America's Bank: The Epic Struggle to Create the Federal Reserve (32 page)

UNPUBLISHED PAPERS AND COLLECTIONS

The principal archives consulted for this book, which are often cited in the notes that follow, can be found in these locations:

Nelson W. Aldrich Papers: Manuscript Division, Library of Congress, Washington, D.C.

A. Piatt Andrew Papers: Hoover Institution Archives, Stanford, California.

Carter Glass Collection: Albert and Shirley Small Special Collections Library, University of Virginia, Charlottesville, Virginia.

Edward M. House Papers: Manuscripts and Archives, Sterling Memorial Library, Yale University, New Haven, Connecticut.

Thomas W. Lamont Papers: Baker Business Historical Collections, Harvard University, Cambridge, Massachusetts.

James Laurence Laughlin Papers: Manuscript Division, Library of Congress, Washington, D.C.

Pierpont Morgan Papers and J. P. Morgan Jr. Papers: Morgan Archives, Morgan Library and Museum, New York, New York.

George W. Perkins Sr. Papers: Rare Book and Manuscript Library, Butler Library, Columbia University, New York, New York.

Frank A. Vanderlip Papers: Rare Book and Manuscript Library, Butler Library, Columbia University, New York, New York. (All quoted letters from “Part B.”)

Paul Moritz Warburg Papers: Manuscripts and Archives, Sterling Memorial Library, Yale University, New Haven, Connecticut.

Henry Parker Willis Papers: Rare Book and Manuscript Library, Butler Library, Columbia University, New York, New York.

The Aldrich Papers warrant elaboration. They include Aldrich’s papers and correspondence, as well as his personal financial records, over his lengthy (1879–1911) congressional career and beyond, and the archives of the National Monetary Commission, which Aldrich directed. They also include detailed notes compiled by Jeannette P. Nichols and Nathaniel W. Stephenson for the latter’s biography,
Nelson W. Aldrich:
A Leader in American Politics
(1930), along with associated correspondence. These notes include material culled from interviews and from other archival sources, including the papers of Paul Warburg and of Piatt Andrew. When possible, the origin of such material is indicated with an annotation such as “Biographer’s notes” or the parenthetical “(from Warburg Papers).” Whatever their source, the materials in the Aldrich Papers represent a treasure trove.

I benefited from several exceptional unpublished works and dissertations, cited more fully below but worthy of mention here. They include: Harry Edward Poindexter, “From Copy Desk to Congress: The Pre-Congressional Career of Carter Glass” (1966); Michael Clark Rockefeller, “Nelson W. Aldrich and Banking Reform: A Conservative Leader in the Progressive Era” (1960); Jerome L. Sternstein, “Nelson W. Aldrich: The Making of the ‘General Manager of the United States,’ 1841–1886” (1959); and William Diamond,
The Economic Thought of Woodrow Wilson
(1943).

Among the most valuable published sources were the memoirs, biographies, diaries, and compilations of the main characters, including of Aldrich, Piatt Andrew, William Jennings Bryan, Harry Davison, Carter Glass, Colonel Edward M. House, William G. McAdoo, J. P. Morgan, Robert L. Owen, Theodore Roosevelt, William Howard Taft, Frank Vanderlip, Paul Warburg, H. Parker Willis, and Woodrow Wilson. Three merit particular mention: Warburg’s two-volume
The Federal Reserve System:
Its Origin and Growth—Reflections and Recollections
(1930); Willis’s
The Federal Reserve System: Legislation, Organization and Operation
(1923); and
The Papers of Woodrow Wilson.
The Wilson Papers, a massive undertaking edited by Arthur S. Link, comprise sixty-nine volumes and were published between 1966 and 1994; I consulted volume 8 (1970) and volumes 18–29 (1975–80).

INTRODUCTION

Alexander Hamilton proposed:
Ron Chernow,
Alexander Hamilton
(New York: Penguin Press, 2004), 347.

To modern eyes, the Bank:
Richard Grossman,
Wrong: Nine Economic Policy Disasters and What We
Can Learn from Them
(Oxford: Oxford University Press, 2013), 45. Grossman’s third chapter, “Establish, Disestablish, Repeat,” is an elegant summary of the purposes of central banking internationally and of America’s first two aborted experiments.

But the Bank was doomed:
Ibid., 45.

“object of intense hatred”:
Alexis de Tocqueville,
Democracy in America
(1835; repr., New York: Library of America, 2004), 448.

“Americans are obviously preoccupied”:
Ibid., 443.

For the opposition to central banking:
Grossman,
Wrong,
43.

when Jackson was elected president:
Richard Hofstadter,
The American Political Tradition and the Men Who Made It
(New York: Knopf, 1991), 69.

They relied less on labor:
Robert Kuttner,
Debtors Prison: The Politics of Austerity vs. Possibility
(New York: Knopf, 2013), 183–85.

Jefferson in particular was:
Hofstadter,
American Political Tradition,
36.

The U.S. dollar was a second-rate currency:
Ed Conway,
The Summit: Bretton Woods, 1944, J. M. Keynes and the Reshaping of the Global Economy
(New York: Pegasus, 2015), 39,
citing Barry Eichengreen,
Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System
(New York: Oxford University Press, 2011), 32.

CHAPTER
ONE
: THE FORBIDDEN WORDS

“I am in favor of a national bank”:
Illinois Ancestors, speech available at www.illinoisancestors.org/lincoln/firstspeech.html. Accounts of the speech differ, but there is no doubt that during the 1840s Lincoln frequently advocated a national bank.

“to carry with him the coin necessary”:
Andrew McFarland Davis, National Monetary Commission,
The Origin of the National Banking System,
61st Cong., 2d sess. (Washington, D.C.: Government Printing Office, 1910), 12–13.

“the frequently worthless issues”:
Ibid., 13–14, quoting John Jay Knox, “By a Western Banker,”
Hunt’s Merchants’ Magazine,
January 1863. Knox was later U.S. comptroller of the currency.

In theory, these notes:
Ibid., 12–14.

“The speculator comes to Indianapolis”:
Ibid., 20–21.

“with no other security than”:
Ibid., 19, quoting Cooke’s memoirs.

8,370 varieties of notes:
Ibid., 25, quoting
Chicago Tribune,
February 13, 1863.

“Counterfeit Detectors”:
Ibid., 23, 24.

However, note circulation was:
Alexander Dana Noyes, National Monetary Commission,
History of the National-Bank Currency
,
61st Cong., 2d sess. (Washington, D.C.: Government Printing Office, 1910), 10–14, 18; and Richard T. McCulley,
Banks and Politics During the Progressive Era: The Origins of the Federal Reserve System, 1897
–
1913
(New York: Garland, 1992), 21–23.

“the vast demands of the war”:
Davis,
The Origin of the National Banking System,
103.

“This system of currency has”:
McCulley,
Banks and Politics During the Progressive Era,
15.

“for purely speculative purposes”:
Carter Glass,
An Adventure in Constructive Finance
(Garden City, N.Y.: Doubleday, 1927), 61–62.

note circulation sharply declined:
McCulley,
Banks and Politics During the Progressive Era,
21–23; and Milton Friedman and Anna Jacobson Schwartz,
A Monetary History of the United States, 1867
–
1960
(Princeton, N.J.: Princeton University Press, 1971), 31–32.

“we could no longer claim”:
Richard H. Timberlake Jr.,
The Origins of Central Banking in the United States
(Cambridge, Mass.: Harvard University Press, 1978), 158–59.

less peasants than little businessmen:
Alexis de Tocqueville,
Democracy in America
(1835; repr., New York: Library of America, 2004), 644.

There were fewer bank notes issued:
McCulley,
Banks and Politics During the Progressive Era,
18, 19–20.

Carter Glass was one of those:
For details on Robert Glass, as well as on Carter Glass, see Harry Edward Poindexter, “From Copy Desk to Congress: The Pre-Congressional Career of Carter Glass,” Ph.D. diss., University of Virginia, 1966, 37–38. See also Rixey Smith and Norman Beasley,
Carter Glass
(New York: Longmans, Green and Co., 1939), 3–36; James E. Palmer Jr.,
Carter Glass: Unreconstructed Rebel
(Roanoke: Institute of American Biography, 1938), 12–33; and Matthew Fink, “The Unlikely Reformer: Carter Glass’s Approach to Financial Legislation” (unpublished manuscript), 4.

Glass’s view of this calamity:
Poindexter, “From Copy Desk to Congress,” 137.

“But when I see the merciless forces”:
Ibid., 224, 183.

from 1867 to 1897:
Friedman and Schwartz,
Monetary History of the United States,
24, 41, and 91.

a bushel of winter wheat:
George Frederick Warren,
Crop Yields and Prices, and Our Future Food Supply
(Ithaca, N.Y.: Cornell University Press, 1914), 196.

“You do not want an honest dollar”:
Timberlake,
Origins of Central Banking in the United States,
161–62.

“the fate of the Western institution”:
Alexander D. Noyes, “The Banks and the Panic of 1893,”
Political Science Quarterly
9, no. 1 (March 1894), 17.

The Panic of 1893 exposed:
Ibid., especially 16–18, 24; and Robert L. Owen,
The Federal Reserve Act
(New York: Century, 1919), 2–3.

“Fear of a silver basis prevailed”:
Barton Hepburn,
A History of Currency in the United States
(New York: Macmillan, 1924), 349–50.

forced to go hat in hand:
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), 74.

Morgan turned a profit:
Vincent P. Carosso,
The Morgans: Private International Bankers, 1854
–
1913
(Cambridge, Mass.: Harvard University Press, 1987), 339.

Glass believed, on no evidence:
Poindexter, “From Copy Desk to Congress,” 177.

“It is just the money power”:
Ibid., 206–7.

Virginia’s farmers were ruined:
Ibid., 125.

Cleveland held that people should:
The precise Cleveland quote, widely cited, is “Though the people support the government; the government should not support the people.”

party bosses insisted that he stand for gold:
Nelson W. Aldrich Papers, Reel 59. Technically, McKinley promised to support a bimetallic system (gold and silver) if other nations did as well. Because most of Europe had no intention of switching, practically speaking, this meant that the Republicans were the party of gold.

His editorials, a daily barrage:
Poindexter, “From Copy Desk to Congress,” 15, 204, 224, and 234.

Bryan did not analyze issues:
Richard Hofstadter,
The American Political Tradition and the Men Who Made It
(New York: Knopf, 1991); see especially 188–91.

Eyewitnesses reported a momentary silence:
Robert A. Degen,
The American Monetary System: A Concise Survey of Its Evolution Since 1896
(Lexington, Mass: D.C. Heath, 1987), 95; and Poindexter, “From Copy Desk to Congress,” 246–47.

a noted Princeton professor:
John Milton Cooper Jr.,
Woodrow Wilson
(New York: Knopf, 2009), 73.

Rather than a currency based on government bonds:
“Report of the Monetary Commission to the Executive Committee of the Indianapolis Monetary Convention” (1897), available at openLibrary.org. See especially p. 37, discussing the phasing out of the requirement for depositing government bonds, and p. 43.

“not a proper function of the Treasury Department”:
Annual Report of the Secretary of the Treasury on the State of the Finances,
1896, lxxiii.

“adjust itself automatically and promptly”:
“Report of the Monetary Commission,” 4.

getting the government out of banking:
Annual Report
of the Secretary of the Treasury on the State of the Finances,
1897, lxxiv–lxxvi; and Timberlake,
Origins of Central Banking in the United States,
172.

What further amplified the Treasury’s:
McCulley,
Banks and Politics During the Progressive Era,
56–57.

“Money is plentiful throughout the country”:
Arthur A. Housman to J. P. Morgan, June 14, 1899, J. P. Morgan Jr. Papers.

“The cry everywhere”:
Henry Morgenthau,
All in a Life-Time
(New York: Doubleday, 1922), 73.

“havoc was wrought in the regular ongoing”:
Annual Report
of the Secretary of the Treasury on the State of the Finances,
1899, xc, xcii, xciv, and xcv.

Legislators were irate that Gage:
A. Piatt Andrew, “The Treasury and the Banks Under Secretary Shaw,”
Quarterly Journal of Economics
21, no. 4 (August 1907), 528–29, 567.