Creature From Jekyll Island by G. Edward

'Unless the conservative bankers of the country are willing to yield something and get behind the bill, we shall get legislation very much less to be desired, or have nothing done at all.'

BRYAN MAKES AN ULTIMATUM

The Populist, William Jennings Bryan, was considered at that time to be the most influential Democrat in Congress, and it was clear from the start that the Federal Reserve Act could never be passed without his approval and support. As Charles Seymour observed: 'The Commoner's sense of loyalty [to the Party] had kept him from an attack upon the Federal Reserve Act which, it would appear, he never entirely understood.... With his influence in the Party, he could have destroyed the measure which failed to accord with his personal doctrines.'3

Bryan had said that he would not support any bill that resulted in private money being issued by private banks. The money supply, he insisted, must be government issue. When he finally saw an actual draft of the bill in midsummer of 1913, he was dismayed to find that, not only was the money to be privately issued, but the entire governing body of the central bank was to be composed of private bankers. His ultimatum was not long in coming. He hotly demanded (1) that the Federal-Reserve notes must be Treasury currency, issued and guaranteed by the government; and (2) that 1- Letters from Willis to Laughlin, J. Laurence Laughlin Papers, Library of Congress, July 14 & 18,1912.

2. From a letter to Festus Wade. Quoted by Kolko, Triumph, p. 234.

3. Seymour, Vol. I, p. 173.

466

THE CREATURE FROM JEKYLL ISLAND

the governing body must be appointed by the President and approved by the Senate.

Colonel House and the other monetary scientists were reasonably sure that these provisions eventually would be required for final approval of the bill but, being master strategists, they deliberately withheld them from early drafts so they could be used as bargaining points and added later as concessions in a show of compromise. Furthermore, since practically no one really understood the technical aspects of the measure, they knew it would be easy to fool their opponents by creating the appearance of compromise when, in actual operation, the originally intended features would remain.

AN AMAZING REVELATION

The nature of this deception was spelled out years later by Carter Glass in his book, Adventures in Constructive Finance. From this source we learn that, after Bryan had delivered his ultimatum, Glass was summoned to the White House and told by Wilson that the decision had been made to make the Federal Reserve notes obligations of the United States government. 'I was for an instant speechless!' wrote Glass who then explained how he reminded the President that the only backing for the new currency would be a small amount of gold, a large amount of government and commercial debt, and the private assets of the individual banks themselves.

'It would be a pretense on its face,' he said. 'Was there ever a government note based primarily on the property of banking institutions? Was there ever a government issue not one dollar of which could be put out except by demand of a bank? The suggested government obligation is so remote it could never be discovered.'

To which the President replied: 'Exactly so, Glass. Every word you say is true; the government liability is a mere thought. And so, if we can hold the substance of the thing and give the other fellow the shadow, why not do it, if thereby we may save our bill?'1

Years later, Paul Warburg would explain further:

While technically and legally the Federal Reserve note is an obligation of the United States Government, in reality it is an obligation, the sole actual responsibility for which rests on the reserve 1. Glass, pp. 124—25.

THE CREATURE SWALLOWS CONGRESS 467

banks.... The government could only be called upon to take them up after the reserve banks had failed.

Warburg's explanation should be carefully analyzed. It is an incredibly important statement. The man who masterminded the Federal Reserve System is telling us that Federal Reserve notes constitute privately issued money with the taxpayers standing by to cover the potential losses of those banks which issue it. One of the more controversial assertions of this book is that the objectives set forth at the Jekyll Island meeting included the shifting of the cartel's losses from the owners of the banks to the taxpayers. Warburg