America's Bank

by Roger Lowenstein

  Warburg, summering: Warburg, The Federal Reserve System, 1:101; Paul Warburg to House, July 1913, telegram, House Papers, Box 114a.

  Davison begged Aldrich: Henry Davison to Aldrich, July 3, 18, and 23, 1913, Nelson W. Aldrich Papers, Reel 47.

  calling it “Bryanized”: A. Piatt Andrew, “The Bryanized Banking Bill,” Boston Evening Transcript, June 25, 1913.

  The ABA was also critical: See Festus Wade to Glass, July 1, 1913, Glass Collection, Box 28; and Festus Wade to Glass, July 3, 1913, ibid., Box 37 (both moderate in tone). See also George Reynolds to Glass, July 7, 1913, ibid., Box 16, in which Reynolds, though diffident, professes not to be “hostile” toward the legislation. Wiebe, Businessmen and Reform, 131, 215, adds texture on the variation of banker opinions. See also Glass, An Adventure in Constructive Finance, 118, 120–21; Gabriel Kolko, The Triumph of Conservatism: A Reinterpretation of American History, 1900–1914 (New York: The Free Press of Glencoe, 1963), 232–34; and Willis, The Federal Reserve System, 395.

  Forgan distributed to members: Willis, The Federal Reserve System, 276.

  “dead and done for”: “Amend or Abandon,” The New York Times, June 29, 1913.

  Glass, who had mightily extended himself: Glass to Solomon Wexler, July 3, 1913, Glass Collection, Box 27; in this letter, Glass accused Wexler of reneging on their understanding. See also Glass, An Adventure in Constructive Finance, 118, 120–21; Willis, The Federal Reserve System, 395 and (“warfare”) 396; and Laughlin, The Federal Reserve Act, 146.

  “history will write down”: Paul Warburg to House, July 22, 1913, House Papers, Box 114a.

  $700 million of these bonds: “The Government and Its Bonds,” The New York Times, July 14, 1913. The issue was covered extensively in the press. The changes gave holders of the 2 percent bonds the right to refund 5 percent of their bonds each year for new securities with a higher interest rate, and for retirement at par of any outstanding bonds in twenty years.

  However, the bonds continued to plummet: “Drop in 2s a Bank Plot, Says McAdoo,” The New York Times, July 29, 1913; see also Broesamle, William Gibbs McAdoo, 109–10.

  the country’s seventy-five hundred national banks: “160,980,084 Earned by National Banks,” The New York Times, December 9, 1913; the precise numbers were 7,514 national banks and $11.186 billion in assets.

  “There must, in fact, be”: Frank Vanderlip to Glass, July 24, 1913, Glass Collection, Box 16.

  “We have a difficult Banking”: Wilson to Ellen Axson Wilson, July 20, 1913, in The Papers of Woodrow Wilson, 28:44–45.

  made up some 30 percent: “Growing a Nation: The Story of American Agriculture,” available at www.agclassroom.org/gan/timeline/farmers_land.htm.

  specifically included bank loans: See section 13, “Rediscounts,” of the bill draft in Willis, The Federal Reserve System, 1603–4. On the fears of agrarians, see, for instance, Kolko, The Triumph of Conservatism, 234, citing the belief of Representative Joe Eagle (D-Tx.) that the proposed Fed would adopt a “paternalistic relationship” toward its member banks.

  The spiritual leader of the agrarians: On Henry and the radical rebellion, see Glass, An Adventure in Constructive Finance, 131–34; Link, The New Freedom, 219–21; and Kolko, The Triumph of Conservatism, 234.

  a series of amendments: The radical amendments proposed in the House Banking Committee were covered extensively in the press; for example, these articles appeared that week in The New York Times: “Put Reserve Notes on a Gold Basis” (July 22, 1913), “Radicals Propose New Currency Bill” (July 23), “Tangle over Money Bill” (July 24), and “Urge Cotton, Wheat and Corn Currency” (July 25).

  “quite beyond the pale of discussion”: “Farmers’ Money,” ibid., July 26, 1913.

  CHAPTER THIRTEEN: “THE IMPOSSIBLE HAS HAPPENED”

  “Fleeing from the evils”: Robert Craig West, Banking Reform and the Federal Reserve (Ithaca, N.Y.: Cornell University Press, 1974), 117–18.

  “Isn’t it wonderful?”: Wilson to Ellen Axson Wilson, September 19, 1913, in Arthur S. Link, ed., The Papers of Woodrow Wilson (Princeton, N.J.: Princeton University Press, 1966–1989), 28:301.

  “During that epochal summer”: Arthur S. Link, Woodrow Wilson and the Progressive Era, 1910–1917 (New York: Harper and Row, 1954), 50.

  “Those conditions touch us very nearly”: “Wilson Message; Gamboa’s Reply,” The New York Times, August 28, 1913; see also “Wilson Suggests Plan to Mexico,” ibid., August 5, 1913; and John Milton Cooper Jr., Woodrow Wilson (New York: Knopf, 2009), 239–40.

  that he complied is suggested: Joseph Patrick Tumulty memorandum to Wilson, July 28, 1913 (with adjoining editor’s note), in The Papers of Woodrow Wilson, 28:90.

  in his public comments: Wilson press conferences of July 28 and August 14, 1913, in ibid., 89–90, 151.

  “Discount what you see”: Wilson to Ellen Axson Wilson, July 27, 1913, in ibid., 84–85.

  Glass obtained a gag order: “Wilson Plan Is Adopted,” The New York Times, July 29, 1913.

  dragged on for most of August: The Glass-Owen bill was taken up by the Democratic caucus on August 11 and not approved until August 28.

  Henry charged that the bill: For Representative Henry’s references to Jackson, see 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 Henry’s reference to Aldrich Plan and his reading of Bryan, see “Money Bill Faces Crisis in Caucus,” The New York Times, August 18, 1913.

  “should be fair to the farmer”: “Money Bill Faces Crisis in Caucus.”

  which paper should be “acceptable”: Even Willis, who had drafted the bill, admitted he had great difficulty framing a definition of acceptable commercial paper: see Banking and Currency: Hearings Before the Committee on Banking and Currency, on H.R. 7837 (S. 2639), U.S. Senate, 63rd Cong., 1st sess., vol. 3, available at https://fraser.stlouisfed.org/publication/?pid=429.

  Bryan asked Wilson to add: William Jennings Bryan to Wilson, August 6, 1913, in The Papers of Woodrow Wilson, 28:121; Paolo E. Coletta, William Jennings Bryan (Lincoln: University of Nebraska Press, 1969), 2:134; and Link, Wilson and the Progressive Era, 50.

  “a lot of bunk”: “Banks as Public Utilities,” The New York Times, August 16, 1913.

  “secured by staple agricultural products”: Henry Parker Willis, The Federal Reserve System: Legislation, Organization, Operation (New York: Ronald Press, 1923), 1624–25.

  Owen’s apostasy: Owen’s defection and return to the fold was registered in a pair of embarrassing New York Times headlines, the first of which, “Owen Turns Critic of Currency Bill,” appeared on August 20, 1913, followed, the next day, by “Owen Still Loyal to Currency Bill.”

  Glass began to read: Carter Glass, An Adventure in Constructive Finance (Garden City, N.Y.: Doubleday, 1927), 131–39, especially 139; William Jennings Bryan to Glass, August 22, 1913, Carter Glass Collection, Box 67; and “Bryan Letter Routs Currency Radicals,” The New York Times, August 23, 1913.

  “white with anger”: Glass, An Adventure in Constructive Finance, 139; and “Bryan Letter Routs Currency Radicals.”

  it overwhelmingly approved: One change was paring reserve requirements for country banks, from 15 percent of deposits to 12: see “Caucus Adopts Currency Bill,” The New York Times, August 29, 1913. Another alteration was the wording on farm credit.

  a set of draconian amendments: “Bankers Want Only One Federal Bank,” The New York Times, August 24, 1913. Forgan’s “unworkable”and “incompetent” come from “Bankers Optimistic on Currency Law,” ibid., August 23, 1913. Forgan’s apology came in his letter to Glass of August 25 (Henry Parker Willis Papers, Box 20), in which he humbly pronounced, “I have to sincerely apologize for the way in which I referred to you in my speech before the Bankers Conference here last Friday.” See also, on
the bankers conference, Robert H. Wiebe, Businessmen and Reform (Chicago: Elephant, 1989), 131–35; and Richard T. McCulley, Banks and Politics During the Progressive Era: The Origins of the Federal Reserve System, 1897–1913 (New York: Garland, 1992), 298.

  Its supposedly “unanimous” vote: Banking and Currency: Hearings, testimony of H. A. Moehlenpah, vol. 2, 1539–65. Moehlenpah, president of the Wisconsin Bankers Association, testified that when he tried to dissent, Reynolds objected, “We must go to the men at Washington, to the Administration, with a solid front, and if you have any objection . . . make it personally.” When Hepburn closed off debate with his gavel, another banker exclaimed, “God, this steam roller is working fine.” For the number of bankers present, see Vanderlip to James Stillman, August 29, 1913, Frank A. Vanderlip Papers, Box 1-5.

  led by George Reynolds: “Bankers Optimistic on Currency Law”; Primm, A Foregone Conclusion, chapter 2; and Wiebe, Businessmen and Reform, 133–34.

  country bankers, fearful of their urban: H. A. Moehlenpah testified (Banking and Currency: Hearings, 2:1539–65), “If it is a choice between the control of this new system by the Government [or] the bankers, you will get a very large majority of them who will say let the Government keep control of it.”

  “The action of the banks”: William McAdoo to House, August 27, 1913, Edward M. House Papers, Box 73.

  McAdoo was further buoyed: McAdoo to House, August 5, 1913, ibid., referring to the many letters McAdoo has received on the legislation, and concluding, “It has gone well.”

  “distribute the money”: D. A. Tompkins, publisher of the Daily Observer, quoted in Arthur S. Link, Wilson, vol. 2, The New Freedom (Princeton, N.J.: Princeton University Press, 1956), 223.

  U.S. Chamber of Commerce conducted: Harry Wheeler to Carter Glass, August 13, 1913, reprinted in Willis, The Federal Reserve System, 417–21. For evidence of support among businesspeople for the bill, see Glass’s mail from correspondents in varied commercial fields in various boxes of the Glass Collection, in particular Box 19; Link, The New Freedom, 223; and Wiebe, Businessmen and Reform, 133–34.

  his own contacts with bankers: See, for instance, “Coast Bankers See McAdoo,” The New York Times, August 15, 1913. For McAdoo’s rejection of the Chicago demands, see “Wilson Stands Firm on Currency Bill,” ibid., August 26, 1913, in which McAdoo said “constructive criticism” would be “carefully considered”—a polite way of saying he did not regard this manifesto as constructive. For “fiasco,” see H. Parker Willis to Glass, August 25, 1913, Glass Collection, Box 19. See also Link, The New Freedom, 227.

  Glass downplayed: Lester V. Chandler, Benjamin Strong, Central Banker (Washington, D.C.: Brookings Institution, 1958), 11.

  “altruistic institution”: Richard H. Timberlake Jr., The Origins of Central Banking in the United States (Cambridge, Mass.: Harvard University Press, 1978), 192.

  “Not only is its power”: West, Banking Reform and the Federal Reserve, 118.

  Charles Lindbergh, another Republican opponent: Willis, The Federal Reserve System, 364–72.

  the debate in the House: Ibid., 125. For the gold standard debate, see Glass, An Adventure in Constructive Finance, 153; Coletta, William Jennings Bryan, 2:135; and Link, The New Freedom, 227. See also “Money Bill Passes House, 285 to 85,” The New York Times, September 19, 1913.

  “the unswerving determination of the President”: Willis, The Federal Reserve System, 438.

  “by so splendid a majority”: Wilson to Ellen Axson Wilson, September 19, 1913, in The Papers of Woodrow Wilson, 28:301.

  the Senate was problematic: For the political orientation of the Senate, and of its Banking Committee, see West, Banking Reform and the Federal Reserve, 130–31; “Bankers Find Clash over Currency Bill,” The New York Times, September 3, 1913; and Link, The New Freedom, 228.

  Forgan was the lead witness: Forgan appeared before the committee on September 2, followed the next day by Wade; their testimony appears in Banking and Currency: Hearings, 1:25, 126. The prolongation of the hearings and its effect on delaying the bill were widely reported: see, for instance, all in The New York Times, “Moves Delay in Senate” (September 5, 1913), “Wilson Aims to Win Senate Support” (September 20), “May Reduce Reserve Banks” (September 26), and “Test for Currency Bill” (September 28). See also Cooper, Woodrow Wilson, 223.

  “You have the power to control it”: Thomas McRae’s September 29 testimony and his cross-examination by Hitchcock appear in Banking and Currency: Hearings, 2:1275–88.

  But country bankers, with their deeply held suspicions: See for instance the August 2, 1913, letter from W. S. Fant, president of the First National Bank of Weatherford, Texas, to Glass, arguing that as “money [interest rates] is always high,” bankers had better outlets for their capital (Glass Collection, Box 19). For check clearing, see “Bankers Want Only One Federal Bank,” The New York Times, August 24, 1913.

  Wall Street’s view of the bill: Warburg later commented, in The Federal Reserve System: Its Origin and Growth—Reflections and Recollections (New York: Macmillan, 1930), 1:105, “The bill, at every stage of its development, represented a great triumph of the fundamental principles for which banking reformers had striven, namely, concentration and mobilization of reserves combined with an elastic note issue.”

  tended to be less oppositional: Primm, A Foregone Conclusion., chapter 2.

  “in our country, with every”: “Money Bill as Bad, Good, Partly Good,” The New York Times, September 28, 1913, quoting Warburg’s article in the October 1913 issue of North American Review. See also Gabriel Kolko, The Triumph of Conservatism: A Reinterpretation of American History, 1900–1914 (New York: The Free Press of Glencoe, 1963), especially 235–36; Kolko’s thesis is that banker “opposition” was essentially a ruse.

  Vanderlip’s was maddeningly inconsistent: Frank Vanderlip to Glass, July 24, 1913, Glass Collection, Box 16; Vanderlip to James Stillman, September 27, 1913, Vanderlip Papers, Box 1-5. Also, Vanderlip took a middle ground in an August 29 letter to Stillman (ibid.).

  With bankers’ opinions scattered: Primm, A Foregone Conclusion, chapter 2.

  “Don’t be anxious”: Wilson to Ellen Axson Wilson, July 27, 1913, in The Papers of Woodrow Wilson, 28:84–85. For Ellen’s disregarding her husband, see for instance her letter of September 4 (ibid., 257), in which she asks him, “Is there fresh trouble about the currency bill—as the papers report?” Two days later (ibid., 260), she frets, “I am so concerned at the reports about the currency bill. They say you are fighting desperately with your back to the wall.” Wilson tries to soothe her nerves, replying on September 9 (ibid., 267), “I am perfectly well. . . . The Senate is tired, some of the members of its committee are irritable and will have to be indulged.” For Wilson’s September 28 letter to Peck, see ibid., 336–37; he also confesses to his old friend that he was fearful he might “lose his patience and suffer the weakness of exasperation.” An editor’s note in ibid. (257) emphasizes that by early September, Republican and some Democratic senators were making clear that they intended to hold “lengthy hearings” on the currency bill.

  The President leaned: Cooper, Woodrow Wilson, 217–18; for the Revenue Act of 1913, see Link, The New Freedom, 194 (Link also quotes David Houston’s letter to W. H. Page of September 12, 1913). The detail of signing the law with two gold pens comes from “Wilson Signs New Tariff Law,” The New York Times, October 4, 1913.

  “extremely annoying”: Vanderlip to James Stillman, September 12, 1913, Vanderlip Papers, Box 1-5.

  “So I feel tonight”: “Wilson Signs New Tariff Law.”

  Wilson tabled plans: “Foes of Money Bill Get Together,” The New York Times, October 1, 1913. For Wilson’s timetable, see “Money Bill Fight May Take a Month,” ibid., October 14, 1913. At his October 6 press conference (in The Papers of Woodrow Wilson, 28:364–65), Wilson publicly expressed confidence that the bill would pass in the special s
ession.

  Wilson was adamant: “Altered Money Bill May Satisfy Wilson,” The New York Times, October 17, 1913.

  When the ABA held its annual convention: For the ABA trashing of the bill as well as Wilson’s reaction, see press conference of October 9, 1913, as well as private correspondence to Ralph Pulitzer on October 9 and to Senator John Sharp Williams on October 11, all in The Papers of Woodrow Wilson, 28:378–89; “2,000 Bankers Hit Money Bill Hard,” The New York Times, October 9, 1913; Willis, The Federal Reserve System, 403; Link, The New Freedom, 229; Link, Wilson and the Progressive Era, 51; Glass, An Adventure in Constructive Finance, 193; and Richard J. Ellis, ed., Speaking to the People; The Rhetorical Presidency in Historical Perspective (Amherst: University of Massachusetts Press, 1998), 170. See also Proceedings of the 39th Annual Convention of the Americans Bankers Association, available at http://babel.hathitrust.org/cgi/pt?id=njp.32101066788769;view=1up;seq=11.

  Aldrich emerged from the obscurity: Aldrich’s address was delivered on October 15 at the annual dinner of the Academy of Political Science: see Michael Clark Rockefeller, “Nelson W. Aldrich and Banking Reform: A Conservative Leader in the Progressive Era,” A.B. thesis, Harvard College, 1960, 89; Primm, A Foregone Conclusion; and “Aldrich Sees Bryan Back of Money Bill,” The New York Times, October 16, 1913. Interestingly, Andrew said the Aldrich speech was “too denunciating”—one of the few times he ever criticized his former boss: A. Piatt Andrew, Diary of Abram Piatt Andrew, 1902–1914, ed. E. Parker Hayden Jr. and Andrew L. Gray (Princeton, N.J., 1986), entry of October 15, 1913. For Wilson’s mail on the bill, see “Money Bill Delay Stirs Up President,” The New York Times, October 7, 1913. For the endorsements from the Merchants’ Association of New York and the U.S. Chamber of Commerce, see Link, The New Freedom, 235.