communication was either in his hands or under his thumb? There was no radio, as gave Franklin Roosevelt a temporary advantage 20 years later, and of course no television or internet. Newspaper, circular, magazine or letter – and all of it hopelessly stacked on whichever side of the argument Morgan dictated.

It is a fearsome responsibility to cross Morgan and know that families may be ruined because he strikes at you – and you will be blamed as the blow falls! [Theodore] Roosevelt was all bluster; he was careful not to cross Morgan. Taft crossed him and carried one state in his re-election campaign [two, actually] and no one ever drew the connection in public. Few figured it out, perhaps; Morgan’s knives frequently came out in the dark.

It should not be necessary to say – but I suspect that it is necessary to say – that most who did Morgan’s bidding saw only the puppeteers above them, and did not see the strings that led to a higher puppeteer, and a higher, back to Morgan. So not only your histories but your contemporary journalism on various manifestations are mostly unconvinced of the connection, even after the muck-rakers such as Sinclair and Steffans and others exposed it to the light. It requires a subtlety in intellect and a perseverance of interest that few combine – and even fewer combine with practical knowledge.

If the Federal Reserve had functioned as planned, additional notes would have circulated roughly equivalent to the new wealth being created – for it is only the disparity between the volume of objects of wealth and their representations as money that causes problems. If money does not grow with the product, the economy suffers from lack of liquidity. If money grows faster than product, the economy suffers from devaluation of stored value as stored in past product or financial instruments. The art of financial governance – and it is an art – is to keep the money supply roughly in line with the wealth being produced.

Now, if your money is strictly tied to the production of gold or silver – or any precious metal, but of course these are the classic monetary metals – then the liquidity of the economy depends upon how much of the metals is released into circulation or recalled from circulation. A strong non-inflationary gold standard provides a physical link tying the growth of wealth to its representation in money. Sever the link to precious metals, as was done in your time, and your financial stability is lost, though it may take a while to manifest.

16-to-1 advocates [advocating extensive coinage of silver valuing it at 16 ounces of silver to one ounce of gold] wanted extensive coining of silver for two reasons – to increase general liquidity and to increase the prosperity of silver mine owners! But it was a direct challenge to Morgan – in a way not one citizen in a thousand could have explained – and so went nowhere.

It is this long contest with Morgan that your histories do not explain to you, and so the significance of 16-to-1, and Bryan’s Cross of Gold speech, and even the reason why railroad bandits – the individuals, not the corporations themselves – were so popular, is all lost to you. The key is that the entire economy and government were in the hands of one set of a few men, of whom Morgan was acknowledged primus inter pares.

The Federal Reserve system was designed to be quasi-governmental. Today you think that was a giveaway of power. To us it appeared as an attempt to provide the government with some control over the vital matter of its money supply. To get the bill passed it had to delegate its power to various banks. It could not have been passed without geographic separation – so that each region would feel assured of a local or rather a regional representative – and private rather than public participants – so that it would not be seen as a government boondoggle. (And if you think that was not a consideration, recall who controlled the newspapers.)

The snake in the garden was the addition that allowed the creation of money for reasons other than representing newly created wealth. Once allow creation at will – as this provision did – then you have silently severed the link, and now you had neither precious metals nor productive activity as automatic limits to the creation of money.

This did not become evident for some while. [Franklin] Roosevelt took the country off the gold standard, de facto, but economic conditions were such that inflation was far from a threat. The next war created inflationary pressures, but they were held in check by wage and price controls, until lifted after the war. But even then – after one burst of inflationary pressure, the economy was invisibly subsidized for half a generation by the devastation and concentration on rebuilding of potential competitors. It was only when Johnson and Nixon broke the final links with money that control of inflation came to rest solely on the restraint of the Federal Reserve’s money-creating and money-destroying power. And it is only in the past 25 years or so that you have seen the full decoupling of wealth and money.

Do you think control is gone because Morgan is gone? But it is in other hands.

Thank you for this. I must stop for now.

(11 pm)

One thought on “Woodrow Wilson on Morgan and Panics and the Federal Reserve

  1. Once again — another excellent lesson in the why’s of history, not the dull what’s and when’s that I was taught in school.

    But what a cliff-hanger ending!

    This essay seems to beg the question: what’s really going on with our economy today?

    Thanks for your time and efforts Frank, and most of all, thanks for sharing this.

    Bob Keefe

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