Creature From Jekyll Island by G. Edward

Germany, and Amsterdam, the Netherlands. He had come to the United States only nine years previously. Soon after arrival, however, and with funding provided mostly by the Rothschild group, he and his brother, Felix, had been able to buy partnerships in the New York investment banking firm of Kuhn, Loeb & Company, while continuing as partners in Warburg of Hamburg.1 Within twenty years, Paul would become one of the wealthiest men in America with an unchallenged domination over the country's railroad system.

At this distance in history, it is difficult to appreciate the importance of this man. But some understanding may be had from the fact that the legendary character, Daddy Warbucks, in the comic strip Little Orphan Annie, was a contemporary commentary on the presumed benevolence of Paul Warburg, and the almost magic ability to accomplish good through the power of his unlimited wealth.

A third brother, Max Warburg, was the financial adviser of the Kaiser and became Director of the Reichsbank in Germany. This was, of course, a central bank, and it was one of the cartel models used in the construction of the Federal Reserve System. The Reichsbank, incidentally, a few years later would create the massive hyperinflation that occurred in Germany, wiping out the middle class and the entire German economy as well.

Paul Warburg soon became well known on Wall Street as a

persuasive advocate for a central bank in America. Three years before the Jekyll Island meeting, he had published several pamphlets. One was entitled Defects and Needs of Our Banking System, and the other was A Plan for A Modified Central Bank. These attracted wide attention in both financial and academic circles and set the intellectual climate for all future discussions regarding banking legislation. In these treatises, Warburg complained that the American monetary system was crippled by its dependency on gold and government bonds, both of which were in limited supply.

What America needed, he argued, was an elastic money supply that 1. Anthony Sutton, Wall Street and FDR (New Rochelle, New York: Arlington House, 1975), p. 92.

THE JOURNEY TO JEKYLL ISLAND

19

could be expanded and contracted to accommodate the fluctuating needs of commerce. The solution, he said, was to follow the German example whereby banks could create currency solely on the basis of "commercial paper," which is banker language for I O.U.s from corporations.

Warburg was tireless in his efforts. He was a featured speaker before scores of influential audiences and wrote a steady stream of published articles on the subject. In March of that year, for example, The Neiv York Times published an eleven-part series written by Warburg explaining and expounding what he called the Reserve Bank of the United States.1

THE MESSAGE WAS PLAIN FOR THOSE WHO

UNDERSTOOD

Most of Warburg's writing and lecturing on this topic was eyewash for the public. To cover the fact that a central bank is merely a cartel which has been legalized, its proponents had to lay down a thick smoke screen of technical jargon focusing always on how it would supposedly benefit commerce, the public, and the nation; how it would lower interest rates, provide funding for needed industrial projects, and prevent panics in the economy.

There was not the slightest glimmer that, underneath it all, was a master plan which was designed from top to bottom to serve private interests at the expense of the public.

This was, nevertheless, the cold reality, and the more perceptive bankers were well aware of it. In an address before the American Bankers Association the following year, Aldrich laid it out for anyone who was really listening to the meaning of his words. He said: "The organization proposed is not a bank, but a cooperative union of all the banks of the country for definite purposes."2 Precisely. A union of banks.

Two years later, in a speech before that same group of bankers, A. Barton Hepburn of Chase National Bank was even more candid.

He said: "The measure recognizes and adopts the principles of a central bank. Indeed, if it works out as the sponsors of the law hope, it will make all incorporated banks together joint owners of a 1. See J. Lawrence Laughlin, The Federal Reserve Act: Its Origin and Problems (New York: Macmillan, 1933), p. 9.

2. The full text of the speech is reprinted by Herman E. Krooss and Paul A.

Samuelson, Vol. 3, p. 1202.

20 THE CREATURE FROM JEKYLL ISLAND

central dominating power."1 And that is about as good a definition of a cartel as one is likely to find.

In 1914, one year after the Federal Reserve Act was passed into law, Senator Aldrich could afford to be less guarded in his remarks.