Creature From Jekyll Island by G. Edward

THE LONDON CONNECTION

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The Rothschilds in Britain undoubtedly held an equally large bloc.

Furthermore, many of these securities were handled through the House of Morgan. The possibilities are obvious that a major portion of the wealth and power of the Morgan firm was, and always had been, merely the wealth and power of the Rothschilds who had raised it up in the beginning and who sustained it through its entire existence.

How much of Morgan's apparent anti-Semitism was real and how much may have been a pragmatic guise is, in the final analysis, of little importance, and we should not give unwarranted emphasis to it here. Regardless of one's interpretation of the nature of the relationship between the Houses of Morgan and Rothschild, the fact remains that it was close, it was ongoing, and it was profitable to both. If Morgan truly did harbor feelings of anti-Semitism, neither he nor the Rothschilds ever allowed them to get in the way of their business.

To put the London connection into proper perspective, it will be necessary once again to abandon a strict chronological sequence of events and jump ahead to the year 1924. So let us put our cast of characters on hold for a moment and, before allowing them to act out the drama of creating the Federal Reserve System, we shall pick up the storyline eleven years after that event had already taken place.

ENGLAND FACES A DILEMMA

At the end of World War I, Britain faced an economic dilemma.

She had abandoned the gold standard early in the war in order to remove all limits from the creation of fiat money, and the result had been extreme inflation. But now she wanted to regain her former position of power and prestige in the world's financial markets and decided that, to accomplish this, it would be necessary to return to the gold standard. It was decided, further, to set the exchange value of the pound sterling (the British monetary unit) at exactly $4.86 in U.S. currency, which was approximately what it had been before the war began.

To say that she wanted to return to the gold standard actually is misleading. It was not a pure standard in which every unit of money was totally backed by a stated weight of gold. Rather, it was a 1- See 'Head of Rothschilds' Paris House Is Dead,' The New York Times, May 27, 1905, p. 9.

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fractional gold standard in which only a certain fraction of all the monetary units were so backed. But, even that was much to be desired over no backing whatsoever for three reasons. First, it created greater consumer confidence in the money system because of the implied promise to redeem all currency in gold—even though such promises are always broken when based on a fractional-reserve.1

Secondly, it provided an efficient means of settling financial accounts between nations, gold always being the international medium of choice. Thirdly, it applied some braking action to the production of fiat money, thus, providing a certain degree of restraint to inflation and the boom-bust cycle.

The decision to return to a fractional gold standard, therefore, while it left much to be desired, was still a step in the right direction.

But there were two serious problems with the plan. The first was that the exchange value of gold can never be decided by political decree. It will always be determined by the interplay of supply and demand within the marketplace. Trying to fix the number of dollars which people will be willing to exchange for a pound sterling was like trying to legislate how many baseball cards a schoolboy will give for a purple agate. The international currency market is like a huge auction. If the auctioneer sets the opening bid too high, there will be no takers—which is exactly what happened to the pound.

The other problem was that, during the war, England had adopted a massive welfare program and a strong network of labor unions. The reason this was a problem was that the only way to make the pound acceptable in international trade was to allow its value to drop to a competitive and realistic level, and that would have meant, not only a drastic reduction in welfare benefits, but also a general lowering of prices—including the price of labor which is called wages. Politicians were quite willing to allow prices of commodities to move downward, but they did not have the courage to take any action which would reduce either welfare benefits or wages. To the contrary, they continued to bid for votes with promises of still more socialism and easy credit. Prices continued to rise.

1. The government hedged even on this provision. Only bars of gold bullion were available for redemption, not coins. This insured that gold would not circulate as money and that it would be used almost exclusively for large- scale international transactions-THE LONDON CONNECTION

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