Secrets of the Federal Reserve--The Agricultural Depression
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by Eustace Mullins CHAPTER NINEWhen Paul Warburg resigned from the Federal Reserve Board of Governors in 1918, his place was taken by Albert Strauss, partner in the international banking house of J & W Seligman. This banking house had large interests in Cuba and South America, and played a prominent part in financing the many revolutions in those countries. Its most notorious publicity came during the Senate Finance Committee's investigation in 1933, when it was brought out that J & W Seligman had given a $415,000 bribe to Juan Leguia, son of the President of Peru, in order to get that nation to accept a loan. A partial list of Albert Strauss' directorships, according to "Who's Who", shows that he was: Chairman of the Board of the Cuba Cane Sugar Corporation; director, Brooklyn Manhattan Transit Co., Coney Island Brooklyn RR, New York Rapid Transit, Pierce-Arrow, Cuba Tobacco Corporation, and the Eastern Cuba Sugar Corporation. Governor Delano resigned in August, 1918, to be commissioned a Colonel in the Army. The war ended on November 11, 1918. William McAdoo was replaced in 1918 by Carter Glass as Secretary of the Treasury. Both Strauss and Glass were present during the secret meeting of the Federal Reserve Board on May 18, 1920, when the Agricultural Depression of 1920-21 was made possible. One of the main lies about the Federal Reserve Act when it was being ballyhooed in 1913 was its promise to take care of the farmer. Actually, it has never taken care of anybody but a few big bankers. Prof. O.M.W. Sprague, Harvard economist, writing in the Quarterly Journal of Economics of February, 1914, said:
There is nothing in that wording to help the farmer. The First World War had introduced into this country a general prosperity, as revealed by the stocks of heavy industry on the New York Exchange in 1917-1918, by the increase in the amount of money circulated, and by the enormous bank clearings during the whole of 1918. It was the assigned duty of the Federal Reserve System to get back the vast amount of money and credit which had escaped their control during this time of prosperity. This was done by the Agricultural Depression of 1920-21. The operations of the Federal Reserve Open Market Committee in 1917-18, while Paul Warburg was still Chairman, show a tremendous increase in purchases of bankers' and trade acceptances. There was also a great increase in the purchase of United States Government securities, under the leadership of the able Eugene Meyer, Jr. A large part of the stock market speculation in 1919, at the end of the War when the market was very unsettled, was financed with funds borrowed from Federal Reserve Banks with Government securities as collateral. Thus the Federal Reserve System set up the Depression, first by causing inflation, and then raising the discount rate and making money dear.
Much of the money was deposited in small country banks in the Middle West and West which had refused to have any part of the Federal Reserve System, the farmers and ranchers of those regions seeing no good reason why they should give a group of international financiers control of their money. The main job of the Federal Reserve System was to break these small country banks and get back the money which had been paid out to the farmers during the war, in effect, ruin them, and this it proceeded to do. First of all, a Federal Farm Loan Board was set up which encouraged the farmers to invest their accrued money in land on long term loans, which the farmers were eager to do. Then inflation was allowed to take its course in this country and in Europe in 1919 and 1920. The purpose of the inflation in Europe was to cancel out a large portion of the war debts owed by the Allies to the American people, and its purpose in this country was to draw in the excess moneys which had been distributed to the working people in the form of higher wages and bonuses for production. As prices went higher and higher, the money which the workers had accumulated became worth less and less, inflicting upon them an unfair drain, while the propertied classes were enriched by the inflation because of the enormous increase in the value of land and manufactured goods. The workers were thus effectively impoverished, but the farmers, who were as a class more thrifty, and who were more self-sufficient, had to be handled more harshly. G.W. Norris, in "Collier's Magazine" of March 20, 1920, said:
Senator Robert L. Owen, Chairman of the Senate Banking and Currency Committee, testified at the Senate Silver Hearings in 1939 that:
Carter Glass, member of the Board in 1920 as Secretary of the Treasury, wrote in his autobiography, Adventure in Constructive Finance published in 1928; "Reporters were not present, of course, as they should not have been and as they never are at any bank board meeting in the world."85
Senator Brookhart of Iowa testified that at that
secret meeting Paul Warburg, also President of the Federal Advisory
Council, had a resolution passed to send a committee of five to the
Interstate Commerce Commission and ask for an increase in railroad
rates. As head of Kuhn, Loeb Co. which owned most of the railway mileage
in the United States, he was already missing the huge profits which the
United States Government had paid during the war, and he wanted to
inflict new price raises on the American people.
Mr. Wingo testified that in April, May, June and July of 1920, the manufacturers and merchants were allowed a very large increase in credits. This was to tide them through the contraction of credit which was intended to ruin the American farmers, who, during this period, were denied all credit. At the Senate Hearings in 1923, Eugene Meyer, Jr. put his finger on a primary reason for the Federal Reserve Board's action in raising the interest rate to 7% on agricultural and livestock paper:
Meyer was correct in pointing this out. The purpose of the Board's action was to break those state and joint land stock banks which had steadfastly refused to surrender their freedom to the banker's dictatorship set up by the System. Kemmerer in the ABC of the Federal Reserve System had written in 1919 that:
The Senate Hearings of 1923 investigating the causes of the Agricultural Depression of 1920-21 had been demanded by the American people. The complete record of the secret meeting of the Federal Reserve Board on May 18, 1920 had been printed in the "Manufacturers' Record" of Baltimore, Maryland, a magazine devoted to the interests of small Southern manufacturers. Benjamin Strong, Governor of the Federal Reserve Bank of New York, and close friend of Montagu Norman, the Governor of the Bank of England, claimed at these Hearings:
Emmanuel Goldenweiser, Director of Research for the Board of Governors, claimed that the discount rate was raised purely as an anti-inflationary measure, but he failed to explain why it was a raise aimed solely at farmers and workers, while at the same time the System protected the manufacturers and merchants by assuring them increased credits. The final statement on the Federal Reserve Board's causing the Agricultural Depression of 1920-21 was made by William Jennings Bryan. In "Hearst's Magazine" of November, 1923, he wrote:
NOTES: 85 Carter Glass, Adventure in Constructive Finance, Doubleday, N.Y. 1928 <back---Table of Contents---next>
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In
1914, Federal Reserve Bank rates had dropped from six percent to four
percent, had gone to a further low of three percent in 1916, and had
stayed at that level until 1920. The reason for the low interest rate
was the necessity for floating the billion dollar Liberty Loans. At the
beginning of each Liberty Loan Drive, the Federal Reserve Board put a
hundred million dollars into the New York money market through its open
market operations, in order to provide a cash impetus for the drive. The
most important role of the Liberty Bonds was to soak up the increase in
circulation of the medium of exchange (integer of account) brought about
by the large amount of currency and credit put out during the war.
Laborers were paid high wages, and farmers received the highest prices
for their produce they had ever known. These two groups accumulated
millions of dollars in cash which they did not put into Liberty Bonds.
That money was effectively out of the hands of the Wall Street group
which controlled the money and credit of the United States. They wanted
it back, and that is why we had the Agricultural Depression of 1920-21.
It
was Carter Glass who had complained that, if a suggested amendment by
Senator LaFollette were passed, on the Federal Reserve Act of 1913, to
the effect that no member of the Federal Reserve Board should be an
official or director or stockholder of any bank, trust company, or
insurance company, we would end up by having mechanics and farm laborers
on the Board. Certainly mechanics and farm laborers could have caused no
more damage to the country than did Glass, Strauss, and Warburg at the
secret meeting of the Federal Reserve Board.
