The Central Bank Movement Revives, 1906-1910

0:00The Central Bank Movement revives, 1906 through 1910. After the failure of the first drive towards central banking with the defeat of the Fowler Bill in 1902 and the collapse of Secretary Shaw's efforts to use the Treasury as a surrogate central bank, the bank reform forces decided to put their cards on the table and push frankly for a central bank for the United States. The revived campaign was kicked off by fateful speech in January 1906 by the powerful Jacob H. Schiff, head of the Wall Street investment banking firm of Kuhn, Loeb & Company, before the New York Chamber of Commerce.

0:45Schiff complained that the country had needed money in the autumn of 1905 and couldn't obtain it from the Treasury. An elastic currency for the nation was therefore imperative and Schiff urged the New York Chamber's Committee on Finance to draw up a comprehensive plan for a new modern banking system to provide for an elastic currency. A Kuhn-Loeb partner and kinsman of Schiff, who had agitated behind the scenes for a central bank, was Paul Moritz Warburg, who had suggested the idea to Schiff as early as 1903. Warburg had emigrated in 1897 from the German investment banking firm of M. M. Warburg and Company, and was devoted to the central banking model that had developed in Germany.

1:41When the Finance Committee of the New York Chamber proved reluctant, Frank A. Vanderlip reported this unwelcome development to his boss, James Stillman, head of the National City Bank, and Stillman suggested that a new five-man special commission be set up by the New York Chamber to report on a plan for currency reform. The important thing was to secure a commission predisposed to be friendly and Vanderlip managed to secure a commission totally loaded in favor of a central bank. This special commission of the New York Chamber consisted of Vanderlip, a Rockefeller man, Schiff's close friend Isadore Strauss, a director of R.H. Macy and Company, Company, two Morgan men, Dumont Clark, President of the American Exchange National Bank and a personal advisor to J.P. Morgan, and our old friend Charles A. Conant, Treasurer of Morton Trust Company.

2:43The fifth member was John Claflin of H.B. Claflin and Company, a large wholesaling firm who was a veteran of the Indianapolis Monetary Convention. Joining on board as Secretary of the New Currency Commission was Vanderlip's friend, Professor Joseph French Johnson, now of New York University. The Commission revived the old Indianapolis questionnaire technique, acquiring legitimacy by sending out a detailed questionnaire on currency to a number of financial leaders. While Johnson mailed and collated the questionnaires, Conant visited and interviewed the heads of of the Central Banks of Europe. The Special Commission delivered its currency report to the New York Chamber in October 1906. To eliminate instability in the danger of an inelastic currency, the Commission called for the creation of a Central Bank of Issue under the control of the government. The following January, Paul Warburg went public with his agitation for a Central Bank, publishing two articles on its behalf.

3:55The big bankers recognized, however, that ever since the defeat of the Fowler Bill, a prime task would be to convert the large number of small bankers in the nation to the cause of a central bank. The panic of 1907 struck in October, the result of an inflation stimulated by Secretary of the Treasury, Leslie Shaw, in the previous two years. The panic galvanized the big bankers to put on a concerted pooch for a lender of last resort in the shape of a central bank. The big bankers realized that one of the first steps in the march to a central bank was to win the support of the nation's economist, academics and financial experts.

4:42Fortunately for the reformers, two useful organizations for the mobilization of academics were near at hand, the American Academy of Political and Social Science, AAPSS of Philadelphia, and the Academy of Political Science of Columbia University, APS, both of which comprised leading and corporate, liberal businessmen, financiers and corporate attorneys, as well as academics. Each of these organizations, along with the American Association for the Advancement of Science, AAAS, held symposia on monetary affairs during the winter of 1907-1908, and each called for the establishment of a central bank.

5:32The Columbia Conference was organized by the distinguished Columbia economist E.R.A. Seligman, who not coincidentally was a member of the family of the prominent Wall Street investment bank of J.N.W. Seligman and Company. Seligman was grateful that the University was able to provide a platform for leading bankers and financial journalists to promote a central Bank, especially because it is proverbially difficult in a democracy to secure a hearing for the conclusions of experts. Emphasizing the importance of a central bank at the meetings in addition to Seligman was National City Bank's Frank Vanderlip, Morgan Chase's National Bank's A. Barton Hepburn and Kuhn Loeb's Paul M. Warburg.

6:27At the American Academy of Political and Social Science Symposium in Philadelphia, several leading investment bankers, as well as Comptroller of the Currency, William B. Ridgely, came out for a central bank. Members of the AAPSS's Advisory Committee on Currency included Hepburn, Morgan personal attorney and statesman, Ella Hugh Root, Morgan's long-time personal attorney, Frances Lynn and J.P. Morgan himself. In the meanwhile, the AAAS Symposium in January 1908 was organized by none other than Charles A. Conant himself, who happened to be chairman of the AAAS's Social and Economic Section that year.

7:16Speakers favoring a central bank included Conan, Columbia economist J.B. Clark, Vanderlip, and Vanderlip's friend, Georgie Roberts, head of the Rockefeller-oriented Commercial National Bank of Chicago, who would later wind up at the National City Bank. The task of the bank reformers was well summarized by J.R. Duffield, Secretary of the Banker's Publishing Company, in January 1908. It is recognized generally that before legislation can be had, there must be an educational campaign carried on, first among the bankers and later among commercial organizations, and finally among the people as a whole.

8:01as a whole. During the same month, the legislative lead in banking reform was taken by Senator Nelson W. Aldrich, Republican, Rhode Island, head of the Senate Finance Committee, and, as the father-in-law of John D. Rockefeller, Jr., Rockefeller's man in the U.S. Senate. Aldrich's Aldrich-of-Reland Act passed Congress that year. Its most prominent provision, the The Increased Amount of Emergency Currency that National Banks Could Issue A more important, if widely neglected, provision, however, established a National Monetary Commission – NMC – that would investigate the currency question and suggest proposals for comprehensive banking reform. The underlying purpose of the NMC was revealed by two admirers who hailed This New Proposal Sarah Ness Pratt of the Wall Street Journal conceded that the real purpose of the NMC was to swamp the public with supposed expertise, thereby educating them into accepting banking reform.

9:11Pratt pointed out that in no other way can such education be affected more thoroughly and rapidly than by a commission. Another function of a commission, noted Festus J. Wade, a St. Louis banker and member of the Currency Commission of the American Bankers Association, was to keep the financial issue out of politics and put it squarely in the safe custody of carefully selected experts. The Indianapolis Monetary Commission was now being recreated on a national scale. Senator Aldrich lost no time in launching the NMC in June 1908. The Commission consisted of an equal number of senators and representatives, but these members of Congress were mere window dressing to the advisors and staff who did the real work of the Commission.

10:07From the beginning, Aldrich envisioned the NMC and the banking reform movement generally to be run as an alliance of Rockefeller, Morgan and Koon Loeb people. Aldrich chose as the leading experts advising or joining the commission two men suggested by Morgan leaders. As his top advisor, Aldrich chose on the suggestion of J.P. Morgan, seconded by Jacob Schiff, probably the most powerful of the Morgan partners, Henry P. Davison. For leading technical economic As a political, economic expert and director of research, Aldrich accepted the recommendation of Roosevelt's close friend and fellow Morgan man, Harvard University president, Charles Elliott, who had urged the appointment of Harvard economist, Abram Piet Andrew. Andrew commissioned and supervised numerous reports and studies on all relevant aspects of banking and finance.

11:12for research, public relations, and adjut prompt for the NMC. Meanwhile, Aldrich gathered around him inner circles of influential advisors who included Warburg and Vanderlip. Warburg gathered around him sub-circles who included Irving T. Bush, head of the Currency Committee of the New York Merchants Association, and Men from the Top Ranks of the American Economic Association, to which Warburg delivered an address advocating central banking in December 1908. Warburg met and corresponded frequently with leading academic economists who favored banking reform, including Seligman. David R. Dewey, historian of banking at MIT, long-time secretary-treasurer of the American Economic Association, and brother of the progressive philosopher and educator John Dewey, Frank W. Tosik, Irving Fischer of Yale, and Oliver M. W. Sprague, professor of banking at Harvard of the Morgan-oriented Sprague family.

12:23In the month of September 1909, the reformers accelerated their drive for a central bank into high gear. Morgan-oriented Chicago banker George M. Reynolds delivered a presidential address to the American Bankers Association, flatly calling for a central bank for America. Almost simultaneously, on September 14, President William Howard Taft, speaking in Boston, suggested Did the country seriously consider a central bank? Taft had been close to the reformers, especially to his Rockefeller-oriented friend Nelson Aldrich, since 1900. The Wall Street Journal understood the importance of this public address as removing the subject from the realm of theory to that of practical politics. One week later, the bank reformers organized a virtual government bank media complex to drive through a central bank.

13:23On September 22, the Wall Street Journal began an unprecedented front-page 14-part series of editorials entitled A Central Bank of Issue. These unsigned editorials were actually written by the ubiquitous Charles A. Conant. from his vantage point as Salaried Chief Propagandist of the U.S. Government's National Monetary Commission. Building on his experience in 1898, Conant, aided by Aldrich's secretary, prepared abstracts of commission materials and distributed them to newspapers in early 1910. J.P. Gavitt, of the Washington Bureau of the Associated Press was recruited by the NMC to extract newsy paragraphs for newspaper editors, out-of-commission abstracts, articles and forthcoming books.

14:21And two ostensibly disinterested academic organizations lent their coloration to the NMC, the Academy of Political Science, publishing a special volume of its proceedings in collaboration and with the NMC to popularize in the best sense some of the valuable work of the Commission. In the meanwhile, the Academy of Political and Social Science published its own special volume in 1910, Banking Problems, introduced by Andrew and including articles by veteran bank reformers including Johnson, Horace White and Morgan Bankers Trust official Fred I. Kent, as well as by a number of high officials of Rockefeller's National City Bank of New York.

15:11Meanwhile, Paul M. Warburg capped his lengthy and intensive campaign for a central bank in a famous speech to the New York YMCA on March 23, 1910 on a United Reserve Bank for the United States. Warburg outlined the structure of his beloved German Reich Bank, but he was careful to L.A. the fears of Wall Street by insisting that the central bank would not be controlled by Wall Street or any monopolistic interest. Therefore, Warburg insisted that the new reserve bank must not be called a central bank, and that the Reserve Bank's governing board be chosen by government officials, merchants and bankers.

16:01Bankers, of course, were to dominate the selections. One of the great cheerleaders for the Warburg Plan and the man who introduced the volume on banking reform featuring Warburg's speech and published by the Academy of Political Science, H.R. Mosse, editor, The Reform of the Currency, New York, 1911, was Kinsman and Seligman Investment Banking family economist, E.R.A. Seligman. So delighted too with Warburg's speech was the Merchants Association of New York that it distributed 30,000 copies of the speech during the spring of 1910. Warburg had carefully paved the way for this action by the Merchants Association by regularly meeting with the Currency Committee of the Merchants Association since the fall of 1908.

16:54Warburg's efforts were aided by the fact that the resident expert for that committee was Joseph French Johnson. During the same spring of 1910, the NMC's numerous research volumes on various aspects of banking poured forth onto the market. The object was to swamp public opinion with a parade of impressive analytic and historical scholarship, all allegedly scientific and value free, but all designed to further the agenda of a central bank.