Why Banking, Corporate America And The Government Need Each Other
November 14th, 2013
by Gold Silver Worlds
It should not come as a surprise that banking, industry and government are closely connected. The recent draconian decisions of the US Fed or the US foreign policy towards the Middle East are obvious examples. In order to understand who is behind most of those decisions and who the beneficiaries are, one should go back in history to the end of the 19th century.
Murray N. Rothbard revealed in his book “Wall Street, Banks and American Foreign Policy” in great detail that the financial and political stakeholders are one and the same. Rothbard, being an author and great thinker, highlights the role of political capitalism and crony capitalism in the US by tracing the historical references and connections in US financial and political decision making. This was also the context in which the US Fed was created.
Claudio Grass, managing director of Global Gold Switzerland, created a short and comprehensive overview of Rothbard’s book as part of his latest Global Gold Outlook Report. In this article, we provide some highlights. We strongly recommend to read the document at the bottom of this article. For readers with more time, Rothbard’s book is a must-read; it is available as an electronic download (hyperlink at the bottom of this article).
Join us on this journey behind the scenes where the banking elite, the corporate elite and politicians in the United Stated laid the foundations of their empire.
“Bankers are inherently inclined toward statism”
Rothbard was a traditionally strong advocate of a laissez-faire economy, which calls for free and voluntary exchange, and where the role of the individual and his choices are central to its existence. In his book, Rothbard illustrates the convergence of the US economy from a free market of free and voluntary exchanges, particularly up to the 19th Century, to state capitalism. According to Rothbard in his article Capitalism versus Statism (published in 1972), statism is “one or more groups making use of the coercive apparatus of the government – the state – to accumulate capital for themselves by expropriating production of others by force and violence”.
We find this gradual convergence occurring over two phases in the 20th Century, with the turning point being WWI as the US advocated a militarist approach to the war (as opposed to the previous ‘peaceful’ and non-interventionist approach) – up to the final stage where this becomes institutionalized with the creation of the Federal Reserve. Rothbard traces this convergence back to the strong influence of Wall Street players and family corporates, particularly the Morgan family.
Some may regard this as a conspiracy while others may say it is simply business. At the end of the day, money talks. The corporate state overrides partisanship: Regardless of what party is in power, corporate relations/interests have been maintained through financiers’ holding of key government positions, particularly during the Johnson and Kennedy eras. Rothbard summed up his view of the financial powerhouses, stating “bankers are inherently inclined toward statism”, Rothbard argues that whether they are commercial bankers or investment bankers underwriting government bonds, they will continue to find their interests in encouraging deficit. Ultimately, it is the taxpayers who will be charged the bill to repay the government debt. As a result, both will constantly seek to influence and direct government policy towards the same ends. Rothbard does a magnificent job in tracing the familial, business connections, and friendly circles that fostered the creation of these financial powerhouses, and facilitated in securing the implementation of their plans for US policy making.
In his summary, Claudio Grass divided the book into three phases which show the gradual retreat of US policy from its traditional isolationist policy, to indirect intervention pressured by the US financial community.
Phase I: First Steps on the Road to the Empire: Latin America and Asia
The very beginning of Rothbard’s story goes back to 1861, when the names Cooke and Chase emerged as an alliance in the new Lincoln administration, “a creature of government privilege” thanks to the friendship between businessman Jay Cooke and Ohio Senator Salmon P. Chase and good lobbying skills, which secured Chases’ appointment as Secretary of the Treasury and granting Cooke the monopoly in underwriting government bonds. Together, they created a centralized banking system, where “national banks could only expand in proportion to the federal bonds they owned – bonds which they were forced to buy from Jay Cooke”.
Eventually, Cooke’s financial powerhouse collapsed and gave way to the rise of the new financial powerhouse and rival to Cooke, the Morgans, via Drexel, Morgan and Co.. This firm later emerged after 1873 as the leading investment firm of the United States, who had particular influence among members of the Democratic Party.
The Morgans became deeply entrenched in US policy making, to the extent that the War and Navy departments under President Grover Cleveland in the late 1800s were dominated by bankers, particularly affiliates to the Morgan family thanks to Cleveland’s close ties. It was this administration that geared the United States foreign policy from one of non-intervention to one calling for ‘aggressive’ economic and political expansion abroad – starting with Latin America. Their main target was Great Britain, who had dominated economic interests in the region. This policy shift to create the US Empire was directed by then Secretary of State, Richard Olney, who happens to be as Rothbard reveals, a longtime Morgan-associate. According to Rothbard, the Morgan’s drive and strategy was as follows:
“At the heart of the new policy were America’s leading bankers eager to use the country’s growing economic strength to subsidize and force-feed export markets and investment outlets that they would finance, as well as to guarantee Third World government bonds”.
Although this phase could be broadly classified as one of ‘indirect’ intervention, it becomes obvious that Cleveland and Olney had a rather aggressive approach to oust the British from Latin America. Several actions serve as proof, including: – the illegal use of force by the US Navy in 1894 in Rio de Janeiro to break the blockade created by the British-backed rebellion – the intervention in Cuba where the US sided with the rebels to secure its commercial interests in the region, which overrode its financial interests with Spain.
Theodore Roosevelt was the Morgan’s foothold in the White House! Rothbard describes in his book how the Morgans managed to make their way to the presidential seat, i.e. by striking a simple deal between the Democrats (the camp they align to) and the Republicans (backed by the Rockefellers). Rothbard traces Roosevelt’s family network, and associates by providing evidence of his strong connection to the Morgan family. As an example of his ‘Morganship’, Rothbard says “[it] is not surprising that virtually Teddy’s first act after the election of 1900 was to throw a lavish dinner in honor of J.P. Morgan”. Through him, more and more Morgan men entered the White House, and held key positions, particularly after assuming the Presidency.
Phase II: WWI – War Means Business
The United States suffered from a harsh recession in the years preceding WWI. But by then, it was no longer a US Empire, rather a ‘Morgan Empire’, which suffered greatly due to the drastic economic situation. The family was fully focused on banking for the railroad business for decades. They lost a great deal with the decline and, eventually, their New Haven Railroad Company went bankrupt. Much was at stake for the Morgans. To them, WWI was a godsend, particularly with Woodrow Wilson as President. According to Rothbard the family “deliberately ensured” Wilson’s election. After all, Wilson was on the board of the Morgan-company Mutual Life Insurance Company and had a strong connection with members of the Morgan circle.
The war meant a lot to the Morgans; it would be a revival both from a political and financial standpoint. They used their longtime connections with Great Britain and the Rothschild family and to a great success, J.P. Morgan & Co. became the fiscal agent of the Bank of England, and the sole underwriter for the British and French war bonds, as well as a big player in the financing and channeling of war materials and munitions to the Allies.
Phase III: Let’s institutionalize the Regime
After discussing the stake of the many large financiers in the war, the question to ask is which system did facilitate it? The Federal Reserve was created in 1913 exactly for this reason: to inflate the economy and create credit out of thin air to finance the war. The Fed was the most important invention of the regime, but not the only one.
The regime believed this war collaboration needed to be translated into permanent institutions. The resulting institution, founded in 1921 was: The Council on Foreign Relations (CFR). Rothbard provides a thorough and detailed track record of its creation, but in essence it is an offshoot of the British Round Tables, with its objectives specified to meet US financial and political supremacy. This think tank is one of a kind; its members were a number of businessmen, bankers, lawyers and intellectuals – but again, Morgan-dominated until the Rockefellers reigned after World War II. However, as we mentioned before, it is still one regime, regardless of who came first. As Rothbard put it, both families put their priorities straight and struck the deal for WWII: “The Morgans got their way in Europe, the Rockefellers theirs in Asia”. What’s more, 1973 was the year of the creation of the Trilateral Commission in 1973, financially endorsed by the CFR and the Rockefeller Foundation. The Trilateral Commission.
It is all a vicious cycle
Claudio Grass concludes that “it is all a vicious cycle, falling back to the original masterminds who set up the agenda more than 100 years earlier.” More details are in below document or in Rothbard’s book (69 pages) which can be downloaded for free from the Mises website.
Rothbard's Wall Street Banks and American Foreign Policy