Modern Money Operations  

Paul Warburg advanced at Jekyll Island the primary deception which would prevent the citizens from recognizing that his plan set up a central bank. This was the regional reserve system. He proposed a system of four (later twelve) branch reserve banks located in different sections of the country. Few people outside the banking world would realize that the existing concentration of the nation's money and credit structure in New York made the proposal of a regional reserve system a delusion.

Another proposal advanced by Paul Warburg at Jekyll Island was the manner of selection of administrators for the proposed regional reserve system. Senator Nelson Aldrich had insisted that the officials should be appointive, not elected, and that Congress should have no role in their selection. His Capitol Hill experience had taught him that congressional opinion would often be inimical to the Wall Street interests, as Congressmen from the West and South might wish to demonstrate to their constituents that they were protecting them against the Eastern bankers.

Warburg responded that the administrators of the proposed central banks should be subject to executive approval by the President. This patent removal of the system from Congressional control meant that the Federal Reserve proposal was unconstitutional from its inception, because the Federal Reserve System was to be a bank of issue. Article 1, Sec. 8, Par. 5 of the Constitution expressly charges Congress with "the power to coin money and regulate the value thereof.". Warburg's plan would deprive Congress of its sovereignty, and the systems of checks and balances of power set up by Thomas Jefferson in the Constitution would now be destroyed.

Administrators of the proposed system would control the nation's money and credit, and would themselves be approved by the executive department of the government. The judicial department (the Supreme Court, etc.) was already virtually controlled by the executive department through presidential appointment to the bench.

Paul Warburg later wrote a massive exposition of his plan, The Federal Reserve System, Its Origin and Growth ⁷ of some 1750 pages, but the name "Jekyll Island" appears nowhere in this text. He does state (Vol. 1, p. 58):

"But then the conference closed, after a week of earnest deliberation, the rough draft of what later became the Aldrich Bill had been agreed upon, and a plan had been outlined which provided for a 'National  Reserve Association,' meaning a central reserve organization with an elastic note issue based on gold and commercial paper."

On page 60, Warburg writes, "The results of the conference were entirely confidential. Even the fact there had been a meeting was not permitted to become public." He adds in a footnote, "Though eighteen [sic] years have since gone by, I do not feel free to give a description of this most interesting conference concerning which Senator Aldrich pledged all participants to secrecy."

 B.C. Forbes' revelation of the secret expedition to Jekyll Island, had had surprisingly little impact. It did not appear in print until two years after the Federal Reserve Act had been passed by Congress, hence it was never read during the period when it could have had an effect, that is, during the Congressional debate on the bill. Forbes' story was also dismissed, by those "in the know," as preposterous, and a mere invention. Stephenson mentions this on page 484 of his book about Aldrich. ⁹

"This curious episode of Jekyll Island has been generally regarded as a myth. B.C. Forbes got some information from one of the reporters. It told in vague outline the Jekyll Island story, but made no impression and was generally regarded as a mere yarn."

The coverup of the Jekyll Island conference proceeded along two lines, both of which were successful. The first, as Stephenson mentions, was to dismiss the entire story as a romantic concoction which never actually took place. Although there were brief references to Jekyll Island in later books concerning the Federal Reserve System, these also attracted little public attention. As we have noted, Warburg's massive and supposedly definite work on the Federal Reserve System does not mention Jekyll Island at all, although he does admit that a conference took place. In none of his voluminous speeches or writings do the words "Jekyll Island" appear, with a single notable exception. He agreed to Professor Stephenson's request that he prepare a brief statement for the Aldrich biography. This appears on page 485 as part of "The Warburg Memorandum". In this excerpt, Warburg writes, "The matter of a uniform discount rate was discussed and settled at Jekyll Island."

Another member of the "First Name Club" was less reticent. Frank Vanderlip later published a few brief references to the conference. In the Saturday Evening Post, February 9, 1935, p. 25, Vanderlip wrote:

"Despite my views about the value to society of greater publicity for the affairs of corporations, there was an occasion near the close of 1910, when I was as secretive, indeed, as furtive, as any conspirator. . . . Since it would have been fatal to Senator Aldrich's plan to have it known that he was calling on anybody from Wall Street to help him in preparing his bill, precautions were taken that would have delighted the heart of James Stillman (a colorful and secretive banker who was President of the National City Bank during the Spanish-American War, and who was thought to have been involved in getting us into that war) . . . I do not feel it is any exaggeration to speak of our secret expedition to Jekyll Island as the occasion of the actual conception of what eventually became the Federal Reserve System."

In a Travel feature in The Washington Post, March 27, 1983, "Follow The Rich to Jekyll Island", Roy Hoopes writes:

"In 1910, when Aldrich and four financial experts wanted a place to meet in secret to reform the country's banking system, they faked a hunting trip to Jekyll and for 10 days holed up in the Clubhouse, where they made plans for what eventually would become the Federal Reserve Bank."

Vanderlip later wrote in his autobiography, From Farmboy to Financier: ¹⁰

"Our secret expedition to Jekyll Island was the occasion of the actual conception of what eventually became the Federal Reserve System. The essential points of the Aldrich Plan were all contained in the Federal Reserve Act as it was passed."

Professor E.R.A. Seligman, a member of the international banking family of J. & W. Seligman, and head of the Department of Economics at Columbia University, wrote in an essay published by the Academy of Political Science, Proceedings, v. 4, No. 4, p. 387-90:

"It is known to a very few how great is the indebtedness of the United States to Mr. Warburg. For it may be said without fear of contradiction that in its fundamental features the Federal Reserve Act is the work of Mr. Warburg more than any other man in the country. The existence of a Federal Reserve Board creates, in everything but in name, a real central bank. In the two fundamentals of command of reserves and of a discount policy, the Federal Reserve Act has frankly accepted the principle of the Aldrich Bill, and these principles, as has been stated, were the creation of Mr. Warburg and Mr. Warburg alone. It must not be forgotten that Mr. Warburg had a practical object in view. In formulating his plans and in advancing in them slightly varying suggestions from time to time, it was incumbent on him to remember that the education of the country must be gradual and that a large part of the task was to break down prejudices and remove suspicion. His plans therefore contained all sorts of elaborate suggestions designed to guard the public against fancied dangers and to persuade the country that the general scheme was at all practicable. It was the hope of Mr. Warburg that with the lapse of time it might be possible to eliminate from the law a few clauses which were inserted largely at his suggestion for educational purposes."

Now that the public debt of the United States has passed a trillion dollars, we may indeed admit "how great is the indebtedness of the United States to Mr. Warburg." At the time he wrote the Federal Reserve Act, the public debt was almost nonexistent.

Professor Seligman points out Warburg's remarkable prescience that the real task of the members of the Jekyll Island conference was to prepare a banking plan which would gradually "educate the country" and "break down prejudices and remove suspicion". The campaign to enact the plan into law succeeded in doing just that.

NOTES:

1. Prof. Nathaniel Wright Stephenson, Paul Warburg's Memorandum, Nelson Aldrich A Leader in American Politics, Scribners, N.Y. 1930

2. "CURRENT OPINION", December, 1916, p. 382.

3. Nathaniel Wright Stephenson, Nelson W. Aldrich, A Leader in American Politics, Scribners, N.Y. 1930, Chap. XXIV "Jekyll Island"

4. T.W. Lamont, Henry P. Davison, Harper, 1933

5. Clarendon, Hist. Reb. 1647

6. Nathaniel Wright Stephenson, Nelson W. Aldrich, A Leader in American Politics, Scribners, N.Y. 1930, Chap. XXIV "Jekyll Island" p. 379

7. Paul Warburg, The Federal Reserve System, Its Origin and Growth, Volume I, p. 58, Macmillan, New York, 1930

8. CURRENT OPINION, December, 1916, p. 382

9. Nathaniel Wright Stephenson, Nelson W. Aldrich, A Leader in American Politics, Scribners, N.Y. 1930, Chap. XXIV "Jekyll Island" p. 379

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