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CHAPTER TEN

            The Money Creators

The editorial page of The New York Times, January 18, 1920, carried an 

interesting comment on the Federal Reserve System. The unidentified 

writer, perhaps Paul Warburg, stated, "The Federal Reserve is a fount of 

credit, not of capital." This is one of the most revealing statements ever 

made about the Federal Reserve System. It says that the Federal 

Reserve System will never add anything to our capital structure, or to 

the formation of capital, because it is organized to produce credit, to 

create money for credit money and speculations, instead of providing 

capital funds for the improvement of commerce and industry. Simply 

stated, capitalization would mean the providing of notes backed by a 

precious metal or other commodity. Reserve notes are unbacked 

paper loaned at interest.

On July 25, 1921, Senator Owen stated on the editorial page of The 

New York Times, The Federal Reserve Board is the most gigantic 

financial power in all the world. Instead of using this great power as the 

Federal Reserve Act intended that it should, the board....delegated 

this power to the banks, threw the weight of its influence toward the 

support of the policy of German inflation." The senator whose name 

was on the Act saw that it was not performing as promised.

After the Agricultural Depression of 1920-21, the Federal Reserve Board 

of Governors settled down to eight years of providing rapid credit 

expansion of the New York bankers, a policy which culminated in the 

Great Depression of 1929-31 and helped paralyze the economic