Banking and Currency Reforms
William G. Burmer
For almost Twenty-Five years prior to ratification of the 16th amendment, the federal government received its revenues from property taxes, tariffs and excise taxes. Wealth was centered in the banking institutions, and large corporations. There resulted a growing division, spurred on by the politicians, among the classes. Banking interest prior to the beginning of the 20th century were privately controlled and concentrated in the hands of only a few wealthy financiers, known as the “Money Trusts” who used their positions to increase their own economic power rather than to serve the public.
The panic of 1907 had stimulated bankers, under the leadership of Republican Senator Nelson Aldrich, to try to substitute a centralized banking system that would replace the existing inelastic and unscientific credit structure. A National Monetary Commission studied the banking systems of the world and made a report to Congress in 1911 and 1912. A plan was drawn up by Paul M. Warburg, (a) of Kuhn Loeb and Company, and endorsed by the American Bankers Association. A large central institution (This information is taken from a modern text, the word “central, or centralized bank, was not a popular subject in the halls of Congress in 1911-12. Some in the Congress were still aware of what our founders knew about central banking) was proposed, with fifteen regional branches which would administer control over member banks, there would be no government controls.
“President Wilson desired to form a banking system controlled by a government board on which government appointees would manage its affairs. The United States (congress) was to supposed to be responsible for the issue of currency . . . secured by Solid Assets and a gold reserve. “Frank Glass rebelled against control of the reserve system by the government board; he dreaded the possibility of political interference with sound banking.” 1. Ital. added.
Sound banking means that any currency made or issued would be backed up with gold reserves. Wilson presented his plan to the joint session of Congress personally; the principles he espoused were clear, “There must be a currency “readily, elastically responsive to sound credit, a mobilization of (gold) reserves for legitimate uses, a ban on concentration of reserves for speculative purposes, and controls vested in the government, so that the banks may be the instruments, not the masters of business and of individual enterprise and initiative.” 2.
Paul Wartburg, then president of the American Bankers Association assailed Wilson’s plan to form a Federal Reserve as “an invasion of the liberty of the Citizens,” and ‘unjust and un-American.’ (Noble, however hypocritical words from one of the main architects of the Federal Reserve System, he and six other Bankers and Economist had three years previous secretly met and created it in November 1910; In addition, Wartburg had not received his U.S. CITIZENSHIP until 21 March 1911) (b) Elihu Root, a Republican senator from New York and Chairman of the RNC in 1912, feared that Wilson’s plan would: . . . “Bring inflation and create a vanishing gold supply.” Senator Root was correct; between 1913 and 1929 all of our Gold was used to pay interest to the Federal Reserve on all the money borrowed by our congress. The Central Banking system so despised by our founders was about to be unveiled. To spite all the political wrangling and predictions, above cited, the Carter Glass Bill was passed by Congress on December 19, 1913 with a vote of 54 to 34. The Senate passed the Bill on 22 December, and the Federal Reserve Act was on President Wilson’s desk for signature 23 December 1913.
Senator Robert Owen (R, OK), Chairman of the Senate Banking and Currency Committee and sponsor of the bill in the Senate was there with Carter Glass. We see here three of the four (c) principle players who formulated what John Adams warned about with regards to Central Banking at the Constitutional Convention in 1787. “The Central Bank is an institution of the most deadly hostility existing against the principles and form of our Constitution. I am an enemy to all banks, discounting bills or notes for anything but coin. If the American people allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered.” 3.
The Federal Reserve Board was assigned quarters in the Building of the Secretary of the Treasury. Carter Glass was Treasury Secretary at the time. He was “an ex-officio” member of the Board. On November 16, 1914, 9:00 AM, the doors of 12 brand new Federal Reserve Banks opened for business with its main office in New York City.
(a) Paul M. Warburg’s earliest roots are found in Mr. Simon von Cassel who expired in 1556. Simon lived in a town called “Warburg” in central Germany. Because the German Jew was denied a sir name many took on the name of the town, village or farm they lived or were born in after liberation by Bismarck in 1862. Simons Great Grandson Juspa-Joseph took on the name of Warburg and moved his family north to Hamburg where they found refuge in a Jewish settlement in Antonia near the entrance to the Elb River. Here the family began to prosper and eventually, while mingling with the Dutch, Danish, and French cultures, their influence in commerce grew with each succeeding generation of the Warburg family. Paul was born the third child to Moritz M. Warburg and Charlotte Oppenheim in 1868. Paul moved to America to run the family’s’ Kuhn Loeb investment firm in New York. Here he wrote passionately about the virtues of the Central Banking system in an essay entitled “Defects and Needs of Our Banking system.”
(b) Shortly after Paul Warburg received his Citizenship he was assigned to chair a seat on a National Citizens League to promote a sound banking system. In January of 1912 he with twenty other bankers and economists lobbied Teddy Roosevelt for support of their plan. Paul testified before the House banking committee in January 1913; one month after President Wilson signed the Federal Reserve Bill. Warburg was nominated to share a seat on the new Board. He was sworn into office on August 10, 1914. See Chernow, The Warburgs, pp 135-40.
(c) The fourth person would be (R.) Senator Nelson Aldrich, however, the original bill was changed in order to take him out of the loop. The altered bill was passed primarily due to Democratic support under Wm. J. Bryans’ endorsement after giving it the appearance of public control and Government Issue but which, in fact, did neither. The Democratic leadership was in truth duped by the Republicans into accepting the Legislation as excluding any central banking controls. It was, of course, amended several times after passage and given those controls.
1. Woodrow Wilson p307 Dodd, William E. (1920). Woodrow Wilson and His Works.
Double Day, Page, and Company.
2. Ibid. p307
3. Ibid. p 309
“WE THE PEOPLE” and the American Constitution
By: William Grant Burmer ISBN 978-1-4363-2186-0
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