G. Edward Griffin. The Creature from Jekyll Island: A Second Look at the Federal Reserve. 5th edition. American Media, 2010. See here to purchase the book.
G. Edward Griffin enrolled in the College of Financial Planning in Denver and received a Certified Public Planner (CFP) designation in 1989. He is affiliated with the conservative John Birch Society and has served as the Contributing Editor of its New American magazine. This book criticizes the Federal Reserve System.
Here are some items:
A. As Griffin notes, bankers make money from interest, and this occurs when they lend money out. Interest accumulates on the debt and is paid to the bankers. But there are problems with banks loaning out a lot of money. For one, the money that they are lending out is other people’s savings. If there is ever a run on the bank and depositors are demanding their money right then and there, the bank will not be able to give it to them. As George Bailey said in It’s a Wonderful Life, the money is not stored in a safe but has been loaned out to other people. Second, banks take a risk when they loan out money, namely, that it will not be paid back. According to Griffin, one motive behind the creation of the Federal Reserve was to enable banks to loan out money with more impunity, thereby allowing bankers to make more money from interest. More reckless banks can be bailed out by the Federal Reserve, which receives money from all of the member banks. The government can also bail the reckless banks out. Or, if the debtors fail to pay off their debts, the Federal Reserve can print out more money and lend that out to the debtors.
B. The problem that occurs when the Federal Reserve prints more money or releases more money into the system is inflation: the already existing dollars become debased. Griffin acknowledges that, as he writes, the United States is not experiencing hyperinflation. He believes that is due to foreigners taking American dollars out of the system when Americans buy their products, and foreigners buying up American debt. If this were to cease, hyperinflation would occur.
C. Historically, Griffin argues, bankers have profited from war because they get to loan out money to both sides in the conflict. Ultimately, Griffin contends, their desire is for a one-world government. Griffin refers to documents that appear to promote a one-world government. Griffin prominently features an enigmatic 1966 document entitled the “Report from Iron Mountain.” This document rhapsodizes about how war has historically consolidated nations, and the author is looking for a different way to control people. As Griffin acknowledges, nobody knows who wrote this or if the author was being serious. Griffin believes it comes from within the government establishment. Griffin also refers to environmentalist documents that lament the existence of humanity and promote a worldwide redistribution of wealth. Griffin doubts that the rich and powerful promoters of environmentalism seriously care about the environment. They invest in industries that pollute the environment; in the case of Gorbachev, he presided over the Soviet Union’s horrible environmental policy. For Griffin, they are merely using the environment as an excuse for moving towards a one-world government: if people fear environmental disaster, they will support a global government to redress the problem.
D. Griffin responds to standard historical scenarios. Against the charge that the Federal Reserve was created to add stability and to prevent the sorts of panics that preceded its creation, Griffin contends that many banks prior to the Federal Reserve were behaving irresponsibly by printing out money and further detaching its value from metals. They were moving in the opposite direction from the sound money system that Griffin supports, in short. Moreover, financial disasters have continued to exist even after the creation of the Federal Reserve. Against the charge that prominent Wall Streeters feared and opposed the creation of the Federal Reserve, Griffin contends that this was all for show, for prominent financiers helped to create the Federal Reserve. According to Griffin, Teddy Roosevelt and J.P. Morgan shared more common ground than people think! Griffin challenges conventional explanations for why financiers financed the Bolshevik Revolution—-e.g., to help one country over another in World War I—-showing that the financiers were inconsistent in that case. Griffin seems to think that financiers supported the Bolsheviks to create a formidable international enemy, which would result in wars and higher defense budgets; bankers would provide the money for that. (The Communists, meanwhile, accept capitalist money for the sake of their own survival, but they hope to hang the capitalists with the rope that the capitalists provide; Griffin provides quotes to that effect.) Against the charge that easy credit was necessary to finance the early economic development and expansion of the U.S., Griffin speculates that this could have occurred through economically responsible means, had they been tried. Griffin also offers some Civil War revisionism. Some of that resembled contemporary defenses of the Confederacy: that, through tariffs, the North was trying to reduce the South to economic servitude and dependence on the North, that the South invested a lot of capital in slavery, and that the South did not really want slavery, anyway, since people who are paid to work are more motivated. Griffin is far from being pro-Confederacy, however, for he states that bankers were also financing the Confederate cause: some of them supported the creation of a southern empire that would unite with Latin American nations. Napolean also gets a cameo as a rebel against the financial establishment, albeit for self-serving reasons.
E. Griffin also responds to what is considered to be conventional knowledge. For example, the conventional view is that the IMF and World Bank pressure countries to embrace free market capitalism and austerity in government spending. Griffin observes, however, that they have lent to communist countries, and he notes that these lenders give to governments; such a policy contributes to statism, not a free market.
F. Griffin is critical of various proposals to redress the problems that he discusses. One proposal is to eliminate the Federal Reserve and to have the federal government itself print the money. There are also the proposals of Milton Friedman and supply-side economists, which try to limit the money supply but still presume that the government should print out money. The Balanced Budget Amendment will not work because the Congress can circumvent it in case of an “emergency,” whatever it defines that to be. What Griffin seems to advocate is a privatized money system, as people trade in the money that they choose. He thinks people should trade in metals, however, as that provides more stability. Griffin also offers a solution as to how banks can store up money while also lending some out for business development. Griffin is not overly optimistic that his plans will be effected, for the establishment fiercely guards its power, but he thinks that reform can come, sometime down the road. People can throw out the big spenders from Congress, and they can store up metal coins in case of an emergency.
G. There were parts of this book that were difficult for me to understand, since I can improve my knowledge of economics. One point that Griffin reiterates is that debt backs up today’s money and, if that debt were repaid, the money supply would vanish; therefore, bankers do not really want the debt to be repaid. I did not entirely follow that.
H. There are some indications in Griffin’s book that things are more complex than his overall scenario indicates. He acknowledges that the Federal Reserve wants to limit inflation, since bankers do well when the economy does well. He states that a significant amount of the federal debt is owed, not to the Federal Reserve, but to Americans who have bought bonds; to default on that would hurt their savings. That differs, somewhat, from his scenario in which the Fed prints out a bunch of money for the government and would rather that money not be paid back.
I. I have been watching Robert Shiller’s Yale class on financial markets, the 2011 one. Shiller states that, prior to the FDIC, there really was no insurance of banks. Griffin argues, however, that people will naturally gravitate towards banks that are insured, without the government stepping in. Griffin is highly optimistic about the ability of laissez-faire capitalism to resolve problems.
J. This is the fifth edition. It has new sections on the 2008 financial crisis. Much of the book focuses on the 1980’s, however, plus there is one part of the book in which Saddam Hussein is presumed to be in power in Iraq, and Griffin doubts that will end anytime soon! Some may have a problem with this format, as it is chronologically disjointed. I had no problem with it, but I cite it as something to remember in reading this book.
In conclusion, this book is interesting and well-documented. Griffin does well to argue that there are people who act for their self-interest and influence policy to do so; he did not successfully explain, however, how a one-world government would serve these financial interests. The book has a lot of the typical John Bircher tropes but goes deeper and provides more nuance. Each chapter ends with a lucid summary, which is helpful.
I checked out this book from the library. My review is honest.