Federal Reserve, National Debt Nearly Defeated During Great Depression; Let’s Finish the Job

by Carl Herman, Washington’s Blog

Monetary reform is a fundamental shift in how America creates money. The shift is from a Robber Baron-era design of banks creating credit to lend to us at interest and ever-increasing debt, to our community (government) creating it for the direct payment of public goods and services.

The benefits of monetary reform are full employment as government becomes the employer of last resort for infrastructure investment, the best infrastructure we can envision, and ending national debt forever.

The Great Depression in the US (1929-1941) motivated professional economists to comprehensively and creatively address its causes. Upon consideration of previous US economic depressions in 1837, 1873, and 1893, prominent economists led by Henry Simons at the University of Chicago proposed monetary reform as the nation’s most effective and practical policy response, known as the Chicago Plan (and here).

The proposal was endorsed by Simons’ colleague, Paul Douglas, Frank Graham and Charles Whittlesley of Princeton, Irving Fisher of Yale, Earl Hamilton of Duke, Willford King of NYU, and sent to a thousand academic economists for their input. Three hundred twenty responded to the mailed proposal and survey (an impressively high number for a cold-call proposal and survey) from 157 universities, with 73% in full agreement with the proposal, 12.5% in approval with various considerations in its implementation, and only 14% in disagreement.

Despite the professional expert opinion in support of monetary reform, President Roosevelt and Congress supported a minor public works program that was paid by government debt. The US depression continued only until the government embraced full employment for WW 2, but paid with further debt.

The depression could have ended anytime and with enormous domestic benefit if the full employment had been for infrastructure. The 1% then, just as now, preferred control and war. Their propaganda and force kept their Federal Reserve debt system in place.

Here’s how I frame Occupy’s economic argument, and how we’ll win today to end our debt-damned economic system rigged for those creating the debt, and move into the brighter future available for 100% of earth’s inhabitants.

If it helps, my own experience of working with government leadership of both parties for 18 years and two UN summits confirms the history below of a 1% working only and always for their own dominance. I’ve been inspired to go back and document such history over the last 160 years (and such history is already familiar to you).

The larger picture of how the 99% of the 1930s almost won:

1. The political and economic war was whether the Federal Reserve would survive against the argument of government-issued debt-free money. As you already know from history, this single issue was central to several 3rd party attempts for political power: the Greenback, Populist, Democratic Party with “free silver”, Socialist, and today with the Green Party. Monetary reform was the allegory in the Wizard of Oz book.
2. As I documented above, an astounding 86% of university economists preferred monetary reform to end the Great Depression! This was defeated only by the political manipulation of the 1% and their control over the media of the day.
3. This is in context of many of America’s brightest historical minds‘ writing and speaking to explain the crucial distinction between public-created debt-free money for direct payment of public goods and services, and debt-damned bank-controlled credit that forces a macroeconomy into increasing aggregate debt. These Americans begin with a book by Benjamin Franklin, nation-founders Jefferson and Adams, President Andrew Jackson, famed inventor and third-party presidential candidate Peter Cooper, New York City mayor John Hylan, Democratic presidential candidate William Jennings Bryan, Congressman Charles Lindbergh Sr., among many.
4. Why did/does corporate media ignore this history, and ignore monetary reform today? J.P. Morgan was accused by Congressman Calloway in 1917 of having purchased the editorial boards of the US’ largest 25 publications to shape reporting to his interests, which included the Fed and debt-based banking/”monetary” system. In our world of the present, such corporate media control has been leaked multiple times and easily verified; the most stunning admission was CIA Director Colby admitting in Senate testimony that the CIA had over 400 assets to control public perception on any issue of government interest (Colby was shorty thereafter fired and replaced by George Bush, Sr. who stated the CIA has no further testimony to offer). Pulitzer-winner Carl Bernstein followed-up this testimony and confirmed it (and corporate media refused to publish his findings). Corporate media controls textbook publications, and US economics journals have over half their editorial boards with current or former Fed employees. And please recall my personal experience with corporate media coverage of our organizing the largest meeting of heads of state in world history to save a million children’s lives every month, and having the story buried by the NY Times after the comics and sections on style and art. That experience ended my blindness.
5. The New Deal was just a token program to address unemployment. In contrast, Germany created its own debt-free currency with full employment for infrastructure investment (then military), and became the strongest economy in the world during the 1930s. This is astounding: Germany rebounded from tragic-comedy hyperinflation to becoming a model for the power of monetary reform to cause full-employment without debt (think what could be possible with infrastructure).
6. What could explain FDR’s siding with the big banks rather than the monetary reform and ending the Fed argued by 86% of professional economists, many of America’s brightest minds, modeled by Germany’s stunning economic success, and sensibly the only policy that would cause full employment and optimize infrastructure? The most decorated Marine Corps General in US history testified that he was recruited by American business fascists to organize willing US military veterans (and there were many after the Bonus Army was crushed) to overthrow FDR’s government to make him a puppet or assassinate him. Butler’s testimony of “the Business Plot” was confirmed by Congressional investigation, although as today, nobody in the 1%’s big business was prosecuted (history here, here, and video of Smedley Butler explaining the plot on newsreel here). The Bush family was involved in the plot, and later prosecuted by the US for aiding Nazi Germany during WW2 (summary here, complete explanation with documentation here).
7. Always a factor: from my own personal experience since 1990 the issue is not that people such as I cannot or do not document objective facts that prove the history, but cognitive dissonance that such documentation evokes (explained by seven psychologists here on a related topic). That is, dear 99%, one must have the intellectual integrity and moral courage to only and always speak and work from independently verifiable factual claims. In this one case, the facts destroy what you learned from the 1%’s school textbooks by explaining and documenting our banking system as allowing the 1% to create debt for what we use as money, having the 99% forever as their debt slaves, and that we could stop the slavery for money, full employment, and modern infrastructure right now upon our demand. As you may know, modern infrastructure can be game-changing for humanity’s future with inspiring beauty and efficiency.

Here are quotes from President Roosevelt and his son-in-law, and some of our most prominent economists that add to the refutation of the 1%’s bankster racket over the 99% from the last US Great Depression. Importantly, the 1% always must control legislation, political voice, and media. These followed damning House floor testimony of the criminality of the Federal Reserve by House Banking Committee Chair, Louis McFadden, in 1932 and prescient for today:

“Mr. Chairman, we have in this country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve Banks. The Federal Reserve Board, a Government board, has cheated the Government of the United States and the people of the United States out of enough money to pay the national debt. The depredations and iniquities of the Federal Reserve Board has cost this country enough money to pay the national debt several times over. This evil institution has impoverished and ruined the people of the United States, has bankrupted itself, and has practically bankrupted our Government. It has done this through the defects of the law under which it operates, through the maladministration of that law by the Federal Reserve Board, and through the corrupt practices of the moneyed vultures who control it.

Some people think the Federal Reserve banks are United States Government institutions. They are not Government institutions. They are private credit monopolies which prey upon the people of the United States for the benefit of themselves and their foreign customers; foreign and domestic speculators and swindlers; and rich and predatory money lenders. In that dark crew of financial pirates there are those who would cut a man’s throat to get a dollar out of his pocket; there are those who send money into States to buy votes to control our legislation; and there are those who maintain international propaganda for the purpose of deceiving us and of wheedling us into the granting of new concessions which will permit them to cover up their past misdeeds and set again in motion their gigantic train of crime.” – Rep. Louis McFadden, House Banking Committee Chair, June 10, 1932. Source: Congressional Record, June 1932, pg 12595-12603.

Franklin Roosevelt, letter to Col. Edward Mandell House (21 November 1933); as quoted inF.D.R.: His Personal Letters, 1928-1945, edited by Elliott Roosevelt (New York: Duell, Sloan and Pearce, 1950), pg. 373:

“The real truth of the matter is, as you and I know, that a financial element in the larger centers has owned the Government ever since the days of Andrew Jackson – and I am not wholly excepting the Administration of W.W. (Woodrow Wilson). The country is going through a repetition of Jackson’s fight with the Bank of the United States – only on a far bigger and broader basis.”

Curtis Dall (FDR’s son-in-law), My Exploited Father-in-Law, 1967. pages 34-43: . Dall was a graduate of Princeton, manager at Lehman Brothers, Partner at Merrill Lynch, and Vice Presidential nominee for the Constitution Party in 1960:

“The depression was the calculated ‘shearing’ of the public by the World Money powers, triggered by the planned sudden shortage of supply of call money in the New York money market….The One World Government leaders and their ever close bankers have now acquired full control of the money and credit machinery of the U.S. via the creation of the privately owned Federal Reserve Bank.”

Robert H. Hemphill, Credit Manager of the Federal Reserve Bank of Atlanta, 1934 foreword to 100% Money, by Irving Fisher. Fisher was a Yale economist whose proposal for monetary reform lost to Keynes’ deficit spending plan during the Great Depression:

“If all the bank loans were paid, no one could have a bank deposit, and there would not be a dollar of coin or currency in circulation. We are completely dependent on the commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the Banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon.”

Irving Fisher, Yale economist and leading proponent for monetary reform:

“I have come to believe that that plan is incomparably the best proposal ever offered for speedily and permanently solving the problem of depressions; for it would remove the chief cause of both booms and depressions.”

Milton Friedman, Nobel Prize Laureate in Economics and Senior Fellow at the Hoover Institute in his letter to the producer of The Money Masters, 1996, which he helped edit (www.themoneymasters.com):

“As you know, I am entirely sympathetic with the objectives of your Monetary Reform Act…You deserve a great deal of credit for carrying through so thoroughly on your own conception…I am impressed by your persistence and attention to detail.”

Henry Simons, Economic Policy for a Free Society:

“The mistake…lies in fearing money and trusting debt. Money itself is highly amenable to democratic, legislative control, for no community wants a markedly appreciating or depreciating currency…but money is not easily manageable alongside a mass of private debt and private near-moneys…or alongside a mountain of public debt.”

Paul Douglas in the Chicago Plan booklet:

“This proposal will of course be opposed by the bankers from whom it takes the lucrative privilege of creating purchasing power. It would however insure the safety of deposits, give large revenues to the government, provide complete social control over monetary matters and prevent abnormal fluctuations in the capital market. At the same time it would permit the allocation of productive resources…to remain primarily in private hands. All in all it seems the most promising program for the reform of our monetary and credit system…”

In discussing our current monetary system, John Kenneth Galbraith wrote in Money: Whence it came, where it went (1975) the following two poignant observations. Galbraith wrote five best-selling books on economics (best-selling to the public), was President of the American Economic Association, economics professor at Harvard, and advisor to four US Presidents.

“The process by which banks create money is so simple that the mind is repelled.” (p. 29; that is, the banking system creates credit out of nothing)

“Much discussion of money involves a heavy overlay of priestly incantation. Some of this is deliberate. Those who talk of money and teach about it and make their living by it gain prestige, esteem and pecuniary return, as does a doctor or a witch doctor, from cultivating the belief that they are in a privileged association with the occult – that they have insights that are not available to the ordinary person. Though professionally rewarding and on occasion personally profitable, this too is a well established form of fraud. There is nothing about money that cannot be understood by the person of reasonable curiosity, diligence and intelligence…. The study of money, above all other fields in economics, is the one in which complexity is used to disguise the truth, not to reveal it. Most things in life – automobiles, mistresses, cancer – are important principally to those who have them. Money, in contrast, is equally important to those who have it and to those who don’t. Both, accordingly, have a concern for understanding it. Both should proceed in the full confidence that they can.”– John Kenneth Galbraith, Money: Whence it came, where it went – 1975, p15.