America's Bank: The Epic Struggle to Create the Federal Reserve

by Roger Lowenstein

  CHAPTER TWELVE: THE “SLIME OF BRYANISM”

  “The germinal principle”: “Banking Under Federal Control,” The New York Times, June 20, 1913.

  “The banks may be the instruments”: Arthur S. Link, Woodrow Wilson and the Progressive Era, 1910–1917 (New York: Harper and Row), 48.

  The United States of 1913: Data on Model Ts available at www.mtfca.com/encyclo/fdprod.htm; for the New York Stock Exchange, see Lance F. Davis, International Capital Markets and American Economic Growth: 1820–1914 (New York: Cambridge University Press, 1994), 63. The rising propensity of people to deposit money in banks is a persistent theme of Milton Friedman and Anna Jacobson Schwartz, A Monetary History of the United States, 1867–1960 (Princeton, N.J.: Princeton University Press, 1971); see, for instance, 15, 56–68, 122, and 164. Andrew Frame, Elastic Currency (Philadelphia: Annals of American Academy of Political Science, 1908), 12, states that individual deposits tripled from 1890 to 1908, to nearly $18 billion. By 1914, total deposits topped $21 billion—see Federal Reserve Bank of St. Louis, “Banking and Monetary Statistics, 1914–1941,” 17, a report available at http://fraser.stlouisfed.org/docs/publications/bms/1914-1941/BMS14-41_complete.pdf.

  bankers increasingly distrusted: Vanderlip to James Stillman, May 12, 1913, Frank A. Vanderlip Papers, Box 1-5.

  “Currency should be based on credit”: William P. Goodwin, Money, Credit Currency, and a Currency Plan (Providence, R.I., 1910), 11.

  “educates the people who use it”: “Report of the Monetary Commission to the Executive Committee of the Indianapolis Monetary Convention” (1897), 40; available at openLibrary.org.

  Wilson was in a position to dominate: Link, Wilson and the Progressive Era, 35.

  “even the semblance of privilege”: “Congress Cheers Greet Wilson,” The New York Times, April 9, 1913. For the reversal of custom, see John Milton Cooper Jr., Woodrow Wilson (New York: Knopf, 2009), 214; and Arthur S. Link, Woodrow Wilson: A Brief Biography (Cleveland: World, 1963), 180. An index of joint sessions of Congress documents that (outside of inauguration days) Wilson was the first president since John Adams to appear in joint session: http://history.house.gov/Institution/Joint-Sessions/60-79.

  Even Wilson was accused: Cooper, Woodrow Wilson, 214.

  he wanted to enhance: “Congress Greets Wilson,” The New York Times, April 9, 1913.

  Wilson was adamant: Link, Wilson and the Progressive Era, 35; “Wilson Preparing for Business Boom,” The New York Times, April 29, 1913; and “Federal Control of Interest Rate,” The New York Times, April 30, 1913.

  McAdoo mapped the country: Glass to H. Parker Willis, April 11, 1913, Carter Glass Collection, Box 47. That Willis and McAdoo met on Sunday, April 13, is from Willis to Carter Glass, April 16, 1913, Henry Parker Willis Papers, Box 20; they would also have a work session at McAdoo’s home on Saturday, May 3. For the bill’s new nomenclature, see Willis to Carter Glass, May 5, 1913, ibid.

  However, McAdoo became frustrated: John J. Broesamle, William Gibbs McAdoo: A Passion for Change, 1863–1917 (Port Washington, N.Y.: Kennikat Press, 1973), 100, 95.

  a Washington dinner party: Carter Glass, An Adventure in Constructive Finance (Garden City, N.Y.: Doubleday, 1927), 52–53; and Henry Parker Willis, The Federal Reserve System: Legislation, Organization and Operation (New York: Ronald Press, 1923), 169.

  thirteen pages of pointed suggestions: Glass, An Adventure in Constructive Finance, 48–49; and Paul M. Warburg, The Federal Reserve System: Its Origin and Growth—Reflections and Recollections (New York: Macmillan, 1930), 1:91–92. Warburg’s analysis appears in his appendix, ibid., 613–25.

  “a large number of faucets”: Warburg, The Federal Reserve System, 1:613–14; a synopsis of his points follows in ibid., 614–25. The figure of twenty reserve banks can be found in Willis, The Federal Reserve System, 171.

  His paper, dated April 22: Warburg, The Federal Reserve System, 1:92.

  “vicious” and also “extreme”: Willis to Carter Glass, April 29, 1913, Willis Papers, Box 1; and Willis to Carter Glass, April 28, 1913, ibid., Box 20.

  House reappeared, grabbed: Willis to Carter Glass, May 2, 1913, ibid.

  Colonel House was invited: Samuel Untermyer to House, May 3, 1913, Edward M. House Papers, Box 112.

  Owen had been born in Lynchburg: For biographical details on Senator Owen, see Kenny L. Brown, “A Progressive from Oklahoma: Senator Robert Latham Owen, Jr.,” The Chronicles of Oklahoma 62 (Fall 1984); Wyatt W. Belcher, “Political Leadership of Robert L. Owen,” The Chronicles of Oklahoma 31 (Winter 1953–54); and Oklahoma Historical Society, “Oklahoma’s First Senator Dies,” Chronicles of Oklahoma 25, p. 178, available at http://digital.library.okstate.edu/Chronicles/contents.html.

  As a businessman, Owen: “A Tribute to the Memory of Robert Latham Owen by the Officers and Directors of The First National Bank and Trust Co., Muskogee, Ok.,” September 26, 1947, Special Collections and University Archives (Coll. no. 1931.001), McFarlin Library, University of Tulsa, Tulsa, Oklahoma; and Robert Owen to L. M. Nichols, March 5, 1912, L. M. Nichols Papers, Western History Collections, University of Oklahoma Libraries, Norman, Oklahoma, Box N-11, folder 4.

  frightened depositors withdrew half: Robert L. Owen, The Federal Reserve Act (New York: Century, 1919), 2–3.

  Owen became a student of banking: For the 1896 Democratic convention and Owen’s European trip, see ibid., 5–9. For his speech in Congress, see “Characters in Congress—Senator Robert Latham Owen of Oklahoma,” The New York Times, March 1, 1908. See also press clippings in L. M. Nichols Papers, Western History Collections, Box N-11, folder 4.

  For Untermyer, whose feud with Glass: Samuel Untermyer to Glass, April 16, 1913, Glass Collection, Box 15/16; enclosed with this letter is one from R. C. Williken advising Untermyer that Glass “has done everything he could to discredit the great and important work performed by you [Untermyer] on the ‘Money Trust’ committee.” Untermyer, of course, had been trying to poach on Glass’s turf for nearly a year. For Owen and Untermyer, see Untermyer’s self-published Who Is Entitled to the Credit for the Federal Reserve Act? An Answer to Senator Carter Glass (New York, 1927), 10, reproducing a letter from Owen to Untermyer of May 14, 1927, which states: “At your home you made various engagements for me to meet severally Frank A. Vanderlip, A. Barton Hepburn, Paul Warburg and others whose intimate views I desired in framing the Federal Reserve Act.” See also Vanderlip to Robert Owen, May 31, 1913, Vanderlip Papers, Box 1-5. Warburg and Owen corresponded numerous times, but not until that fall.

  Owen reached out: A. Piatt Andrew, Diary of Abram Piatt Andrew, 1902–1914, ed. E. Parker Hayden Jr. and Andrew L. Gray (Princeton, N.J., 1986), entries for May 19 through May 23, and also May 30.

  a loosely worded version: Willis, The Federal Reserve System, 240.

  Untermyer invited Bryan to lunch: Untermyer, Who Is Entitled to the Credit for the Federal Reserve Act? 12, 15.

  “waking up to the fact that the proposed bill”: House diary entry of May 11, 1913, Arthur S. Link, ed., The Papers of Woodrow Wilson (Princeton, N.J.: Princeton University Press, 1966–1989), 27:413.

  “I saw Primus”: House to Wilson, May 15, 1913, in ibid., 436. See also Willis, The Federal Reserve System, 245.

  Instead, the assignment went to McAdoo: Broesamle, William Gibbs McAdoo, 78, 97.

  Convinced that the Glass bill: Willis, The Federal Reserve System, 194–95.

  “We run against so much”: McAdoo to House, May 20, 1913, House Papers, Box 73.

  The essence of the McAdoo plan: Willis, The Federal Reserve System, 206; Richard T. McCulley, Banks and Politics During the Progressive Era: The Origins of the Federal Reserve System, 1897–1913 (New York: Garland, 1992), 295; and Broesamle, William Gibbs McAdoo, 101.

  It is not certain who drafted: According to Broesamle, William Gibbs McAdoo, 80, Williams harbored a “pathological” dislike of Wall Street. On Wi
lliams’s role, see also ibid., 104, and Willis, The Federal Reserve System, 194–95.

  “along the lines suggested”: House to Wilson, May 20, 1913, in The Papers of Woodrow Wilson, 27:458. A copy of this letter can also be found in Glass Collection, Box 14.

  “Pythias [McAdoo] or Owen could get him”: House to Wilson, May 20, 1913. Years later, in response to then Senator Glass’s published account of this affair, Untermyer denied any involvement, tartly adding, “Glass is either dreaming or senile” (Samuel Untermyer to Robert Owen, May 10, 1927, Glass Collection, Box 24). It is possible the idea for Untermyer to sneak into the White House—never acted upon—was House’s alone. However, Untermyer’s broader denial of any role in McAdoo’s plan does not stand up. House’s May 20 letter to Wilson, written the day after he had spoken to Untermyer, was replete with specifics (“Untermyer tells me that some of the bankers here would approve,” etc.). Also, Untermyer had been working to bring Owen together with bankers, and it is consistent with such efforts that he would have assisted in trying to hatch a compromise between them.

  RMS Mauretania: Warburg, The Federal Reserve System, 1:97–98.

  “Are you serious?”: Glass, An Adventure in Constructive Finance, 100–101; and William Gibbs McAdoo, Crowded Years: The Reminiscences of William G. McAdoo (Boston: Houghton Mifflin, 1931), 243–44.

  “I could see clearly that”: McAdoo, Crowded Years, 222.

  Glass recounted that he was “astounded”: “Glass, An Adventure in Constructive Finance, 101. For collecting negative reactions, see Willis to Carter Glass, June 5, 1913, Willis Papers, Box 20.

  as an “administration bill”: Willis to Carter Glass, May 27, 1913, Willis Papers, Box 1; see also Willis, The Federal Reserve System, 241.

  McAdoo met with Owen and Glass: Vanderlip to James Stillman, May 24, 1913, Vanderlip Papers, Box 1-5.

  “I am all in the air”: Carter Glass to Willis, June 6, 1913, Willis Papers, Box 1.

  Glass got an audience: Glass to Woodrow Wilson, June 7, 1913, Glass Collection, Box 64; Glass to A. Barton Hepburn, June 7, 1913, ibid.; and Glass to Willis, June 6, 1913. Among those who provided letters were Hepburn, Reynolds, and the Chicago banker E. D. Hulbert. Some letters were delivered to Wilson the following day. The Wilson quote (“I feel Mac is deceived”) is recounted by Glass in An Adventure in Constructive Finance, 107–9. See also Rixey Smith and Norman Beasley, Carter Glass (New York: Longmans, Green and Co., 1939), 106, citing a “flood” of protests from bankers and economists.

  “The chief point of danger”: Glass to Hepburn, June 7, 1913.

  He found the senator: Glass to H. Parker Willis, June 9, 1913, Glass Collection, Box 47. Glass’s letter said Owen was in agreement on the “essential principles,” but since they continued to differ on the issue of government vs. banker control, this was incorrect. For specifics on their negotiations, see Owen, The Federal Reserve Act, 74–75.

  Wall Street laid an egg: The Dow Jones Industrials traded as low as 57 in late 1907. By May 1909 they were back in the low 90s, approximately their level before the Panic. For the next few years they traded mostly in the 80s and 90s. On March 4, Wilson’s inauguration, the average closed at 80. After the May–June swoon, it stood (on June 10) at 72.

  “We will need the gold badly”: Vanderlip to Stillman, May 24, 1913, Vanderlip Papers, Box 1-5; his follow-up letter is dated June 6, 1913, ibid., and see also a further letter to Stillman of June 13, also in ibid. See also various market reports in the first week of June, such as “Stocks Lowest in Five Years,” The New York Times, June 5, 1913, and “Review and Outlook,” The Wall Street Journal, June 9, 1913.

  McAdoo suspected that Wall Street: William McAdoo to House, June 18, 1913, House Papers, Box 73; and “Financial Markets,” The New York Times, June 13, 1913.

  “should be pushed rapidly”: “Review and Outlook.”

  he had no choice but to oppose: Paolo E. Coletta, William Jennings Bryan (Lincoln: University of Nebraska Press, 1969), 2:130–31; Joseph P. Tumulty, Woodrow Wilson as I Know Him (Garden City, N.Y.: Doubleday, Page, 1921), 178; and William Jennings Bryan and Mary Baird Bryan, The Memoirs of William Jennings Bryan (New York: Haskell House, 1971), 369–70. These three books give consistent accounts of the Wilson-Bryan meeting, though none supply a date. “Deep regret” is from Bryan and Bryan. As evidence of Bryan’s desire to be supportive, he had told his brother to hold back articles on banking reform in The Commoner, the family periodical, until Wilson’s position became known.

  “It begins to look as if”: Tumulty, Woodrow Wilson as I Know Him, 178.

  “a brick couldn’t be thrown”: “Wilson Denounces Tariff Lobbyists,” The New York Times, May 27, 1913.

  the public was treated to a spectacle: For a general account of the tariff debate, see Cooper, Woodrow Wilson, 216–18; Link, Wilson and the Progressive Era, 36–42; and Link, Wilson, vol 2, The New Freedom (Princeton, N.J.: Princeton University Press, 1956), 177–94 (La Follette quote on p. 190).

  “It is extremely dangerous”: Louis Brandeis to Wilson, June 14, 1913, in The Papers of Woodrow Wilson, 27:520; see also Alpheus Thomas Mason, Brandeis: A Free Man’s Life (New York: Viking, 1956), 397–99.

  “to eliminate all banking representation”: Glass’s account of this meeting is from Carter Glass to Willis, June 17, 1913, Willis Papers, Box 1, and from Glass, An Adventure in Constructive Finance, 112–14.

  “in the saddle”: William G. McAdoo to House, June 18, 1913, House Papers, Box 73.

  an “injustice” to deny bankers: Owen, The Federal Reserve Act, 74; and Willis, The Federal Reserve System, 250. See also “Find Many Flaws in Bill: Democrats Divided on Currency Measure,” The New York Times, June 21, 1913. For Wilson’s choosing a fully political board, see Broesamle, William Gibbs McAdoo, 110–11. Owen’s description of the meeting appears in his The Federal Reserve Act, 74–76.

  Still unable to sleep, Glass: Glass to Willis, June 17, 1913; and Glass to Woodrow Wilson, June 18, 1913, Glass Collection, Box 8.

  “a yielding of the classical doctrine”: Willis, The Federal Reserve System, 256, 258.

  “If we can hold to the substance”: Glass, An Adventure in Constructive Finance, 123–25.

  Bryan didn’t realize that the notes: James Neal Primm, A Foregone Conclusion (St. Louis: Federal Reserve Bank of St. Louis, 1989), chapter 2, “Banking Reform, 1907–1913”; available at www.stlouisfed.org/foregone/chapter_two.cfm. For Bryan’s reaction to Wilson’s compromise solution, see Coletta, William Jennings Bryan, 2:132.

  “covered all over with the slime”: New York Sun quoted in Link, The New Freedom, 216. For the New York Times’s reaction, see “The President’s Views on Banking,” The New York Times, June 24, 1913, and “A Radical Banking Measure,” ibid., June 21, 1913.

  “greater in some respects”: “Vast Scope of the New Currency Bill,” Washington Post, June 22, 1913.

  “Those things don’t count”: Press conference, June 26, 1913, in The Papers of Woodrow Wilson, 28:8.

  Wilson, at Glass’s urging, invited: Glass, An Adventure in Constructive Finance, 127–28, 130; William McAdoo to Wilson, June 18, 1913, in The Papers of Woodrow Wilson, 27:536; and Coletta, William Jennings Bryan, 2:133. See also Broesamle, William Gibbs McAdoo, 108–10.

  “Not an hour can I let”: Wilson’s letter to Peck of June 22, 1913, is quoted in both Link, The New Freedom, 213–14, and Cooper, Woodrow Wilson, 220.

  the President returned to the Capitol: Link, The New Freedom, 214; and “Money Reform Now, Is Wilson’s Demand,” The New York Times, June 24, 1913. Wilson’s speech appears in Cong. Rec. S2132–33 (June 23, 1913).

  Bankers had urged reform: “Forgan Denounces Bill,” The New York Times, June 24, 1913; and “Bankers Clear Up the Currency Plan,” ibid.

  the Glass bill authorized Washington: Willis, The Federal Reserve System, 256–67. In deference to the banks, Willis scotched proposal
s to let individuals either do business with the Reserve Banks or own stock in them.

  The goal was to establish collective: Willis to Carter Glass, May 26, 1913, Willis Papers, Box 1; “Financial Markets,” The New York Times, June 20, 1913; “Bankers Clear Up the Currency Plan”; Willis, The Federal Reserve System, 273–74, 394–95; and James L. Laughlin, The Federal Reserve Act: Its Origin and Problems (New York: Macmillan, 1933), 141–42, 146–48 (quote on 148).

  Wade spoke forcefully against: Glass, An Adventure in Constructive Finance, 112–16. See also Primm, A Foregone Conclusion, chapter 2; and “Money Bill Goes In; No Voice for Banks,” The New York Times, June 27, 1913.

  they won important concessions: Amended provisions to the bill reprinted in Willis, The Federal Reserve System, 1605, 1608, and 1609. See also ibid., 394–95; Laughlin, The Federal Reserve Act, 149; “Money Bill Goes In; No Voice for Banks”; and Link, Wilson: The New Freedom, 217.

  struck a sensible middle ground: Wiebe, Businessmen and Reform, 130. It is my interpretation that the bill was essentially faithful to what Warburg’s camp wished. Furthermore, in The Federal Reserve System (1:101), Warburg describes the bill, aside from the “harmful changes” made to accommodate Bryan, as, “in the main, sound and highly commendable.” Similarly, Vanderlip’s first reaction to the published bill, even more favorable, was that it didn’t contain “any serious financial heresies” (Vanderlip to M. J. M. Smith, June 19, 1913, Vanderlip Papers, Box 1-5).

  “not less than twelve”: Willis, The Federal Reserve System, 1596. The version of the bill submitted June 26 cut reserve requirements to 20, 20, and 15 percent for central reserve, reserve city, and country banks, respectively (ibid., 1609–10), down from the previous standard of 25, 25, and 15 percent. For powers of the reserve board: see ibid., 1603; for its import and export provisions, ibid., 1604.

  the mechanics of how the Reserve Banks: McCulley, Banks and Politics During the Progressive Era, 297.