World War I —The Great Banker Bailout

“Nobody could hate war more than I do.”—J. P. Morgan, Senate Munitions Committee

“We see men living with their skulls blown open; we see soldiers run with their two feet cut off, they stagger on their splintered stumps into the next shell-hole; a lance-corporal crawls a mile and a half on his hands dragging his smashed knee after him; another goes to the dressing station and over his clasped hands bulge his intestines; we see men without mouths, without jaws, without faces; we find one man who has held the artery of his arm in his teeth for two hours in order not to bleed to death. The sun goes down, night comes, the shells whine, life is at an end.”—All Quiet on the Western Front

It is estimated that the disaster of World War I claimed some 15-22 million lives. This does not even take into account the injuries, property destruction, and other post-war consequences. The above quote from the well-known novel, All Quiet on the Western Front, captures a horrific snapshot of World War I. While people often flippantly talk about war—especially from within the borders of a wealthy international hegemon like the United States—people ought to read such descriptions and soberly weigh the costs and benefits of going to war.

Given the description of the destruction above, plus the fact that Woodrow Wilson ran on the slogan, “He kept us out of war,” Americans probably would have resented the fact that the late entry of the United States in World War I served, at least in large part, to bail out American bankers. Such a statement as, “We are fighting this war on behalf of the bankers,” was, at one time, enough to land an American populist presidential candidate—Eugene V. Debs—in prison under the Espionage Act and Sedition Acts in 1918. However, following the war, Woodrow Wilson admitted,

Why, my fellow-citizens, is there any man here, or any woman—let me say, is there any child here, who does not know that the seed of war in the modern world is industrial and commercial rivalry? . . . This war, in its inception, was a commercial and industrial war. It was not a political war.

Yet, in the above quote, Wilson only admitted that this was the case for the commercial powers of Germany and its rivals, but he did not acknowledge the rescue that the US performed for American bankers in the war, who had been funding the Allied cause and providing loans to the Allied powers. The newly-printed money for these loans, supplied to Allied European powers, was quickly funneled back to certain industries in the United States who provided war materials. In the middle were the Fed-connected bankers.

No less an historian than the Oxford don, Niall Ferguson—who we might expect to act as a “court” historian who crafts evidence only to make a positive case for the actions of the state—in his Pity of War (p. 329), said, “By the beginning of 1917, J. P. Morgan was so committed to Britain…it was Morgan as much as Britain which was bailed out in 1917.” He was right.

World War I provided a new opportunity to utilize the newly-created powers of central banking through the Federal Reserve system. The Federal Reserve—doubling the money supply since its inception in 1914—would finance US entry into World War I. This probably could not or would not have been supported by the American people through direct taxation. World War I simultaneously strengthened the power and centralization of the Fed, the federal government, and the closely-connected banker-industrial class. […]

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