America's Bank: The Epic Struggle to Create the Federal Reserve (18 page)

In Chicago, Andrew planned to head up efforts to
steer the Republican platform
to the Aldrich Plan. Before he left Washington, Andrew’s boss, Treasury Secretary MacVeagh, rejected Andrew’s request to be absent from work. This signaled that MacVeagh’s patience with Andrew’s reform work was exhausted. It also signaled that the Taft administration, in the midst of its battle with Roosevelt, had no political capital to spare on banking.

Unwisely, Andrew headed for Chicago all the same. He quickly discovered that, for those who defy their political patrons, Washington has no mercy. No sooner did Andrew return to the capital than MacVeagh demanded his resignation. Andrew had the temerity to ask the President, with whom he had a passing social relationship, to intervene—and also leaked word of his unhappiness, resulting in a public row. Taft curtly informed him, “
I can not think
that you were well advised in deliberately disobeying the plain direction . . . from Mr. MacVeagh.” Andrew was out.

He was even less effective
at the convention. Chicago was the scene of a political fratricide, with Taft and Roosevelt stalwarts engaging in fistfights at the Chicago Coliseum. Although Taft had been shellacked in the primaries—even in his native Ohio—his control over the party machinery gave him a lead in delegates. He had also outmaneuvered Roosevelt in the state conventions. But Roosevelt challenged nearly a quarter of the delegates as being fraudulently chosen. The Republican National Committee had to resolve these disputes. Robert La Follette (Aldrich’s nemesis) held important swing delegates, and Taft would do nothing to aggrieve the Wisconsin senator. The platform committee, not surprisingly, studiously ignored Andrew or any mention of the Aldrich Plan and approved a bland and meaningless plank—“Our banking arrangements to-day need further revision,” it weakly offered, to “prevent the recurrence of money panics and financial disturbances.” No mention was made that a congressional commission had already proposed such a “revision,” and that it had been endorsed by the incumbent president. As a stand-alone proposal the Aldrich Plan died in the convention hall. Republican unity died as well.

Andrew had a ringside seat, recording in his diary the endless quarreling and balloting on credentials, the “
fever [of] excitement
.” The night before the convention began, he saw Roosevelt tell delirious supporters at a packed auditorium, “
We stand at Armageddon
, and we battle for the Lord!” The Rough Rider was now the man on the white horse, the savior, and when he couldn’t win, he declared he had been cheated and led his forces out of the Coliseum and out of the party.
*
Taft was renominated with a thin majority. Woodrow
Wilson observed to a friend, “
The Republicans have met
—and done their worst.”

The Republicans, who had long been the patron of banking reform, had nothing left to offer the cause. Taft’s chances for victory in the fall had been gravely weakened—fatally so if Roosevelt went ahead with his plans for a third-party challenge. Reformers, out of necessity, took a longer look at the Democrats.

Laughlin, Willis, and Andrew converged on Baltimore
, where, they knew, Bryan was crafting the Democratic platform. The convention delegates were disgorged from trains into a carnival atmosphere. Brass bands marched in the streets; every inch of the city seemed festooned with the candidates’ pictures. Wilson, conveniently, was tracking the proceedings from the governor’s summer cottage in Sea Girt, New Jersey, several hours up the coast. As he and his family waited for the balloting to start, he idled away time with a note to his intimate friend, Mary Allen Hulbert Peck: “
The day is gray and grizzly
. We have had to light a fire in the huge fire place to keep our spirits (and our temperature) up.” Wilson also sent an ingratiating note to Bryan, concurring with Bryan’s view that Baltimore must be “
a convention of progressives
.” Wilson still trailed Clark in the delegate count, but he was very much a contender.

WOODROW’S MIRACLE

A democratic nation is richer
in genius than any other nation because it releases genius.

—W
OODROW
W
ILSON

The Aldrich Plan is 60 to 70 percent correct
.

—W
OODROW
W
ILSON
,
private conversation during the 1912 campaign

W
ILLIAM
J
ENNINGS
B
RYAN
DRAFTED
most of the Democratic platform himself, and it placed yet another dagger in the heart of the Aldrich Plan. Disregarding James Laughlin’s plea for restraint, the Great Commoner struck a direct hit: “
We oppose the so-called Aldrich bill
or the establishment of a central bank.” The plank approved at the Baltimore convention went on to espouse a “systematic revision of our banking laws” to free the country from panics and depressions. Carter Glass might reasonably infer that he had latitude
to legislate almost any bill that did not resemble the Aldrich Plan or establish “a central bank.” However, the platform also stressed states’ rights and asserted that credits for farmers—always Bryan’s first constituency—were “of equal importance with the question of currency reform.”

This muddled prescription for banking reforms bespoke a larger truth: the Democrats were a party in transition. The platform was progressive, stressing stronger antitrust laws, a ban on corporate campaign contributions, and an income tax. However, the party was still too traditional to embrace women’s suffrage or a minimum wage—either of which would have offended its southern base. Whether the Democrats would emphasize urban progressivism or agrarian mistrust of Washington would depend on their choice of a leader.

At the outset, Bryan threw the convention
into an uproar by proposing that it refuse to nominate anyone beholden to J. P. Morgan, to two of his putative allies who were delegates,
*
or to “any other member of the privilege-hunting, and favor-seeking class.” Morgan not being remotely in a position to control the Democratic convention, Bryan’s suggestion was sheer demagoguery. It carried overwhelmingly, although there were scattered cries for Bryan to be lynched. Rumors spread through the Fifth Regiment Armory, home to the convention, that he was seeking to promote his own candidacy; more likely, he wished to establish his bona fides as a power broker. Bryan’s vote for presidential nominee, ordained on the first ballot by the Nebraska primary result, went for Champ Clark. The Missouri representative captured a sizable plurality, 440½ votes to Wilson’s 324. But Wilson had an offsetting edge; his supporters were more fervent and more committed.

At Sea Girt, the governor anxiously
read the telegraph bulletins as
the balloting proceeded. He had no visitors with him—only Ellen and his daughters. Always content in scholarly solitude, he spent the day engrossed in a biography of William Gladstone, the nineteenth-century British statesman also known for his oratory, religiosity, and liberal views. Hoping for news, Wilson stayed awake past midnight.

The next day, Saturday, June 29, the New York delegation shifted its votes to Clark, giving the Speaker a majority. Ellen was teary-eyed, and Wilson was on the verge of releasing his delegates. However, the party required a two-thirds majority. The stampede for Clark never materialized. On the fourteenth ballot, Bryan announced that as the New York bloc—controlled by the corrupt Tammany machine and sympathetic to Wall Street—was with Clark, he, Bryan, was switching to Wilson. From then on, the balloting resembled a war of attrition. On the thirtieth ballot, the lead finally changed hands. Not until July 2—on the forty-sixth ballot—did Wilson claim the prize. He wrote to Mary Peck, “
My nomination was a sort of political miracle
.”

Woodrow Wilson was fifty-five, with dark brown hair turning iron gray and a square jaw that seemed to thrust him forward. He was a southerner who had spent the last three decades in the North, a conservative admirer of British parliamentary rule reborn as a progressive. Historians have never settled on why Wilson changed his spots. Opportunism was a factor, as were his battles with privileged elites when he was running Princeton. But there was
more coherence to his evolving views
than is often acknowledged. Wilson believed in laissez-faire—the right of people to determine their affairs—and devoutly believed in the power of competition to restrain business from harmful excess. This was pure Jeffersonian democracy. From his minister father, he had inherited a moralistic view of public life, and his own idealism persuaded him that business leaders would work for the civic good. By the time he left Princeton, however, he had concluded that business could not be trusted to regulate itself. But he never doubted the primacy of private enterprise. Where Wilson
wanted the federal government to intervene—notably, in antitrust—it was to level the obstacles to fair competition.

To Wilson, the genius of American democracy lay in its perpetual power to reinvent itself from below. “Every nation is renewed out of the ranks of the unknown men,” he said on the stump in Frankfort, Kentucky. He was genuinely alarmed by the appearance of giant trusts, and by the large, impersonal scale of modern industry. He feared that the individual was being “submerged.” In a phrase strikingly evocative of contemporary times, Wilson fretted that the “
middle class is being more and more squeezed
out by the processes which we have been taught to call [those of] prosperity.”

Just how conservative Wilson remained may be seen in comparison to Teddy Roosevelt, who was nominated by the hurriedly formed Progressive Party. Roosevelt deemed that big trusts were efficient economic agents and necessary to prosperity; his proposed solution was not to abolish the trusts but to regulate them. Wilson mocked this “
government by experts
.” Roosevelt’s eerie-sounding “new nationalism” proffered a partnership of (very) big business and government; Wilson wanted to use government to, when necessary, break up the trusts and restore Jeffersonian balance.

Two aspects of Wilson’s philosophy guided him toward banking reform. First,
he had few misgivings about federal authority
, even if he sometimes parroted southerners’ concerns for states’ rights. His academic work was essentially a long discourse on the use of power in a democracy, and on how the central government could be made
most
effective. Early on, he had admired the British system because he judged it to be more purposeful than the American-style separation of powers. Indeed, he once mused that had he been alive in 1776, rather than see the nation split into thirteen ragtag fiefdoms, he might have been a Tory.

Also, Wilson saw the banking issue as a subset of the monopoly issue. He feared that giant financial combines were restricting the individual’s, and the small business’s, access to credit. In his
acceptance speech, which he delivered at Sea Girt, he conflated financial and other trusts, denouncing the “vast confederacies . . . of banks, railways, express companies, insurance companies, manufacturing corporations, mining corporations . . . and all the rest. . . .” Although not illegal, he said, such confederacies “may control, if they please . . . both credit and enterprise.”

Wilson’s economic analysis was unsophisticated and not quite responsive to the specific banking problem. Individuals did lack credit, but not merely—not even primarily—due to monopoly. He ignored the larger issue identified by Paul Warburg—the need to pool reserves to ensure a continual flow of loans. However, Wilson quite candidly acknowledged his lack of expertise in what he called “the complicated and difficult question of the reform of our banking and currency laws.”
*
Indeed, he admitted, “
I do not know enough about this subject
to be dogmatic about it.”

A fair reading is that Wilson was galvanized by his distaste for monopoly to address what he surmised were similar problems in banking. Even if the issues were not strictly analogous, the one gave him license to advocate a serious revision of the other—and to adopt banking reform, at long last, as a progressive cause.

The campaign was highly captivating, even if the outcome was not in much doubt. Roosevelt was strong in the Northeast and upper Midwest, but he and Taft inevitably pulled votes from each other. Meanwhile, Wilson ran virtually unchallenged in the South and West. The four-man struggle—it included the Socialist candidate, Eugene V. Debs—forced a realignment of the major parties. The Democrat ran to the left of the Republican, setting a pattern long to endure. No single issue dominated the campaign, nor were the candidates’ differences particularly sharp, but people sensed the election augured a new direction.

Wilson began by stressing reform of the tariff, which he abhorred as an unnatural distortion in trade, but the tariff issue had lost its sting. After consulting with Louis Brandeis, a Boston lawyer making a name for himself as a strident advocate for government regulation of business, Wilson switched to a more potent theme: breaking up monopolies. Even then, he had a tendency to lose his audience in oratorical clouds and airy distinctions. When Wilson declared, “
I am for big business and I am against trusts
,” listeners, most of them, scratched their heads.

Roosevelt’s strategy was to attack Wilson as a conservative in disguise.
He made the fair point
that trust-busting alone could not level the playing field for workers who clamored for the right to organize, or for higher wages.
Wilson also supported labor
, but his enthusiasm for it was of recent vintage; by contrast, Roosevelt, a wealthy New Yorker with a common touch, had a more intimate connection with factory workers and other urban laborers.

Wall Street was as divided
as the rest of America. George Perkins, formerly of Morgan’s, was a leader in Roosevelt’s campaign, which led to a bitter rift with his former firm. J. P. Morgan and Andrew Carnegie supported Taft, the most pro-business candidate. But many financiers—including Paul Warburg and Jacob Schiff, who typically favored Republicans—donated to Wilson. Wall Street moneymen considered Wilson a lesser evil than Roosevelt, and more electable than Taft. Untermyer, the House Banking Committee lawyer, gave $10,000 to Wilson for reasons of his own (he was plotting to hijack the committee’s legislative mission, and wanted Wilson as an ally). Noticing that Jewish bankers were siding with Wilson, Frank Vanderlip sniped that the “Hebrew element” was aligning with the presumed winner—a slur that reflected an anti-Semitic bias typical among bankers of the day.

With Wilson’s election looking increasingly likely, bankers angled for a clearer sign of the Democrat’s agenda. In public, Wilson refused to be pinned down;
he told an editorial writer
he didn’t want to divert
the country from principles to details.
His campaign utterances
on banking were platitudes.

However, in private Wilson sounded ready to abandon the party’s traditional opposition to a central bank. Conferring with Vanderlip in the home of a key supporter, he complimented Vanderlip’s understanding of the currency question, while shrewdly deflecting Vanderlip’s criticism of his own reticence in public. “
You don’t understand politics
,” the candidate chided the banker. “It does not make any difference what I think ought to be done. I’ve first got to be elected.” Wilson went even further with Henry Morgenthau, a real estate investor prominent in the Democratic Party who visited the governor in September 1912 at his home in Princeton.
Morgenthau reported to New York bankers
that Wilson believed the Aldrich bill to be 60 to 70 percent correct. They would have to craft another bill (with another name), Wilson added, but before they were finished, they would get 80 percent of the Aldrich bill.

But even as he sent hopeful signs to bankers,
Wilson continued his courtship
of Bryan. On a stop in Nebraska, Wilson stayed with the Commoner, the two talking into the night. Bryan also campaigned vigorously for the ticket, raising the possibility that he would have influence—possibly a cabinet post—in a Wilson administration.

Roosevelt supplied the campaign’s most dramatic moment. In October, he was in Milwaukee, bound for a speech, when a man at close range drew a pistol and fired. The bullet pierced the candidate’s rib and bloodied his chest. Irrepressibly curious, Roosevelt demanded of his assailant, a deranged bartender, “Why did you do it?” He refused a doctor’s injunction to get treatment and went directly to the auditorium. Relishing his show of courage, the onetime warrior and big-game hunter informed the crowd, “I have just been shot, but it takes more than that to kill a Bull Moose!” He spoke for fifty minutes. Only then would he go to a hospital. But his heroics came too late.

Wilson won forty states and half again as many votes as Roosevelt (6.3 million votes to 4.1 million, with Taft trailing at 3.5 million). In a
sign of the electorate’s leftward shift, Debs captured 6 percent of the vote—the most for a Socialist in America before or since. Although Wilson was held to under 42 percent of the popular vote, his victory was decisive. The Senate turned Democratic for the first time in twenty years, and Democrats won a commanding two-thirds of the House.
*

Buoyant from his triumph but fatigued from the campaign, Wilson made plans for a holiday in Bermuda. Before he sailed, three would-be banking reformers besieged him for an audience. How Wilson chose among these suitors would go a long way toward determining the fate of reform.

James
Laughlin was the only petitioner with
banking expertise. He regretted that the Citizens’ League—now winding down—had not authored its own reform plan, and hungered for recognition. Ill advisedly, Laughlin telegraphed the president-elect and requested a “short interview” before his trip. Wilson declined.

With more bravado, Samuel Untermyer contacted Wilson the day after his victory, professed to have urgent business, and requested “
the better part of an entire day
.” Wilson diplomatically put him off.