The Establishment of the Federal Reserve on Jekyll Island 💵

Background and Context

• The concept of the Federal Reserve began at a secret meeting on Jekyll Island, Georgia in 1910.
• Attendees included Nelson W. Aldridge, Abe Andrew, Frank Vanderlip, Henry P. Davison, Benjamin Strong, and Paul M. Warburg.
• These men represented a significant portion of the world's wealth and were affiliated with powerful banking groups like J.P. Morgan, Rothschilds, and Rockefellers.
• The meeting was highly secretive to avoid public scrutiny and backlash.

Objectives of the Meeting

1. Stop Growing Influence of Small Banks: The major banks wanted to control the financial resources and mitigate competition from smaller, emerging banks in the U.S.
2. Elastic Money Supply: The aim was to create a more flexible financial system to support corporate growth and economic stability by adjusting the supply of money as needed.
3. Unified Reserves: Pooling reserves to ensure stability and uniform loan-to-deposit ratios across all banks, reducing the risk of individual bank runs.
4. Shift Financial Losses: Ensuring that any potential losses could be transferred to taxpayers, protecting large banks from failure.
5. Convince Congress: Frame the creation of the Federal Reserve as a public protection measure to gain legislative approval.

The Nature of the Cartel

• The Federal Reserve was essentially envisioned as a cartel to minimize competition and regulate the economy jointly through cooperation rather than free-market competition.
• Discussions included structuring the cartel as a central bank with regional branches to avoid appearing as a power concentration.

Strategies and Challenges

• Attendees discussed various strategies, including the need for public acceptance and political maneuvering to establish the Federal Reserve under the guise of economic stability and public interest protection.
• They also tackled logistical challenges like ensuring the system's operational structure would allow them to lend money out far exceeding their actual reserves without immediate public realization.

Public Perception and Journalistic Coverage

• Early press coverage, particularly an article by B.C. Forbes in Leslie's Weekly, hinted at the significance of the Jekyll Island meeting.
• Further corroborated by Paul Warburg’s accounts and other documentation, the meeting’s details became clearer over time, solidifying accusations of a banking cartel forming to control the U.S. monetary system.

Economic Context of the Era

• The early 20th century saw rapid growth in banking amid fears over potential bank failures and economic instability.
• Free-market interest rates and the burgeoning expansion of non-national banks significantly impacted the larger banks’ market share.
• Corporate funding trends were shifting towards reinvesting profits rather than borrowing capital, adding pressure for a more elastic money supply.

Outcomes and Legacy

• The meeting resulted in the blueprint for what would become the Federal Reserve System, a centralized banking authority intended to stabilize the economy but also to regulate competition among banks.
• The creation of the Federal Reserve led to significant changes in the U.S. financial landscape, marking the beginning of a new era of economic management and banking practice.
• The Federal Reserve's establishment illustrated the convergence of political power, financial might, and legislative processes aiming for broader economic control and protection of large financial institutions.