America's Bank

by Roger Lowenstein

  “legal tender”: Willis, The Federal Reserve System, 456–57, 467–68; for $1 and $2 bills, see “Changes Made in the Bill”; for distinctive engravings, see “Currency Bill Conference Report.”

  The conferees tackled the truly sticky points: “Money Bill May Be Law To-day”; and “Money Bill Goes to Wilson To-day.” For Warburg’s bitter disappointment, see Warburg, The Federal Reserve System, 1:121–23, 128–29.

  Only the makeup of the board remained: “Money Bill May Be Law To-day”; and “Money Bill Goes to Wilson To-day.” For analysis of this issue, see West, Banking Reform and the Federal Reserve, 132–33.

  bolstering the authority: Warburg, The Federal Reserve System, 1:128; Seymour, The Intimate Papers of Colonel House, 139; Broesamle, William Gibbs McAdoo, 115; and Willis, The Federal Reserve System, 518. For amplifying the power of the board, see Willis, The Federal Reserve System, 518. Glass, An Adventure in Constructive Finance, 215, is the source for 4:10 a.m. Terms of board members in the House bill were to have been eight years; in the Senate bill, six years.

  who had barely slept, in pajamas: Seymour, The Intimate Papers of Colonel House, 139. For House’s evening at the White House, see House diary, December 22, 1913, in The Papers of Woodrow Wilson, 29:55.

  Glass presented the conference report: Glass’s December 22, 1913, speech is in Glass Collection, Box 22; see also Willis, The Federal Reserve System, 511; and “Money Bill Goes to Wilson To-day.” The House vote was 298–60.

  “I’ll do the deed first”: “Wilson Signs the Currency Bill; Promises Friendly Aid to Business,” The New York Times, December 24, 1913. Wilson asking Glass and Owen to come closer is from Glass, An Adventure in Constructive Finance, 227. For the President’s departure, see these New York Times articles: “Wilson’s Vacation Plans” (December 21, 1913), “President Off for a Rest” (December 24), and “President Wilson Spends Happy Day” (December 26).

  “The impossible has happened”: Warburg, The Federal Reserve System, 1:129.

  “dominated by the Democrats”: Ibid.

  Representative Lindbergh said acidly: Link, The New Freedom, 239.

  “a great advance”: The New York Tribune’s opinion was quoted in “Result Will Be Good, Is Opinion of Press,” a compendium of editorial reactions from other newspapers, The New York Times, December 24, 1913; the Times’s own editorial, “An Important Omission,” appeared on December 25. For other editorial commentary, in the main positive, see the December 22 issues of Philadelphia Bulletin, Cincinnati Enquirer, Chicago Post, and New York Mail (all of which were excerpted in the Times compendium), as well as the Boston Daily Globe (December 22), the Washington Post (December 24), and the Lawrence (Mass.) Journal-World (December 24).

  “than business dared to hope”: “Review and Outlook,” The Wall Street Journal: December 29, 1913, which also mentioned that the banks were pleased. See also “Owen Bill Is Liked,” The New York Times, December 21, 1913.

  Although Vanderlip sourly hinted: Vanderlip to James Stillman, December 29, 1913, Vanderlip Papers, Box 1-5; this letter includes “I feel firmly that I would rather take my chances under the legislature of the State of New York . . . than under the federal government so far as banking charter rights are concerned.” For the applications for membership, see “Banks Eager to Enter,” The New York Times, December 23, 1913, as well as an untitled item in ibid., December 24, 1913.

  “While my heart bleeds”: Paul Warburg to Glass, December 23, 1913, Glass Collection, Box 7.

  “It is you that just now”: House to Paul Warburg, January 1, 1914, House Papers, Box 114a.

  CHAPTER FOURTEEN: EPILOGUE

  “The measure itself was the result”: Houston’s diary entry of December 23, 1913, cited in Warburg, The Federal Reserve System:Its Origin and Growth—Reflections and Recollections (New York: Macmillan, 1930), 1:129.

  “Mr. Wilson experienced”: Carter Glass, An Adventure in Constructive Finance (Garden City, N.Y.: Doubleday, 1927), 36.

  “[Carter Glass] is not the chief author”: Samuel Untermyer, Who Is Entitled to the Credit for the Federal Reserve Act? (New York, 1927), foreword.

  “Mr. Glass himself”: James L. Laughlin, The Federal Reserve Act: Its Origin and Problems (New York: Macmillan, 1933), 136–37.

  “A profanation of history”: Glass, An Adventure in Constructive Finance, 20, commenting on Charles Seymour’s The Intimate Papers of Colonel House.

  “It was not an ‘original proposal’”: Henry Parker Willis, The Federal Reserve System: Legislation, Organization and Operation (New York: Ronald Press, 1923), 523.

  “Glass and Willis have so”: Paul Warburg to Laughlin, June 27, 1929, James Laurence Laughlin Papers, Paul M. Warburg folder.

  “Mr. Warburg has never made”: Willis, The Federal Reserve System, 530.

  “Congress should realize”: Warburg to Laughlin, June 27, 1929.

  “It had little or no relationship”: Willis, The Federal Reserve System, 523.

  “I feel for it”: Warburg quoted in “Our First Line of Financial Defense,” The New York Times, August 18, 1918.

  “The law is full of indirect”: Vanderlip to James Stillman, December 29, 1913, Frank A. Vanderlip Papers, Box 1-5.

  It took some time, in 1914: Roger T. Johnson, Historical Beginnings . . . The Federal Reserve (Federal Reserve Bank of Boston, 2010), chapter 3, “Making the System Work,” available at https://www.bostonfed.org/about/pubs/begin.pdf; and Sarah Binder and Mark Spindel, “Monetary Politics: Origins of the Federal Reserve,” Studies in American Political Development 27, no. 1 (April 2013), 1–13.

  the guns of August: William L. Silber, When Washington Shut Down Wall Street: The Great Financial Crisis of 1914 and the Origins of America’s Monetary Supremacy (Princeton, N.J.: Princeton University Press, 2007); see especially chapter 4. The emergency currency was issued under the 1908 Aldrich-Vreeland Act—which had been set to expire in 1914 but, providentially, had been extended for a year by the Federal Reserve Act.

  Even as the Fed got going: Robert Craig West, Banking Reform and the Federal Reserve (Ithaca, N.Y.: Cornell University Press, 1974), 208–9, 215; Ron Chernow, The Warburgs: The Twentieth-Century Odyssey of a Remarkable Jewish Family (New York: Random House, 1993), 187; John J. Broesamle, William Gibbs McAdoo: A Passion for Change, 1863–1917 (Port Washington, N.Y.: Kennikat Press, 1973), 115–16; and Silber, When Washington Shut Down Wall Street.

  Glass warily monitored: Willis to Carter Glass, August 18, 1914, Henry Parker Willis Papers, Box 1; Warburg, The Federal Reserve System, 1:493, 495–96.

  repeated battles for control: West, Banking Reform and the Federal Reserve, 219, 222.

  their assets became concentrated: See ibid., 186–87, 190, 215, and 218; and Broesamle, William Gibbs McAdoo, 115–16.

  the agency would play a passive role: Lester V. Chandler, Benjamin Strong, Central Banker (Washington, D.C.: Brookings Institution, 1958), 14, notes that the language of the bill suggested a passive approach. West makes a similar point in Banking Reform and the Federal Reserve, 202, 205, and 192.

  “After the institution has been going”: For Sprague’s testimony, 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., 1:362, Septermber 6, 1913, available at https://fraser.stlouisfed.org/publication/?pid=429.

  “is not to await emergencies”: West, Banking Reform and the Federal Reserve, 182.

  catapulted America’s standing: Ibid., 178.

  Warburg’s insistent demands: Warburg, The Federal Reserve System, 1:137–77 (chapter 7). Warburg began his campaign for remedial legislation as soon as the ink on the original Act was dry. In January 1914, he made (in elegant cursive) a list of items entitled “Points where changes may be made” (Warburg Papers, Folder 107). Also found in his files (Folder 104), apparently from a year or two later, is a typed list entitled “Am
endments to Federal Reserve Act which are to be pushed.” See also his eleven-page letter to Glass recommending amendments in 1916, reproduced in Warburg, The Federal Reserve System, 1:707. For the Fed soaking up much of the bullion, see West, Banking Reform and the Federal Reserve, 176–77; Robert L. Owen, The Federal Reserve Act (New York: Century, 1919), 95–97; and Warburg, 1:149–57. In particular, Warburg states, “The importance of this new legislation can scarcely be overstated, for it was the amendment relating to reserves which enabled the Reserve System to corral and mobilize the country’s gold and thereby to finance, as well as it did, the unparalleled demands of the war” (p. 157). For an excellent summary of the 1917 amendments and its effects, including a chart documenting the increased note circulation, see Raymond P. H. Fishe, “The Federal Reserve Amendments of 1917: The Beginning of a Seasonal Note Issue Policy,” Journal of Money, Credit, and Banking 23, no. 3 (August 1991), part I.

  to spare Wilson the embarrassment: Chernow, The Warburgs, 187–89, captures the painful saga of Warburg’s departure, including Owen’s opposition to his renomination. For his support from bankers, see “Want Warburg to Stay,” The New York Times, July 23, 1918. Although Owen and Warburg collaborated on the legislation, Owen never seems to have overcome his suspicion of Warburg as an international banker. Late in 1913, Owen offhandedly referred to Warburg’s firm, Kuhn, Loeb, as “representatives of the Rothschilds”—close to a blood libel, given that the claim (wholly unfounded) was used by anti-Semites to impugn Kuhn, Loeb’s loyalty. See Banking and Currency: Hearings, 2:1867. For more on the tension between Owen and Warburg, see Warburg, The Federal Reserve System, 1:498.

  a severe but brief depression: Gary Gorton and Andrew Metrick, “The Federal Reserve and Financial Regulation: The First Hundred Years” (working paper, August 2013), and Willis, The Federal Reserve System, 1405–6, both credit the Fed with averting a panic. See also West, The Federal Reserve and Banking Reform, 193–94.

  Bank failures rose sharply: Milton Friedman and Anna Jacobson Schwartz, A Monetary History of the United States, 1867–1960 (Princeton, N.J.: Princeton University Press, 1971), 235.

  the Reserve Banks shifted their emphasis: Gorton and Metrick, “Federal Reserve and Financial Regulation”; and West, The Federal Reserve and Banking Reform, 187–88, 190, and 219. Gorton and Metrick make the point that in 1913, the founders had no notion that active intervention in markets would weigh so heavily in the Fed’s activities. Warburg (The Federal Reserve System, 1:176) tacitly admitted the point in acknowledging that “the importance of a definite open-market policy . . . is better understood today than it was when the Federal Reserve Act was written.”

  ongoing ballast to the economy: See West, The Federal Reserve and Banking Reform, 224; and Federal Reserve Bank of Richmond, “Federal Reserve History: The Fed’s Formative Years,” available at http://www.federalreservehistory.org/Events/DetailView/60.

  “orgies of unrestrained speculation”: “Warburg Assails Federal Reserve,” The New York Times, March 8, 1929.

  Davison had remained: Priscilla Roberts, “World War I as Catalyst and Epiphany: The Case of Henry P. Davison,” Diplomacy and Statecraft 18, no. 2 (June 2007), 315–50.

  Frank Vanderlip, ever the eager: Priscilla Roberts, “Frank A. Vanderlip and the National City Bank During the First World War,” Essays in Economic and Business History 20, no. 2 (2002), 8; Vanderlip’s memoir, written with Boyden Sparkes, is From Farm Boy to Financier (New York: D. Appleton-Century, 1935).

  in April 1915, he died: Nelson W. Aldrich Jr., Old Money: The Mythology of Wealth in America (1988; repr., New York: Allworth Press, 1996), 22. The figure of $16 million is an estimate.

  The two men were never: Lewis Gould, “Wilson’s Man in Paris,” The Wall Street Journal, January 17–18, 2015.

  “He is generally regarded”: “Carter Glass,” The New York Times, May 29, 1946.

  Owen and Glass got into a nasty: See the Federal Reserve profile of Owen available at www.federalreservehistory.org/People/DetailView/92. Owen’s 1919 memoir was The Federal Reserve Act.

  He later denounced the Fed: See Owen’s foreword to Gertrude M. Coogan’s populist tract, Money Creators: Who Creates Money? Who Should Create It? (Chicago: Sound Money Press, 1935), a distillation of paranoid theories of the day, which Owen warmly endorsed.

  “when received by Mr. Glass”: Laughlin, The Federal Reserve System, 533.

  lobbied to keep him off the Reserve Board: H. Parker Willis to Glass, December 25, 1913, Carter Glass Collection, Box 42.

  “simply that of a critic”: Willis, The Federal Reserve System, 526, 530; the quotation at the end of the paragraph is from 526–27. Willis’s book is full of backhanded swipes at Warburg. His statement (p. 439) that the Reserve System “was eventually placed for operation very largely in the hands of persons who had antagonized the adoption of the measure” can only be read as a derogatory comment on Warburg’s elevation to the board. Willis’s assertion (p. 528) that the Aldrich bill was “based upon German experience,” whereas the Federal Reserve Act was (supposedly) modeled after the Bank of England, was an attempt to use Warburg’s origins to taint the legacy of the Aldrich bill.

  “interesting work of imagination”: Untermyer, Who Is Entitled to the Credit for the Federal Reserve Act? foreword; the quotation later in the paragraph is from ibid.

  Warburg claimed that Glass’s book: Warburg to Laughlin, June 27, 1929.

  “like the old cathedrals of Europe”: Warburg, The Federal Reserve System, 1:10.

  “not as the work of a single party”: Ibid., 7.

  To rebut the notion that financiers: Ibid., 133.

  Friedman and Anna Schwartz would call: Friedman and Schwartz, Monetary History of the United States, 171. Robert C. West reached the same conclusion in his detailed Banking Reform and the Federal Reserve, 112. The Glass “admirer” is James E. Palmer Jr., author of the sycophantic Carter Glass: Unreconstructed Rebel (Roanoke: Institute of American Biography, 1938): see p. 71.

  “its mother must have been”: James Warburg, The Long Road Home (Garden City, N.Y.: Doubleday, 1964), 29.

  INDEX

  The page numbers in this index refer to the printed version of this book. The link provided will take you to the beginning of that print page. You may need to scroll forward from that location to find the corresponding reference on your e-reader.

  Page numbers beginning with 274 refer to endnotes.

  Academy of Political Science, 101–2, 293, 326

  Adventure in Constructive Finance, An (Glass), 267, 268

  agrarians, 165

  opposition to Glass-Owen by, 221–22, 224–26, 227

  agricultural loans, 226, 245

  Agriculture Department, U.S., secretary of, 212, 241, 252

  AIG, 259

  Alabama, 148

  Aldrich, Abigail P. T. Chapman, 34–35, 42, 82, 120, 130

  Aldrich, Lucy, 197

  Aldrich, Nelson, 5–7, 42n–43n, 92, 96–97, 127, 139, 143, 190, 197, 205, 219, 296, 326

  at ABA convention, 139–40

  Aldrich Plan coauthored by, 147–48, 189

  Aldrich Plan revealed by, 122

  background of, 34–36, 279

  banking reform supported by, 92, 93, 100, 199

  banking regime defended by, 37–39

  breakdown of, 120–21, 122, 129–30, 297

  business’s role in government, 41–42

  central bank supported by, 79, 88–89, 97–99, 101, 104, 111

  on Citizens’ League, 132–33

  conversion of, to central bank champion, 34, 77–78, 88

  currency bill of, 41, 58

  death of, 265

  as defender of status quo, 38, 74–75, 123

  delegation to Europe headed by, 77–78, 82–91, 204, 253, 269

  on Glass-Owen, 235

  as head of Nati
onal Monetary Commission, 79–91, 104, 106, 120

  influence of, 33–34

  Jekyl Island conference and, 106, 107–23, 249n

  on money shortages, 37–38

  on Panic of 1907, 75–76, 77–79

  in press, 33–34, 44, 89, 120, 122–23, 133, 134, 140

  progressives’ dislike of, 45, 89, 92–93, 100, 310

  retirement from Senate of, 89, 104, 130

  Roosevelt and, 38, 44, 102–3, 132, 141, 158

  Taft and, 94, 102–3, 130, 141, 158

  tariff supported by, 37, 41, 92–95, 103–4, 134, 140, 234, 291

  trolley accident of, 105, 293

  unpopularity of, 90, 105, 132–33, 138, 310

  Warburg and, 74, 75, 88–89, 96, 98, 99, 100–101, 111–12, 116, 127, 131

  withdrawal from public life by, 151

  Aldrich, Winthrop, 104–5

  Aldrich Plan, 113–16, 119–23, 160, 177, 185, 256, 265, 269, 298–99, 301, 312, 313, 323, 335

  ABA approval of, 128–31, 134, 139–40

  Bryan’s opposition to, 137, 138, 164–65

  Citizens’ League and, 132–33, 135

  commercial banks and, 122

  conspiracy theorists and, 150–51

  Democratic Party and, 150, 154–55, 160–61, 164–65

  district branches in, 113, 114

  drafting of, 128

  Federal Reserve Act and, 123, 269–70

  Glass-Owen bill and, 225, 268

  Glass proposals vs., 171–72, 181–82

  La Follette’s opposition to, 138

  legislative adaptation of, 154–55

  midwestern opposition to, 134

  regional branches in, 177

  Republican Party and, 137–38, 150, 160, 161–62

  Roosevelt and, 149–50

  submission to Congress of, 147–48

  Taft and, 133, 150, 158, 162

  Trenton draft of Glass and, 188–89

  Warburg and, 114, 121–22, 123, 138, 139, 188