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in the economy not only by arranging mergers but also by securing large ownership shares and seats on the boards of directors of newly combined corporations whalen 1999 p 5 quigley accords with this view investment bankers obtained representation on the boards of directors of corporations and sufficient influence to direct their companies financial services and purchases toward other corporations where the particular investment bankers concerned had interests from this there grew up a network of interlocking directorships and banking influences and finally an elaborate system of holding companies and financial firms quigley 1979 p 393 the power that came to be wielded within the global system by investment banking is considerable as quigley describes the growth of financial capitalism made possible a centralization of world economic control and a use of this power for the direct benefit of financiers and the indirect injury of all other economic groups quigley 1966 p 337 in this description quigley describes the instrument of expansion finance becoming institutionalised to the detriment of the system s productivity and to the benefit of the sector the vested interests it represents vickers 1939 a former bank of england director reinforced this view of finance when he stated that the money industry is a non productive industry working for profit vickers 1939 p 24 the power of finance within financial capitalism it must be noted that financial capitalism was dominated by the us and uk siklos acknowledges this when he writes central banking in the first 30 or so years of the twentieth century was dominated by the activities of the bank of england and the u s federal reserve siklos 2002 p 82 in other words up until the great depression when financial capitalism collapsed but how does this prove the anglo saxon nature of financial capitalism this answer to this is found by posing another question by what means did finance dominate capitalism firstly regarding the monetary system central banking crystallised as the solution to the joint concern which all financiers had in keeping the value of money high and held the gold reserves that became the central feature of the monetary system quigley 1979 p 393 elaborating the international gold standard became the chief mechanism by which the supply of money could be kept low and its value accordingly kept high a high value of money was chiefly advantageous to creditors to whom obligations were owed in money terms ibid in this way central banking was the institutional preserver of private banking interests unsurprisingly then the hand of private finance can be seen in creating and managing anglo saxon central banking the us federal reserve system was conceived of and agreed upon by seven financiers and private finance friendly politicians meeting clandestinely in 1910 on jekyll island 4 griffin 2005 p 5 while in britain the bank of england had been since its foundation a private institution knafo 2006 p 79 quigley 1966 p 324 secondly the unregulated financial systems in the us and uk nesvetailova 2004 p 72 free of political interference from central banking and political authority aided finance s grip over capitalism insofar as power over credit within the economy is one of the four forms of structural power as defined by strange 1988 finance can if free from government regulation exert itself powerfully within the economy siklos 2002 notes the essential independence of anglo saxon central banking from political control when he states central bankers notably montagu norman of the bank of england and benjamin strong of the u s federal reserve new york buoyed by the growing influence of central banks over monetary policy came to view interference by political authorities as a nuisance and sought through central bank cooperation to circumvent the decisions of the political authorities siklos 2002 p 82 this perspective is confirmed by vickers 1939 the money supply and the management of the money system are almost entirely outside the control of the government and are operated by an outside individual section of the community working for profit and possessing a virtual monopoly of lending credit to the community at high interest vickers 1939 p 42 minsky encompasses all these points when he aptly described the system as a small government gold standard constrained laissez faire capitalism minsky 1993 pp 4 5 private financial control of central banking and its implications quigley s stark insights into the nature of the private influence go deeper than the aforementioned perspectives as he describes it must not be felt that these heads of the world s chief central banks were themselves substantive powers in world finance they were not rather they were the technicians and agents of the dominant investment bankers of their own countries who had raised them up and were perfectly capable of throwing them down the substantive financial powers of the world were in the hands of these investment bankers also called international or merchant bankers who remained largely behind the scenes in their own unincorporated private banks quigley 1966 pp 326 7 one would expect finance to benefit both from the unregulated nature of the industry and the underlying monetary configuration in this case that of the finance supported gold standard indeed private banking did benefit from this system in a way that justifies quigley s contention that the run up to and events of the great depression were those of a financial capitalism an institutionalised instrument fighting against the system which it had been developed to facilitate the great crash we will first deal with the wall st crash of october 1929 which sparked the great depression the interrelated phenomena of debt driven expansion and debt deflation led to the crash nesvetailova 2004 explains that credit driven expansions fuelled the booms of the 1920 s through the unregulated market she also notes that debt grew in all sectors ibid p 73 griffin 2005 pp 489 90 illustrates the 20 s us boom bust cycle very profitable to private finance in the latter part of the 1920 s quigley explains and demonstrates with an industrial shares prices chart the largest yet speculative boom expanded in the united states smothering the production of real wealth quigley 1966 pp 342 3 in october 1929 the stock market bubble burst and the ensuing debt deflation that occurred as a result of the heavy debt that the speculators had been in caused widespread bankruptcy across the us this occurrence of debt deflation was not the first not even within the decade quigley 1966 describes the 1920 s as having a cyclically deflationary character and articulates the way in which the cyclical deflationary periods benefited finance in these deflationary periods as low prices drove corporations to bankruptcy bankers were able to assume control of them to consolidate them into larger units of monopolized industry and to reap the profits of reorganization and refloatation of securities quigley 1979 p 393 the boom bust thus reaped great gains for finance in an examination of the actual cause of the crash the activities of the fed and the bank are important the absence of regulation allowed for the stock market boom to occur while simultaneously the cracks in the security of the system began to show quigley states that there was a creeping realisation that the stock prices were heavily inflated and that the trigger for the crash came when another minor financial crisis in britain caused the bank on sept 26 to raise interest rates to 6 5 quigley 1966 p 344 british funds began to leave wall street and the over inflated market commenced to sag by the middle of october the fall had become a panic ibid this was exacerbated by the federal reserve s pre crash 29 policy tightening cecchetti notes that the fed had begun in early 1929 to see the cracks quigley speaks of and could have facilitated broker loans in order to softly deflate the bubble avoiding a painful crash but he writes the fed continued to stifle the market by restricting the ability of member banks to make broker loans i e to lend money unbacked by commodity to speculators cecchetti 1997 p 6 thus when the bank of england s interest hike came the american system suddenly found itself short on liquidity the crash quelling foreign investment in the american market caused a massive rush to liquidity across the us and europe which over a two year period collapsed the banking system beginning in europe britain then america clavin 2000 p 110 this rippled monetary contraction across the us and in the uk sparking formidable debt deflation such a debt deflation has been called a bad deflation negative money shocks that are non neutral over a significant period would generate a bad deflation bordo et al 2004 pp 1 2 bankruptcy and the interruption of production followed the great depression many believe that the fed s policies caused the financial crisis in the us a central cause of the depression bernanke current chairman even apologised for the fed to milton friedman i would like to say to milton and anna regarding the great depression you re right we did it we re very sorry but thanks to you we won t do it again bernanke 2002 this is in response to friedman and schwarz s hypothesis that the failure of the federal reserve system to prevent the collapse reflected the particular policies followed by the monetary authorities friedman and schwarz 1963 p 300 cecchetti likewise argues that the fed played a key role in nearly every policy failure during this period 1929 1933 the collapse of the finance system could have been stopped if the central bank had properly understood its function as the lender of last resort cecchetti 1997 p 1 nesvetailova has noted the same an inadequate passive monetary stance of the federal reserve aggravated the immediate consequences of the stock market crash and effectively transformed the recession into great depression nesvetailova 2004 p 70 the federal reserve did not avoid contracting the money supply if it had acted prudently it would have supplied liquidity to the banking system to offset the obvious post slump speculator panic for cash a cting as lender of last resort the fed should have substantially increased the number of discount loans to stimulate production and offset deflation but in fact it did not and without an ultimate source of short run cash banks were forced to suspend operation cecchetti 1997 p 13 the process is logical a very high real interest rates and relative illiquidity led to b banks collapsing due to an inability to source loans c production levels sharply falling as input costs become more expensive than future sales revenue and d a shrinking monetary base which is negatively impacted upon by b and in turn negatively impacts c this causal chain is agreed with by friedman and schwarz who build the case that the causality can be interpreted as running mostly from money to output and prices bernanke 2002 and as output slumped so did welfare the effects of the period while financial capitalism had benefited from the boom bust scenario this time the bust was so large that governments in the uk and the us were forced to a political solution which was to regulate the monetary and financial infrastructure with central banking independence taken away the consequences of an institutionalised finance had been too injurious to the systems and societies of these two nations in the uk monetary policy was taken into the hands of h m treasury vickers 1939 p 16 while in the us minsky explains that the small government gold standard constrained laissez faire capitalism was replaced by a big government flexible central bank interventionist capitalism minsky 1993 pp 4 5 quigley refers to the new era as monopoly capitalism minsky 1996 named it paternalistic capitalism to quigley it is however not another age of expansion but a movement towards anglo saxon universal empire thus died financial capitalism quigley notes that the depression marked the suicide of the traditional financial elites in the us and uk as a result of their excesses and extension of control into the realm of central banking the domination of economic life by financial figures such as rothschild morgan mirabaud baring montagu norman was ended and replaced by great figures of monopoly capitalism like dupont rockefeller ford nuffield and others quigley 1979 p 396 with the destruction of financial capitalism also came the end of the gold standard as walter 1991 p 146 argued the outcome of the crisis of 1929 33 was the disintegration of the international monetary financial and trading systems but in a broader sense it ensured for a long time that externally imposed deflation would not be allowed conclusion the role of central banking within the system in the period 1929 33 was one of failure to provide the cover that was its mandate the two central banks had allowed themselves to be dominated by the interests of private finance and this lack of regulation caused the largest dislocation in economic history the lessons of the paper are clear monetary policy should not favour finance and central banking must prudently regulate the financial system which while of vital importance is also susceptible to injurious profit seeking through the boom bust cycle bibliography bernanke b 2002 remarks by governor ben s bernanke on milton friedman s ninetieth birthday available at http www federalreserve gov boarddocs speeches 2002 20021108 default htm bordo m lane j redish a 2004 good versus bad deflation lessons from the gold standard era nber working paper 10329 cecchetti s g 1997 understanding the great depression lessons for current policy nber working paper no 6015 available from www nber org clavin p 2000 the great depression in europe 1929 1939 uk macmillan press griffin g e 2005 the creature from jekyll island california american media knafo s 2006 the 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