by Prins, Nomi
Anxiety over which party would gain control of the White House was linked to how the money trusts were positioned. The issues of banking and currency reform were central to the 1912 election. Both parties had to tread carefully, balancing public opinion against the need to keep bankers and big business supporting their campaigns.
Wilson panned the Aldrich plan throughout his campaign. He told audiences that he believed control over the nation’s finances should be held by the government and not the money trusts.36 It was the exact kind of power-play articulation that Roosevelt had used against the other trusts. Wilson said he envisioned a semicentralized banking system where each district revolved around its own Federal Reserve Board. This wasn’t very different from the Aldrich plan. But Aldrich was a Republican, and that was reason enough to disparage an idea with his name on it. Wilson knew this, even though one of his largest campaign contributors happened to be Jacob Schiff, a “money trust” banker who ran Kuhn, Loeb & Company, and whose protégé, Paul Warburg, would eventually be appointed to a position on the Federal Reserve Board by Wilson—who, as this tale will tell again, was good to his friends.
Vanderlip and Wilson
As previously mentioned, Wilson’s alliances with the power brokers of Wall Street began before 1879, when he graduated from Princeton alongside Cleveland Dodge. According to Ferdinand Lundberg, author of the enthralling America’s Sixty Families, “For more than twenty years before his nomination Woodrow Wilson moved in the shadow of Wall Street.”37 After law school, Wilson rose quickly through the Princeton ranks, from young conservative professor of political science to the head of the university. He could not have raised funds as its president or run for governor of New Jersey or later for the presidency without the elite-banking contingent.
In the early part of his career, Wilson befriended Vanderlip, then a shy, rising star at National City Bank. Their “long acquaintance” began in 1903 through Dodge’s introduction. According to Vanderlip, the two had “many fine stimulating talks” about the nature of the US economy and other issues. It was Vanderlip who insisted that Wilson address the need to expand American business abroad as a way to secure the “industrial supremacy” of the United States in world trade. But they saw less of each other when Wilson left his post as Princeton’s president in 1910 to become governor of New Jersey. Vanderlip established the National City Company as a subsidiary, to circumvent laws forbidding national banks to open foreign institutions. As Wilson moved further to the political forefront, contact between the men ceased. Wilson chose to limit the appearance of having a connection to the bankers he was disparaging in public, except for one final instance that stuck in Vanderlip’s head.
During Wilson’s presidential campaign, William Gibbs McAdoo, president of the Hudson and Manhattan Railroad Company (and later Wilson’s Treasury secretary), approached Vanderlip several times on Wilson’s behalf to discuss issues of banking and currency systems. Given his sense of hurt over Wilson’s distant stance toward him, Vanderlip ignored many of these overtures. Finally, Wilson invited Vanderlip to meet him at McAdoo’s home at Hastings-on-Hudson, New York, near Vanderlip’s Scarborough estate. Perhaps this was an opportunity for Vanderlip to renew his friendship with Wilson, or so he thought.
“We had a long talk together alone and quite in the warm tone of our old friendship,” Vanderlip recalled of their meeting. That warmth proved illusory. Vanderlip pressed Wilson on the need for a central bank mechanism along the lines of the Aldrich plan. He wanted Wilson to consider the broader necessity of their plan, and the success it could provide the United States on the international stage. For Wilson during that conversation, the issue wasn’t the plan but the power to implement it, or something similar, in Washington. “You don’t understand politics,” Wilson told Vanderlip. “It does not make any difference what I thought ought to be done, I first need to get elected in order to do these things.”38
Recalling that incident, Vanderlip came to believe that Wilson “was just moving my hair with one hand and keeping me at arm’s length with the other.” In other words, Wilson wanted input from Vanderlip, but he didn’t want to appear to be associating with such a high-ranking banker. Though Vanderlip did “not feel that it was a crime to be the president of the National City Bank,” he sensed Wilson felt “it would be a political crime if he were caught talking with me.”39 The nation’s opinion of bankers had soured further since the Panic, the ensuing recession, and the press coverage of the Pujo hearings, a condition that Roosevelt, who decided to run on the Progressive “Bull Moose” Party ticket, used to his advantage in the 1912 election. Wilson would use it more successfully.
Perhaps because of spurned feelings or divergent interests, Vanderlip withdrew his financial support for his old friend. A chill settled between the two men that, combined with Vanderlip’s sensitive and slightly eccentric personality, would have major repercussions for Wilson and the country in the years to come.
Wilson began campaigning in earnest in Buffalo, New York, on Labor Day, September 2.40 He targeted the nexus between big business, Wall Street, and the Republican leadership. He vowed to “break up the little coterie that has determined what the government of the United States should do.”41 His rhetoric was designed to outflank Roosevelt, who had been a trustbuster of every trust except the money one during his presidency.
In particular, Wilson dubbed the Payne-Aldrich Tariff Act “the most conspicuous example ever afforded the country of the special favors and monopolistic advantages” given by the Republican Party to its campaign contributors.42 He disparaged the concentration of control of credit in Wall Street and said he wanted that power to reside with Washington instead—as had Roosevelt, though Wilson had articulated the sentiment with much more finesse.
Capitalizing on his growing popularity during his October 11 campaign address before the Central Armory in Cleveland, Wilson claimed, “The whole situation in the United States might be summed up by saying that the Republican Party has put the intelligence of this country into the hands of receivers in Wall Street offices. Very able receivers they are, and they have received a great deal!”43
Wilson’s anti–Wall Street proclamations matched the country’s sentiments. On November 5, he won the election with 42 percent of the electoral vote. Roosevelt came in second with 27 percent of the electoral vote, while the incumbent President Taft got a mere 23 percent.44 Wilson’s read of the American public allowed him to out-Roosevelt Roosevelt. However, in practice, he would further empower the very banking class he disparaged. In doing so, he would propel America to the role of a financial superpower during and after World War I, though he would not get everything he wanted in that regard.
Wilson’s victory ushered in an atmosphere of jubilance in Washington for the Democrats. On November 6, 1912, Samuel Untermyer, who had stumped for Wilson during the election,45 promptly requested his input on the ongoing “Money Trust Inquiry,” though Wilson had not discussed the specifics or mentioned any bankers by name during the campaign. “There are important questions of policy . . . requiring immediate decision before the hearings, which are fixed for the end of this month, are resumed,” Untermyer wrote.46 Wilson responded that he would deal with the matter once he got back from his upcoming vacation.47
Carter Glass, the Democratic chair of the House committee in charge of reviewing what had become the Aldrich Bill and the banking and currency system, also wasted no time addressing the matter of a system overhaul. Two days after the election, he not only congratulated Wilson on his victory but plunged straight to the issue over which he would now have jurisdiction. Glass informed Wilson that he and economics professor H. Parker Willis had formulated a substitution for the Aldrich bill, though he did not provide the president-elect with further details, perhaps shrewdly awaiting more guidance.48 As he told Wilson, “I think the committee would not like to proceed without some suggestion from you . . . as to what you think should be done.”49
Plagued with a raging cold once he re
turned to Princeton after Christmas, Wilson invited Glass and Willis to his home to discuss the reform bill.50 The Glass-Willis draft bill called for a more decentralized reserve system than the one Aldrich had proposed. It would still be privately controlled, centered around a group of local reserve banks, with each having the full power of the reserve banking system.
Based on their conversation, Willis concluded that Wilson didn’t think the plan provided the comptroller of the currency, the system’s general supervisor, enough control. But other than that, he didn’t feel as strongly as his campaigning had indicated about how the central bank would be constructed. Perhaps, now that he had won the election, Wilson was less inclined to upset the bankers who had quietly supported him—though he still wanted to ensure the presidency retained power over the new currency system.
Afterward, Glass pondered the political landscape. It made him uncomfortable, and he wanted to pass legislation as quickly as possible. He told Wilson that he was trying “to reduce the suggestions made to something tangible in order that the hearings . . . may be directed to a definite, even though tentative, plan of currency reform.” Glass’s main concern was a letter he had received from a New York banker who had attended his subcommittee hearings, which Glass interpreted as a veiled threat. It stated, “The American Bankers Association as a body . . . endorsed the Aldrich bill. It would seem, therefore, impossible for us as members of the Currency Commission of the American Bankers Association to take another position or do anything else before your committee than to endorse the bill, if we were to appear before you officially.”
From this, Glass knew that the bankers would fight for the Aldrich plan as it was drafted, so he tried to find a way to capitulate but still leave his and the party’s mark on it. He publicly suggested drafting a bill giving local reserve banks equal power, as opposed to one that would empower a strong centralized source, and placing the burden on the advocates of the Aldrich bill to show that a central superstructure would not possess “the evils of bank monopoly and the dangers of centralized power.”51
Unofficially, though, Glass knew nothing would pass unless he preserved the elements of the Aldrich plan that the bankers supported. Though he wrote Wilson several letters about his centralization concerns, Wilson did not reply to his concerns until it was clear that Glass was leaning toward a better compromise with the bankers, and the bankers were indicating their approval of the Glass plan in return.
Morgan’s Defiance
While those conversations were progressing, J. P. Morgan traveled from New York to Washington on December 17, 1912, with an entourage of fifteen men—including his son, Jack, and his partner, Thomas Lamont.
In his testimony before the Pujo Committee, Morgan was curt and defiant. In one exchange with Untermyer, he brushed aside both the idea that he could save the country’s finances in a panic, as his admirers insisted he had done in 1907, and that he could control them for his advantage.
Q.Your power in any direction is entirely unconscious to you, is it not?
A.It is, sir; if that is the case.
Q.You do not think you have any power in any department of industry in this country, do you?
A.I do not.
Q.Not the slightest?
A.Not the slightest.
Thus the man who routinely convened with the heads of finance and industry in New York, London, and Jekyll Island yielded no information about his methods and presented no awareness of the power of their impact.
Ten days later, as a parting gift to the bankers, outgoing President Taft attempted to stonewall the final stages of the investigation. He informed Pujo that he would refuse to force the comptroller of the currency to gather any additional information from the national banks for use in the investigation.52
On February 26, 1913, the Pujo Committee issued its final report, a searing indictment of the dangers of high concentration of money and credit in the hands of a few elite “money trusts.” The report outlined a list of their unsavory practices, such as “wash sales,” which provided the appearance of demand for securities cultivated by the firms that created them to entice investors, and “short sales,” which gave firms the ability to sell their securities to give the appearance of weaker demand and then profit by buying them back later at lower prices.53
The report revealed that J. P. Morgan & Company—“the acknowledged leaders of the allied forces,” as Louis Brandeis put it—held seventy-two directorships in forty-seven of the largest American companies. More broadly, its members and the directors of its controlled trust companies, the First National Bank, and the National City bank held 341 directorships in 112 corporations with resources or capitalizations of $22.25 billion (including in banks, trusts, insurance companies, transportation systems, and public utilities).54
Brandeis considered this the tip of the iceberg. He believed that “wealth expressed in figures give[s] a wholly inadequate picture of the allies’ power. . . . Their wealth is dynamic. It is wielded by geniuses in combination. It finds its proper expression in means of control.”55
Morgan had a different perspective. His firm had declared in its letter to the Pujo Committee that “practically all the railroads and institutional development of this country has taken place initially through the medium of the great banking houses.” Conversely, Brandeis argued, “nearly every contribution to our comfort and prosperity was ‘initiated’ without their aid.” Banks entered the picture once success had been established.56
Once the spectacle was over, the committee came up empty-handed. Wall Street rallied around Morgan’s performance.57 The New York Times praised the accompanying letter from the firm as a “sermon” to the unconverted.58
It was to be Morgan’s last mortal triumph, capping off the short-lived and shallow decline of the money trust, which would soon be resurrected in a broader, global form as the Great War provided the firm with more opportunities for influence and placed Wilson’s government in a greater position of financial dependence than ever.
Six weeks after the report was issued and just past midnight on March 31, 1913, Morgan died at the Grand Hotel in Rome. His partners attributed the death of the great titan to the stress of the Pujo investigations. There may have been some truth to that, but as Morgan’s biographer Ron Chernow wrote, “Pierpont was seventy-five . . . smoked dozens of cigars daily, stowed away huge breakfasts, drank heavily and refused to exercise.”59
Leaders from Pope Pius to the German emperor to fellow bankers publicly mourned his death. Jack Morgan took over the firm and gained control of its political alliances at the age of forty-six. Though he never led the firm with as controlling or exacting a command as his father, or possessed the ability to gather its collaborators in the same way, Jack would shepherd the bank through the ratification of the Federal Reserve Act, which his father had championed behind the scenes, and navigate the bank through the war.
Passing the Federal Reserve Act
It turned out that 1913 was a busy year for legislation. On February 3, the Sixteenth Amendment was ratified, allowing the Treasury Department to impose an income tax. Two months later, the Seventeenth Amendment, requiring direct popular election of US senators, was passed. But Washington’s main debate concerned the Glass-Owen bill, the reformation of the Aldrich bill. That legislation would define financial power in the United States and, by extension, US private banking power globally.
Despite concerns over the structure of the board and who would be in charge of appointing its officials, the bankers adopted a more conciliatory tone toward this version of the Glass-Owen bill, which, after all, granted them the ability to access currency when they needed it and to expand their branches overseas. Glass was encouraged by the changed attitude of some of the influential bankers.
“These gentlemen,” as Glass informed Wilson on January 27, “concluded that they could not carry out Mr. Warburg’s purpose of ‘battering the committee into a repudiation of the Democratic platform.’” Glass continued, “They were now
willing to cooperate with the committee in trying to secure the ‘best remedial legislation that is possible to obtain.’” Having the bankers on board ironically placed a potential bull’s-eye mark on Glass, who realized “too pronounced activity by the organized bankers might arouse suspicion and hostility among those who regard banks as essentially evil.” He decided, therefore, “to proceed discreetly.”60
Work on the bill thus progressed through the spring. Based on advice from his confidant Colonel Edward House, Wilson appointed William McAdoo—who had worked on Wilson’s campaign and had been his interlocutor with Vanderlip—as his Treasury secretary.61 On April 11, House and McAdoo dined at the White House at Wilson’s invitation. After dinner, the three men adjourned to the library to discuss New York appointments, currency reform, and the Glass bill. They agreed that McAdoo, Glass, Owen, and House should meet Monday evening and “whip it in shape.”62 It could represent an early and strong political victory for Wilson.
Two months later, as the Glass bill adopted more of what the big bankers wanted, Brandeis voiced his concern to Wilson over the pending legislation in an attempt to swing the pendulum away from Wall Street. “The power to issue currency should be vested exclusively in Government officials,” he wrote. “The American people will not be content . . . in a Board composed wholly or in part of bankers; for their judgment may be biased by private interest or affiliation.”63
But Glass was now leaning toward giving the bankers precisely that power. On June 18, 1913, he asked Wilson to allow bank representation on the proposed Federal Reserve Board.64 Glass had been up past one o’clock the night before discussing the matter with Representative Robert Bulkley, a member of the subcommittee on banking and currency and “a strong man of the committee with whom we must reckon,” as he told Wilson.65
