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

by Roger Lowenstein

  more than 25,000 banks: “Banking and Monetary Statistics, 1914–1941,” Federal Reserve Bank of St. Louis, 16; available at http://fraser.stlouisfed.org/docs/publications/bms/1914-1941/BMS14-41_complete.pdf.

  Wilson next threatened: For Wilson’s threats to take his fight either to the people or to a Democratic caucus, see these four articles in The New York Times, all from the fall of 1913: “Wilson May Stump for Currency Bill” (October 3), “Money Bill Delay Stirs Up President” (October 7), “To Urge Money Bill as a Party Measure” (October 8), and “Bankers Views in Senate” (October 10). See also Link, Wilson and the Progressive Era, 51; Link, The New Freedom, 230; Primm, A Foregone Conclusion, chapter 2; and, most especially, Ellis, Speaking to the People, 170, which includes Wilson’s comment to the Washington Post.

  they anchored on the Potomac: Broesamle, William Gibbs McAdoo, 113.

  unveiled a softer approach: “Altered Money Bill May Satisfy Wilson,” The New York Times, October 17, 1913; Cooper, Woodrow Wilson, 223; and Link, The New Freedom, 231.

  Each of the three holdouts: For background on the three renegade senators, see Cooper, Woodrow Wilson, 223, 225, and 623; Primm, A Foregone Conclusion; and Link, The New Freedom, 228. On Hitchcock, in particular, see Thomas W. Ryley, Gilbert Hitchcock of Nebraska: Wilson’s Floor Leader in the Fight for the Versailles Treaty (Lewiston, N.Y.: Edwin Mellen Press, 1998), especially 58–62. For “O’Gorman’s resistance,” see Kenneth E. Miller, From Progressive to New Dealer: Frederic C. Howe and American Liberalism (University Park: Pennsylvania State University Press, 2010), 205–6. The New York Times coverage of O’Gorman’s efforts to secure patronage in the spring of 1913 documents that Wilson ignored O’Gorman on his first significant local appointment, for U.S. Attorney in the Southern District of New York, and was set to ignore him again, for collector of customs—but then reversed course and appointed O’Gorman’s man: see “Marshall Named for Wise’s Place,” The New York Times, April 16, 1913; “Test for O’Gorman on Collectorship,” ibid., April 18, 1913; “Polk Out of Race; O’Gorman’s Victory,” ibid., April 30, 1913; and “Mitchel Nominated for Port Collector,” ibid., May 8, 1913. On Reed, see Daniel McCarthy, “Show Me a Statesman,” The University Bookman 46, no. 3 (Fall 2008), a review of Lee Meriwether’s Jim Reed, Senatorial Immortal) that is available at www.kirkcenter.org/index.php/bookman/article/show-me-a-statesman/.

  “The stature of such a man”: H. L. Mencken, “James A. Reed of Missouri,” American Mercury, April 1929; available at http://truthbasedlogic.com/ownman.htm.

  After the three renegades: The Papers of Woodrow Wilson, 28:369–70; and “Altered Money Bill May Satisfy Wilson,” The New York Times, October 17, 1913.

  more encouraging remarks: Wilson to James O’Gorman, October 21, 1913, in The Papers of Woodrow Wilson, 28:421; and Wilson to James Reed, October 23, 1913, in ibid., 425.

  he might be willing to compromise: “Wilson Won’t Fight Money Bill Changes,” The New York Times, October 21 1913. According to Link, Wilson: The New Freedom, 231, the President seemed on the verge of coming to terms with O’Gorman and Reed.

  The genesis of Vanderlip’s proposal: See Vanderlip testimony in Banking and Currency: Hearings, 3:1933–2037 and 2052–69, October 8, 1913. In a September 24, 1913, letter to James Stillman (Vanderlip Papers, Box b1-5), Vanderlip noted that he first met with O’Gorman and Reed in White Sulfur, West Virginia, in mid-September; the two senators expressed their opposition to the bill and encouraged him to appear before the committee. See also Vanderlip to James Stillman, October 10, 1913, ibid.

  Privately, he expressed himself: Vanderlip to Stillman, October 10, 1913.

  “are the great debtors of the country”: Banking and Currency: Hearings, 3:2056, October 8, 1913.

  a unitary central bank: Vanderlip to Stillman, October 10, 1913; and Vanderlip to James Stillman, October 27, 1913, Vanderlip Papers, Box 1-5.

  “If the legislation is perfected”: Vanderlip to Stillman, October 10, 1913.

  “They came to my rooms”: Vanderlip to Stillman, October 27, 1913.

  Vanderlip’s optimism was misplaced: Predictably, Glass did cite the Baltimore platform as incompatible with the Vanderlip plan: see “Wilson Upholds Glass Money Bill,” The New York Times, October 25, 1913.

  He suggested that Vanderlip: Vanderlip to Stillman, October 27, 1913.

  He now proposed a central bank: For accounts of Vanderlip’s second appearance before the committee and its reaction, see Banking and Currency: Hearings, 3:2911–67, October 23, 1913; and “Currency Outlook Suddenly Changed,” The New York Times, October 24, 1913.

  “quite along the lines”: Frank Vanderlip to Wilson, October 23, 1913, in The Papers of Woodrow Wilson, 28:428.

  “I am at a loss”: Wilson to Frank Vanderlip, October 24, 1913, in ibid., 430.

  His message was succinct: Link, Wilson: The New Freedom, 233–34; and Cooper, Woodrow Wilson, 224.

  see if anything stuck: “Strong Support for Central Bank,” The New York Times, October 29, 1913.

  Wilson coordinated with Senate leaders: Link, Wilson and the Progressive Era, 49. The debate in the committee regarding the number of reserve banks was covered extensively in The New York Times: see, for instance, “Split on Regional Banks” (October 31, 1913) and “Cut Regional Banks to Four at Start” (November 1, 1913).

  swung toward the Vanderlip notion: “Would Curb Banks in Regional System,” The New York Times, November 2, 1913.

  Wilson agreed to drop: “Split on Regional Banks”; “Wilson Is Blamed for Currency Halt,” The New York Times, November 11, 1913.

  he viewed dissension: Ryley, Gilbert Hitchcock of Nebraska, 59, 63.

  Outside the halls of Congress: Link, Wilson: The New Freedom, 235; and Primm, A Foregone Conclusion, chapter 2.

  he wrote reassuringly: Festus J. Wade to Wilson, October 25, 1913, in The Papers of Woodrow Wilson, 28:444.

  “gay with fashion and beauty”: Glass, An Adventure in Constructive Finance, 168–74; and Primm, A Foregone Conclusion, chapter 2. Owen also participated in the debate, which was sponsored by the Economic Club of New York: see “Wall Street Defended to Owen and Glass,” The New York Times, November 11, 1913.

  Wilson and Glass got a further boost: “Fusion Mayoral Candidate Thrashes Tammany,” The New York Times, November 5, 1913; and “Wilson Is Cheered by Party Triumphs,” ibid., November 6, 1913. For O’Gorman’s and Reed’s shifts, see “Yield to Wilson on Regional Banks,” ibid., November 8, 1913. Link’s suggestion is in Wilson and the Progressive Era, 51. Although Reed’s and O’Gorman’s resistance had seemed to weaken even before the election (see “Strong Support for Central Bank”), their support for Glass-Owen didn’t gel until November. See also Ryley, Gilbert Hitchcock of Nebraska, 64. For a longer and satirical account of the effect of the election on the holdouts, especially O’Gorman, see “Revolt Against President Wilson Ends in a Fiasco,” The New York Times, November 16, 1913.

  The senator bridled: Ryley, Gilbert Hitchcock of Nebraska, 59; and “Wilson Is Blamed for Currency Halt.”

  6 votes to 6: Vanderlip to James Stillman, November 15, 1913, Vanderlip Papers, Box b1-5; and “Brighter Outlook for Currency Bill,” The New York Times, November 14, 1913.

  Vanderlip went on a speaking tour: Vanderlip to Stillman, November 1, 1913, Vanderlip Papers, Box 1-5; and Vanderlip to Stillman, November 15, 1913.

  only $1 billion: “160,980,084 Earned by National Banks,” The New York Times, December 9, 1913. More precisely, the figure was $1.068 billion.

  “a set of men”: Warburg to Robert Owen, November 10, 1913, Paul Moritz Warburg Papers, Folder 12.

  He and Owen fortuitously: Warburg, The Federal Reserve System, 1:120–21; the train ride occurred on November 10, 1913.

  a flood of correspondence: The Warburg Papers are rife with correspondence (in English, German, and French) from October to December with ban
kers from Great Britain and numerous countries on the Continent. Many sources attest to Warburg’s lobbying: for instance, see Paul Warburg to House, November 14, 1913, and November 28, 1913, House Papers, Box 114a; Warburg to Robert Owen, October 30, 1913, Warburg Papers, Folder 7; Warburg to Owen, November 10 (including a schematic diagram by Warburg illustrating a preferred arrangement of reserve banks); most especially, Warburg to Robert Owen, November 24, 1913 (seeking final copies of the two bills referred by the committee to the Senate), Warburg Papers, Folder 106; Warburg to William McAdoo, November 6, 1913, cited in Warburg, The Federal Reserve System, 1:114; and Warburg to William McAdoo, November 20, 1913, cited in ibid., 124. Warburg and Jacob Schiff also paid a visit to Colonel House on November 17—see Charles Seymour, The Intimate Papers of Colonel House, Arranged as a Narrative by Charles Seymour (Boston: Houghton Mifflin, 1928), 165.

  cut the number of Reserve Banks: Willis, The Federal Reserve System, 471; and “Senate to Tackle Three Money Bills,” The New York Times, November 21, 1913. The headline’s reference to “three” bills was misleading if technically accurate: the count included the Glass-Owen bill as passed by the House, which had no support in the Senate and was referred as a formality; only the version of Glass-Owen as modified in the Senate committee and the Hitchcock bill were referred with any hope of consideration.

  changes in the discounting section: Warburg, The Federal Reserve System, 1:113–14.

  a separate bill: Vanderlip to J. P. Morgan Jr., November 18, 1913, Vanderlip Papers, Box 1-5. See also “Senate to Tackle Three Money Bills.”

  Although unwilling to vote for Owen’s bill: Ryley, Gilbert Hitchcock of Nebraska, 64; see also “Brighter Outlook for Currency Bill,” The New York Times, November 14, 1913. On the legislative maneuver see Link, The New Freedom, 233–34; Willis, The Federal Reserve System, 468; and James L. Laughlin, The Federal Reserve Act: Its Origin and Problems (New York: Macmillan, 1933), 167–68.

  Then, Wilson ordered: Laughlin, The Federal Reserve Act, 167–68; and “Party Conference to Push Money Bill,” The New York Times, November 26, 1913.

  While Hitchcock insisted: “Caucus Vote to Be Binding,” The New York Times, November 29, 1913; and Coletta, William Jennings Bryan, 2:137.

  in his annual message: “Wilson Triumphs with Message,” The New York Times, December 3, 1913; see also “An Annual Message to Congress,” December 2, 1913, in The Papers of Woodrow Wilson, 29:5.

  Adding to the pressure: Press conference of December 1, 1913, in The Papers of Woodrow Wilson, 28:600; “To Push Money Bill at Night Sessions,” The New York Times, November 27, 1913; and “Adopt Long Hours to Pass Money Bill,” The New York Times, December 7, 1913.

  “I have never seen so much power”: Vanderlip to. J. P. Morgan Jr., November 18, 1913.

  Owen held a slim lead: “Money Bill Faces Close Senate Vote,” The New York Times, November 24, 1913.

  But the Senate became embroiled: Timberlake, The Origins of Central Banking in the United States, 201–2, notes that the inflation debate surfaced only in December. For contemporaneous discussion on whether reserves should be legal tender, see, for example, the New York Times’s outraged editorial of November 16, 1913, “Bryanizing the Money Bill,” as well as Vanderlip’s second appearance before the Senate, Banking and Currency: Hearings, vol. 3. See also Willis, The Federal Reserve System, 456–57, 467–68.

  the Senate cut reserve requirements: Glass, An Adventure in Constructive Finance, 210.

  “at home or abroad”: Willis, The Federal Reserve System, 1654; the House language (ibid., 1626) was less explicit. However, the House version also permitted national banks to open overseas branches.

  coax the various parts: The two versions can be compared in ibid: Senate, 1651; House, 1623. See also West, Banking Reform and the Federal Reserve, 212.

  farm state senators: The Senate bill permitted farm mortgages for five years. The House bill also permitted such mortgages, but only for durations of one year. See Willis, The Federal Reserve System, 1633–34, 1664.

  “little by little”: “Root Sees Peril in Money Bill,” The New York Times, December 14, 1913.

  Prices had consistently fallen: Although calculations of inflation before 1913 are necessarily estimates, various indices of wholesale prices did exist. Historical Statistics of the United States, 1789–1945, prepared by the Census Bureau (Washington, D.C.: Government Printing Office, 1949), 231–32, shows a general wholesale index falling from 127 in 1865, the year the Civil War ended, to 100 in 1873. It hit bottom at 71 in 1896, and recovered to 100 in 1912, where it remained in 1913. The index was a composite of various subindices, including ones for commodities, farm products, hides, and leather. A contemporaneous source, Charles A. Conant, a banking specialist who testified before the Interstate Commerce Commission in 1913, noted that wholesale prices had plunged from 1880 to 1896, and subsequently regained much, though not all, the lost ground: “Why Prices Are Up,” The New York Times, December 14, 1913. Conant testified that a wholesale index fell to 90.4 in 1896, “more than 40 per cent below the prices of 1880,” implying that the index was above 150 in 1880. In 1912, Conant’s index stood at 133.6, still below the figure implied for 1880. Moreover, the decline in prices began well before 1880. A later pair of experts, Milton Friedman and Anna Jacobson Schwartz, in A Monetary History of the United States, 1867–1960 (Princeton, N.J.: Princeton University Press, 1971), 32–33, estimate that from 1867 to 1879 prices fell at an annual rate of 3.5 percent (some indices give even faster rates of decline). Regardless, the post–Civil War trend was clearly, and consistently, down. Even in the later expansionary phase, inflation was relatively restrained. From the trough of the recession in 1896, prices rose at a rate of just under 3 percent through 1900, hardly surprising given the severity of the contraction. Thereafter—that is, from 1900 to 1912—inflation was measured at precisely 2 percent per annum.

  he had caught a cold: See the following entries in volume 29 of The Papers of Woodrow Wilson: Wilson to Mary Allen Hulbert Peck, December 8, 1913 (p. 23); diary entries of House, December 12 (pp. 32–33), December 14 (p. 34), and December 16 (p. 36). See also William McAdoo to House, December 7, 1913, House Papers, Box 73.

  Luckily for Wilson, public support: George Reynolds to Glass, December 18, 1913, telegram, Glass Collection, Box 42; Willis, The Federal Reserve System, 507–8; Link, The New Freedom, 235; and Kolko, The Triumph of Conservatism, 241.

  Warburg peppered Senator Owen: Warburg to Robert Owen, December 4, 1913, Warburg Papers, Folder 11; and Warburg to Robert Owen, December 15, 1913, ibid., Folder 12. See also Warburg, The Federal Reserve System, 1:121.

  He also corresponded with business executives: H. A. Wheeler to Warburg, December 13, 1913, Warburg Papers, Folder 12; Solomon Wexler to Warburg, December 15, 1913, telegram, ibid.; Warburg to H. E. Hammond, December 17, 1913, ibid.; and Charles D. Norton to Warburg, December 17, 1913, ibid. See also various Warburg correspondence in the Warburg Papers with officials of Merchants’ Association of New York and the New York Chamber of Commerce.

  “throwing up [his] hands”: Festus J. Wade to Warburg, December 10, 1913, ibid., Folder 11; and Festus J. Wade to Warburg, December 15, 1913, ibid, Folder 12. On Warburg’s latest plan, see Warburg, The Federal Reserve System, 1:122–24, as well as numerous items of correspondence toward the end of 1913 in the Warburg Papers.

  relations between the two framers: Warburg, The Federal Reserve System, 1:115; and Glass to Paul Warburg, November 22, 1913, Glass Collection, Box 8.

  Warburg kept Glass closely informed: Glass, An Adventure in Constructive Finance, 209. See also Warburg, The Federal Reserve System, 1:115–17, reproducing two letters attesting to their frequent contact. On December 15, 1913, Warburg wrote to Glass on a favorite technical subject, rediscounting. Three days later he anxiously followed up, “I have not heard from you concerning the rediscount clause.”

  the Virginian stunned Warburg
: Warburg, The Federal Reserve System, 1:125. See also Glass to Paul Warburg, December 24, 1913, Glass Collection, Box 8, in which Glass repeated the suggestion that Warburg consider a Federal Reserve Board post.

  On December 17, after eighty: Willis, The Federal Reserve System, 503; and “Democrats Heed Root’s Warning,” The New York Times, December 18, 1913.

  he went for a ride: “President Takes a Drive,” The New York Times, December 18, 1913; and Laughlin, The Federal Reserve Act, 169. For the votes on December 19, see “Currency Bill Passes Senate,” The New York Times, December 20, 1913; one Progressive also voted in favor.

  Warburg rifled off a: Warburg to Robert Owen, December 19, 1913, Warburg Papers, Folder 12.

  “It is a terribly tiring business”: Warburg to Arthur Spitzer, December 19, 1913, ibid., Folder 11. See also Warburg’s letter of December 19 to Harry A. Wheeler, president of the U.S. Chamber of Commerce, in ibid., Folder 12; and Warburg, The Federal Reserve System, 1:121.

  “no prospect at all”: Timberlake, The Origins of Central Banking in the United States, 202.

  The conferees worked with surprising speed: The House-Senate conference dealt with dozens of individual items. The conference changes are detailed in Willis, The Federal Reserve System, 511–19; and Glass, An Adventure in Constructive Finance, 212–19; in addition, high (and low) points are treated in Warburg, The Federal Reserve System, 1:126–29. See also Glass’s speech to the House of Representatives, December 22, 1913, in Glass Collection, Box 22, as well as “Money Bill May Be Law To-day,” The New York Times, December 22, 1913, and “Money Bill Goes to Wilson To-day,” “Currency Bill Conference Report,” and “Changes Made in the Bill,” all from ibid., December 23. For a more detailed comparison, in his The Federal Reserve System, Willis reprinted the House bill (p. 1614), as well as the Senate bill (p. 1637), and those versions may be contrasted with the final Federal Reserve Act (p. 1667).