On May 25th 1915, Paul M. Warburg,
member of the Federal Reserve Board, delivered the following address before the
Pan American Financial Conference, at Washington, D. C, on May 25, 1915. I find this speech illuminating. The Federal Reserve had just started
operations in the United States and Europe was well into the first year of
World War I. Paul Warburg after
analyzing the then current “fatal conditions” presents his plan on how “a truly
American banking system” can dominate the western hemisphere. The speech makes you wonder whether we have
ever lived in free-market democracies.
“… by what means may we hope to prevent, in the future, the recurrence of such fatal conditions?”
“Our
sufferings originated in disturbances of three kinds—of shipping, of trade, and
of credit. These three phases of our economic life are so closely interrelated
that a breakdown of one immediately affects the other. A collapse of credit
must interrupt trade, and therefore shipping. On the other hand, disruption of
shipping and trade necessarily disorganizes credit, crippling, as it does, the
banking machinery which rests on the fulfillment of contracts, remittances, and
payments based on commercial transactions. ”
“… had
the United States enacted and put into operation three years ago its Federal
Reserve System not only could our country have weathered the storm without such
far-reaching disturbances but we should have been in position to save our
American sister Republics much loss and inconvenience.”
“…When
the war began England occupied a
most advantageous strategic financial position. She had been acting as the banker of the entire world,
particularly by her system of acceptance credits, thus financing a vast
majority of transactions involving the importation and exportation of goods
between nations.”
“… when the war broke out all countries were
suddenly called upon to pay their debts and to finance their trade from that time forward wherever they could
do it to their best advantage. The consequence of this situation was that
England found herself in the position of a creditor calling upon the entire
world for the payment of debts due at a time when shipping and trade were
disorganized.”
This situation might have been avoided if “immediately
upon the beginning of the disturbance, she [England] had been adequately
prepared to issue without hesitation an ample supply of emergency currency.”
“…we [American
nations] should several years ago have reorganized our financial system so as
to keep our gold under our own effective control and so as to enable us to
finance with our own resources our import and export transactions. We should,
furthermore, have avoided borrowing abroad when we could have financed our
requirements at home, even though foreign aid was had at a slight advantage in
rate.”
“The
chief lesson which all American nations will have to learn from last years’
experience is that it is unwise for the
world to place its financial dependence upon any single nation; and that
those who can afford to do so, as, for instance, the United States, should from
this time on adopt a policy of greater reliance upon their own resources. Those countries which cannot rely
exclusively upon their own resources should adopt a policy of dividing the
risks of financial dependence as evenly and widely as they possibly can.
Financial dependence
expresses itself in two ways— first, in the short-term credit granted to
individuals, and, second, in the long-term and corporate credit, particularly
that granted to Governments.
Dealing first with the problem of individual
credits, the United States may be profoundly grateful
that just at this time its new banking system has been established. The
day of the opening of our Federal Reserve banks will mark the advent of our
financial independence. [from the British domination] We
are now able to finance our own imports and exports by the use of American
acceptances. More than that, we are in a
position to finance the trade of other nations and to play in this respect the part of an international banker that has
heretofore been played almost exclusively by England.
Did he actually want for the American continent
to develop in tandem with Britain or did he actually want to undermine the
British position? Given that his brother
Max Warburg was a powerful agent in Germany and a shareholder of the
Reichsbank, is it not reasonable to assume an alliance of US and German
financial interests during the first World War?
Why did the US entered the War in 1917 and under what conditions?
Warburg had no doubt about the future world
economic order and America’s place in it.
While it is true that
Germany and France during the past generation have begun to finance a large
portion of their own trade by acceptances of their own banks, the bulk of the
business has heretofore been handled by England. There is no doubt that upon the establishment of peace there will
be a tendency on the part of many nations to emancipate themselves in this
respect, and, we may add, with profound conviction, that it is precisely in
this field that the United States will
be destined to play a most important role.
He then goes on outlining his plan on how the
Americas will achieve economic and financial independence.
“First,
by the readiness of our banks and bankers to enter this new field in a spirit
of liberality and patriotism. … import and export transactions touching this
country should in the future be financed by ourselves.
Paul Warburg calls for the enlargement of the
powers of the Federal Reserve Banks and he envisions the transformation of the
role of the FED into a peripheral central bank for the American continent. The enlargement of the FED powers requires
for Warburg the further centralization
of the gold reserves into the hands of the Federal Reserve and the substitution
of gold and gold certificates by Federal Reserve notes.
“Federal
reserve act gives ample powers for the development of this business, even
though these powers may have to be still further enlarged” by the acceptance
of “discount of bills arising out of
transactions based upon the "importation or exportation" of goods”
and “that these transactions may also
cover shipments between foreign countries. We shall be in position, therefore,
to serve as bankers for our American sister Republics, not only in their trade
with us, but even in their trade with others.”
“the American continents ought to be so
organized as to form a distinct and
independent unit in times of emergency—a union whose transportation and
credit systems will remain unbroken, even though all Europe should go to war. An American union of this kind will
prove of the greatest economic advantage for all nations concerned. If such a
union be thought desirable, it must, however, be forged and riveted every day
of the year. If it is to stand the test of time and stress, it must be a
structure of gradual growth, carefully
planned and consistently developed, and built upon a safe foundation”
“The
United States has a gold stock amounting to the phenomenal sum of about
$1,890,000,000, of which so far only $300,000,000 in round figures have been
concentrated in the Federal reserve banks. The Federal Reserve banks need only
continue the process just begun of substituting Federal Reserve notes for the
gold and gold certificates now in circulation in order to gain control of a vast
additional financial power which now lies idle. We may confidently expect, therefore, to find
ample means to handle this business by the simple process of perfecting our
organization and assembling our idle gold.”
Wouldn’t it be true to say that the
centralization of the monetary medium of exchange reduces the degree of freedom
and independence of the economic agents?
Isn’t it true today that since gold has been substituted by fiat
currency that is credited into existence through loans given by the commercial
banks, the concentration of the banking sector reduces even further the freedom
of economic agents? How do you plan for an
economic union? Is it not that an
economic or political Union is a matter of democratic decision making? Or is it that future decisions have to be
intelligently designed? Years later his
nephew Siegmund Warburg would be one of the main advocates of the same vision
for the European continent.
The success of Paul Warburg’s plans depends not
only upon the transformation of the credit market through the acceptance of
bills in the US but central to his plan are also
“discount
rates that compare favorably with those of competing nations.”
This is
economic and financial nationalism at its best.
It is as if nations compete for discount rates contrary to the belief
that economic agents compete for markets in a free world. For Warburg when peace comes
it will then be one of
the functions of the Federal reserve banks to assist in the establishment of
discount rates for these acceptances low enough to render them effective in securing business.
Again one would have thought that according to
established wisdom the discount rate or the interest rate is settled by supply
and demand conditions in the money markets, yet the globalist Paul Warburg sees
it as a means of “securing business”
thereby creating a competitive advantage to those who have access to low
discount rates. Is that the idea of a free market?
In addition and in order to lock the banks into
the discounting operations of bills banks “must
be assured of the rate at which [the]
bill will be discounted when it reaches our country” and Federal Reserve
Banks “by adopting a liberal policy in quoting
… forward discount rates” are ready to give the “greatest possible assistance.”
American banks had already started to set up branches in foreign
countries enabling “the development of
better knowledge and understanding of local conditions and problems and the
greater intimacy necessary for the development of cordial and mutually satisfactory
business relations” with a view however of “facilitating the growth of a
truly American banking system ramifying throughout our entire hemisphere ”
!!!!!
So far Warburg’s plan was half complete as it
was focused on dealing “with the problem
of individual credits” but the principles
“should also apply to
corporate and Government financing. It is a
source of weakness when a nation depends too largely on one single or several closely
interrelated foreign markets, no matter how attractive may be the terms upon
which its obligations may be placed there.”
Because of the war on Europe “the United States will not only have to rely
largely upon its own resources for its internal development but that we shall
be called upon to provide means for absorbing the securities previously placed
in Europe but now returning to us.” Paul
Warburg was very conscious of the fact that “in order to create a broad market for bonds of foreign nations it is
not sufficient that our bankers alone be familiar with these countries. The
prerequisite is “confidence and a
sympathetic understanding concerning the borrowing country's condition.” Again many years later Siegmund Warburg was
the visionary financier to whom the creation of the vast Eurobond market is
credited.
What do I draw as a conclusion out of Paul
Warburg’s address? We do not live in
democracies and we probably never had in modern times. We have surrendered
our freedom to unaccountable institutions.
The so called markets are not free at all. We live in intelligently designed oligarchic
dictatorships. Our current
economic and political system system is not a free market democracy, we live in a money and banking
monarchy, in a nomismarchy.
Source:
Board of Governors
of the Federal Reserve System (U.S.). [(1915, July)]. Federal Reserve
Bulletin. Retrieved July 20, 2014, from FRASER:
http://fraser.stlouisfed.org/publication/?pid=62
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