by Prins, Nomi
In the summer of 1910 Aldrich selected National City Bank president James Stillman to accompany him on yet another fact-finding mission to Europe.6 Stillman had ties to two of the most powerful families in the United States. His daughter was married to William Rockefeller’s son, William Goodsell Rockefeller, and he worked in a banking alliance with both J. P. Morgan and William Rockefeller.
For Frank Vanderlip, a founding father of the original plan for the Federal Reserve System, who was serving as vice president of the National City Bank at the time, “the beginning of the adventure” came in the form of a letter from Stillman, his boss and mentor, while Stillman was traveling in Paris with Aldrich. Stillman said that he had “just had a long conference” with “Zivil” (their code name for Aldrich), who was “keen to get to work on banking and currency revision.” Zivil was upset that Vanderlip and Henry Davison (a senior partner at J. P. Morgan) had not been able to join him and Stillman in Europe that summer, where he felt the group would have had “plenty of time for our discussions and been free from interruptions.”7 Stillman told Vanderlip to “make everything else subservient,” to give his “whole time and thought to a thorough consideration of the subject.”
Retaining secrecy was crucial for Aldrich and the bankers, not just because the plan would have to come across as free from banker input to get passed in Congress, but also because these men were in effect formulating a financial avenue to propel America’s financiers to a more dominant global position. If the notion of private bankers influencing a central bank was unpalatable to the public, the idea of private bankers constructing America’s path to achieve global power would be impossible to get approved.
The main conclusion of the commission’s report was that the more efficient European central banks were a key to establishing national superpowers in world trade through the issuance of centralized bank notes and loans to banks. If the United States was going to compete on a global platform, it would need a unified currency backed by one centralized entity. This would render the dollar, and hence the United States, stronger politically and financially. The challenge was convincing the political elite and the US population that a strong central bank and currency meant a strong America. Three years after a major banker-induced panic, this had to be traversed with caution.
As a former reporter, Vanderlip considered some degree of financial transparency to be beneficial; it could potentially reduce instances of rumor-incited panics.8 But, he noted, “there was an occasion near the close of 1910, when I was as secretive—indeed, as furtive—as any conspirator. . . . I do not feel it is any exaggeration to speak of our secret expedition to Jekyll Island as the occasion of the actual conception of what eventually became the Federal Reserve System.”9
Vanderlip characterized the secrecy surrounding deliberations over the creation of the Federal Reserve System as reflecting the manner in which the banking titans of the time operated. “None of the big men of Wall Street could tolerate the thought of publicity when I arrived there,” he later wrote. “Baker, Morgan, Stillman, habitually avoided journalists.”10 As such, the Federal Reserve plan would be penned clandestinely, and these men would not be present together when it was formulated.
Conception
Jekyll Island, the smallest of Georgia’s barrier islands, lies midway between Savannah, Georgia, and Jacksonville, Florida. Endowed with majestic moss-coated oaks, marshes, and beaches cradled by windswept sand dunes, the Jekyll Island Club hosted aristocratic members including J. P. Morgan, William Rockefeller, Vincent Astor, Joseph Pulitzer, George Baker, and James Stillman.
It was a place where the unelected leaders of the country often convened to enjoy leisure time and discuss their business affairs in an isolated retreat with all the creature comforts of home. They built 6,500–12,000 square foot “cottages” near the main clubhouse, as well as the nation’s first “condominium,” a six-apartment compound in which Morgan, Rockefeller, and four others shared a common space. On Jekyll Island, the country’s ultra-select luxuriated in a six-to-one servant-to-guest ratio and impeccable hospitality under the watchful direction of Edward Grobe, a Swiss man who ran the hotel like a European manor. They usually visited during the winter season, which began at Christmas and lasted through March.11
Jekyll Island was not the first choice for this secret rendezvous, however. Stillman had originally suggested transporting Davison and Vanderlip to Warwick, Aldrich’s Rhode Island abode, to begin substantive strategy sessions. But on October 21, 1910, while in New York City, Aldrich was struck by a southbound Madison Avenue trolley car. He was hurled into the street and knocked unconscious.12 Confined to bed in the Park Avenue home of his son, Winthrop (who would later become chairman of the Chase Bank), Aldrich reluctantly postponed work on the central bank plan.
As the deadlines for issuing a report and introducing a draft bill to Congress drew nearer, Aldrich’s concern about the as-yet-unwritten report intensified. In the wake of growing antibanker sentiment and ascendant muckraking journalism, Aldrich was paranoid. He knew he couldn’t conceivably get a plan passed through Congress if it were branded a ploy between Republicans and bankers, and if it became known that he was seeking help from Wall Street.
That’s when the idea of meeting at “the richest, the most exclusive, the most inaccessible club in the world” came to being. Aldrich had close personal relationships with Morgan, Stillman, and Rockefeller, all of whom were members of the Jekyll Island Club. Yet these men decided they were too prominent to risk association with an expedition to bang out the central bank plan, so they sent their lieutenants. No one on the team accompanying Aldrich to Jekyll Island, including Aldrich, was a member of the club at the time. They could only enter the exclusive locale if a member sponsored them.13
That member, who had ties to each person in the group, was J. P. Morgan. He was thought to have made the arrangements for all of them to be his guests, or “strangers,” as visitors were called in the Jekyll Island guest book.14 In attendance were Aldrich; his personal secretary, Arthur Shelton; assistant secretary of the Treasury A. Piatt Andrew; Frank Vanderlip; Henry Davison; Benjamin Strong, head of J. P. Morgan Bankers Trust Company; and Paul Warburg, a partner at Kuhn, Loeb & Company and a representative of the Rothschild banking dynasty in England and France.15 The men represented the Morgan and Rockefeller empires but possessed a stronger link to Morgan and National City Bank (which was related to Morgan via the Stillman connection).
Precautions were taken as if the men were spies. The club circulated notices on the Georgia mainland reminding locals that the island was “private,” as it did before every winter season. But this time the notices were posted earlier. Aldrich instructed the members of his team to avoid dining together on the night of their departure and to go to the railroad terminal on the New Jersey side of the Hudson River as “unobtrusively as possible.” There, his car would be attached to the rear end of a southbound train. If anyone asked, the men were duck hunters going on an expedition.
“When I came to that car, the blinds were down and only slender threads of amber light showed the shape of the windows,” Vanderlip recalled. “Once aboard the private car we [would] address one another as ‘Paul,’ ‘Ben,’ ‘Nelson’. . . . Davison and I inducted even deeper disguises abandoning even our first name . . . he became Wilbur and I became Orville after those two aviation pioneers, the Wright brothers.”16
The men spent ten days in seclusion on Jekyll Island, hard at work though no doubt also enjoying leisure activities. (Aldrich and Davison were so taken with the island that they became club members two years later.)17 Over a Thanksgiving dinner of wild turkey with oyster stuffing, they argued and debated. But the men knew they were hatching something bigger than themselves. They were formulating a blueprint for banking in America and for American banking power around the world.
As Vanderlip said, “I enjoyed it as I have never enjoyed anything else. I lived during those days on Jekyll Island at the highest picture of intellectual a
wareness that I have ever experienced. It was entirely thrilling.”18
Their plan called for the establishment of a National Reserve Association. In keeping with the strategy to create a central bank without calling it such, the moniker omitted the word “bank.” The men agreed upon a central structure, with fifteen quasi-independent branches whose policies would be coordinated through a central national committee. It would have the power to create one standard currency that would support the country and the big banks in times of emergency, ensuring their stability. The Treasury was in charge of creating coins and paper currency; its Bureau of Engraving and Printing had been producing all currency for the US government, including silver and gold certificates, since 1877.19 A central bank would add another dimension to the US banking system. (On October 28, 1914, the bureau began printing paper Federal Reserve notes, as instructed by Federal Reserve members.)20
On its surface, the Aldrich plan seemed a fair idea for a country as geographically expansive as the United States. Congress would surely see the logic in such a structure. And the population would surely take comfort in what would be presented as a way to keep the economy protected from the money trusts’ machinations. The fact that it really was a means to provide an easier money supply to the big banks would not be part of its publicized benefits.
Satisfied with the results, Aldrich set out to present the draft bill to the Senate. The men departed as covertly as they had arrived. Aldrich and Andrew exited the northbound train at Washington, DC. Warburg, Davison, Strong, and Vanderlip traveled onward toward New York.21
But on November 26, 1910, the New York contingent got word that Aldrich had fallen ill. The strain of the days so close to the accident had proved too taxing. Aldrich was too weak to write an appropriate document to accompany his plan. There was no time to waste.
In a pinch, Strong and Vanderlip traveled to Washington and prepared the summary report. “If what we have done then had been made known publicly, the effort would have been denounced as a piece of Wall Street chicanery, which it certainly was not,” claimed Vanderlip.22 Such was the thinking of one of the wealthiest bankers in the country.
President Taft Supports Aldrich’s Plan
All that was left was to market the plan to Congress and the American people. On January 16, 1911, Aldrich formally delivered the “Suggested Plan for Monetary Legislation, Submitted to the National Monetary Commission,” otherwise known as the Aldrich plan. It circulated around Congress and made its way to the press.23
The plan’s creators endorsed it through various avenues. First out of the gate was Davison, who praised the “admirably effective and simple” plan (if he did say so himself) in a January 20 New York Times article.24 In early February, at the annual dinner of the New York Chapter of the American Institute of Banking, A. Piatt Andrew assailed the “serious defects” of the current system and described how the Aldrich plan would solve them.25 In late February, Vanderlip “warmly endorsed” it in an address at a Commercial Club banquet.26
One of the plan’s most stalwart supporters was President Taft himself. Just as he had backed the Payne-Aldrich Act in 1909, which lowered tariff rates by 5 percent and increased coal and iron ore prices, Taft strongly advocated the Aldrich plan. He too was convinced that a powerful US required a powerful currency and that passing a solid plan for a US central bank under a Republican White House could give him leverage in the upcoming elections. He offered advice to ensure its passage in the Democratic-controlled Congress.
In a January 29, 1911, letter to Aldrich (who had returned to Jekyll Island as a guest), Taft was already providing a backup strategy in case there were problems. He wrote, “If you formulate your scheme into a definite bill backed by the Commission, I can recommend it and present it with the arguments in its behalf to a Democratic Congress and in this way perhaps prepare the way for its being adopted as a plank of the next Republican platform. So that if we are successful in the next election we can put it on its passage in a Republican Congress as the performance of a platform pledge and promise.”27 Taft wanted to pass the bill through the Democrats; but if it didn’t pass, he wanted to retain the option to push it through during the next session, which he hoped would have a more favorable Republican balance. Both parties had an interest in addressing the nation’s currency and financial challenges, and to be seen tackling the issue. The struggle was over which party would be the one to take ownership of the solution.
Five months later, at a meeting of 1,500 members of the New York State Bankers Association on June 23, 1911, Taft promoted the Aldrich plan to a hearty round of cheers and applause. In his speech, he stressed the “association” term in particular, as there was growing concern (or at least political posturing) among progressives that a singular central bank, or construct, would have too much power or be too influenced by the money trusts. Not that there was any particular reason why an “association” would be less influenced, but in the fight for political power, distinctions such as these were less important than controlling the outcome.
“It is true that the National Reserve Association is a central bank in a certain sense,” Taft said, equivocating to assuage critics. But, he argued with bankers’ logic, though a singular central bank wouldn’t pass popular opinion muster, an association “will inure greatly to the benefit of the people of this country.”28 He was betting—or banking, as it were—on the fact that people would feel that a nonsingular bank would by its nature be more diffuse, less likely to fall prey to concentrated influence from the bankers. It was really a matter of spin and linguistics, for diffused influence is not the same as the absence of influence.
Such verbiage and the promise of an outwardly decentralized structure did prove more enticing to the population. This suited the big bankers just fine; they were less concerned with the details than ensuring that they would retain influence over the association and access to easily created currency. It would also be a victory for the president, as it would help expand the power of his office and of the country over the world. But Aldrich’s plan would not become law—not yet, anyway.
The Titanic and the Pujo Hearings
J. P. Morgan was in France when word spread that the Titanic had sunk on April 15, 1912, and with it the investment money Morgan had contributed on behalf of the shipping trust that built it. He had attended the ship’s launch at the Harland and Woolf shipyard in Belfast in 1911 and narrowly missed being a passenger in the suite that bore his name. If he had not been dealing with health issues in France, he might have gone down with the ship.29
As the world reeled from the loss of the “unsinkable ship,” the congressional hearings that probed the money trusts and Morgan’s labyrinth of influence kicked off in Washington on May 16.30 Congressman Charles A. Lindbergh Sr. (father of the future flyer) had introduced a resolution to look into the money trusts after passage of the Aldrich-Vreeland Act, which he considered a coup for the banks and “the first precedent established for the people’s guarantee of the rich man’s watered securities, by making them a basis on which to issue currency.”31 Lindbergh’s resolution led to the 1912 House Banking and Currency Committee hearings, in a subcommittee led by Louisiana Democrat Arsène Pujo.
The timing of these hearings was advantageous to the Democratic Party. New Jersey governor Woodrow Wilson wisely leveraged public outrage against the bankers and the Republican embrace of them during his presidential campaign (though he said little about the Pujo hearings specifically—after all, certain major bankers, notably Jacob Schiff, were financing his campaign). If he entered the White House with the people’s mandate, he could create his own banking system, even if it turned out to be nearly the same one the Republicans were pushing.
Lead prosecutor Samuel Untermyer summoned Morgan and other Wall Street financiers, including George Baker, James Stillman, Paul Warburg, and Benjamin Strong. William Rockefeller’s partial testimony was gleaned by investigators who journeyed to find him on Jekyll Island, where his doctor pronounced him
too ill to say very much. The hearings cast some of these bankers into the public eye for the first time. Untermyer’s investigation focused on bankers’ manipulation of markets and stocks, and the negative implications on the entire country of such a concentration of power and influence within the inner group of bankers.
Though the hearings succeeded in drawing media attention to the bankers and their clandestine alliances and activities, the investigation was politically dogged at every step. The pro-banker New York Times jeered at Pujo, “When panics rage, resort is not made to gentlemen of Pujo’s caliber, but to the leaders of the Money Trust, who are laughing in his face as he tries to hold them up to popular punishment.”32
By June, bankers bristled at Untermyer’s attempt to obtain more information on the names of stockholders and the nature of their holdings. The bankers appealed to the comptroller of the currency for relief.33 Their efforts to keep their activities a secret had been supported by an executive order given by Roosevelt in his last term and reaffirmed by Taft. The order prevented agency heads from furnishing reports to congressional committees unless approved by the president. It was a loophole that the bankers could use to their advantage mostly because the president was on their side. Untermyer pleaded directly with Taft to compel the bankers to cooperate, but the president shrewdly decided not to respond until after the election, when he would refuse him the information avenue he desired.34
With political tensions rising and so much at stake for both parties, the hearings were suspended as the presidential race heated up. This was partially because the Democrats had lost some faith in the investigations despite public support for them, given the roadblocks befalling Untermyer. The official reason given by Taft, whose party was equally wary of what the election would bring, was that he wanted to avoid creating the impression that the purpose was to gain partisan advantage.35
