June 24, 1941 (Full hearings from 1941-42): House committee on Banking & Currencies – How banks create money is best revealed by Governor Eccles at Hearings before the House Committee on Banking and Currency on June 24, 1941:
ECCLES: “The banking system as a whole creates and extinguishes the deposits as they make loans and investments, whether they buy Government Bonds or whether they buy utility bonds or whether they make Farmer’s loans.
MR. PATMAN: I am thoroughly in accord with what you say, Governor, but the fact remains that they created the money, did they not?
ECCLES: Well, the banks create money when they make loans and investments.”
On September 30, 1941, before the same Committee, The House Committee on Banking & Currencies continued questioning of Mr. Eccles:
MR. PATMAN: “How did you get the money to buy those two billion dollars worth of Government securities in 1933?
ECCLES: We created it.
MR. PATMAN: Out of what?
ECCLES: Out of the right to issue credit money.
MR. PATMAN: And there is nothing behind it, is there, except our Government’s credit?
ECCLES: That is what our money system is. If there were no debts in our money system, there wouldn’t be any money.”
On June 17, 1942, Governor Eccles was interrogated by Mr. Dewey.
ECCLES: “I mean the Federal Reserve, when it carries out an open market operation, that is, if it purchases Government securities in the open market, it puts new money into the hands of the banks which creates idle deposits.
DEWEY: There are no excess reserves to use for this purpose?
ECCLES: Whenever the Federal Reserve System buys Government securities in the open market, or buys them direct from the Treasury, either one, that is what it does.
DEWEY: What are you going to use to buy them with? You are going to create credit?
ECCLES: That is all we have ever done. That is the way the Federal Reserve System operates. The Federal Reserve System creates money. It is a bank of issue.”
At the House Hearing of 1947, Mr. Kolburn asked Mr. Eccles: “What do you mean by monetization of the public debt?
ECCLES: I mean the bank creating money by the purchase of Government securities. All is created by debt–either private or public debt.
FLETCHER: Chairman Eccles, when do you think there is a possibility of returning to a free and open market, instead of this pegged and artificially controlled financial market we now have?
ECCLES: Never. Not in your lifetime or mine.”