Myth #10. The Legendary Tirade of Louis T. McFadden

Myth #10. The Legendary Tirade of Louis T. McFadden

Louis T. McFadden was a member of the House of Representatives in the twenties and thirties and is one of the heroes of the Federal Reserve conspiracy theorists.  A Republican from Canton, Pennsylvania, he was the chair of the House Banking and Currency Committee during the twenties, but was merely a Committee member by 1932.  He used his position in Congress occasionally to crusade against the Federal Reserve, a stance Gary Kah implies may have cost McFadden his life.

On June 10, 1932 the House was debating a bill which would would expand the types of securities the Federal Reserve could trade when conducting monetary policy.  McFadden used this opportunity to launch a twenty-five minute tirade against the Federal Reserve, and in so doing became a legendary champion amongst conspiracy theorists.  However, just because a claim appears in the Congressional Record does not necessarily mean it is true.  McFadden began…

Mr. Chairman, we have in this country one of the most corrupt institutions the world has ever known.  I refer to the Federal Reserve Board and the Federal reserve banks.  The Federal Reserve Board, a Government board, has cheated the Government of the United States out of enough money to pay the national debt. The depredations and the iniquities of the Federal Reserve Board and the Federal reserve banks acting together have cost this country enough money to pay the national debt several times over. This evil institution has impoverished and ruined the people of the United States; has bankrupted itself, and has practically bankrupted our Government.  It has done this through defects of the law under which it operates, through the maladministration of that law by the Federal Reserve Board and through the corrupt practices of the moneyed vultures who control it.1

Once the hyperbole and histrionics are deducted, there is little remaining of substance in the above quotation.  McFadden makes the claim that the Federal Reserve had cost the federal government enough money to “pay the national debt several times over.”  Is he correct?

Disbursements of Federal Reserve Net Income, 1914-1931 (in millions)
                        Total Revenues              $970.7                         Net Expenses                 363.3                                                    ——-                         Net Income                   607.4

Distribution of Net Income:                            Paid as dividends         102.0                            Payments to Treasury      147.1                            Retained by Fed           358.3

Source: Annual Report, 1995, Board of Governors, p. 358.

In this table we see that from 1914 to 1931 the Federal Reserve system collectively earned profits totaling $607 million.  About $102 million was distributed to member banks as dividends, and about $147 million was paid to the Treasury as a “franchise tax.” The Federal Reserve banks kept the remaining $359 million.  The national debt in 1932 was $19.5 billion, so even if the Federal Reserve had been paying all its profits to the government during this time, it would have been enough to pay only 3 percent of the national debt — a far cry from McFadden’s “several times over.”4  Moreover, the Federal Reserve’s total revenues for the period were $971 million, so if the entirety of the System’s revenues had gone straight to the Treasury, it still would not have been sufficient to make McFadden’s claim even remotely accurate.

McFadden then covered a wide variety of topics related to the Federal Reserve Board.  He accused it of assisting Trotsky’s efforts during the Russian Revolution, of being controlled by international bankers, of debasing the currency, and of many other fascinating transgressions.  He also invoked the testimony of Father Charles E. Coughlin, the Catholic priest who would later become famous for his radio broadcasts in support of Hitler’s National Socialist agenda.

We can study the accuracy of these claims, as well.  The first one is new to me, and I have not the slightest idea whether it is true, although given that McFadden had trouble with a claim which could be easily verified, it seems wise to invoke skepticism on his more fantastic accusations.  Generally, this accusation is consistent with the “Protocols of the Learned Elders of Zion,” originally published in 1903 in czarist Russia.  It is supposed to be an “internal” document proving the alleged international Jewish conspiracy, but it is now known to have been a hoax.2  Henry Ford popularized translations of it into English in the 1920s and this may have been McFadden’s source.  The second claim is false, as I show in my article, Do Foreigners Own the Fed?  The claim that the Fed debased the currency is also false.  To “debase” a currency means to reduce its purchasing power, which happens when the general level of prices rises over time.  This is usually caused by excessive growth of the money supply, yet in 1932 the price level was lower than it was in 1914, indicating that the opposite of a debasement had occurred.

McFadden also made some important and accurate arguments.  During his speech on the House floor, he stated,

From the Atlantic to the Pacific our country has been ravaged and laid waste by the evil practices of the Federal Reserve Board and the Federal reserve banks and the interests which control them … This is an era of economic misery and for the conditions that caused that misery, the Federal Reserve Board and the Federal Reserve banks are fully liable.1

What did McFadden mean by “economic misery?”  They year he spoke, 1932, was the very worst time of the Great Depression.  The unemployment rate was approaching 25 percent of the labor force, which to this day stands as record for the U.S. economy.  Homelessness, deprivation, and starvation, usually reserved for the ultra-poor in this country, were now stalking millions of former members of the middle class.  “Economic misery” was an understatement.Most economic historians would agree with McFadden that the policies of the Fed during this period were the primary cause of the Depression.  A mild recession in the summer of 1929 turned into a banking panic after the stock market crash in October of that year.  Banks, which owned stocks and made loans to customers for the purpose of acquiring stocks, suddenly found a large  portion of their assets nearly worthless as a result of the crash.  Many of them began to fail, taking with them the deposits of millions of families (at the time there was no deposit insurance).

This sort of thing had happened many times before, but the Federal Reserve was created in 1913 in part to mitigate its effects as the banking system’s “lender of last resort.”  In the midst of the first severe wave of bank failures in 1930, the Fed was deadlocked on what to do, eventually deciding to do nothing. Several more waves of bank failures followed and the Depression was well underway.  Thus, the crisis can reasonably be blamed on the erroneous policies of the Federal  Reserve Board (The classic book, A Monetary History of the United States by Milton Friedman and Anna Schwartz, provides a detailed accounting of the Fed’s internal policy debates during this critical time).

In my view, however, McFadden goes too far in terming the Fed’s policies as “evil” or its consequences deliberate.  As Friedman and Schwartz showed, the Fed essentially made an honest error in judgment.  There is absolutely no evidence that the Federal Reserve intended to create the Great Depression.  Such a motive would have made no sense from the Fed’s point of view.  The Depression created a highly unstable economic and political environment.   Why would it have intentionally created the sort of conditions that would have seriously endangered its own existence?

Finally, after McFadden’s twenty-five minutes of ranting had expired, Senator Benjamin Strong of Kansas commented on the oratory he had just heard:

There is a disease that afflicts mankind which is very vicious. It warps the judgment, it narrows the vision, it even causes men to see red, to make mountains out of mole hills.  This disease has sometimes been referred to as B.A.  Ladies may refer to it as “tummy” ache, but out in the wide-open spaces men call it the “belly” ache, and I know of no man of my acquaintance that has this disease in so violent a form as the gentleman from Pennsylvania, Mr. McFadden.I have not the time to refer to the many charges he makes against the Federal Reserve system, but I call attention to the fact that for 12 years he has been the chairman of the Banking and Currency Committee of this House and did not see fit during that time to remedy any of the evils of which he now complains. It seems to me entirely out of place to wait until he is retired as chairman of that great committee and then assault all of the institutions of which it has control.


Strong’s statement suggested that McFadden’s rant was little more than political bluster.  If McFadden had really been the anti-Fed crusader some people today make him out to have been, then why did he not do anything about the Fed when he had the chance?  More likely, he was making political points with his constituents by placing blame for the Great Depression at the door of the Federal Reserve.  While this may have been justifiable, he went too far by implying the Fed intended to wreck the economy.



1. Congressional Record, June 1, 1932 to June 11, 1932, U.S. Government Printing Office.

2. Johnson, George (1983). Architects of Fear. Boston: Houghton Mifflin.

3. Kah, Gary (1991). EnRoute to Global Occupation.  Layfayette, La.: Huntington House Publishers.

4. Office of the Public Debt, U.S. Treasury Department.

[Read more from McFadden on a conspiracist website]

Myth #9: President Kennedy was assassinated because he tried to usurp the Federal Reserve’s power. Executive Order 11,110 proves it.

Presidential Executive Order 11,110 is quite infamous among conspiracy buffs.  Jim Marrs, author of Crossfire: The Plot that Killed Kennedy, writes that the order instructs the Treasury secretary to issue about $4.2 billion in silver certificates as a form of currency in place of Federal Reserve Notes.1  Written by John F. Kennedy, Marrs also speculates this order was part of a larger plan by Kennedy to reduce the influence of the Federal Reserve by giving the Treasury more power to issue currency.  The order wassigned June 4, 1963.  A few months later, of course, Kennedy was killed, and conspiracy theorists hypothesize a link between the murder and E.O. 11,110.  They argue that the Federal Reserve was somehow involved in the assassination to protect its power over monetary policy.

The executive order modifies a pre-existing order issued by Harry Truman in 1951.  E.O. 10,289 states “The Secretary of the Treasury is hereby designated and empowered to perform the following-described functions of the President without the approval, ratification, or other action of the President…”   The order then lists tasks (a) through (h) which the Treasurer can now do without bothering the President.  None of the powers assigned to the Treasury in E.O. 10,289 relate to money or to monetary policy.  Kennedy’s E.O. 11,110 then instructs that

SECTION 1. Executive Order No. 10289 of September 9, 1951, as amended, is hereby further amended (a) By adding at the end of paragraph 1 thereof the following subparagraph (j):'(j) The authority vested in the President by paragraph (b) of section 43 of the Act of May 12, 1933, as amended (31 U.S.C. 821(b)), to issue silver certificates against any silver bullion, silver, or standard silver dollars in the Treasury not then held for redemption of an outstanding silver certificates, to prescribe the denominations of such silver certificates, and to coin standard silver dollars and subsidiary silver currency for their redemption,’ and (b) By revoking subparagraphs (b) and (c) of paragraph 2 thereof.

SECTION 2. The amendments made by this Order shall not affect any act done, or any right accruing or accrued or any suit or proceeding had or commenced in any civil or criminal cause prior to the date of this Order but all such liabilities shall continue anymay be enforced as if said amendments had not been made.

John F. Kennedy, THE WHITE HOUSE, June 4, 1963.

To understand exactly what Kennedy’s order was trying to do, we must understand the purpose of the legislation which gave the order its underlying authority.  The Agricultural Adjustment Act of 1933 (ch. 25, 48 Stat 51) to which Kennedy refers permits the President to issue silver certificates in various denominations (mostly $1, $2, $5, and $10) and in any total volume so long as the Treasury has enough silver on hand to redeem the certificates for a specific quantity and fineness of silver and that the total volume of such currency does not exceed $3 billion. The Silver Purchase Act of 1934 (ch. 674,48 Stat 1178) also grants this power to the Treasury Secretary subject to similar limitations.  Nowhere in the text of the order is a quantity of money mentioned, so it is unclear how Marrs arrived at his $4.2 billion figure. Moreover, the President could not have authorized such a large issue because it would have exceeded the statutory limit.2

As economic activity grew in the fifties and sixties, the public demand for low denomination currency grew, increasing the Treasury’s need for silver to back additional certificate issues and to mint new coins (dimes, quarters, half-dollars). However, during the late fifties the price of silver began to rise and reached the point that the market value of the silver contained in the coins and backing the certificates was greater than the face value of the money itself.2

To conserve the Treasury’s silver needs, the Silver Purchase Act and related measures were repealed by Congress in 1963 with Public Law 88-36.  Following the repeal, only the President could authorize new silver certificate issues, and no longer the Treasury Secretary. The law, signed by Kennedy himself, also permits the Federal Reserve to issue small denomination bills to replace the outgoing silver certificates (prior to the act, the Fed could only issue Federal Reserve Notes in larger denominations). The Treasury’s shrinking silver stock could then be used to mint coins only and not have to back currency. The repeal left only the President with the authority to issue silver certificates, however it did permit him to delegate this authority. E.O. 11,110 does this by transferring the authority from the President to the Treasury Secretary.2

E.O. 11,110 did not create authority to issue new silver certificates, it only affected who could give the order. The purpose of the order was to facilitate the reduction of certificates in circulation, not to increase them. In October 1964 the Treasury ceased issuing them entirely. The Coinage Act of 1965 (PL 89-81) ended the practice of using silver in most U.S. coins, and in 1968 Congress ended the redeemability of silver certificates (PL 90-29).  E.O.  11,110 was never reversed by President Johnson and remained on the books until 1987 when there was a general cleaning-up of executive orders (E.O. 12,608, 9/9/87). However, by this time the remaining legislative authority behind E.O. 11,110 had been repealed by Congress with PL 97-258 in 1982.2

In summary, E.O. 11,110 did not create new authority to issue additional silver certificates. In fact, its intention was to ease the process for their removal so that small denomination Federal Reserve Notes could replace them in accordance with a law Kennedy himself signed.  If Kennedy had really sought to reduce Federal Reserve power, then why did he sign a bill that gave the Fed still more power?

Marrs also makes some other factual errors in his conspiracy tale that  suggest he is not very familiar with the Federal Reserve or the financial system.  He writes that a source of tension between the Federal Reserve and the Kennedy Administration was the Treasury’s desire to allow banks to underwrite state and local government bonds, thereby weakening the “dominant” Federal Reserve banks. However, such a move, which was later permitted by Congress, would not have affected the Federal Reserve system because it had never been involved in underwriting bond issues.  Marrs also claims that Kennedy signed a bill that changed the backing of small denomination currency from silver to gold to “add strength to the weakened U.S. currency.”   This is completely false.  U.S. currency has not been on the gold standard since 1934, and silver certificates, as their name suggests, had never been redeemable in anything but silver. In addition, U.S. currency was not “weak” during Kennedy’s time: There had not been any significant inflation since the late forties, and the exchange rate value of the dollar was fixed according to the Bretton Woods agreement.

In the introduction to his book, Marrs advises the reader not to trust his book.  This appears to be good advice.


1. Marrs, Jim (1989), Crossfire: The Plot that Killed Kennedy, New York: Carroll & Graf Publishers.

2. Woodward, G. Thomas (1996), “Money and the Federal Reserve System: Myth and Reality,” Congressional Research Service.