LETTER III
My dear Judd:
How does it happen that, in this our land of liberty and prosperity, the rich are growing richer and the poor poorer.
When you talk about the matter with an economist, he uses many long words, and tells you about natural processes, controlled by inexorable laws. Well, Judd, it all depends upon how you look at it, from the inside or the outside. If you look from the outside, you see economic processes; but if you look from the inside, you see the actions of men. Wealth is produced by the actions of men—you know that, because you do it every day; and wealth is distributed by the actions of men—you also do that every day. If men, in the course of their dealings, have made a hell on earth, it has been because they first had a hell in their hearts; and if they are to make a paradise on earth, they first have to change their hearts, and then no economic laws will stand in their way.
First among the “actions of men” which have made poverty in America, I list our banking system: that is to say, the way men have behaved and are behaving with regard to money. This banking system has been constructed, just as artificially as a house is constructed, and its plan can be summed up in one phrase: to enable those who already have money to get as much more as possible. Many things about the system may seem complicated, but if you understand that basic idea, you will never be fooled.
One man raises grain, and another saws lumber. It would be awkward to exchange a stick of timber for so many bushels of wheat, therefore men have invented money, which is a standard of value, enabling anything to be exchanged for anything else. The first point to be got clear is that money is not wealth, but only a symbol of wealth. You can see that clearly, if you imagine yourself stranded on a barren island with a million dollars in greenbacks. Would you be rich? You would not! And it is equally plain that nobody is made richer when the government prints a new lot of bank-notes. Of course, if you printed the notes yourself, and put them into circulation, you would be richer; but this wealth would be got by taking away from the owners of real wealth a certain percentage of what they owned; there would be a little more money in circulation, and so the existing stock of goods would have a slightly higher money-value.
That is what I refer to as “diluting the currency.” When it is done by governments, it is known as “inflation,” and it is a favorite trick of governments in trouble. They print paper money, and spend it for goods, and the more they print, the less is the value of each unit of money, the rouble, the mark, the franc, or whatever it is called. The bankers, of course, are greatly opposed to this method of robbing the owners of wealth; their objection to the process being based upon the fact that when the paper money is printed, the government owns it, whereas the bankers think that they, the bankers, should own it. In this country they have been able to have their way, and we live under a system which establishes the bankers as legalized counterfeiters.
You must understand, Judd, that only about one per cent of modern business is done upon a basis of cash—gold or silver or greenbacks; the rest is notes, or bills of exchange, or checks, or some other form of credit. And the banker is the man who creates this credit. He sells it to you, for whatever price he sees fit; and it is his royal privilege to grant or to withhold it. You may have ever so much real wealth to offer for security, and still meet with refusal; or you may have merely a pretense of security, and carry off the prize because you are the nephew of a director. The banker gives you a “pass-book” with a line of figures written in it, and you go out into the market, and discover that your banker-made money is just as real as any other money you find there—as real as the corn the farmer has raised, or the house the carpenter has built.
The theory is that the banker is lending the money which his bank-customers have deposited with him. But see! You take $350 in greenbacks and put it in the bank, and under our banking laws the banker can deposit those greenbacks with the Federal Reserve Bank, and receive a credit of $1,000; and then on the basis of that $1,000 he is legally permitted to lend out sums amounting to about $10,000 to other customers of the bank. In other words, $350 deposited by a customer becomes the basis of bank-loans, not merely of that $350, but of $9,650 additional, created by our legalized counterfeiter! The outstanding amount of greenbacks, about a third of billion dollars, thus becomes the basis of ten billions of dollars of banker-created money—and this for the national banks alone, without counting all the state banks and the private banks!
The headquarters of this greatest graft of all the ages is Wall Street. The money from all the little banks pours in here, and likewise the insurance money which our people put up to insure the safety of their wives and children. It is all at the service of the big banker-speculators, to be used in manipulating markets, driving prices up and down, so that the insiders can buy while securities are low and sell while they are high. Here is concentrated the collective greed of all America, and men become frenzied with visions of sudden gain; they sell the goods they hope to have, and buy with the profits they expect to make, and the fires of avarice are fanned white hot, until the whole thing bursts like a crucible in a steel mill.
The financial history of America is the record of a series of great panics, coming at intervals of from seven to ten years. In these crises the bankers used to suffer as well as the rest of us; but this was intolerable to them, and so they put their experts to work. To save yourself in a panic you must have money—a great deal of money in a hurry; and where can such money be got? Where, but from our good old Uncle Sam? So the bankers devised a wonderful new scheme, the Federal Reserve System; a chain of twelve regional banks with a directing head, a banker-board, having for its function to watch over our money system in the interest of the bankers, to lend money freely when they want it to be cheap, and to call in loans when they are ready for a killing; above everything else, to watch out for panics, and when these come, to issue credit to the big insiders, so that they can keep afloat while the rest of us drown.
In the summer of 1920, there was a riot of speculation, and this bankers’ board decided that somebody had to be “deflated”; they picked out the farmers—who cares anything about the “hicks” out in the sticks? “Go home and slop the hogs,” was the word of a banker-legislator in North Dakota to a delegation of farmers. So the Federal Reserve Board “advised” the farmer banks to lend no more money to farmers; and one little hint was enough to bring farm prices crashing. Before the crisis was over, a total of 603,000 farmers had either lost their farms, or were keeping them on sufferance of their creditors; and those are government figures, Judd! You know how it was with produce that year—the farmers in the middle West burned their corn for fuel, and out here in Southern California it didn’t pay to gather the orange and lemon crops. But the prices of automobiles and hardware and lumber and cement did not share this harsh fate; the big Wall Street banks had all the credit they needed, and they “carried” their friends, the big manufacturers, whose stocks and bonds repose in their vaults. They were “sitting pretty,” and waited till the storm was over, and we were ready to buy their goods at the old fancy prices.
So you see what I mean, Judd, by my phrase, “legalized counterfeiters.” The power to issue new credit is the power to dilute the currency, and merely by the stroke of your pen. All the highwaymen and safe-breakers and world conquerors of history never carried off as much treasure as Wall Street has taken from the American people by the use of this power. In that summer of 1920, the Federal Reserve System took four billion dollars out of the pockets of our farmers! And now, Judd, I beg you, when next you hear people say that human ingenuity cannot cure poverty—remember how much human ingenuity has done to cause it!