Mises Daily Articles
The Indianapolis Monetary Convention
The presidential election of 1896 was a great national referendum on the gold standard. The Democratic Party had been captured, at its 1896 convention, by the Populist, ultra-inflationist, anti-gold forces, headed by William Jennings Bryan. The older Democrats, who had been fiercely devoted to hard money and the gold standard, either stayed home on election day or voted, for the first time in their lives, for the hated Republicans. The Republicans had long been the party of prohibition and of greenback inflation and opposition to gold. But since the early 1890s, the Rockefeller forces, dominant in their home state of Ohio and nationally in the Republican Party, had decided to quietly ditch prohibition as a political embarrassment and as a grave deterrent to obtaining votes from the increasingly powerful bloc of German-American voters.
In the summer of 1896, anticipating the defeat of the gold forces at the Democratic convention, the Morgans, previously dominant in the Democratic Party, approached the McKinley–Mark Hanna–Rockefeller forces through their rising young satrap, Congressman Henry Cabot Lodge of Massachusetts. Lodge offered the Rockefeller forces a deal: The Morgans would support McKinley for president and neither sit home nor back a third, Gold Democrat party, provided that McKinley pledged himself to a gold standard. The deal was struck, and many previously hard-money Democrats shifted to the Republicans. The nature of the American political party system was now drastically changed: previously a tightly fought struggle between hard-money, free-trade, laissez-faire Democrats on the one hand, and protectionist, inflationist, and statist Republicans on the other, with the Democrats slowly but surely gaining ascendancy by the early 1890s, was now a party system that would be dominated by the Republicans until the depression election of 1932.
The Morgans were strongly opposed to Bryanism, which was not only Populist and inflationist, but also anti–Wall Street bank; the Bryanites, much like Populists of the present day, preferred congressional, greenback inflationism to the more subtle, and more privileged, big-bank-controlled variety. The Morgans, in contrast, favored a gold standard. But, once gold was secured by the McKinley victory of 1896, they wanted to press on to use the gold standard as a hard-money camouflage behind which they could change the system into one less nakedly inflationist than populism but far more effectively controlled by the big-banker elites. In the long run, a controlled Morgan-Rockefeller gold standard was far more pernicious to the cause of genuine hard money than a candid free-silver or greenback Bryanism.
As soon as McKinley was safely elected, the Morgan-Rockefeller forces began to organize a "reform" movement to cure the "inelasticity" of money in the existing gold standard and to move slowly toward the establishment of a central bank. To do so, they decided to use the techniques they had successfully employed in establishing a pro-gold standard movement during 1895 and 1896. The crucial point was to avoid the public suspicion of Wall Street and banker control by acquiring the patina of a broad-based grassroots movement. To do so, the movement was deliberately focused in the Middle West, the heartland of America, and organizations developed that included not only bankers, but also businessmen, economists, and other academics, who supplied respectability, persuasiveness, and technical expertise to the reform cause.
Accordingly, the reform drive began just after the 1896 elections in authentic Midwest country. Hugh Henry Hanna, president of the Atlas Engine Works of Indianapolis, who had learned organizing tactics during the year with the pro-gold standard Union for Sound Money, sent a memorandum, in November, to the Indianapolis Board of Trade, urging a grassroots Midwestern state like Indiana to take the lead in currency reform.1
In response, the reformers moved fast. Answering the call of the Indianapolis Board of Trade, delegates from boards of trade from 12 Midwestern cities met in Indianapolis on December 1, 1896. The conference called for a large monetary convention of businessmen, which accordingly met in Indianapolis on January 12, 1897. Representatives from 26 states and the District of Columbia were present. The monetary-reform movement was now officially under way. The influential Yale Review commended the convention for averting the danger of arousing popular hostility to bankers. It reported that "the conference was a gathering of businessmen in general rather than bankers in particular."2
The conventioneers may have been businessmen, but they were certainly not very grassrootsy. Presiding at the Indianapolis Monetary Convention of 1897 was C. Stuart Patterson, dean of the University of Pennsylvania Law School and a member of the finance committee of the powerful, Morgan-oriented Pennsylvania Railroad. The day after the convention opened, Hugh Hanna was named chairman of an executive committee which he would appoint. The committee was empowered to act for the convention after it adjourned. The executive committee consisted of the following influential corporate and financial leaders:
John J. Mitchell of Chicago, president of the Illinois Trust and Savings Bank, and a director of the Chicago and Alton Railroad; the Pittsburgh, Fort Wayne and Chicago Railroad; and the Pullman Company. Mitchell was named treasurer of the executive committee.
H.H. Kohlsaat, editor and publisher of the Chicago Times-Herald and the Chicago Ocean Herald, trustee of the Chicago Art Institute, and a friend and adviser of Rockefeller's main man in politics, President William McKinley.
Charles Custis Harrison, provost of the University of Pennsylvania, who had made a fortune as a sugar refiner in partnership with the powerful Havemeyer ("Sugar Trust") interests.
Alexander E. Orr, New York City banker in the Morgan ambit, who was a director of the Morgan-run Erie and Chicago, Rock Island, and Pacific Railroads; of the National Bank of Commerce; and of the influential publishing house, Harper Brothers. Orr was also a partner in the country's largest grain-merchandising firm and a director of several life insurance companies.
Edwin O. Stanard, St. Louis grain merchant, former governor of Missouri, and former vice president of the National Board of Trade and Transportation.
E.B. Stahlman, owner of the Nashville Banner, commissioner of the cartelist Southern Railway and Steamship Association, and former vice president of the Louisville, New Albany, and Chicago Railroad.
A.E. Willson, influential attorney from Louisville and a future governor of Kentucky.
But the two most interesting and powerful executive committee members of the Indianapolis Monetary Convention were Henry C. Payne and George Foster Peabody. Henry Payne was a Republican Party leader from Milwaukee and president of the Morgan-dominated Wisconsin Telephone Company, long associated with the railroad-oriented Spooner-Sawyer Republican machine in Wisconsin politics. Payne was also heavily involved in Milwaukee utility and banking interests, in particular as a longtime director of the North American Company, a large public-utility-holding company headed by New York City financier Charles W. Wetmore.
So close was North American to the Morgan interests that its board included two top Morgan financiers. One was Edmund C. Converse, president of Morgan-run Liberty National Bank of New York City, and soon-to-be founding president of Morgan's Bankers Trust Company. The other was Robert Bacon, a partner in J.P. Morgan and Company, and one of Theodore Roosevelt's closest friends, whom Roosevelt would make assistant secretary of state. Furthermore, when Theodore Roosevelt became president as the result of the assassination of William McKinley, he replaced Rockefeller's top political operative, Mark Hanna of Ohio, with Henry C. Payne as postmaster general of the United States. Payne, a leading Morgan lieutenant, was reportedly appointed to what was then the major political post in the Cabinet, specifically to break Hanna's hold over the national Republican Party. It seems clear that replacing Hanna with Payne was part of the savage assault that Theodore Roosevelt would soon launch against Standard Oil as part of the open warfare about to break out between the Rockefeller-Harriman–Kuhn, Loeb camp and the Morgan camp.3
Even more powerful in the Morgan ambit was the secretary of the Indianapolis Monetary Convention's executive committee, George Foster Peabody. The entire Peabody family of Boston Brahmins had long been personally and financially closely associated with the Morgans. A member of the Peabody clan had even served as best man at J.P. Morgan's wedding in 1865. George Peabody had long ago established an international banking firm of which J.P. Morgan's father, Junius, had been one of the senior partners. George Foster Peabody was an eminent New York investment banker with extensive holdings in Mexico, who was to help reorganize General Electric for the Morgans, and was later offered the job of secretary of the Treasury during the Wilson administration. He would function throughout that administration as a "statesman without portfolio."4
Let the masses be hoodwinked into regarding the Indianapolis Monetary Convention as a spontaneous grassroots outpouring of small Midwestern businessmen. To the cognoscenti, any organization featuring Henry Payne, Alexander Orr, and especially George Foster Peabody meant but one thing: J.P. Morgan.
The Indianapolis Monetary Convention quickly resolved to urge President McKinley to (1) continue the gold standard, and (2) create a new system of "elastic" bank credit. To that end, the convention urged the president to appoint a new monetary commission to prepare legislation for a new revised monetary system. McKinley was very much in favor of the proposal, signaling Rockefeller agreement, and on July 24 he sent a message to Congress urging the creation of a special monetary commission. The bill for a national monetary commission passed the House of Representatives but died in the Senate.5
Disappointed but intrepid, the executive committee, failing a presidentially appointed commission, decided in August 1897 to go ahead and select its own. The leading role in appointing this commission was played by George Foster Peabody, who served as liaison between the Indianapolis members and the New York financial community. To select the commission members, Peabody arranged for the executive committee to meet in the Saratoga Springs summer home of his investment-banking partner, Spencer Trask. By September, the executive committee had selected the members of the Indianapolis Monetary Commission.
The members of the new Indianapolis Monetary Commission were as follows:6
Chairman was former Senator George F. Edmunds, Republican of Vermont, attorney, and former director of several railroads.
C. Stuart Patterson, dean of University of Pennsylvania Law School, and a top official of the Morgan-controlled Pennsylvania Railroad.
Charles S. Fairchild, a leading New York banker, president of the New York Security and Trust Company, former partner in the Boston Brahmin investment-banking firm of Lee, Higginson and Company, and executive and director of two major railroads. Fairchild, a leader in New York state politics, had been secretary of the Treasury in the first Cleveland administration. In addition, Fairchild's father, Sidney T. Fairchild, had been a leading attorney for the Morgan controlled New York Central Railroad.
Stuyvesant Fish, scion of two longtime aristocratic New York families, was a partner of the Morgan-dominated New York investment bank of Morton, Bliss and Company, and then president of Illinois Central Railroad and a trustee of Mutual Life. Fish's father had been a senator, governor, and secretary of state.
Louis A. Garnett was a leading San Francisco businessman.
Thomas G. Bush of Alabama was a director of the Mobile and Birmingham Railroad.
J.W. Fries was a leading cotton manufacturer from North Carolina.
William B. Dean was a merchant from St. Paul, Minnesota, and a director of the St. Paul–based transcontinental Great Northern Railroad, owned by James J. Hill, ally with Morgan in the titanic struggle over the Northern Pacific Railroad with Harriman, Rockefeller, and Kuhn, Loeb.
George Leighton of St. Louis was an attorney for the Missouri Pacific Railroad.
Robert S. Taylor was an Indiana patent attorney for the Morgan-controlled General Electric Company.
The single most important working member of the commission was James Laurence Laughlin, head professor of political economy at the new Rockefeller-founded University of Chicago and editor of its prestigious Journal of Political Economy. It was Laughlin who supervised the operations of the commission's staff and the writing of the reports. Indeed, the two staff assistants to the commission who wrote reports were both students of Laughlin's at Chicago: former student L. Carroll Root, and his current graduate student Henry Parker Willis.
The impressive sum of $50,000 was raised throughout the nation's banking and corporate community to finance the work of the Indianapolis Monetary Commission. New York City's large quota was raised by Morgan bankers Peabody and Orr, and heavy contributions to fill the quota came promptly from mining magnate William E. Dodge; cotton and coffee trader Henry Hentz, a director of the Mechanics National Bank; and J.P. Morgan himself.
With the money in hand, the executive committee rented office space in Washington, DC, in mid-September, and set the staff to sending out and collating the replies to a detailed monetary questionnaire, sent to several hundred selected experts. The monetary commission sat from late September into December 1897, sifting through the replies to the questionnaire collated by Root and Willis. The purpose of the questionnaire was to mobilize a broad base of support for the commission's recommendations, which they could claim represented hundreds of expert views. Second, the questionnaire served as an important public-relations device, making the commission and its work highly visible to the public, to the business community throughout the country, and to members of Congress. Furthermore, through this device, the commission could be seen as speaking for the business community throughout the country.
To this end, the original idea was to publish the Indianapolis Monetary Commission's preliminary report, adopted in mid-December, as well as the questionnaire replies in a companion volume. Plans for the questionnaire volume fell through, although it was later published as part of a series of publications on political economy and public law by the University of Pennsylvania.7
Undaunted by the slight setback, the executive committee developed new methods of molding public opinion using the questionnaire replies as an organizing tool. In November, Hugh Hanna hired as his Washington assistant financial journalist Charles A. Conant, whose task was to propagandize and organize public opinion for the recommendations of the commission. The campaign to beat the drums for the forthcoming commission report was launched when Conant published an article in the December 1 issue of Sound Currency magazine, taking an advanced line on the report, and bolstering the conclusions not only with his own knowledge of monetary and banking history, but also with frequent statements from the as-yet-unpublished replies to the staff questionnaire.
Over the next several months, Conant worked closely with Jules Guthridge, the general secretary of the commission; they first induced newspapers throughout the country to print abstracts of the questionnaire replies. As Guthridge wrote some commission members, he thereby stimulated "public curiosity" about the forthcoming report, and he boasted that by "careful manipulation" he was able to get the preliminary report "printed in whole or in part — principally in part — in nearly 7,500 newspapers, large and small." In the meanwhile, Guthridge and Conant orchestrated letters of support from prominent men across the country, when the preliminary report was published on January 3, 1898. As soon as the report was published, Guthridge and Conant made these letters available to the daily newspapers. Quickly, the two built up a distribution system to spread the gospel of the report, organizing nearly 100,000 correspondents "dedicated to the enactment of the commission's plan for banking and currency reform."8
The prime and immediate emphasis of the preliminary report of the Indianapolis Monetary Commission was to complete the promise of the McKinley victory by codifying and enacting what was already in place de facto: a single gold standard, with silver reduced to the status of subsidiary token currency. Completing the victory over Bryanism and free silver, however, was just a mopping-up operation; more important in the long run was the call raised by the report for banking reform to allow greater elasticity. Bank credit could then be increased in recessions and whenever seasonal pressure for redemption by agricultural country banks forced the large central reserve banks to contract their loans. The actual measures called for by the commission were of marginal importance. (More important was that the question of banking reform had been raised at all.)
The public having been aroused by the preliminary report, the executive committee decided to organize a second and final meeting of the Indianapolis Monetary Convention, which duly met at Indianapolis on January 25, 1898. The second convention was a far grander affair than the first, bringing together 496 delegates from 31 states. Furthermore, the gathering was a cross-section of America's top corporate leaders. While the state of Indiana naturally had the largest delegation, of 85 representatives of boards of trade and chambers of commerce, New York sent 74 delegates, including many from the Board of Trade and Transportation, the Merchants' Association, and the Chamber of Commerce in New York City.
Such corporate leaders attended as Cleveland iron manufacturer Alfred A. Pope, president of the National Malleable Castings Company; Virgil P. Cline, legal counsel to Rockefeller's Standard Oil Company of Ohio; and C.A. Pillsbury of Minneapolis–St. Paul, organizer of the world's largest flour mills. From Chicago came such business notables as Marshall Field and Albert A. Sprague, a director of the Chicago Telephone Company, subsidiary of the Morgan-controlled telephone monopoly, American Telephone and Telegraph Company. Not to be overlooked was delegate Franklin MacVeagh, a wholesale grocer from Chicago, and an uncle of a senior partner in the Wall Street law firm of Bangs, Stetson, Tracy and MacVeagh, counsel to J.P. Morgan and Company. MacVeagh, who was later to become secretary of the Treasury in the Taft administration, was wholly in the Morgan ambit. His father-in-law, Henry F. Eames, was the founder of the Commercial National Bank of Chicago, and his brother Wayne was soon to become a trustee of the Morgan-dominated Mutual Life Insurance Company.
The purpose of the second convention, as former Secretary of the Treasury Charles S. Fairchild candidly explained in his address to the gathering, was to mobilize the nation's leading businessmen into a mighty and influential reform movement. As he put it, "If men of business give serious attention and study to these subjects, they will substantially agree upon legislation, and thus agreeing, their influence will be prevailing." He concluded, "My word to you is, pull all together." Presiding officer of the convention, Iowa Governor Leslie M. Shaw, was, however, a bit disingenuous when he told the gathering, "You represent today not the banks, for there are few bankers on this floor. You represent the business industries and the financial interests of the country."
There were plenty of bankers there, too.9 Shaw himself, later to be secretary of the Treasury under Theodore Roosevelt, was a small-town banker in Iowa, and president of the Bank of Denison who continued as bank president throughout his term as convention governor. More important in Shaw's outlook and career was the fact that he was a longtime close friend and loyal supporter of the Des Moines Regency, the Iowa Republican machine headed by the powerful Senator William Boyd Allison. Allison, who was to obtain the Treasury post for his friend, was in turn tied closely to Charles E. Perkins, a close Morgan ally, president of the Chicago, Burlington and Quincy Railroad, and kinsman of the powerful Forbes financial group of Boston, long tied in with the Morgan interests.10
Also serving as delegates to the second convention were several eminent economists, each of whom, however, came not as academic observers but as representatives of elements of the business community. Professor Jeremiah W. Jenks of Cornell, a proponent of trust cartelization by government and soon to become a friend and adviser of Theodore Roosevelt as governor, came as delegate from the Ithaca Business Men's Association. Frank W. Taussig of Harvard University represented the Cambridge Merchants' Association. Yale's Arthur Twining Hadley, soon to be the president of Yale, represented the New Haven Chamber of Commerce, and Frank M. Taylor of the University of Michigan came as representative of the Ann Arbor Business Men's Association. Each of these men held powerful posts in the organized economics profession, Jenkins, Taussig, and Taylor serving on the currency committee of the American Economic Association. Hadley, a leading railroad economist, also served on the boards of directors of Morgan's New York, New Haven and Hartford and Atchison, Topeka and Santa Fe Railroads.11
Both Taussig and Taylor were monetary theorists who, while committed to a gold standard, urged reform that would make the money supply more elastic. Taussig called for an expansion of national-bank notes, which would inflate in response to the "needs of business." As Taussig12 put it, the currency would then "grow without trammels as the needs of the community spontaneously call for increase." Taylor, too, as one historian puts it, wanted the gold standard to be modified by "a conscious control of the movement of money" by government "in order to maintain the stability of the credit system." Taylor justified governmental suspensions of specie payment to "protect the gold reserve."13
On January 26, the convention delegates duly endorsed the preliminary report with virtual unanimity, after which Professor J. Laurence Laughlin was assigned the task of drawing up a more elaborate final report, which was published and distributed a few months later. Laughlin's — and the convention's — final report not only came out in favor of a broadened asset base for a greatly increased amount of national bank notes, but also called explicitly for a central bank that would enjoy a monopoly of the issue of bank notes.14
The convention delegates took the gospel of banking reform to the length and breadth of the corporate and financial communities. In April 1898, for example, A. Barton Hepburn, president of the Chase National Bank of New York — at that time a flagship commercial bank for the Morgan interests — and a man who would play a large role in the drive to establish a central bank, invited Indianapolis Monetary Commissioner Robert S. Taylor to address the New York State Bankers Association on the currency question, since "bankers, like other people, need instruction upon this subject." All the monetary commissioners, especially Taylor, were active during the first half of 1898 in exhorting groups of businessmen throughout the nation for monetary reform.
Meanwhile, in Washington, the lobbying team of Hanna and Conant was extremely active. A bill embodying the suggestions of the monetary commission was introduced by Indiana Congressman Jesse Overstreet in January, and was reported out by the House Banking and Currency Committee in May. In the meantime, Conant met almost continuously with the banking committee members. At each stage of the legislative process, Hanna sent letters to the convention delegates and to the public, urging a letter-writing campaign in support of the bill.
In this agitation, McKinley Secretary of the Treasury Lyman J. Gage worked closely with Hanna and his staff. Gage sponsored similar bills, and several bills along the same lines were introduced in the House in 1898 and 1899. Gage, a friend of several of the monetary commissioners, was one of the top leaders of the Rockefeller interests in the banking field. His appointment as Treasury secretary had been gained for him by Ohio's Mark Hanna, political mastermind and financial backer of President McKinley, and old friend, high-school classmate, and business associate of John D. Rockefeller, Sr. Before his appointment to the cabinet, Gage was president of the powerful First National Bank of Chicago, one of the major commercial banks in the Rockefeller ambit.
During his term in office, Gage tried to operate the Treasury as a central bank, pumping in money during recessions by purchasing government bonds on the open market, and depositing large funds with pet commercial banks. In 1900, Gage called vainly for the establishment of regional central banks.
Finally, in his last annual report as secretary of the Treasury in 1901, Lyman Gage let the cat completely out of the bag, calling outright for a government central bank. Without such a central bank, he declared in alarm, "individual banks stand isolated and apart, separated units, with no tie of mutuality between them." Unless a central bank established such ties, Gage warned, the panic of 1893 would be repeated.15 When he left office early the next year, Lyman Gage took up his post as president of the Rockefeller-controlled US Trust Company in New York City.16
[Originally published as "The Origins of the Federal Reserve System," Quarterly Journal of Economics 2, no. 3 (Fall 1999): pp. 3–51, this article has been republished by the Mises Institute in The Origins of the Federal Reserve, as chapter 3, "The Beginnings of the 'Reform' Movement: The Indianapolis Monetary Convention" (2009).]
- 1. For the memorandum, see James Livingston, Origins of the Federal Reserve System: Money, Class, and Corporate Capitalism, 1890–1913 (Ithaca, N.Y.: Cornell University Press, 1986), pp. 104–05.
- 2. Yale Review 5 (1897): 343–45, quoted in ibid., p. 105.
- 3. See Philip H. Burch, Jr., Elites in American History, vol. 2, The Civil War to the New Deal (New York:Holmes and Meier, 1981), p. 189, n. 55.
- 4. Ibid., pp. 231, 233. See also Louise Ware, George Foster Peabody (Athens: University of Georgia Press, 1951), pp. 161–67.
- 5. See Kolko, Triumph, pp. 147–48.
- 6. See Livingston, Origins, pp. 106–07.
- 7. See Livingston, Origins, pp. 107–08.
- 8. Ibid., pp. 109–10.
- 9. Ibid., pp. 113–15.
- 10. See Rothbard, "Federal Reserve," pp. 95–96.
- 11. On Hadley, Jenks, and especially Conant, see Carl P. Parrini and Martin J. Sklar, "New Thinking about the Market, 1896–1904: Some American Economists on Investment and the Theory of Surplus Capital," Journal of Economic History 43 (September 1983): 559–78. The authors point out that Conant's and Hadley's major works of 1896 were both published by G.P. Putnam's Sons of New York. President of Putnam's was George Haven Putnam, a leader in the new banking-reform movement. Ibid., p. 561, n. 2.
- 12. Frank W. Taussig, "What Should Congress Do About Money?" Review of Reviews (August 1893): 151, quoted in Joseph Dorfman, The Economic Mind in American Civilization (New York: Viking Press, 1949), 3, p. xxxvii. See also ibid., p. 269.
- 13. Ibid., pp. 392–93.
- 14. The final report, including its recommendations for a central bank, was hailed by F.M. Taylor, in his "The Final Report of the Indianapolis Monetary Commission," Journal of Political Economy 6 (June 1898): 293–322. Taylor also exulted that the convention had been "one of the most notable movements of our time — the first thoroughly organized movement of the business classes in the whole country directed to the bringing about of a radical change in national legislation." Ibid., p. 322.
- 15. Livingston, Origins, p. 153.
- 16. Rothbard, "Federal Reserve," pp. 94–95.
Murray N. Rothbard made major contributions to economics, history, political philosophy, and legal theory. He combined Austrian economics with a fervent commitment to individual liberty.