by the commercial banks which are members of the system. Member banks elect the directors of the regional Reserve Banks of which they are a part. The larger banks hold more shares but they have only one vote in the selection of the Directors.
Within each regional-bank system there are nine Directors. The member banks elect three Class-A directors who represent the banking industry and three Class-B directors who represent the general public.
The remaining three Class-C directors are appointed by the national Board. The Chairman and Vice Chairman of each regional Reserve Bank must be Class-C directors. The selection of President and other officers is subject to veto by the national Board of Governors. In this way, the national Board is able to exercise control over the regional branches of the system.
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The function of the Federal Open Market Committee is to implement the monetary policy set by national Board, although it exercises considerable autonomy in setting its own policy. It manipulates the money supply and interest rates primarily by purchasing or selling government securities—although it also accomplishes that through the purchase or sale of foreign currencies and the securities of other governments as well. Money is created and interest rates go down when it purchases. Money is extinguished and interest rates go up when it sells. Policy is formulated on a daily basis. In fact, it is monitored by the minute and the Committee often intervenes in the market to affect immediate changes.
The Open Market Committee is composed of the national Board of Governors plus five of the twelve regional Presidents who serve on a rotating basis. The exception to this is the President of the New York regional Bank who is always on the Committee. Thus, once again, the System is firmly in control of the national Board with the President of the New York regional Bank being more powerful than the others.
Twenty-four bond dealers handle all sales of government securities. Government agencies cannot exchange with each other without going through dealers who earn commissions on each transaction.
Decisions are made at secret meetings. A brief report is released to the public six weeks later, but transcripts of the deliberations are destroyed. That policy was begun in 1970 when the Freedom-of-Information Act was passed. Not even the CIA enjoys such secrecy.
The function of the member banks is to conduct the nation's banking business and to implement the System's monetary policy in terms of putting money into or drawing it out of the system at the point of contact with individual or corporate borrowers.
This leads to the troublesome question of ownership. The federal government does not own any stock in the System. In that sense, the Fed is privately owned. That, however, is misleading in that it implies a typical private- ownership relationship in which the stockholders own and control. Nothing could be further from the truth. In this case, the stock carries no proprietary interest, cannot be sold or pledged as collateral, and does not carry ordinary voting rights. Each bank is entitled to but one vote regardless of the amount of stock it holds. In reality, the stock is not evidence of 'ownership' but simply certificates showing how much operating capital each bank has put into the System. It is not a government agency and it is not a private corporation in the normal sense of the word. It is subject to political control yet, because of its tremendous power over politicians and the elective process, it has managed to remain independent of political oversight.
Simply stated, it is a cartel, and its organizational structure is uniquely structured to serve that end.
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APPENDIX
(B.) NATURAL LAWS
OF HUMAN BEHAVIOR IN ECONOMICS
NATURAL LAW NO. 1
LESSON: When gold (or silver) is used as money and when the forces of supply and demand are not thwarted by government intervention, the amount of new metal added to the money supply will always be closely proportional to the expanding services and goods which can be purchased with it. Long-term stability of prices is the dependable result of these forces. This process is automatic and impartial. Any attempt by politicians to intervene will destroy the benefit for all. Therefore,
LAW: Long-term price stability is possible only when the
money supply is based upon the gold (or silver) supply without government interference.
NATURAL LAW NO. 2
LESSON: Whenever government sets out to manipulate the
money supply, regardless of the intelligence or good intentions of those who attempt to direct the process, the result is inflation, economic chaos, and political upheaval. By contrast, whenever government is limited in its monetary power to only the
maintenance of honest weights and measures of precious metals, the result is price stability, economic prosperity, and political tranquility. Therefore,
LAW: For a nation to enjoy economic prosperity and political tranquility, the monetary power of its politicians must be limited solely to the maintenance of honest weights and measures of precious metals.
NATURAL LAW NO. 3
LESSON: Fiat money is paper money without precious-metal
backing and which people are required by law to accept. It allows politicians to increase spending without raising taxes. Fiat money is the cause of inflation, and the amount which people lose in purchasing power is exactly the amount which was taken from them and transferred to their government by this process. Inflation, therefore, is a hidden tax. This tax is the most unfair of all because it falls most heavily on those who are least able to pay: the small wage earner and those on fixed incomes. It also punishes the thrifty by eroding the value of their savings. This creates resentment among the people, leading always to political unrest and national disunity. Therefore,
LAW: A nation that resorts to the use of fiat money has doomed itself to economic hardship
