The Case Against the Fed
Culmination at Jekyll Island
Now that the groundwork had been laid for a central bank among scholars, bankers, and interested public opinion, by the latter half of 1910 it was time to formulate a concrete practical plan and to focus the rest of the agitation to push it through. As Warburg wrote in the Academy of Political Science book on Reform of the Currency: “Advance is possible only by outlining a tangible plan” to set the terms of the debate.
The tangible plan phase of the central bank movement was launched by the ever-pliant Academy of Political Science of Columbia University, which held a monetary conference in November, 1910, in conjunction with the New York Chamber of Commerce and the Merchants’ Association of New York. The members of the NMC were the joint guests of honor at this conclave, and delegates to it were chosen by governors of twenty-two states, as well as presidents of twenty-four chambers of commerce. Also attending this conference were a large number of economists, monetary analysts and representatives of the nation’s leading bankers. Attendants at the conference included Frank Vanderlip, Elihu Root, Jacob Schiff, Thomas W. Lamont, partner of the Morgan bank, and J. P. Morgan himself. The formal sessions of the conference were organized around papers delivered by Laughlin, Johnson, Bush, Warburg, and Conant. C. Stuart Patterson, Dean of the University of Pennsylvania Law School and member of the finance committee of the Morgan-oriented Pennsylvania Railroad, who had been the chairman of the first IMC and a member of the Indianapolis Monetary Commission, laid down the marching orders for the assembled troops. He recalled the great lesson of the IMC, and the way its proposals had triumphed because “we went home and organized an aggressive and active movement.” He then exhorted the troops: “That is just what you must do in this case, you must uphold the hands of Senator Aldrich. You have got to see that the bill which he formulates ... obtains the support of every part of this country.”
With the movement fully primed, it was now time for Senator Aldrich to write the bill. Or rather, it was time for the senator, surrounded by a few of the topmost leaders of the financial elite, to go off in seclusion, and hammer out a detailed plan around which all parts of the central banking movement could rally. Someone, probably Henry P. Davison, got the idea of convening a small group of top leaders in a super-secret conclave, to draft the bill. The eager J. P. Morgan arranged for a plush private conference at his exclusive millionaire’s retreat, at the Jekyll Island Club on Jekyll Island, Georgia. Morgan was a co-owner of the club. On November 22, 1910, Senator Aldrich, with a handful of companions, set forth under assumed names in a privately chartered railroad car from Hoboken, New Jersey to the coast of Georgia, allegedly on a duck-hunting expedition.
The conferees worked for a solid week at the plush Jekyll Island retreat, and hammered out the draft of the bill for the Federal Reserve System. Only six people attended this super-secret week-long meeting, and these six neatly reflected the power structure within the bankers’ alliance of the central banking movement. The conferees were, in addition to Aldrich (Rockefeller kinsman); Henry P. Davison, Morgan partner; Paul Warburg, Kuhn Loeb partner; Frank A. Vander-lip, vice-president of Rockefeller’s National City Bank of New York; Charles D. Norton, president of Morgan’s First National Bank of New York; and Professor A. Piatt Andrew, head of the NMC research staff, who had recently been made an Assistant Secretary of the Treasury under Taft, and who was a technician with a foot in both the Rockefeller and Morgan camps.
The conferees forged the Aldrich Bill, which, with only minor variations, was to become the Federal Reserve Act of 1913. The only substantial disagreement at Jekyll Island was tactical: Aldrich attempted to hold out for a straightforward central bank on the European model, while Warburg, backed by the other bankers, insisted that political realities required the reality of central control to be cloaked in the palatable camouflage of “decentralization.” Warburg’s more realistic, duplicitous tactic won the day.
Aldrich presented the Jekyll Island draft, with only minor revisions, to the full NMC as the Aldrich Bill in January, 1911. Why then did it take until December, 1913 for Congress to pass the Federal Reserve Act? The hitch in the timing resulted from the Democratic capture of the House of Representatives in the 1910 elections, and from the looming probability that the Democrats would capture the White House in 1912. The reformers had to regroup, drop the highly partisan name of Aldrich from the bill, and recast it as a Democratic bill under Virginia’s Representative Carter Glass. But despite the delay and numerous drafts, the structure of the Federal Reserve as passed overwhelmingly in December 1913 was virtually the same as the bill that emerged from the secret Jekyll Island meeting three years earlier. Successful agitation brought bankers, the business community, and the general public rather easily into line.
The top bankers were brought into camp at the outset; as early as February, 1911, Aldrich organized a closed-door conference of twenty-three leading bankers at Atlantic City. Not only did this conference of bankers endorse the Aldrich Plan, but it was made clear to them that “the real purpose of the conference was to discuss winning the banking community over to government control directly by the bankers for their own ends.” The big bankers at the conference also realized that the Aldrich Plan would “increase the power of the big national banks to compete with the rapidly growing state banks, (and) help bring the state banks under control.”33
By November, 1911, it was easy to line up the full American Bankers Association behind the Aldrich Plan. The threat of small bank insurgency was over, and the nation’s banking community was now lined up solidly behind the drive for a central bank. Finally, after much backing and filling, after Aldrich’s name was removed from the bill and Aldrich himself decided not to run for reelection in 1912, the Federal Reserve Act was passed overwhelmingly on December 22, 1913, to go into effect in November of the following year. As A. Barton Hepburn exulted to the annual meeting of the American Bankers Association in late August 1913: “The measure recognizes and adopts the principles of a central bank. Indeed, if it works out as the sponsors of the law hope, it will make all incorporated banks together joint owners of a central dominating power.”34
