In continuation from Part 4, this article presents the case of key individuals that opposed the private banking system in the 20th century.
In 1913, U.S. President Woodrow Wilson passed the Glass-Owen bill, which would eventually form the Federal Reserve System.
This was the fourth private central bank created in the U.S., and one that is still entrenched today.
Wilson’s decision to sign the Federal Reserve Act largely stems from the Panic of 1907.
Panic of 1907
During the panic, there was a Stock Market crash where the New York Stock Exchange (NYSE) fell almost 50%.
The panic had been triggered by a failed attempt in October 1907 to corner the market on the stock of the United Copper Company.
When this bid failed, the banks that had lent money in the cornering scheme had suffered from bank runs, that would then spread to affiliated banks and trusts.
The panic extended across the nation as vast numbers of people withdrew deposits from their regional banks.
At the time, the U.S. did not have a central bank to inject liquidity back into the market, which is why financier J.P Morgan pledged large sums of his own money to shore up the banking system.
The panic had caused people to believe that they needed a central bank in order to guarantee their deposits.
This led Senator Aldrich to establish the National Monetary Commission in order to propose changes to banking and currency laws.
However, a U.S. Congressman at the time, Charles Lindnbergh, had believed that the solutions proposed by the Monetary Commission were framed by the same Money Trust (i.e. bankers) which had created the panic in the first place.
Lindbergh believed that the Panic of 1907 was a scam perpetrated by the bankers to frighten the people into demanding changes in banking laws.
Sir Charles A. Lindbergh
His statement supporting the accusation is found in his own book titled: Banking and Currency and the Money Trust, where he said,
Those not favorable to the money trust could be squeezed out of business and the people frightened into demanding changes in the banking and currency laws which the Money Trust would frame.
Consequently, after the Panic, the National Monetary Commission proposed the Aldrich bill. The Aldrich bill was a legislative proposal which had been worked out by Senator Aldrich with the aid of banking authorities.
The bill presented a plan for the complete reorganization of the banking system in the country, with the establishment of a central bank.
Lindbergh had been a strong opponent of the Aldrich bill and reorganization of the banking system, claiming that it was not in the interests of the public. And Lindbergh’s opposition would ultimately halt the bill’s passage in Congress.
Lindbergh confirmed his opposition to the bill in his speech delivered to Congress,
The Aldrich Plan is the Wall Street Plan. It means another panic, if necessary, to intimidate the people. Aldrich, paid by the government to represent the people, proposes a plan for the trusts instead.
Further into his speech Lindbergh said,
Further, I concluded that if the public could be advised of that trust, it (the trust) would be kept so busy defending itself that it would be compelled to postpone its attempt to force the passage of the Aldrich Plan by means of the drastic process of a panic, and that it might possibly be entirely defeated. Accordingly I introduced a resolution naming the Money Trust and asked for a committee to investigate. My purpose was accomplished. The Aldrich Plan was defeated for the time being by the influence of a positive public sentiment which developed to greater and greater proportions as I pressed the inquiry, and the press published articles about it. The advocates of the plan began to look for a means of retreat, and later they declared the plan abandoned, but lest that declaration be misconstrued, let us not deceive ourselves by believing that the purposes of the Aldrich Plan have been abandoned. They have not, and the same interests that were advocating the plan are covertly operating in order to secure a plan that will accomplish the same results and satisfy the same selfish purposes. The Aldrich Plan is not dead, but is being advocated under a disguise.
Through his various many speeches it becomes clear that Lindnbergh had been opposed to the creation of a central bank which was the goal of powerful financial interests.
These financial interests would later put forth a new bill titled the Glass-Owen bill in Congress.
To assess the true nature of the bill, Congress called upon Alfred Crozier, a well-known critic of the decentralized monetary system and author of the book U.S. Money vs. Corporation Currency, to testify.
In his analysis of the bill, Crozier testified, saying
The so-called administration currency bill grants just what Wall Street and the big banks for twenty-five years have been striving for, that is, PRIVATE INSTEAD OF PUBLIC CONTROL OF CURRENCY. It does this as completely as the Aldrich Bill. Both measures rob the government and the people of all effective control over the public’s money, and vest in the banks exclusively the dangerous power to make money among the people scarce or plenty. The Aldrich Bill puts this power in one central bank. The Administration Bill puts it in twelve regional central banks, all owned exclusively by the identical private interests that would have owned and operated the Aldrich Bank. President Garfield shortly before his assassination declared that whoever controls the supply of currency would control the business and activities of the people. Thomas Jefferson warned us a hundred years ago that a private central bank issuing the public currency was a greater menace to the liberties of the people than a standing army.
Crozier claimed that the basic principles behind the Aldrich bill and the Glass-Owen bill were one and the same; to allow private control over the public’s money and currency, and to allow banks the power to issue money.
Despite Crozier’s analysis, Congress proceeded in passing the Glass-Owen bill in 1913.
On the day the bill was passed, Congressman Lindbergh prophetically warned,
This act establishes the most gigantic trust on earth. When the president signs this bill, the invisible government by the Monetary Power will be legalized. The people may not know it immediately, but the day of reckoning is only a few years removed….The worst legislative crime of the ages is perpetrated by this banking bill.
Lindbergh’s prophecy came true on December 23 of 1913, when Woodrow Wilson signed the Glass-Owen bill into law.
This bill would later be known as the Federal Reserve Act of 1913 which established the current Federal Reserve System as it stands today in the U.S.
While the U.S. had already been in negotiations for a central bank, Canada had also been engaged in discussions on whether to permit the creation of a central bank for the nation’s monetary finances.
North of the Border
The great depression of the ’30s had also caused a huge strain on the Canadian economy particularly due to the large contraction in the money supply (as much as 27%).
As a result of this contraction, people were not able to receive access to loans, businesses were not able to expand, and at the same time more people were seeking jobs.
The lack of credit had been cited by many Canadian’s as the primary cause of the problem.
In response to the effects of the Great Depression, Prime Minister of the day Richard Bennett, had called for a Royal Commission to examine the banking system in Canada.
Included in the Commission’s mandate were discussions on considering the arguments for and against a central bank.
In 1933 the Royal Commission issued its report, where in a majority vote, 3 members of the Commission; Chairman Macmillan, Sir Charles Addis, and Mr. Brownlee had recommended the creation of a Central bank.
Macmillan et al. claimed that the creation of a central banking institution would improve Canada’s financial structure, and thus enable Canada to quickly recover from the depression.
The remaining 2 members of the Commission; Sir Thomas White and Beaudry Leman contested the creation of a central bank in Canada.
In contrast to Macmillan et al. White held the position that a central bank would impede the Canadian government’s ability to act.
Sir Thomas White
White asserted his position in the Royal Commission report, where he went on to say,
A Central Bank, newly established, entrusted immediately with the ownership of the entire cash reserves of the Canadian banks, and administered by a necessarily untried and independent Board of Directors clothed with the power of controlling currency, credit and security issues and charged with the conduct of negotiations respecting our external public finance, could I think, be only an impediment to the Government in this trying period, when direct unfettered Governmental action is manifestly required.
In White’s view, the central bank, under an independent board of directors with power over controlling currency, credit, and security issues would only impede the Government in how it handles the economy thus the central bank would be serving as a middle-man, a middle-man which White believed would be unnecessary in those difficult times of the great depression.
The other commissioner that had opposed the creation of a private central bank for Canada, Beaudry Leman, had agreed with White’s position.
Interestingly enough, Leman was the head of Banque Nationnale, which is a large regional bank in Canada.
And at the Royal Commission in 1933, Leman went on to say,
The time is inopportune for organizing a central bank in Canada because: (a) In a time of great economic difficulties the authority of Governmental bodies carries more force if exercised directly and in co-operation with financial institutions of a country. The division of forces, incidental to the establishment of another expensive mechanism, will not bring to the Canadian monetary and financial system additional wealth or capital, but will divest the State of some powers it now exercises and will diminish the strength of existing institutions.
Leman, being a CEO of a major private bank, had openly argued against the creation of a central bank on the grounds that it would undermine the authority of the Government because the government would lose the ability to directly control credit and currency.
Nevertheless, despite White and Leman’s passionate criticisms against the creation of a central bank, Bennett’s government had passed the Bank of Canada Act in 1934 thus establishing a private central bank overseeing Canada’s monetary finances.
However, the private monopoly that the central bank held would not last for long, as it would come under more intense scrutiny by other monetary advocates such as Gerald McGeer.
McGeer, a prominent lawyer and mayor of Vancouver, had been an ardent opponent of private banking system because of the dangers usury and debt creation would have on the money supply. His belief led him to write many papers on monetary reform.
McGeer insisted that no nation would be able to control its economy without a publicly accountable national bank that would oversee the existing banking system.
McGeer confirmed this in his report titled The Toll Gate, where he wrote,
The barrier that now blocks the way to progress is the misguided management of public credit by the private money system.
McGeer argued that it was the government’s responsibility to control the management, issuance, and deliverance of currency and credit.
McGeer was a great surveyor of history, having been influenced by men such as Abraham Lincoln in his fight against the private banking system.
Like other leaders before him, McGeer believed that the management of public credit by the banking system was misguided.
In his book titled The Conquest of Poverty, McGeer had written,
…That delusion formed the foundation of a private money system that was designed to permit bankers and financiers to convert public credit into private credit finance by the creation of fictitious bank deposits which were, in turn, pyramided into public and private interest-bearing debts. Government interest-bearing bonds are thus used to form the foundation of the modern private banking system. Public credit in this way is used to support the most powerful predatory monopoly in finance that has ever been organized.
The monopoly that McGeer warned about is the same monopoly that had been opposed by Abraham Lincoln, Andrew Jackson, Thomas Jefferson and others, many many decades earlier.
Having learned from history about the true danger of the private banking system, McGeer would go on to play a key role in influencing later Prime Minister, William Lyon Mackenzie King, in his efforts to nationalize the Bank of Canada.
William Lyon Mackenzie King
From the lessons learned in the U.S., Mackenzie King understood the importance of nationalizing the BOC.
McGeer had been Mackenzie’s advisor and had impressed him on the importance of a national central bank for Canada.
In the beginning of Mackenzie’s 1935 election campaign, Mackenzie had openly stated,
Once a nation parts with the control of its currency and credit, it matters not who makes that nation’s laws. Usury, once in control, will wreck any nation. Until the control of the issue of currency and credit is restored to government and recognized as its most conspicuous and sacred responsibility, all talk of the sovereignty of Parliament and of democracy is idle and futile. The Liberal Party believes that credit is a public matter, not of interest to bankers only, but of direct concern to every citizen. The Liberal Party declares itself in favour of the immediate establishment of a duly constituted national bank for the control of the issue of money in terms of public needs. The flow of money must be in relation with the domestic, social, and industrial needs of the Canadian people.
King, like Lincoln before him, had believed that it was the government’s ultimate obligation to the people to control the currency and credit of the state.
This is in direct contrast to the principles Alexander Hamilton had believed in, that governments could not be trusted to control currency on the grounds that it would lead to corruption and inflation.
And King had delivered on his promise when his government had successfully amended the Bank Act of Canada to nationalize the Central Bank in 1938.
Following this amendment, King bought shares from 12,000 private shareholders of the Bank of Canada, less than four years after they had acquired the stock.
As a result, the Government of Canada became the owner – primary shareholder – of the bank of Canada and has remained so ever since.
It is becoming clear that the monetary system through which banks can create and issue credit, and finance loans at compound interest, has been a prophecy that many others throughout history have warned about.
The private banking system facilitates the concentration of a nation’s wealth into the hands of private banks and credit lenders.
And in the current economic system more and more wealth has transferred from the middle and working classes to the elite class in the upper percentile.
Many of the wise-men of centuries past such as those mentioned in Part 4 and in this article, have influenced and reminded many contemporary scholars today about the dangers inherent in the private banking system.
The next article – Part 6 – discusses Canada’s fiscal position starting from the nationalization of its central bank to current day.