We Must Explore the Federal Reserve-Bank of England Connection and the Tie That Bound Them Together: The House of Morgan

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. The 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 Reserve as “lender of last resort.” 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 death in 1928, Benjamin Strong, was a man who had spent his entire working life as a leading Morgan banker.

--Murray N. Rothbard, A History of Money and Banking in the United States: The Colonial Era to World War II, ed. Joseph T. Salerno (Auburn, AL: Ludwig von Mises Institute, 2002), 368.