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

by Roger Lowenstein

  “I was considerably taken”: Laughlin to H. Parker Willis, December 7, 1912, Laughlin Papers, Glass bill file.

  The only audience Glass wanted was with Wilson: Carter Glass to Wilson, December 14, 1912, in The Papers of Woodrow Wilson, 25:588–89; Carter Glass to Wilson, December 18, 1912, in ibid., 608; and “The President-Elect Back from Bermuda,” The New York Times, December 17, 1912.

  CHAPTER ELEVEN: THE PRINCETON DEPOT

  “The ghost of Andrew Jackson stalked”: Carter Glass, An Adventure in Constructive Finance (Garden City, N.Y.: Doubleday, 1927), 110–11.

  “I do not care what you call it”: Banking and Currency Reform: Hearings Before the Subcommittee of the Committuee on Banking and Currency, Charged with Investigating Plan of Banking and Currency Reform and Reporting Constructive Legislation Thereof, 62d Cong., 3rd sess., House of Representatives, January 14, 1913, 233; available at http://books.google.com/books?id=pc0qAAAAYAAJ&printsec=frontcover&source=gbs_ge_summary_r&cad=0#v=onepage&q&f=false.

  Glass was anxious to meet: Carter Glass to Willis, December 23, 1912, Henry Parker Willis Papers, Box 1; and Glass to H. Parker Willis, December 19, 1912, Carter Glass Collection, Box 25/26.

  intensely agitated by the pressure: See, for example, Willis to Carter Glass, December 21, 1912, Willis Papers, Box 20, in which Willis warned Glass to expect a “sharp fight” from bankers lobbying for a central bank. Such missives inevitably distressed Glass.

  “Confined by attack of cold”: James E. Palmer Jr., Carter Glass: Unreconstructed Rebel (Roanoke: Institute of American Biography, 1938), 76. Glass’s telegram about his arrival is in Willis Papers, Box 1.

  “the only place in the world”: William Diamond, The Economic Thought of Woodrow Wilson (Baltimore: Johns Hopkins University Press, 1943), 16.

  Glass’s family: Harry Edward Poindexter, “From Copy Desk to Congress: The Pre-Congressional Career of Carter Glass,” Ph.D. diss., University of Virginia, 1966, 4.

  free of any southern accent: John Milton Cooper Jr., Woodrow Wilson (New York: Knopf, 2009), 23; for Wilson’s feelings about the Civil War, see ibid., 34.

  “He did not doubt”: Diamond, Economic Thought of Woodrow Wilson, 15.

  Princeton was bitterly cold: Glass, An Adventure in Constructive Finance, 81–82; and Rixey Smith and Norman Beasley, Carter Glass (New York: Longmans, Green and Co., 1939), 90–92.

  Glass was painfully aware: Glass to H. Parker Willis, December 29, 1912, Glass Collection, Box 25/26.

  nothing so formal as a draft: Smith and Beasley, Carter Glass, 90.

  What Glass and Willis proposed: The most comprehensive source for what was presented at Princeton is Henry Parker Willis, The Federal Reserve System: Legislation, Organization and Operation (New York: Ronald Press, 1923), 141–47. See also James L. Laughlin, The Federal Reserve Act: Its Origin and Problems (New York: Macmillan, 1933), 127–28; and Glass, An Adventure in Constructive Finance, 81–85. Warburg gives his interpretation in Paul M. Warburg, The Federal Reserve System: Its Origin and Growth—Reflections and Recollections (New York: Macmillan, 1930), 1:82.

  the banking system should be organized: For Willis and Glass’s intent, see Willis to Glass, December 19, 1912, which states, “The effect of these changes will be to strengthen the reserve banks very greatly as against the large national banks of New York and other central reserve cities.” For “local field,” see Willis, The Federal Reserve System, 145.

  “in regard to centralization”: Willis, The Federal Reserve System, 141.

  The president-elect suggested: Whether Wilson definitively affirmed that a central bank would be superior is unknowable, but it seems likely. All we have is the account of Willis, who averred that the president-elect “recognized the fact that such an organization was politically impossible even if economically desirable” (ibid., 146).

  “You are far on the right track”: Wilson to Carter Glass, December 31, 1912, in Arthur S. Link, The Papers of Woodrow Wilson (Princeton, N.J.: Princeton University Press, 1966–1989), 25:650; Glass, An Adventure in Constructive Finance, 81–82; and Willis, The Federal Reserve System, 146, 147.

  “perhaps, an hour with Mr. Wilson”: Glass to Willis, December 29, 1912.

  “We may ourselves have in readiness”: Carter Glass to Wilson, December 29, 1912, in The Papers of Woodrow Wilson, 25:641–42.

  “It is clear to me”: Glass to Willis, December 29, 1912.

  “I am not entirely convinced”: Carter Glass to Willis, January 3, 1913, Willis Papers, Box 1.

  Forgan, the leader: James Laughlin to Willis, January 10, 1913, ibid., Box 7.

  Glass and Willis did not even disclose: Gabriel Kolko, The Triumph of Conservatism: A Reinterpretation of American History, 1900–1914 (New York: The Free Press of Glencoe, 1963), 225–26; Robert Craig West, Banking Reform and the Federal Reserve, 1863–1923 (Ithaca, N.Y.: Cornell University Press, 1974), 113–15; and Willis, The Federal Reserve System, 151.

  “in good humor toward the hearings”: Willis to Carter Glass, December 31, 1912, Willis Papers, Box 20.

  “no one would claim”: Banking and Currency Reform: Hearings Before the Subcommittee of the Committee on Banking and Currency, 4.

  “Would you say that we should do nothing”: The quoted portions of Warburg testimony come from ibid., 77, 67, 69, and 73. Warburg was not at all candid about his involvement with the Aldrich Plan (he referred sympathetically to the “framers” of the Plan, without divulging that he himself was one of them).

  Glass repeatedly trotted out: Glass was upfront about his political motivations. In his cross-examination of Festus Wade, the chairman observed, “The situation, frankly, has its political aspects. I do not mean to say that anybody is proposing to mix politics with the reformation of the currency; but understand that the majority members of this committee are confronted by the platform declaration of the Democratic Party against the so-called Aldrich Plan” (ibid., 206).

  “no scheme would be considered”: Warburg, The Federal Reserve System, 1:89.

  Prominent bankers: Willis to Carter Glass, January 18, January 20, and January 23, 1912, all in Willis Papers, Box 20; and 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.

  Warburg recast his latest plan: Warburg, The Federal Reserve System, 1:89–90; see also Willis to Glass, January 20, 1913.

  Warburg’s point: Warburg, The Federal Reserve System, 1:170.

  “The tantalizing puzzle . . . safe-deposit vaults”: This is my construction from two separate quotations: “tantalizing puzzle” is from ibid.; the longer part of the quotation is from the same volume, (p. 85), and in the same context—i.e., evaluating Glass’s regional plan—but was used there by Warburg in evaluating Morawetz’s plan back in 1909.

  Glass didn’t trust him: Primm, A Foregone Conclusion, chapter 2; see also Arthur S. Link, Wilson, vol. 2, The New Freedom (Princeton, N.J.: Princeton University Press, 1956), 205.

  Warburg returned the favor: Warburg, The Federal Reserve System, 1:58.

  Wilson was eager: Woodrow Wilson to Glass, January 9, 1913, Glass Collection, Box 1. For the January 15 date of the draft, see Willis, The Federal Reserve System, 147.

  to keep its provisions secret: Willis to Carter Glass, January 21, 1913, Willis Papers, Box 20; Willis to Glass, January 23, 1913, Willis Papers, Box 20; and James Laughlin to Willis, January 21, 1913, ibid., Box 7 (Laughlin all but begs, “I hope some way can be devised by which we can have a chance to know what the committee bill will be”). See also Warburg, The Federal Reserve System, 1:82.

  “outside the breastworks”: Laughlin, The Federal Reserve Act, 136. The Trenton meeting was held on January 30.

  The document Glass took: The Trenton draft was reprinted in Willis, The Federal Reserve System, 1531–53. Willis says the
draft included a “limited” guaranty (ibid., 147); however, it consisted only of a plan for partial payment to depositors of failed banks and only up to the banks’ estimated asset values—that is, what depositors would receive without such a plan. For open market operations, see ibid., 1543; for compulsory membership and “not less than 15,” see ibid., 1532.

  In other respects, the Trenton draft bore a striking resemblance: The gold provision of the Trenton draft—among other criteria, reserve banks would be required to hold gold equal to 50 percent of their outstanding note circulation—is in ibid., 1548.

  The bills were also similar in scope: West, Banking Reform and the Federal Reserve, 106, noted the bills’ organizational similarity. See also Willis, The Federal Reserve System, 1543–44, for the agency’s functioning as the government’s fiscal arm; and West, Banking Reform and the Federal Reserve, 108, for similar systems. In The Federal Reserve System, 1:178–368, Warburg prints the texts of the Aldrich Plan and the Federal Reserve Act side by side, demonstrating their similarity, including in their language. Even as Willis denied any claim of the Aldrich bill to paternity, he admitted the similarity in language in his book: “This, however, did not prevent the use of such features of the Aldrich bill as were considered to be desirable or even in various places the use of language drawn from or modeled after the language implied in the Aldrich bill” (Willis, The Federal Reserve System, 526–27).

  The biggest was that: West, Banking Reform and the Federal Reserve, 110; and Willis, The Federal Reserve System, 1544–47.

  Willis would contend: Willis, The Federal Reserve System, 523–25. See also “Aldrich Bill Compared [by Willis] with Federal Reserve Act,” Nelson W. Aldrich Papers, Reel 61, which states, “It was not drawn, even largely, from any single source, but is the product of comparison, selection, and refinement upon the various materials, ideas, and data rendered available throughout a long course of study and agitation.”

  “was not derived from”: Willis, The Federal Reserve System, 523. In 1916, Glass similarly asserted that the Aldrich bill and his own “differ[ed] in principle, in purpose and in processes” (Warburg, The Federal Reserve System, 1:407). On the other hand, a neutral observer, West (Banking Reform and the Federal Reserve, 112), says that “the bills are very similar.” This topic is treated at greater length in the epilogue.

  As inauguration day neared, Wilson agonized: House diary entry, December 19, 1912, in The Papers of Woodrow Wilson, 25:614; House to Woodrow Wilson, January 9, January 29, and February 5, 1913, all in Edward M. House Papers, Box 119a; and Cooper, Woodrow Wilson, 189. House was not the only naysayer on Brandeis, but he was the most decisive—see, for instance, House to Wilson, November 22, 1912, House Papers, Box 119a; and House diary entry, February 26, 1913, in The Papers of Woodrow Wilson, 27:137. Although House’s November 22 letter bore ugly, anti-Semitic overtones, impugning Brandeis’s “Hebrew traits of mind,” House probably feared Brandeis’s influence rather than his ethnicity. See also Cooper, Woodrow Wilson, 183, 185, and 190. Wilson’s acquiescence is from Arthur S. Link, Woodrow Wilson and the Progressive Era, 1910–1917 (New York: Harper and Row, 1954), 30. House declined Wilson’s offer of a cabinet post in his letter of January 9, House Papers, Box 119a.

  Wilson made an inspired choice: Cooper, Woodrow Wilson, 181, 205.

  into “bitter poverty”: John J. Broesamle, William Gibbs McAdoo: A Passion for Change, 1863–1917 (Port Washington, N.Y.: Kennikat Press, 1973), 4. For background on McAdoo prior to his entry into politics, see ibid, especially 4–31; William Gibbs McAdoo, Crowded Years: The Reminiscences of William G. McAdoo (Boston: Houghton Mifflin, 1931); Cooper, Woodrow Wilson, 145–46; and Richard T. McCulley, Banks and Politics During the Progressive Era: The Origins of the Federal Reserve System, 1897–1913 (New York: Garland, 1992), 293–94.

  McAdoo was not a Wall Street insider: Broesamle, William Gibbs McAdoo, 24, 78, and 123. He recounts that Kuhn, Loeb provided assistance to the tunnel entity in 1913.

  business was unsettled: Robert H. Wiebe, Businessmen and Reform: A Study of the Progressive Movement (Chicago: Elephant, 1989), 125–26; for McAdoo’s view of the federal government’s role, see, for instance, McAdoo, Crowded Years, 61.

  an address in January: Cooper, Woodrow Wilson, 185.

  the Democrats were eager: “Draft of Currency Bill,” Glass Collection, Box 16. This document is undated and unsigned although it appears to be from early 1913. Containing notes, probably by either Willis or Glass, it argues for fast action on currency reform as an “offset to tariff criticism, because it would essentially appeal to business men.” See also Willis to Representative Charles A. Korbly, February 8, 1913, Willis Papers, Box 20.

  His goal was to unshackle: See, for instance, Link, The New Freedom, 203.

  “to take away from certain”: Joseph P. Tumulty, Woodrow Wilson as I Know Him (Garden City, N.Y.: Doubleday, Page, 1921), 170.

  a scorching indictment: Untermyer was quite sarcastic in questioning Vanderlip, viz, “Of how many corporations are you a director Mr. Vanderlip; can you remember?”: Pujo Report.

  “Have you ever competed for any securities”: Ibid., 1542.

  “well-defined identity and community”: Ibid., 129.

  Public revulsion was nearly uniform: James Grant, Money of the Mind: Borrowing and Lending in America from the Civil War to Michael Milken (New York: Farrar, Straus and Giroux, 1992), 125.

  twenty-five thousand individual banks: This figure was widely used, including in the Pujo Report, 251. According to Robert A. Degen, The American Monetary System: A Concise Survey of Its Evolution Since 1896 (Lexington, Mass.: D.C. Heath and Company, 1987), 10, the total of banks in 1914 was twenty-eight thousand, a doubling from 1900. The minority report within the Pujo Report (also p. 251), says the resources of New York banks amounted to 23.2 percent of those nationally in 1900 and 18.9 percent of the total in 1912. The main body of the Pujo Report (p. 55) says the twenty largest banks in New York City held approximately 43 percent of the resources of banks in the city in 1911, up from 35 percent in 1901.

  net earnings of the national banks: “160,980,084 Earned by National Banks,” The New York Times, December 9, 1913.

  “When Mr. Morgan gave the word”: Pujo Report, 360.

  “gradually gathering to itself”: Ida Tarbell, “The Hunt for a Money Trust, III. The Clearing House,” American Magazine, July 1913.

  Wilson rode to the Capitol alongside: “Wilson Goes to Meet Taft,” The New York Times, March 5, 1913; “How Wilson Was Sworn In,” The New York Times, March 5, 1913; and Cooper, Woodrow Wilson, 198, 201.

  “We have been proud”: Inaugural Address, March 4, 1913, in The Papers of Woodrow Wilson, 27:151.

  the president of Mexico: Francisco I. Madero was overthrown in a coup on February 18, 1913, and executed four days later.

  “I will be in frequent consultation”: Carter Glass to Willis, March. 20, 1913, Willis Papers, Box 1.

  Glass then urged Willis: Carter Glass to Willis, March 10, March 13, and March 20, 1913, all in ibid. Glass, in his memoir, recalled it was a “distinct advantage” that Congress was out of session and that the Banking Committee was not yet constituted, as it stripped him of the obligation to confer (An Adventure in Constructive Finance, 93–94).

  the director of the U.S. Mint: George Evan Roberts to Glass, March 13, 1913, Glass Collection, Box 14; and Willis, The Federal Reserve System, 209.

  Willis warned Glass: Willis to Carter Glass, March 13, 1913, Willis Papers, Box 20.

  relaunch the Money Trust inquiry: Samuel Untermyer to House, March 13, 1913, House Papers, Box 112; House to Samuel Untermyer, March 17, 1913, ibid.; and Samuel Untermyer to House, March 31, 1913, ibid.

  House took an interest in the banking bill: Charles Seymour, The Intimate Papers of Colonel House, Arranged as a Narrative by Charles Seymour (Boston: Houghton Mifflin, 1928), 161, citing House diary entries of March 13 (re Va
nderlip) and March 27, 1913 (re Morgan). Warburg wrote frequently to House: see his letters of January 6, January 16, and February 18, 1913, in House Papers, Box 114a.

  He also took Glass: House diary entry of March 25, 1913, in The Papers of Woodrow Wilson, 27:227.

  “whip the Glass measure into final shape”: Ibid.

  “the same consideration as any other”: House diary entries of March 22 and March 24, 1913, in ibid., 215, 223.

  McAdoo carried far more weight: Cooper, Woodrow Wilson, 193.

  his “friendship” with Wilson: Vanderlip to James Stillman, April. 26, 1913, Frank A. Vanderlip Papers, Box 1-5.

  “We all feel that it behooves”: J. P. Morgan Jr. to James Stillman, March 12, 1913, J. P. Morgan Jr. Papers, Book 11.

  Nelson Aldrich and his family: “European trip, 1913. The Morgans. Lucy Aldrich to Lucy Greene,” Aldrich Papers, Reel 61. For Aldrich art purchases, see A. Imbert to Aldrich, March 21, March 25, and March 31, 1913, ibid., Reel 47.

  “a revision of the currency and banking laws”: Page is quoted is Vincent P. Carosso, The Morgans: Private International Bankers, 1854–1913 (Cambridge, Mass.: Harvard University Press, 1987), 646.

  “The king is dead”: Vanderlip to James Stillman, April 4, 1913, Vanderlip Papers, Box b1-5.