America's Bank: The Epic Struggle to Create the Federal Reserve (35 page)

“drafts on Philadelphia, Boston”:
“Bankers Discuss Causes of Flurry,”
The New York Times,
December 3, 1907.

Even the suggestion that banks:
Sprague,
History of Crises,
276. Sprague succinctly observed: “Suspension increases enormously the propensity to hoard money.”

safe-deposit boxes:
A. Piatt Andrew, “Hoarding in the Panic of 1907,”
The Quarterly Journal of Economics
22, no. 2 (February 1908), 293–95.

plunged by $350 million:
Sprague, “The American Crisis of 1907,” 367. In “Hoarding in the Panic of 1907” (p. 293), Andrew suggests the far smaller figure of $230 million of currency that “passed out of the banks and disappeared from sight between August and December.”

However, hoarding by individuals:
Elmus Wicker,
The Great Debate on Banking Reform: Nelson Aldrich and the Origins of the Fed
(Columbus: Ohio State University Press, 2005), 39.

“It is said that many of our people”:
Annual Report of the Secretary of the Treasury on the State of the Finances,
1907, 53.

“We were broke with a pocket full of money”:
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), 262, available at http://books.google.com/books?id=pc0qAAAAYAAJ&printsec=frontcover&source=gbs_ge_summary_r&cad=0#v=onepage&q&f=false.

bolstered their reserves:
Andrew, “Hoarding in the Panic of 1907,” 296–97 (for San Antonio, Indianapolis, Wichita, Portland, and Galveston).

Vanderlip sourly surmised:
Vanderlip,
From Farm Boy to Financier,
171.

well below the legal minimum:
Myron T. Herrick, “The Panic of 1907 and Some of Its Lessons,”
Annals of the American Academy of Political and Social Science
31 (March 1, 1908), 9. The cumulative reserve deficit of the national banks in New York City was $54 million, the largest ever.

Charges and countercharges flew:
See, for instance, Sprague, “The American Crisis of 1907,” 367.

The problem was that the system:
Sprague,
History of Crises,
304.

a town without a fire department:
Paul M. Warburg,
The Federal Reserve System: Its Origin and Growth—Reflections and Recollections
(New York: Macmillan, 1930)
,
2:125.

Britain had not experienced a banking suspension:
Andrew, “Hoarding in the Panic of 1907,” 290.

America had been scorched:
J. Lawrence Broz, “Origins of the Federal Reserve System:
International Incentives and the Domestic Free-Rider Problem,”
International Organization
53, no. 1 (Winter 1999), 44. The five severe crises occurred in 1873, 1884, 1890, 1893, and 1907.

“All institutions had to run”:
Timberlake,
The Origins of Central Banking in the United States,
183–84.

Quickly on the heels of the Panic:
Sprague, “The American Crisis of 1907,” 368; and Milton Friedman and Anna Jacobson Schwartz,
A Monetary History of the United States, 1867
–
1960
(Princeton, N.J.: Princeton University Press, 1971), 156. From December 1906 to November 1907, the Dow Industrials fell 40.9 percent.

“Too late now, Mr. Stillman”:
Warburg,
The Federal Reserve System,
1:18–19.

“a modern central bank”:
“Mr. Warburg Urges Government Bank,”
The New York Times,
November 14, 1907.

One episode in particular soured:
This account is based on Strouse,
Morgan, American Financier,
582–88.

“group of financiers who withhold”:
Ibid., 589.

“unreasoning
dis
trust and pessimism”:
Ibid. (italics added).

“inscrutable and mysterious power”:
Lucy D. Chen, “Banking Reform in a Hostile Climate: Paul M. Warburg and the National Citizens’ League” (working paper, April 2010), available at www.fas.harvard.edu/~histecon/crisis-next/1907/docs/Chen-Warburg_Final_Paper.pdf.

“statesmen”—leaders in society:
William Diamond,
The Economic Thought of Woodrow Wilson
(Baltimore: Johns Hopkins University Press, 1943), 78–79.

“this turmoil of undefined wickedness”:
“Dr. Wilson Defines Material Issues,”
The New York Times,
November 24, 1907.

Columbia University sponsored:
The title page of
The Currency Problem and the Present Financial Situation,
a book reproducing the Columbia lectures, can be found in the Nelson W. Aldrich Papers.

Warburg unapologetically advised:
Paul M. Warburg, “American and European Banking Methods and Bank Legislation Compared,” February 3, 1908, reprinted in Warburg,
The Federal Reserve System,
2:43, 48, and 54.

introduced the arguments for centralization to a wider public:
Wicker,
The Great Debate on Banking Reform,
38.

a “modified” central bank:
Warburg’s plan was published as a letter to the
Times
on November 14, 1907, under the headline “Mr. Warburg Urges Government Bank.” Warburg, in his later collection of speeches and essays (
The Federal Reserve System,
2:29–36), recycled a version of this plan under the more memorable title “A Plan for a Modified Central Bank”; he said it had been published on November 12. The discrepancy between dates is unexplained.

an umbrella organization of clearinghouses:
Warburg, “A Plan for a Modified Central Bank,” in Warburg,
The Federal Reserve System,
2:34–35.

never permit the system to truly change:
Warburg,
The Federal Reserve System,
1:31.

Aldrich, now sixty-six:
The biographical details on Aldrich in this paragraph are from Michael Clark Rockefeller, “Nelson W. Aldrich and Banking Reform: A Conservative Leader in the Progressive Era,” A.B. thesis, Harvard College, 1960, 12–13.

Gazing on Aldrich for the first time:
Notes found in Aldrich Papers, Reel 61. See also Warburg,
The Federal Reserve System,
1:31–32.

Schiff advised that it would be a grave mistake:
Notes found in Aldrich Papers, Reel 61.

Four days later:
Warburg,
The Federal Reserve System,
1:32.

“Did not the last panic”:
Paul Warburg to Aldrich, December 31, 1907, Aldrich Papers, Reel 61; reprinted in Warburg,
The Federal Reserve System,
1:555–57.

CHAPTER
FIVE
: THE CROSSING

“This central reserve, or whatever name”:
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), 69, available at http://books.google.com/books?id=pc0qAAAAYAAJ&printsec=frontcover&source=gbs_ge_summary_r&cad=0#v=onepage&q&f=false.

“Well timed reform alone averts revolution”:
Theodore Roosevelt to Everett Colby, October 3, 1913; George W. Perkins Sr. Papers, Box 13.

Congress crafted a legislative response:
Harold Kellock, “Warburg, the Revolutionist,”
The Century Magazine
90 (n.s. 68—May to October 1915).

But 1908 did not start auspiciously:
Paul Warburg to Hon. Theodore E. Burton, April 30, 1908, in Paul M. Warburg,
The Federal Reserve System: Its Origin and Growth—Reflections and Recollections
(New York: Macmillan, 1930), 1:553–54.

The Aldrich bill proposed:
See various items in Nelson W. Aldrich Papers, Reel 61, including “Aldrich Becomes Converted to Idea of a Central Bank, May–October 1908”; as well as Michael Clark Rockefeller, “Nelson W. Aldrich and Banking Reform: A Conservative Leader in the Progressive Era,” A.B. thesis, Harvard College, 1960, 18–19; Henry Parker Willis,
The Federal Reserve System: Legislation, Organization and Operation
(New York: Ronald Press, 1923), 45–46; and Richard T. McCulley,
Banks and Politics During the Progressive Era: The Origins of the Federal Reserve System, 1897
–
1913
(New York: Garland, 1992), 152–54.

“We are all thoroughly disgusted”:
Perkins to J. P. Morgan, May 22, 1908, Perkins Papers, Box 9.

There was little enthusiasm:
McCulley,
Banks and Politics During the Progressive Era,
153–54.

“Thoughtful students of economic history”:
Speech of Senator Nelson W. Aldrich on S. Bill No. 3023, February 10, 1908, quoted in Warburg,
The Federal Reserve System,
1:32.

Given carte blanche to do as little:
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), 122–23. Tallies of the number of National Monetary Commission volumes differ. Andrew cites thirty-five volumes; see Andrew to Woodrow Wilson, November 23, 1911, A. Piatt Andrews Papers, Box 22, folder 7; however, Andrew L. Gray, Andrew’s grandnephew, cites twenty-three volumes in “Who Killed the Aldrich Plan?”
The Bankers Magazine
54 (Summer 1971), 62–74.

Aldrich did seek help:
“Minutes of Meetings of Monetary Commission, 1908–1911” and “Chronology on Monetary Commission Work of Senator Aldrich,” both in Aldrich Papers, Reel 61. Regarding the recommendation of Davison, see Perkins to J. P. Morgan, July 14, 1908, Perkins Papers, Box 9.

Morgan had been so impressed:
Jean Strouse,
Morgan, American Financier
(New York: Random House, 1999), 602.

“It is understood Davison”:
Perkins to J. P. Morgan, July 23, 1908, telegram, Perkins Papers, Box 9.

was furiously lobbying Congress to weaken:
Correspondence in the Perkins Papers
(Box 9) documents efforts for antitrust relief, both in general and specifically for International Harvester and U.S. Steel, each the fruit of Morgan-orchestrated mergers. See also Robert H. Wiebe,
Businessmen and Reform: A Study of the Progressive Movement
(Chicago: Elephant, 1989), 46–47. On rate fixing, Perkins’s April 21, 1908, letter to Morgan (also in Perkins Papers, Box 9) contains this gem: “The most important thing that really has been accomplished—and it is very important—is that at least we have succeeded in getting practically all the railroad Presidents together in an agreement to raise freight rates. We had a great deal of difficulty in convincing Mr. [George Frederick] Baer, Mr. [Henry] Walters and one or two others that this ought to be done. They have finally come into line and yesterday, at a meeting of the Presidents here, they all agreed to the principle and gave out a statement to that effect. . . . It is estimated that this ought to add about $100,000,000 a year to the railroads’ revenues.” Finally, my understanding of the Morgan ethos was indelibly affected by reading
The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance
(New York: Grove Press, 1990); for that and more, I am indebted to its author, my friend Ron Chernow.

“the levelest headed man in the country”:
William Howard Taft to Aldrich, June 27, 1908, Aldrich Papers, Reel 61.

“make men good by law”:
McCulley,
Banks and Politics During the Progressive Era,
160.

Taft denounced the Oklahoma plan:
Ibid., 159–61.

Aldrich told the press his aim:
“Aldrich Satisfied with Currency Law,”
The New York Times,
August 1, 1908.

Aldrich reserved a $260 suite:
North German Lloyd Steamship Co. to Arthur P. Shelton, July 23, 1908, Aldrich Papers, Reel 27.

Davison had sailed ahead:
Perkins to Morgan, July 23, 1908, George W. Perkins Sr. Papers.

Aldrich exhaustively prepared:
Nathaniel Wright Stephenson,
Nelson W. Aldrich: A Leader in American Politics
(New York: Scribner’s, 1930), 335–36.

he took unusual precautions:
Ibid., 336; and Aldrich Papers, Reel 61.

Professor Andrew brought banking textbooks:
Aldrich Papers, Reel 27; Rockefeller, “Nelson W. Aldrich and Banking Reform,” 28; and Stephenson,
Nelson W. Aldrich,
335.

Andrew hailed from La Porte:
Typed “Family History,” A. Piatt Andrew Papers, Box 43, folder 8.

At Princeton he had studied:
Andrew to W. G. Brown, December 5, 1911, ibid., Box 22, folder 7.

teacher to the young Franklin D. Roosevelt:
“Family History.” Andrew’s social outings with FDR are mentioned in his
Diary of Abram Piatt Andrew, 1902
–
1914,
ed. E. Parker Hayden Jr. and Andrew L. Gray (Princeton, N.J., 1986).

Economics in the Gilded Age:
Andrew,
Diary;
for Andrew’s government salary, see Aldrich Papers, Reel 58.