America's Bank: The Epic Struggle to Create the Federal Reserve (33 page)

“orders for the transfer of existing bank credits”:
Annual Report of the Secretary,
1899, xci; and
Annual Report
of the Secretary of the Treasury on the State of the Finances,
1901, 74.

This 90 percent:
Friedman and Schwartz,
Monetary History of the United States,
135–36, 139.

“ruling principle of self-preservation”:
Annual Report
of the Secretary,
1901, 76.

a raid on Northern Pacific:
Friedman and Schwartz,
Monetary History of the United States,
142.

“We justly boast of our political system”:
Annual Report of the Secretary,
1901, 73-74, 77.

CHAPTER
TWO
: PRIVILEGED BANKER, SELF-MADE SENATOR

“Under our clumsy laws, the currency”:
Alexander D. Noyes, “The Banks and the Panic of 1893,”
Political Science Quarterly
9, no. 1 (March 1894).

“The study of monetary questions”:
Henry Dunning MacLeod, National Monetary Commission,
An Address by Senator Nelson W. Aldrich Before the Economic Club of New York,
November 29, 1909, 61st Cong., 2d sess. (Washington, D.C.: Government Printing Office, 1910), 26.

Beginning in 1887:
Author interview with Mark Williams.

Critics roundly debated whether Shaw:
A. Piatt Andrew, “The Treasury and the Banks Under Secretary Shaw,”
Quarterly Journal of Economics
21, no. 4 (August 1907), 519–68; see especially 530–38 and 540–42. See also Richard T. McCulley,
Banks and Politics During the Progressive Era: The Origins of the Federal Reserve System, 1897–1913
(New York: Garland, 1992), 102.

“I was not here for three weeks”:
Harold Kellock, “Warburg, the Revolutionist,”
The Century Magazine
90 (n.s. 68—May to October 1915).

Paul seemed to make money:
Ron Chernow,
The Warburgs: The Twentieth-Century Odyssey of a Remarkable Jewish Family
(New York: Random House, 1993), 40.

Overall, his field study:
Kellock, “Warburg, the Revolutionist.”

running the family bank:
Chernow,
The Warburgs,
69.

Warburg was shocked by the primitiveness:
Paul M. Warburg,
The Federal Reserve System: Its Origin and Growth—Reflections and Recollections
(New York: Macmillan, 1930), 1:14–16.

approximately fifteen thousand banks:
“Changes in the Number and Size of Banks in the United States, 1834–1931, Material Prepared for the Information of the Federal Reserve System by the Federal Reserve Committee on Branch, Group, and Chain Banking,” 3, available at http://fraser.stlouisfed.org/docs/historical/federal%20reserve%20history/frcom_br_gp_ch_banking/changes_in_banks_1834_1931.pdf. This report gives
a figure of 13,925 banks in 1900; by 1903 the total was slightly higher than 15,000. The report was written for a Fed committee appointed in 1930, J. H. Riddle, executive secretary and director of research.

“How is the great international financier?”:
This anecdote is from Warburg,
Federal Reserve System,
1:18–19, except for the detail on Edward Harriman, which is from the research notes collected by Jeannette Paddock Nichols and Nathaniel W. Stephenson for the latter’s biography found in the Nelson W. Aldrich Papers, Reel 61. (These research notes are found in various reels of the Aldrich Papers and all are hereinafter cited as “Biographer’s notes.”)

Aldrich had high aspirations:
Jerome L. Sternstein, “Nelson W. Aldrich: The Making of the ‘General Manager of the United States,’ 1841–1886,” A.B. thesis, Brooklyn College, 1959, 199–200.

“its splendid white marble staircase”:
Nathaniel Wright Stephenson,
Nelson W. Aldrich: A Leader in American Politics
(New York: Scribner’s, 1930), 11–12.

His father, a skilled machinist:
Biographer’s notes, Aldrich Papers, Reel 58.

Aldrich felt acutely:
Sternstein, “Nelson W. Aldrich,” 9.

Rejection furnished Aldrich:
Ibid., 38–41; the letter to Abby is on p. 32.

Aldrich elevated himself:
Biographical details on Senator Aldrich generally come from Stephenson,
Nelson W. Aldrich.
The impression that Aldrich felt entitled to membership in the aristocracy is informed by Nelson W. Aldrich Jr.,
Old Money: The Mythology of Wealth in America
(1988; repr., New York: Allworth Press, 1996), in particular p. 14; this is also the source for the
objets
(p. 26) and the land acquisition (p. 27). Details about the château come from Biographer’s notes, Aldrich Papers, Reel 58; Aldrich,
Old Money,
26; and Stephenson,
Nelson W. Aldrich,
192.

“most earnest and cherished hope”:
Sternstein, “Nelson W. Aldrich,” 150–51.

a rambling tour of Europe:
Ibid., 84–100.

“a basis for his commitment”:
Ibid., 105.

“If I am deeply impressed”:
Quoted in ibid., 105–6.

smiled rather than laughed out loud:
Biographer’s notes, Aldrich Papers, Reel 58. See also Aldrich,
Old Money,
13–21.

Rarely did he debate:
Biographer’s notes, Aldrich Papers, Reel 59.

“side whiskers close cut”:
Stephenson,
Nelson W. Aldrich,
44.

“a blindness to inessentials”:
Sternstein, “Nelson W. Aldrich,” 159.

Rhode Island legislative bosses:
Sternstein, “Nelson W. Aldrich,” 52–53; and Aldrich,
Old Money,
15–16.

the hot issue was the tariff:
Author’s correspondence with Douglas A. Irwin.

had 170 volumes shipped:
Biographer’s notes, Aldrich Papers, Reel 58.

“the general liberty of trade”:
Adam Smith,
The Wealth of Nations
(1776).

highest concentration of industry:
Sternstein, “Nelson W. Aldrich,” 194.

family that ran the Sugar Trust:
There is a rich literature on Aldrich’s relationship with the Sugar Trust; see especially Jerome L. Sternstein, “Corruption in the Guilded Age Senate: Nelson W. Aldrich and the Sugar Trust,”
Capitol Studies: A Journal of the Capitol and Congress
6, no. 1 (Spring 1978), as well as Biographer’s notes, Aldrich Papers, Reel 59; and Sternstein, “Nelson W. Aldrich,” 236. Other details in this paragraph come from Sternstein, “Nelson W. Aldrich,” 191, 198–201, 236, 248, 255–56, 260, and 262.

persuading William McKinley:
Biographer’s notes, Aldrich Papers, Reel 59.

bankers desperate to halt:
Michael Clark Rockefeller, “Nelson W. Aldrich and Banking Reform: A Conservative Leader in the Progressive Era,” A.B. thesis, Harvard College, 1960, 6.

“Our currency is as good as gold”:
Barton Hepburn,
A History of Currency in the United States
(New York: Macmillan, 1924), v–xvi.

“Aldrich is a great man”:
Sternstein, “Nelson W. Aldrich,” 4.

“would adopt it as his own”:
Hepburn,
History of Currency,
v–xvi.

This “stupid condition”:
Banking and Currency Reform: Hearings
Before the Subcommittee of the Committee on Banking and Currency, Charged with Investigating Plan of Banking and Currency Reform and Reporting Constructive Legislation Thereof,
62nd Cong., 3rd sess., House of Representatives, January 7, 1913 (Washington, D.C.: Government Printing Office, 1913), 77, available at http://books.google.com/books?id=pc0qAAAAYAAJ&printsec=frontcover&source=gbs_ge_summary_r&cad=0#v=onepage&q&f=false.

“To a person trained under”:
Warburg,
The Federal Reserve System,
1:17.

“a lively and intimate daily exchange”:
Ibid., 1:14–15.

“Once started, the poor check”:
James G. Cannon and David Kinley, National Monetary Commission,
Clearing Houses and Credit Instruments
(Washington, D.C.: Government Printing Office, 1911), 6:70–73.

more than two hundred trusts:
Richard Hofstadter,
The Age of Reform: From Bryan to F.D.R.
(New York: Vintage, 1955), 168–69, 232.

America had far more banks:
Kellock, “Warburg, the Revolutionist.”

“there existed as many disconnected”:
Warburg,
The Federal Reserve System,
1:12.

Warburg frequently unburdened himself:
“Aldrich Becomes Converted to Idea of a Central Bank, May–October, 1908,” Aldrich Papers, Reel 61 (from Warburg Papers).

His one innovation was to suggest:
“What Congress Left Undone,”
The Outlook
73, no. 11 (March 14, 1903), available at www.unz.org/Pub/Outlook-1903mar14-00597a02. See also Rockefeller, “Nelson W. Aldrich and Banking Reform,” 6; Stephenson,
Nelson W. Aldrich,
210; Robert H. Wiebe,
Businessmen and Reform: A Study of the Progressive Movement
(Chicago: Elephant, 1989), 64; and McCulley,
Banks and Politics During the Progressive Era,
104–5.

A card-playing companion of J. P. Morgan:
Jerome L. Sternstein, “King Leopold II, Senator Nelson W. Aldrich, and the Strange Beginnings of American Economic Penetration of the Congo,”
African Historical Studies
2, no. 2 (1969).

“it became easy for Aldrich”:
Rockefeller, “Nelson W. Aldrich and Banking Reform,” 50.

Many articles focused on the gross inequities:
Arthur Weinberg and Lila Weinberg, eds.,
The Muckrakers: The Era in Journalism That
Moved America to Reform—The Most Significant Magazine Articles of 1902
–
1912
(New York: Simon and Schuster, 1965), xiv, xv, and xix
.

“the chief exploiter of the American people”:
David Graham Phillips, “The Treason of the Senate,”
Cosmopolitan,
March 1906. The previous year, Aldrich had been the focus of another broadside: Lincoln Steffens, “Rhode Island: A State for Sale,”
McClure’s Magazine
24, no. 4 (February 1905).

“look no way but downward”:
Weinberg and Weinberg,
The Muckrakers,
xvii.

Critics also thought the attacks:
Ibid.
,
xvi–xvii, 70.

America had 3,800 of them:
Ibid., xiii, xiv.

CHAPTER
THREE
: JITTERS ON WALL STREET

“There is just as true patriotism”:
Vanderlip to Woodrow Wilson, October 29, 1912, telegram, Frank A. Vanderlip Papers, Box 1-4.

Schiff feared that America’s prosperity:
Cyrus Adler,
Jacob H. Schiff: His Life and Letters
(1928; repr., Grosse Pointe, Mich.: Scholarly Press, 1968), 1:277–79. The $100 million figure comes from A. Piatt Andrew, “The Treasury and the Banks Under Secretary Shaw,”
The Quarterly Journal of Economics
21, no. 4 (August 1907), 542–43.

the hidebound National Banking system:
Biographer’s notes, Nelson A. Aldrich Papers, Reel 61, which makes reference to the “hard-boiled” loyalty shown by American bankers toward the National Banking Act.

Vanderlip had grown up:
Biographical details in this and the next paragraph come from Frank A. Vanderlip with Boyden Sparkes,
From Farm Boy to Financier
(New York: D. Appleton-Century, 1935); the opinion of Roosevelt is found on 80–82.

ferried four eggs:
Anna Robeson Burr,
James Stillman: The Portrait of a Banker
(New York: Duffield, 1927), 185.

Even though the U.S. economy had grown:
Henry Parker Willis,
The Federal Reserve System: Legislation, Organization and Operation
(New York: Ronald Press, 1923), 486. The 40 percent figure was given during the 1913 Senate debate on the Federal Reserve Act; in 1906, the percentage most likely was less, but it was still impressively high.

the dollar would overtake the pound:
J. Lawrence Broz first proposed the thesis that American bankers lobbying for a central bank were motivated, at least in part, by their private interest in seeing the dollar become an international currency. See Broz’s “The Origins of Central Banking: Solutions to the Free-Rider Problem,”
International Organization
52, no. 2 (Spring 1998), 231–68, as well as his “Origins of the Federal Reserve System: International Incentives and the Domestic Free-Rider Problem,”
International Organization
53, no. 1 (Winter 1999), 39–70. See also Adler,
Jacob H. Schiff,
280–81, which quotes Schiff at the New York Chamber of Commerce: “Our merchants who buy goods in China, Japan, South America, and elsewhere must, to our mortification, still settle their transactions in London, Paris, or Germany, just as the very money we loaned to Japan recently had to be remitted to London.”

“unable to make use of their credit”:
“The Currency,” report by the Special Committee of the Chamber of Commerce, New York State, submitted October 4, 1906, and adopted November 1, 1906, available at https://archive.org/stream/currencyreport00newyrich/currencyreport00newyrich_djvu.txt.