America's Bank: The Epic Struggle to Create the Federal Reserve (56 page)
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Authors: Roger Lowenstein
War of Independence, American,
2
Washington, D.C.,
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78
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201
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–43,
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259
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270
Coxey’s march on,
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Washington, George,
2
Washington and Lee University,
153
,
203
wealth,
44
predatory,
149
redistribution of,
158
Aldrich’s tour of,
134
banks and bankers in,
12
,
85
,
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central bank opposed in,
19
Glass-Owen’s popularity in,
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in 1912 election,
168
progressives in,
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railroads unpopular in,
78
White, Stanford,
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Wickersham, George,
136
–37
Wilhelm II, Kaiser of Germany,
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Williams, John Skelton,
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Willis, H. Parker,
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n
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n
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–31,
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on Aldrich Plan,
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in Glass-Willis meeting,
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–85
legislation drafted by,
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–3,
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as legislative aide to Glass,
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–55,
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–77,
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at 1912 Democratic convention,
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subcommittee hearings of,
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Wilson, Ellen,
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Wilson, Woodrow,
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–19,
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Aldrich Plan and,
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–46,
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antitrust reform as priority of,
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bankers and,
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–22
banking reform and,
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–44,
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–49,
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–68,
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–2,
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–18,
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Bryan and,
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–46,
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–49,
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–90,
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–31,
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cabinet appointments of,
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on central bank,
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–44,
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n
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–84,
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on central government,
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–42,
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conservative side of,
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death of,
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federalism and,
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financial agenda of,
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–201
on Glass-Owen,
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–36,
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–44,
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–47,
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–52,
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Glass’s meeting with,
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House and,
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–46,
157
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250
–51,
265
–66
ill health of,
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–47,
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as New Jersey governor,
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in 1912 election,
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–45,
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–63,
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in 1916 election,
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press on,
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as progressive,
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as segregationist,
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on states’ rights,
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on tariff reform,
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–95,
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–201,
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–11,
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–34
Trenton plan and,
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–89
and Warburg on Federal Reserve Board,
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Wisconsin Bankers Association,
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Woodlock, Thomas F.,
50
workmen’s compensation,
104
,
143
Wright, Orville,
94
YMCA of New York,
101
*
As a young man, Jackson had sold land in return for promissory notes from a Philadelphia merchant and endorsed the notes to pay for supplies for a store. When the merchant failed, Jackson was liable—leaving him with crushing debts. The experience forever soured the future president on high finance.
*
A legacy of the National Banking Acts, adopted in 1863 and 1864, was that banks in the United States were, even until recent times, typically denoted as the “First National,” “Second National,” and so on, in their respective cities.
*
The seven national currencies were National Bank Notes, gold coins and gold certificates, silver dollars and silver certificates, greenbacks, and Treasury securities.
*
Informally stated as “Bad money drives out good.”
*
Milton Friedman would later propose an arbiter with similarly magical properties to regulate the money supply—“a computer.”
*
Country banks—those at the lowest level of the food chain—had to keep a 15 percent reserve, of which three-fifths could be held in interest-bearing deposits with banks in “reserve cities” (those in the middle tier) and the rest in the form of cash or gold in the vault. Similarly, banks in the nearly fifty reserve cities had to maintain a 25 percent reserve, of which half could be deposited with banks in the highest tier—that is, those in any of the three “central reserve cities” (New York, Chicago, and St. Louis)—and the remainder in their vaults.
*
In Aldrich’s private papers, there is a note from Nathaniel Stephenson, his official and rather hagiographic biographer, to the effect that John E. Searles, secretary and treasurer of the Sugar Trust, was the “gentleman” who entered into the trolley arrangements with Senator Aldrich, Perry, and another local partner, in 1893–1894, and that “the affiliation is very significant and should be studied up.” But Stephenson made only passing mention in his book (pp. 98–99) of the fact that wealthy friends of Aldrich, who wanted him to remain in politics, helped him to invest in street railways. The investment was first exposed, soon after it was hatched, in a pair of explosive articles in
The New York Times,
on June 20 and June 21, 1894. The
Times
charged that the Sugar Trust forwarded $1.5 million to Aldrich to purchase stock in the Union Railway Company, a Providence trolley line. The articles were accusatory in tone and lacked corroborative proof. Due to the gravity of the accusations, Aldrich broke with his customary refusal to comment and denied the charges, save that he admitted investing in a traction (trolley) line in which Searles was also an investor—and in which each man, Aldrich maintained, had paid for his own shares. Jerome L. Sternstein’s groundbreaking paper “Corruption in the Gilded Age Senate,”
Capitol Studies: A Journal of the Capitol and Congress
6, no. 1 (Spring 1978), concluded that the
Times
’s charges were in essence, even if not in every particular, accurate. Sternstein found a pair of contracts documenting that Aldrich received $100,000 in cash from Searles for the purchase of stock in Union Railway, and that Searles and his associates pledged to invest between $5.5 million and $7 million to electrify, and in other ways modernize, “four profitable but inefficient horse-drawn traction lines” servicing the Providence area. Subsequent to the acquisitions, the various lines were consolidated in a holding company, United Traction and Electric Company, in which Searles was a director and Aldrich president. Aldrich’s trolley investment made him a very wealthy man by the time he became involved in banking legislation in the early 1900s. There is no evidence, however, that Aldrich was bribed. Aldrich did not need persuading to vote in sugar’s interests. More likely, the Sugar Trust wanted to keep a friendly and powerful senator in office and provided the capital that permitted him to remain there. See the Aldrich Papers, Reel 59.
*
A year after his thesis, while collecting primitive art in New Guinea, the twenty-three-year-old Rockefeller tragically disappeared.
*
Some private banks, which fell outside the National Banking Act, did do business overseas. These included J.P. Morgan & Co., which was an unincorporated partnership, active in both commercial and investment banking.
*
The emergency currency would be backed first by bank investments in government securities, as Aldrich preferred, and, second, by their holdings of commercial paper, or short-term loans. This was—in limited form—a first experiment in the United States with asset currency.
*
When farm prices collapsed in the 1920s, state insurance schemes collapsed or ceased to function. But federal deposit insurance, established in 1933 despite the initial opposition of Franklin D. Roosevelt, generally succeeded.
*
Aldrich also slipped in a proviso for Morgan, eliminating the duty on original artworks at least twenty years old.
*
Bristow, who served one term, is remembered, if at all, for provoking a famous wisecrack. While he was delivering a lengthy oration in the Senate on the country’s “needs,” Vice President Thomas Marshall grew so impatient he whispered, just loudly enough to be audible, “What this country needs is a really good five-cent cigar.”
*
Elections were cleverly divided, with a plurality of board seats awarded on a one bank/one vote basis, and a minority of seats apportioned on a per-share basis, which is to say bigger banks getting more votes. The spirit of this compromise was retained in the eventual Federal Reserve Act. Today the smallest banks in each district, the middle-tier banks, and the largest banks each elect directors to their local Reserve Bank, thus preserving diversity according to bank size. Furthermore, of the nine directors at each Reserve Bank, only three are bankers (although six are chosen by banks). The other directors are selected, at least in theory, to represent of the public.
*
This feature would be honored in the eventual Federal Reserve Act; the individual Reserve Banks would earn income and pay fixed dividends to member banks, with the surplus profits distributed to the Treasury.
*
Jekyl Island was spelled with a single “l” until 1929, when a second “l” was added.
*
The three were the New York Chamber of Commerce, the Merchants’ Association of New York, and the Produce Exchange.
*
Roderick Dhu is a hero of
The Lady of the Lake
, a narrative poem by Sir Walter Scott (1810).
*
MacVeagh was worried because quite a number of other banks had also formed affiliates, although none as large as National City’s. He feared a wholesale disruption to the banking industry if the practice was invalidated.
*
Congressional Government: A Study in American Politics
was published in book form in 1885.
*
Roosevelt was clearly the choice of the Republican rank and file in the primaries. But the party, according to rules approved in 1908 by then President Roosevelt, had a process for choosing delegates that concentrated power in the national committee. That the committee was dominated by Taft people is unquestioned, and that some of its decisions were unfair also seems clear. Whether a completely scrupulous and apolitical process (virtually unheard-of in American history) would have swung enough delegates to Roosevelt to change the outcome is unclear. Doris Kearns Goodwin (in
The Bully Pulpit,
p. 700) reckons that it might have prevented a first-ballot victory by Taft, after which “anything was possible.”