House and, 144–46, 157, 190, 250–51, 265–66
ill health of, 246–47, 249, 265–66
inauguration of, 189, 194n, 319
Jewish support of, 169, 308
laissez-faire and, 141, 166, 213
on morality, 73, 166
as New Jersey governor, 105, 139, 143, 145
in 1912 election, 139, 141, 143–45, 156, 162–63, 165–66
in 1916 election, 266
press on, 143
as progressive, 45, 73, 143, 146, 166, 194, 307
as segregationist, 156
as southerner, 156, 166, 180
on states’ rights, 307
on tariff reform, 169, 194–95, 200–201, 210–11, 224, 233–34
Trenton plan and, 188–89
and Warburg on Federal Reserve Board, 260, 263
Wisconsin, 72, 138
Wisconsin Bankers Association, 323
women’s suffrage, 156, 165, 204
Woodlock, Thomas F., 50
workmen’s compensation, 104, 143
World War I, 234n, 260–66
Wright, Orville, 94
Yale University, 14, 267
YMCA of New York, 101
* As a young man, Jackson had sold land in return for promissory notes from a Philadelphia merchant and endorsed the notes to pay for supplies for a store. When the merchant failed, Jackson was liable—leaving him with crushing debts. The experience forever soured the future president on high finance.
* A legacy of the National Banking Acts, adopted in 1863 and 1864, was that banks in the United States were, even until recent times, typically denoted as the “First National,” “Second National,” and so on, in their respective cities.
* The seven national currencies were National Bank Notes, gold coins and gold certificates, silver dollars and silver certificates, greenbacks, and Treasury securities.
* Informally stated as “Bad money drives out good.”
* Milton Friedman would later propose an arbiter with similarly magical properties to regulate the money supply—“a computer.”
* Country banks—those at the lowest level of the food chain—had to keep a 15 percent reserve, of which three-fifths could be held in interest-bearing deposits with banks in “reserve cities” (those in the middle tier) and the rest in the form of cash or gold in the vault. Similarly, banks in the nearly fifty reserve cities had to maintain a 25 percent reserve, of which half could be deposited with banks in the highest tier—that is, those in any of the three “central reserve cities” (New York, Chicago, and St. Louis)—and the remainder in their vaults.
* In Aldrich’s private papers, there is a note from Nathaniel Stephenson, his official and rather hagiographic biographer, to the effect that John E. Searles, secretary and treasurer of the Sugar Trust, was the “gentleman” who entered into the trolley arrangements with Senator Aldrich, Perry, and another local partner, in 1893–1894, and that “the affiliation is very significant and should be studied up.” But Stephenson made only passing mention in his book (pp. 98–99) of the fact that wealthy friends of Aldrich, who wanted him to remain in politics, helped him to invest in street railways. The investment was first exposed, soon after it was hatched, in a pair of explosive articles in The New York Times, on June 20 and June 21, 1894. The Times charged that the Sugar Trust forwarded $1.5 million to Aldrich to purchase stock in the Union Railway Company, a Providence trolley line. The articles were accusatory in tone and lacked corroborative proof. Due to the gravity of the accusations, Aldrich broke with his customary refusal to comment and denied the charges, save that he admitted investing in a traction (trolley) line in which Searles was also an investor—and in which each man, Aldrich maintained, had paid for his own shares. Jerome L. Sternstein’s groundbreaking paper “Corruption in the Gilded Age Senate,” Capitol Studies: A Journal of the Capitol and Congress 6, no. 1 (Spring 1978), concluded that the Times’s charges were in essence, even if not in every particular, accurate. Sternstein found a pair of contracts documenting that Aldrich received $100,000 in cash from Searles for the purchase of stock in Union Railway, and that Searles and his associates pledged to invest between $5.5 million and $7 million to electrify, and in other ways modernize, “four profitable but inefficient horse-drawn traction lines” servicing the Providence area. Subsequent to the acquisitions, the various lines were consolidated in a holding company, United Traction and Electric Company, in which Searles was a director and Aldrich president. Aldrich’s trolley investment made him a very wealthy man by the time he became involved in banking legislation in the early 1900s. There is no evidence, however, that Aldrich was bribed. Aldrich did not need persuading to vote in sugar’s interests. More likely, the Sugar Trust wanted to keep a friendly and powerful senator in office and provided the capital that permitted him to remain there. See the Aldrich Papers, Reel 59.
* A year after his thesis, while collecting primitive art in New Guinea, the twenty-three-year-old Rockefeller tragically disappeared.
* Some private banks, which fell outside the National Banking Act, did do business overseas. These included J.P. Morgan & Co., which was an unincorporated partnership, active in both commercial and investment banking.
* The emergency currency would be backed first by bank investments in government securities, as Aldrich preferred, and, second, by their holdings of commercial paper, or short-term loans. This was—in limited form—a first experiment in the United States with asset currency.
* When farm prices collapsed in the 1920s, state insurance schemes collapsed or ceased to function. But federal deposit insurance, established in 1933 despite the initial opposition of Franklin D. Roosevelt, generally succeeded.
* Aldrich also slipped in a proviso for Morgan, eliminating the duty on original artworks at least twenty years old.
* Bristow, who served one term, is remembered, if at all, for provoking a famous wisecrack. While he was delivering a lengthy oration in the Senate on the country’s “needs,” Vice President Thomas Marshall grew so impatient he whispered, just loudly enough to be audible, “What this country needs is a really good five-cent cigar.”
* Elections were cleverly divided, with a plurality of board seats awarded on a one bank/one vote basis, and a minority of seats apportioned on a per-share basis, which is to say bigger banks getting more votes. The spirit of this compromise was retained in the eventual Federal Reserve Act. Today the smallest banks in each district, the middle-tier banks, and the largest banks each elect directors to their local Reserve Bank, thus preserving diversity according to bank size. Furthermore, of the nine directors at each Reserve Bank, only three are bankers (although six are chosen by banks). The other directors are selected, at least in theory, to represent of the public.
* This feature would be honored in the eventual Federal Reserve Act; the individual Reserve Banks would earn income and pay fixed dividends to member banks, with the surplus profits distributed to the Treasury.
* Jekyl Island was spelled with a single “l” until 1929, when a second “l” was added.
* The three were the New York Chamber of Commerce, the Merchants’ Association of New York, and the Produce Exchange.
* Roderick Dhu is a hero of The Lady of the Lake, a narrative poem by Sir Walter Scott (1810).
* MacVeagh was worried because quite a number of other banks had also formed affiliates, although none as large as National City’s. He feared a wholesale disruption to the banking industry if the practice was invalidated.
* Congressional Government: A Study in American Politics was published in book form in 1885.
* Roosevelt was clearly the choice of the Republican rank and file in the primaries. But the party, according to rules approved in 1908 by then President Roosevelt, had a process for choosing delegates that concentrated power in the national com
mittee. That the committee was dominated by Taft people is unquestioned, and that some of its decisions were unfair also seems clear. Whether a completely scrupulous and apolitical process (virtually unheard-of in American history) would have swung enough delegates to Roosevelt to change the outcome is unclear. Doris Kearns Goodwin (in The Bully Pulpit, p. 700) reckons that it might have prevented a first-ballot victory by Taft, after which “anything was possible.”
* Thomas Fortune Ryan, a tobacco magnate with investments in the New York subways, was a delegate from Virginia; fianancier August Belmont Jr., a delegate from New York.
* People still spoke of the “currency” question even though, by 1912, the issues centered on banking.
* Although it was not yet constitutionally required, some states already chose senators in general elections.
* Trying to convince Wilson that a central bank was permissible, House misquoted the Democratic platform as forbidding “the so called Aldrich Plan for the establishment of a central bank” [emphasis added]. Based on this fallacious wording, House argued that, therefore, the platform would tolerate other central banking plans. The actual platform objected to “the so-called Aldrich bill or the establishment of a central bank.”
* The resourceful Untermyer did not stop trying. In December he sought to have the two banking subcommittees combined, so that he could serve as counsel to the entire panel. The Glass subcommittee rejected him.
* The only states in which Wilson won popular majorities were the eleven former members of the Confederacy.
* True to Glass’s vision, today’s Federal Reserve Banks are private in the limited sense that their stock is owned by for-profit banks, to whom they pay dividends fixed by law. However, the stock cannot be transferred, all surplus profits are sent to the Treasury, and the Banks are subject to supervision by a federal agency, the Reserve Board in Washington.
* According to Glass’s memoir, Wilson also told Glass their plan should provide for overseas banking. This feature was long sought by Wall Street, and Wilson would scarcely have thought of such a detail on his own.
* Colonel House, in a diary entry shortly after the Princeton conference, said Wilson remarked that the plan “was like building three stories of a four story house, with the expectation that a fourth story would be demanded.” This suggests that Wilson did indeed hope that the capstone would evolve into a central bank.
* This was prescient of Warburg; lack of coordination among the Reserve Banks contributed to the Fed’s ineffectiveness during the Great Depression.
* Published in book form under the title Other People’s Money and How the Bankers Use It, in 1914, it became a progressive anthem.
* Congressional sessions were irregular. Frequently, after a presidential inauguration, Congress did not meet for any extended period until the following December.
* Willis, for instance, had the impression that House “was apparently vested with very large powers.”
* For instance, states were permitted to subscribe, dividends were capped, and reserve requirements were cut.
* According to Willis, since the Bryan faction in the House had no commitment to reform, “it was believed that the only way to get their support would be that of enlisting the direct aid of Mr. Bryan himself” (The Federal Reserve System, p. 210).
* After June 26, the legislation that was to become the Federal Reserve Act was commonly referred to as both the “Glass-Owen” bill and the “Owen-Glass” bill. For the sake of consistency, this text will use “Glass-Owen.”
* The mountain air did not lower Warburg’s temperature. Toward the end of July he fumed to Colonel House that if Glass-Owen was enacted in its current state, “history will write down President Wilson as a complete failure and Bryan will once more have ruined the chances of the Democratic Party.”
* This was the real bills theory discussed in chapter 1. I am indebted to Robert Craig West, Banking Reform and the Federal Reserve, especially pp. 153–54 and 172–73.
* In 1914 Wilson signed the Clayton Antitrust Act, prohibiting directors from serving on the boards of more than one bank when either of the banks had capital, surplus, and deposits aggregating to more than $5 million.
* Among other demands, the bankers wanted a central bank or at most a handful of Reserve Banks, rather than the twelve in Glass-Owen; they wanted three Reserve Board directors chosen by bankers; they wanted to let banks continue depositing some reserves in private banks; and they wanted membership in the new system to be voluntary.
* The tariff cuts were destined to be of little consequence. Within a year of the legislation, World War I had broken out, disrupting world trade. After the war, once Republicans were returned to office, tariff rates were raised again.
* Legally, legislators would be free to defy a party caucus, and Senator Hitchcock made clear that he would do so.
* The inconsistency did not escape Glass, who sarcastically inquired, “If these things constituted ‘unsound banking’ in July” why were they not “unsound banking in November.” (Glass, An Adventure in Constructive Finance, p. 194.)
* Vanderlip remained hopeful about his proposal. On November 15, he boasted to Stillman, “There is no question at all but what the plan which I have presented to the Committee has met with the approval of the intelligent thought of the country.”
* The term “State of the Union” was not adopted until later.
* Reserve requirements were cut to 12 percent for country banks, 15 percent for middle-tier banks, and 18 percent for central reserve city banks. The previous standard was 15, 25, and 25 percent, respectively. Today, reserve requirements are zero up to $14.5 million of deposits, 3 percent up to $103.6 million of deposits, and 10 percent thereafter.
* While Federal Reserve notes make up more than 99 percent of the money in circulation today, some U.S. notes (greenbacks), as well as National Bank Notes and silver certificates, are still around. All remain legal tender.
* This was the same issue on which Warburg had debated Aldrich at Jekyl Island, but thanks to a subsequent amendment, Warburg prevailed. Thus, today, Federal Reserve notes in the vaults of banks are counted as reserves.
* Reserve Banks were placed in New York, Boston, Philadelphia, Richmond, Atlanta, Cleveland, Chicago, St. Louis, Kansas City, Minneapolis, Dallas, and San Francisco. Those twelve were also the top-ranking cities in the bankers’ poll, with the single exception of Cleveland, which was swapped by McAdoo for Cincinnati.
* The original Reserve Board members were appointed to terms of varying lengths; Warburg’s term expired that year.
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