54. American Support for the Return to Gold at $4.86: The Morgan Connection

0:00American support for the return to gold at $4.86, The Morgan Connection Why were the British so confident that American prices would rise sufficiently to support their return to gold at the overinflated $4.86? Because of the power of the new United States Central Bank, the Federal Reserve System, installed in 1914, and because of the close and friendly relationship between the British government, its Bank of England and the Federal Reserve. The Fed, they were sure, would do what was necessary to help Britain reconstruct the world monetary order. To understand these expectations, we must explore the Federal Reserve-Bank of England connection and particularly the crucial tie that bound them together, their mutual relationship with the House of Morgan.

0:55The powerful J.P. Morgan and Company took the lead in planning, drafting the legislation, and mobilizing the agitation for the Federal Reserve system that brought the dubious benefits of central banking to the United States in 1914. The purpose of the Federal Reserve was to cartelize the nation's banking system and to enable the banks to inflate together, centralizing and economizing reserves with the Federal The Federal Reserve's new monopoly of note issue took the de facto place of gold as the nation's currency. Not only were the majority of Federal Reserve board directors in the Morgan orbit, but the man who was able to become the virtually absolute ruler of the Fed from its inception to his His death in 1928, Benjamin Strong, was a man who had spent his entire working life as a leading Morgan banker.

1:55Benjamin Strong was a protege of the most powerful of the partners of the House of Morgan after Morgan himself, Henry, quote, Harry, Pomeroy Davison. Strong was also a neighbor and close friend of Davison and of two other top Morgan partners in the then wealthy New York suburb of Englewood, New Jersey, Dwight Morrow and Thomas W. Lamont. In 1904, Davison offered Strong the post of secretary of the new Morgan-created Bankers Trust Company, designed to compete in the burgeoning trust business. So close were Davison and Strong that, when Strong's wife committed suicide after childbirth, Davidson took the three surviving Strong children into his home.

2:42Strong later married the daughter of the president of Bankers Trust and rose quickly to the posts of vice president and finally president. So highly trusted was Strong in the Morgan circle that he was brought in to be J. Pierpont Morgan's personal auditor during the panic of 1907. When Strong was offered the crucial post of governor of the New York Fed in the new Federal The Federal Reserve system, strong, at first reluctant, was convinced by Davison that he could run the Fed as, quote, a real central bank, run from New York, end quote. The House of Morgan had always enjoyed strong connections with England. The original Morgan banker, J. Pierpont Morgan's father, Junius, had been a banker in England, and the Morgan's London branch, Morgan, Grenfell and Company, was headed by the powerful Edward C. quote Teddy Grenfell, later Lord St. Just.

3:41Grenfell's father and grandfather had both been directors of the Bank of England as well as members of Parliament, and Grenfell himself had become a director of the Bank of England in 1904. Assisting Grenfell as leading partner at Morgan Grenfell was Teddy's cousin, Vivian Hugh Hugh Smith, later Lord Bychester, a personal friend of J.P. Morgan Jr.'s. Not only was Smith's father a governor of the Bank of England, but he came from the and the so-called, quote, citysmiths, the most prolific banking family in English history.