A History of Money and Banking in the United States: The Colonial Era to World War II (38 page)

Morgan, who then proceeded to staff the officers and board of Hudson and Manhattan with his closest business associates.

From that point on, McAdoo was surrounded by a Morgan ambience.3 Comptroller of the currency was John Skelton Williams, a protégé of McAdoo’s who had also been a director of the Hudson and Manhattan Railroad. Another board member was McAdoo protégé Charles S. Hamlin, who came to the board from the post of assistant secretary of the Treasury. In addition to being a wealthy Boston lawyer—from a Boston financial group long affiliated with the Morgan interests—

Hamlin had married into the wealthy Pruyn family of Albany, which had been associated with the Morgan-dominated New York Central Railroad.

If these three were solid Morgan men, the other four Reserve Board members were not nearly as reliable: Paul M. Warburg was partner and brother-in-law of Jacob Schiff of the investment banking house of Kuhn, Loeb; Frederic A. Delano, uncle of Franklin D. Roosevelt, was president of the Rockefeller-controlled Wabash Railway; William P.G. Harding was an Alabama Reserve as a Cartelization Device,”
Money in Crisis
, Barry Siegel, ed. (San Francisco: Pacific Institute for Public Policy, 1984), p. 109; Lester V.

Chandler,
Benjamin Strong, Central Banker
(Washington, D.C.: Brookings Institution, 1958), pp. 23–41; and Ron Chernow,
The House of Morgan: An
American Banking Dynasty and the Rise of Modern Finance
(New York: Atlantic Monthly Press, 1990), pp. 142–45, 182.

3Philip H. Burch, Jr.,
Elites in American History,
vol. 2,
The Civil War to
the New Deal
(New York: Holmes and Meier, 1981), pp. 207–09.

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A History of Money and Banking in the United States:
The Colonial Era to World War II

banker whose father-in-law’s iron manufacturing company had prominent Morgan as well as rival Rockefeller men on its board; and Adolph C. Miller was an academic economist at Berkeley who had married into the wealthy Morgan-connected Sprague family of Chicago. Thus, of the seven members of the original board, three were Morgan men (but of whom two were ex officio); one was Kuhn, Loeb; one Rockefeller; one an independent banker with both Morgan and Rockefeller connections; and one was an economist with vague family ties to the Morgans.

Hardly complete Morgan control of the board!

But the Morgans not only had by far the most powerful Federal Reserve banker, Benjamin Strong, in their corner, they also had the Republican administrations of the 1920s. Although there were various groups around President Warren G. Harding, as an Ohio Republican he was closest to the Rockefellers, and his secretary of state, Charles Evans Hughes, was a mentor of John D. Rockefeller, Jr.’s, New York Bible class, a leading Standard Oil attorney, and a trustee of the Rockefeller Foundation.4 Harding’s sudden death in August 1923, however, unexpectedly elevated Vice President Calvin Coolidge to the presidency.

Coolidge has been misleadingly described as a colorless small-town Massachusetts attorney. Actually, the new president was a member of a prominent Boston financial family, who were board members of leading Boston banks. One, T. Jefferson Coolidge, became prominent in the Morgan-affiliated United Fruit Company of Boston. Throughout his political career, 4Hughes was both counsel and chief foreign policy adviser to the Rockefellers’ Standard Oil of New Jersey. On Hughes’s close ties to the Rockefeller complex and their being overlooked even by Hughes’s biographers, see the important but neglected article by Thomas Ferguson,

“From Normalcy to New Deal: Industrial Structure, Party Competition, and American Public Policy in the Great Depression,”
International
Organization
38 (Winter 1984): 67. On Hughes’s and Rockefeller’s men’s Bible class, see Raymond B. Rosdick,
John D. Rockefeller, Jr.: A Portrait
(New York: Harper and Bros., 1956), p. 125.

From Hoover to Roosevelt:

267

The Federal Reserve and the Financial Elites
moreover, Calvin Coolidge had two important mentors, both neglected by historians. One was Massachusetts Republican Party Chairman W. Murray Crane, who served as a director of three powerful Morgan-dominated institutions: the New Haven and Hartford Railroad, the Guaranty Trust Company of New York, and AT&T, on which he was also a member of the board’s executive committee. The other was Amherst classmate and prominent Morgan partner Dwight Morrow. Morrow began to agitate for Coolidge for president as early as 1919, and continued his pressure at the Chicago Republican convention of 1920. Dwight Morrow and fellow Morgan partner Thomas Cochran lobbied strenuously for Coolidge at Chicago. Cochran, who was not an Amherst graduate, did not have the Amherst excuse for working for Coolidge, and so he kept in the background. Cochran and Morrow were happy, as prominent Morgan men, to confine their work to the background and to push forward as their front man for Coolidge the large, doughty Boston merchant Frank Stearns, who did have the virtue of being an Amherst graduate.5

Secretary of the Treasury throughout all three Republican administrations of the 1920s was the powerful multimillionaire tycoon Andrew Mellon, head of the Mellon interests, whose empire spread from the Mellon National Bank of Pittsburgh to encompass Gulf Oil, Koppers Company, and Aluminum Corporation of America. Mellon was generally allied to the Morgan interests. Furthermore, when Charles Evans Hughes returned to private law practice in the spring of 1925, Coolidge offered his crucial State Department post to longtime Wall Street attorney and former secretary of state and of war, Elihu Root, who might be called the veteran head of the “Morgan bar.” At one critical time in Morgan’s affairs, Root had served as 5Stearns, however, had not met Coolidge before being introduced to him by Morrow. Cochran was a leading Morgan partner, and board member of Bankers Trust Company, Chase Securities Corporation, and Texas Gulf Sulphur Company. Burch,
Elites, 2
, pp. 274–75, 302–03; and Harold Nicolson,
Dwight Morrow
(New York: Harcourt Brace, 1935), p. 232.

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A History of Money and Banking in the United States:
The Colonial Era to World War II

Morgan’s personal attorney. After Root refused the State Department post, Coolidge was forced to settle for a lesser Morgan light, Minnesota attorney Frank B. Kellogg. Undersecretary to Kellogg was Joseph C. Grew, who had family connections with the Morgans (J.P. Morgan, Jr., had married a Grew), while, in 1927, two highly placed Morgan men were asked to take over relations with troubled Mexico and Nicaragua.6

The year 1924 indeed saw the House of Morgan at the pinnacle of political power in the United States. President Calvin Coolidge, friend and protégé of Morgan partner Dwight Morrow, was deeply admired by J.P. “Jack” Morgan, Jr. Jack Morgan saw the president, perhaps uniquely, as a rare blend of deep thinker and moralist. Morgan wrote a friend: “I have never seen any president who gives me just the feeling of confidence in the country and its institutions, and the working out of our problems, that Mr. Coolidge does.” On the other hand, the House of Morgan faced the happy dilemma in the 1924 presidential election that the Democratic candidate was none other than John W. Davis, senior partner of the Wall Street firm of Davis, Polk and Wardwell, and chief attorney for J.P. Morgan and Company. Davis, a protégé of the legendary Morgan partner Harry Davison, was also a personal friend and a backgammon and cribbage partner of Jack Morgan’s. It was an embarrassment of riches. Whoever won the 1924 election, the Morgans could not lose, although they decided to opt for Coolidge.7

6Morgan partner Dwight Morrow became ambassador to Mexico in 1927, while Nicaraguan affairs came under the direction of Henry L.

Stimson, Wall Street lawyer and longtime leading disciple of Elihu Root, and a partner in Root’s law firm. As for Frank Kellogg, in addition to being a director of the Merchants National Bank of St. Paul, he had been general counsel for the Morgan-dominated United States Steel Company for the Minnesota region, and most importantly, the top lawyer for railroad magnate James J. Hill, long closely allied with the Morgan interests.

Burch,
Elites
, 2, pp. 277, 305.

7Chernow,
House of Morgan
, pp. 254–55.

From Hoover to Roosevelt:

269

The Federal Reserve and the Financial Elites
However, 1928, saw inevitable changes in Morgan domination of monetary policy. Benjamin Strong, sickly all year, died in October, and was replaced by George L. Harrison, his handpicked successor. While Harrison was a devoted “Morgan loy-alist,” he did not quite carry the clout of Benjamin Strong.8

The Coolidge administration, too, was coming to an end.

The Morgans, again facing an embarrassment of riches, were torn three ways. Their prime goal was to induce their beloved president to break precedent and run for a third term. Not being able to persuade Coolidge, the Morgans next turned to Vice President Charles G. Dawes, who had been connected with various Morgan railroads in Chicago. When Dawes dropped out of the race, the Morgans turned at last to Herbert Clark Hoover, who had been a powerful secretary of commerce during the two Republican administrations of the 1920s. While Hoover had not been as intimately connected with the Morgans as had Calvin Coolidge, he had long been close to the Morgan interests. Particularly influential over Hoover during his administration were two unofficial but powerful advisers—both Morgan partners: Thomas W. Lamont, and Dwight Morrow, whom Hoover consulted regularly three times a week.9

Herbert Hoover’s Cabinet was also loaded with Morgan people. As secretary of state, Hoover chose the longtime Morgan lawyer, and disciple and partner of Elihu Root, Henry L.

Stimson. Andrew Mellon continued as Treasury secretary, and his undersecretary, who was to replace Mellon in 1931 and was close to Hoover, was Ogden L. Mills, a former congress-man and New York corporate lawyer whose father, Ogden L.

Mills, Sr., had been a leader of such Morgan railroads as New 8Ibid., p. 382.

9Lamont was actually able to induce Hoover to conceal Lamont’s influence by faking entries in a diary left to historians. Ferguson, “From Normalcy to New Deal,” p. 79. See also ibid., p. 77; and Burch,
Elites
, 2, p. 280.

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A History of Money and Banking in the United States:
The Colonial Era to World War II

York Central.10 Hoover’s secretary of the Navy was Charles Francis Adams, III, from the famous Boston Brahmin family long associated with the Morgans. This particular Adams daughter had been fortunate enough to marry Jack Morgan.

Benjamin Strong’s monetary policy, throughout his reign, was essentially a Morgan policy. The Morgans, through their subsidiary, Morgan, Grenfell in London, had long been intimately associated with the British government and with the Bank of England. Before World War I, the House of Morgan had been named a fiscal agent of the British Treasury and of the Bank of England. After the war began, the Morgans became the sole purchaser of all goods and supplies for the British and French war effort in the United States, as well as the monopoly underwriter in the United States of all British and French bonds.

The Morgans played a substantial role in bringing the United States into the war on Britain’s side, and, as head of the Fed, Benjamin Strong obligingly doubled the money supply to finance America’s role in the war effort.11

After the end of the war, Strong’s monetary policy was deliberately guided by the prime objective of helping Great Britain establish, and impose upon Europe, a new and disastrous gold-exchange standard. The idea was to restore “England”—which really meant the Morgans’ English associates and allies—to her old position of financial dominance by helping her establish a phony gold standard. Ostensibly this was a return to the prewar

“classical” gold standard. But the return, in the spring of 1925, 10Mills was a descendant of the highly aristocratic eighteenth-century Livingston family of New York, as well as related to the Reids, Morgan-oriented owners of the
New York Herald-Tribune
. Mills’s first wife was a member of the longtime Morgan-connected Vanderbilt family. See Jordan A. Schwarz,
The Interregnum of Despair: Hoover, Congress, and the
Depression
(Urbana: University of Illinois Press, 1970), p. 111.

11On the Morgan role in pressuring the United States into entering World War I, see the classic work by Charles Callan Tansill,
America Goes
to War
(Boston: Little, Brown, 1938), pp. 67–133.

From Hoover to Roosevelt:

271

The Federal Reserve and the Financial Elites
was at the prewar par, a rate that hopelessly overvalued the pound sterling, which Britain had inflated and depreciated during the fiat money era after 1914. Britain insisted on returning to gold at an overvalued par, a policy guaranteed to hobble British exports, and yet was determined to indulge in continued cheap money and inflation, instead of contracting its money supply to make the prewar par viable. To help Britain get away with this peculiar and contradictory policy, the United States helped to pretend that the post-1925 standard in Europe—this gold bullion-pound standard—was really a genuine gold-coin standard.

The United States inflated its money and credit in order to prevent inflationary Britain from losing gold to the United States, a loss which would endanger the new, jerry-built “gold standard” structure. The result, however, was eventual collapse of money and credit in the U.S. and abroad, and a worldwide depression. Benjamin Strong was the Morgans’ architect of a disastrous policy of inflationary boom that led inevitably to bust.

THE HOOVER FED: HARRISON AND YOUNG

While secretary of commerce, Herbert Hoover had been a severe critic of Strong’s inflationary policies. Unfortunately, however, Hoover was in favor of a different form of easy money and cheap credit. When he became president, he tried, like King Canute, to hold back the tides by continuing to generate cheap bank credit, and then using “moral suasion” to exhort banks and other lenders
not
to lend money for the purchase of stock.