Cronyism

CHAPTER 11

WALL STREET’S WORLD RESERVE CURRENCY

In 1927, thirteen years after its creation, Paul Warburg wrote that the Federal Reserve System “has been functioning admirably and that, in some respects, it has surpassed all expectations.” As a former member of the Federal Reserve Board who then became the head of his own private bank that the Fed purchased acceptances from, he certainly had no reason to complain. Nor did the partners of J. P. Morgan & Co., who above all assumed unquestioned financial dominance during the 1920s. The reason is simple: Wall Street’s dominance of the Federal Reserve Bank of New York is the defining example of regulatory capture during the Corporatist Era. As World War I opened, Wall Street realized that, with the help of their trusty ally, New York Fed governor Benjamin Strong, they could exploit the conflict to open international branches and make money by selling the Allies’ government securities. Both would increase bankers’ balances and transform New York City into one of the world’s leading financial capitals. Wartime success begot postwar gains when Strong’s expansionary monetary policy enriched New York City bankers and reconstructed the worldwide financial system in their favor. By the end of the 1920s, the Wall Street banking cartel reigned undisputed, and the dollar rivaled the British pound as the world’s reserve currency—with dire consequences for the US economy and the world.

An Imperial Banking System

The great conflict that commenced in mid-1914 wrecked Europe’s finances. Many nations reneged on the gold standard so they could print money to pay for war expenditures, leading to significant rises in prices. The disruption of trading and investment patterns stunted production and economic growth. Great Britain, previously the world’s foremost lender, now needed to borrow heavily. The door opened for the former colony to overtake its parent in European and South American markets.

The Wall Street power elite stood ready. Morgan partner Thomas Lamont proclaimed that the US could dominate “South America and other parts of the world, which up to date have been commercially financed by Great Britain, France, and Germany.” This “would certainly tend to bring about the dollar, instead of the pound sterling, as the international basis of exchange.”Lamont understood that the war would provide new investment and banking opportunities and increase the demand for the dollar at the expense of the British currency. Similar comments came from Federal Reserve Board member Warburg, who declared while speaking in Argentina that “the United States now is and from now on will be one of the world bankers.”Columbia University also trumpeted the Wall Street perspective, with economist Edwin Seligman explaining how the war would force the United States out of its “shell of isolation” and transform it into a major lender and exporter that could compete with Britain.

With the keenest foresight, Frank Vanderlip, the president of National City Bank, envisioned the grand fortune awaiting his firm: “The way is open to us to become the most powerful, the most far-reaching world financial institution that there has ever been.”The displacement of European investment encouraged Vanderlip to open branches worldwide to promote the exports of US Steel, International Harvester, Standard Oil, Armour & Co., and other corporations that deposited with the bank or whose officials served as its directors. National City would possess a virtual monopoly on foreign branches because the Federal Reserve Act restricted such branches to large banks.

National City expanded the Wall Street banking empire into South America and made a beachhead in Europe. In November 1914, National City opened the first foreign branch of any national bank and turned it into the ninth largest bank in Argentina. Branches in Brazil, Cuba, Chile, Italy, and Russia followed, and by 1917 the bank boasted thirty-five foreign branches. In part due to its monopoly privileges, National City’s profits soared 65 percent from 1914 to 1917, substantially more than the 27.5 percent rise in consumer prices. With the backing of William Rockefeller and Kuhn, Loeb & Co., National City established the American International Corporation in 1915. As its chairman, Vanderlip steered this $50 million investment company to follow his bank’s branches into new international markets and purchase debt and equity around the world.

The Great War markedly increased Wall Street elites’ influence in European politics. The House of Morgan, because of its affiliates Morgan, Grenfell & Co. in Great Britain and Morgan, Harjes & Co. in France, firmly supported the Allies. In August 1914, Morgan partner Henry Davison saw immense profits on the horizon and cryptically cabled to Lamont that the war opened the door to “great possibilitys [sic].”That same month the Rothschilds contacted J. P. Morgan & Co. about marketing a $100 million loan for the French government in the United States. The Morgans ran the request by Secretary of State William Jennings Bryan, who shot it down. Bryan worried that bankers making loans or firms selling war materiel to any of the belligerents would be viewed as aiding those countries and increase political pressure for the United States to intervene in the war itself.

The French had also contacted National City Bank about the loan. Using shrewder tactics with Bryan in October, National City officials pointed out that the US was in a serious economic contraction and exports would encourage recovery. Bryan relented and approved a combined National City and J. P. Morgan & Co. loan of $10 million. Then he equivocated—he allowed American banks to extend their own credit but prevented them from selling foreign loans to the US public. He also permitted American firms to export war materiel. The problem with Bryan’s approach, which he recognized all too well, was that the British naval blockade of the continent ensured that any American loans and exports would overwhelmingly go to the Allies. Wall Street would play favorites with its loans. In a war that divided the American public, politicians from midwestern cities with large German populations proposed banning all war exports to Europe to maintain American neutrality. Their efforts failed, and what they and Bryan feared came to pass: between 1913 and 1915 US exports to the Allies increased from 63 percent to 82 percent of total exports, while those to the Central Powers plummeted from 15 percent to 1 percent.

Once Bryan acquiesced, the Morgans lobbied the British and French to be granted a monopoly on their purchases of American war materiel. Roberta Dayer explains that their main goal was to earn a lucrative fee: “The evidence suggests that the bankers’ primary motivation was making a profit rather than defending freedom.”In November 1914, Davison cabled Teddy Grenfell in London that J. P. Morgan & Co. should try to “act for all Allies and to dovetail their purchases.”Thanks to connections with key British officials, the Morgans secured the contract in early 1915, even though National City had proposed a lower commission. They quickly reached a similar agreement with the French. Having acquired a veritable cash cow, the investment bank used Allied money to purchase $3 billion in American war materiel. They raked in a 1 percent commission, equal to $30 million.

The Morgans’ near monopoly on purchases benefited the Wall Street cartel in bankers’ balances and increased demand for the dollar. The reason was simple: in order to have J. P. Morgan & Co. purchase war materiel, the Allies and related financial institutions needed to accumulate dollar balances in New York City. For example, from June 1914 to June 1917 foreign bankers’ balances at National City Bank rocketed up 671 percent. This coincided with an increase in domestic bankers’ balances because banks all across the country increasingly needed balances in New York to pay for foreign exchange transactions and collections of foreign checks. Between 1912 and 1916, as a share of bankers’ balances in all central reserve city banks, New York bankers’ balances increased from 57.5 percent to 72.1 percent. Their share of central reserve city deposits rose from 72.7 percent to 77.6 percent.

More momentously for Wall Street profits, the Morgans enlisted their central banker, Benjamin Strong, to provide inflationary credit expansion. The commanding leader was certainly up to the task. In late 1914 he and the other governors of the Federal Reserve regional central banks participated in an extralegal governors’ council to discuss monetary policy. Strong quickly assumed control so he could coordinate the purchases of bank assets, much to the consternation of the Federal Reserve Board in Washington. Jack Morgan and Davison now wanted him to use his power to purchase acceptances—financial instruments that the Federal Reserve Act had legalized which allowed banks to guarantee payment to exporters so importers could purchase goods. If banks sold their acceptances to the Federal Reserve, they could then turn around and issue more. With this liquidity racket in mind, Davison wrote to Strong, urging him to persuade the board to approve “the purchase by Federal Reserve Banks of bills drawn . . . on United States acceptors, proceeds to be used for export materials.”The Fed’s purchase of war-related acceptances would doubly enrich Wall Street, making it easier for Europe to import American war materiel arranged by J. P. Morgan & Co. and increasing the profits and reserves of Wall Street banks that held acceptances.

Strong’s task would not be easy. The ardent backer of the Allied cause faced two pro-German members on the Federal Reserve Board who wanted to minimize the central bank’s purchases as a way of maintaining neutrality. One was Adolph Miller, a former economics professor at the University of California, Berkeley, who frequently clashed with Strong. Miller’s long-lasting animosity stemmed from anger at Strong’s accretion of power and envy toward a central banker who never went to college yet received praise from Irving Fisher and other high-profile economists. The second obstacle was none other than Paul Warburg. Ironically, the Wall Street lieutenant and German émigré who had staunchly advocated the creation of a central bank and an American acceptance market wanted to prevent the Federal Reserve from purchasing Allied acceptances now that it could harm Germany during a war.

In the spring of 1915 Warburg and Miller prevented Federal Reserve banks from buying acceptances that facilitated the exportation of munitions. But the indefatigable Strong persistently requested the board to revisit the issue. He recruited a powerful ally in Secretary of the Treasury McAdoo with the siren song that acceptance purchases would boost American trade. By September Miller and Warburg lay defeated.

The New York Fed quickly splurged on acceptances, while the Chicago Fed and other regional Fed banks restricted their purchases. The Federal Reserve’s credit creation would start in Wall Street hands. By December 1916 the Fed’s acceptance portfolio had surged to $129 million. Such an increase in member bank reserves encouraged Wall Street banks to expand credit. In a profound sense, J. P. Morgan & Co.’s desire for profits inaugurated expansionary monetary policy at the Fed. The monetary effects of the Fed’s credit easing paled in comparison to those of the $1 billion of gold imports that American banks stored at the Fed, but it was a significant first step for Wall Street’s money machine.

During this gold avalanche, J. P. Morgan & Co. realized that Great Britain and France would need to borrow from US institutions to continue purchasing munitions. To this end, Morgan lobbyists convinced the Wilson administration to rescind the ban on floating foreign loans to the public. Britain and France then negotiated with Morgan, Davison, and Lamont. For marketing $500 million in bonds, the Morgan banking consortium earned $22 million. Large banks and corporations picked up the tab. Notably, $100 million went to companies selling war materiel to the Allies, with DuPont and Bethlehem Steel taking a combined $55 million. Thus, these institutions would profit twice: first from selling weapons to the Allies and then from receiving foreign taxpayers’ money in repayment of the loans used to buy those weapons. Significantly, only one bank in Chicago subscribed, and in protest of the anti-Semitic czar of Russia the German-Jewish Jacob Schiff made sure Kuhn, Loeb & Co. did not participate. The decision marked the beginning of a gradual decline in Kuhn, Loeb’s influence.

A problem arose: the British and French needed more and more money. By spring 1917 Wall Street’s short-term credits to the Allies had reached $400 million, and they had marketed an additional $950 million in loans. J. P. Morgan & Co. grew increasingly worried that a British and French defeat would ruin the investment bank. Adding to its anxiety, Strong and Warburg locked horns. In the spring of 1916 Strong traveled to Europe and made preliminary agreements with the Bank of England and the Bank of France to establish deposit accounts at the New York Fed. But in November the Federal Reserve Board issued a warning, cautioning member banks not to buy risky foreign securities. Grenfell informed the British Treasury that “Warburg and other German sympathizers” had devised the announcement. Fortunately for Wall Street, pressure by the Wilson administration, now positioning itself for war, caused the board to reverse its statement the following March. After Germany attacked armed US merchant ships, Congress declared war on that country in April.

US entry into the Great War brought further opportunities for J. P. Morgan & Co. and its Wall Street allies. From 1916 to 1919 federal spending exploded nearly 2,500 percent, surging from 2 percent of gross domestic product (GDP) to 24 percent. Sharply higher taxes could not keep pace with the federal government’s spending. The Treasury responded by selling billions of Liberty Loan bonds to banks and the public, blowing up the public debt from $1.2 billion to $25.5 billion. The massive increase in government spending crowded out private sector production, and the result was that during these years real gross private product (real GDP minus real government purchases of final goods and services) stagnated and in total grew less than half a percentage point.

When Congress declared war President Wilson wrote to Morgan, “I am sure I can count upon you and your associates in this emergency.”His confidence was not misplaced. Jack Morgan, Vanderlip, George Baker, and other Wall Street bankers participated in the Liberty Loan drives. The principal official in charge of organizing the bond sales was the new assistant secretary of the Treasury, Russell Leffingwell, whom McAdoo hired on Warburg’s recommendation. Leffingwell was a former corporate lawyer for the prestigious law firm Cravath & Henderson, and his clients included J. P. Morgan & Co. He brought to the Treasury S. Parker Gilbert, another Cravath lawyer. The Morgans would reward their efforts by making Leffingwell a partner in 1923 and Gilbert one in 1931.

To assist with bond sales, the Federal Reserve monetized the debt through a roundabout credit inflation. First, in June 1917 the Fed lowered average reserve requirements from 11.6 percent to 9.8 percent. This allowed member banks to pyramid more loans on their given member bank reserves held at the Fed. Second, member bank reserves themselves swelled 109 percent between April 1917 and November 1918, largely from the Fed purchasing acceptances and especially from the Fed granting new loans at below-market discount rates. The central bank heavily incentivized member banks to borrow to buy federal debt for their own investment portfolios and to make loans to the public for individual bond purchases. As member bank reserves increased, banks engaged in more credit expansion.

The results were staggering. From 1907 to 1914 the total money supply, including deposits at national banks, state banks, mutual savings banks, and new savings and loan associations, had increased 45 percent (5.5 percent each year). During the early war years from 1914 to 1916, it grew 32 percent (15 percent each year) as banks largely expanded credit on incoming European gold. After the US entry, even though gold stopped flowing in, the money supply rose a further 25 percent (12 percent each year) through 1918. The Fed’s loan portfolio, which had ballooned to nearly $1.8 billion, instigated most of this increase. All told, the money supply rose 65 percent between 1914 and 1918.

The New York Fed played an indispensable role in the 1917 and 1918 money creation process. It sold half of all the Treasury’s securities, handled the Treasury’s foreign exchange business, and served as a central depository of funds from other Fed banks. Most importantly, Strong made sure that the first receivers of the money would be Wall Street titans, particularly those affiliated with the House of Morgan. For example, George Baker’s First National Bank of New York bought $1.7 billion in war loans for its own portfolio and customers’ accounts. Strong proudly boasted that its transactions with the New York Fed were “unprecedented in the country, and certainly so in proportion to the size of the Bank.”

J. P. Morgan & Co. scored an even bigger win with the $400 million in short-term loans to Great Britain and France. The bank, along with Great Britain, wanted the US government to assume this debt and pay off the banks involved, especially its own $165 million holdings. Wilson’s advisor Colonel Edward House, Strong, Lamont, and British officials lobbied McAdoo and Leffingwell throughout 1917. McAdoo fiercely held them off because the Morgans were Republicans and the public was already upset at big-banker profiteering. But in late December he relented and assumed the $400 million war debt. In other words, the US taxpayer, not Britain and France, would end up paying the tab that the Allies owed to Wall Street.

Thanks to the taxpayer subsidy and inflationary credit extended to Morgan-affiliated member banks, the House of Morgan benefited “enormously in terms of pure financial profit from the war.”Indeed, between 1914 and 1917, J. P. Morgan & Co.’s assets more than doubled from $228 million to $481 million. The partners reaped the harvest. For example, in 1916 Lamont’s and Morgan’s gross incomes totaled $5.3 million and $9.5 million, respectively. By 1918 Morgan’s estimated net worth of $70 million tied him for thirteenth richest man in America, while George Baker’s $150 million tied him for fourth place.

J. P. Morgan & Co. and the rest of Wall Street raked in the rewards of being the early receivers of the new money, but the later receivers groaned under the inflation tax. Force-feeding credit into the economy led to ever-increasing spending and demand for goods and services. This pushed up prices and strained the businesses and workers whose incomes increased less than the rise in prices. Expectations that prices would rise in the future led to a scramble to purchase more now, which further drove up demand and prices. From 1914 to 1918, total spending in the economy rose 108 percent and consumer prices 50 percent. The loser was the public: according to Robert Higgs, “Money incomes were soaring, but the real value of civilian output was falling.”The track record of the private sector was weak indeed—real gross private product rose only 1.4 percent per year.

By the time the conflict ended in November 1918, the New York Fed had put the House of Morgan and Wall Street into a position of growing authority. New York City bankers’ balances, loans to Europe and South America, and profits had all increased. National City Bank and other institutions covered the globe with foreign branches and encouraged greater use of the dollar. With Great Britain’s finances in chaos, the stage was set for New York commercial and investment banks to assume a commanding role in the postwar financial order.

The Postwar Bonanza

As the 1910s closed, Wall Street continued to clamor for the Federal Reserve’s credit and borrowed heavily from the New York branch. The agricultural sector, eager for its own credit subsidies, joined the easy-money chorus. In stimulating and satisfying the growing demand for cheap money, the central bank orchestrated its first inflationary boom-bust business cycle, culminating in the Depression of 1920–1921. This monetary mismanagement set a disastrous precedent for the years that followed.

Throughout 1919 the Federal Reserve continued expanding credit to banks, as the Treasury wanted to finance a final loan, the Victory Loan. New York Fed governor Benjamin Strong had previously favored monetizing the Treasury’s fiscal needs because it raised the New York Fed’s prestige across the globe. In Strong’s own words, the first “serious differences” between him and the Treasury began after the war.Strong wanted to raise rates and break free from the “government borrowing bondage,” and this time the Federal Reserve Board agreed with him.In particular, Strong wanted to independently set the discount rate at a penalty level to disincentivize banks from borrowing from the Fed. Strong realized that the economy needed a monetary contraction to prevent speculation and gold outflows, stressing to Assistant Secretary of the Treasury Russell Leffingwell that “we must deflate . . . [and] prevent further inflation.”But Leffingwell and the new secretary of the Treasury, Carter Glass, adamantly refused to allow monetary contraction. Strong, sick or away in Europe to investigate its monetary situation, could do nothing.

Wall Street also disagreed with its central banker, preferring to indulge in the Fed cronyism and gorge on cheap credit. For most of the year the New York Fed’s member banks borrowed from it at a discount rate of 4 percent and lent at 5.5 percent. For example, the large Guaranty Trust Company possessed the second highest deposits in New York City, and Morgan man Thomas Lamont served on its board. The New York Fed loaned it $120 million through late 1919, approximately twice the institution’s capital and surplus.

National City Bank also drank from the punchbowl. Vanderlip resigned in mid-1919, a casualty of the Bolsheviks’ takeover of its Russian branch. The new president, James A. Stillman, son of the former president James Stillman, encouraged his bank to use Fed borrowings to recklessly increase business loans 30 percent in the second half of 1919. By early 1920 its Fed borrowings reached $95 million. These and other large Fed loans, which increased by $614 million in 1919, augmented member bank reserves 11.6 percent and enabled banks to increase the money supply 20 percent from 1918 to 1920.

The monetary inflation ignited a boom. Foreign commodities speculation became one boom sector. Even though smaller banks had successfully lobbied Congress to liberalize foreign branching requirements in 1919, National City still controlled 81 of the 181 foreign branches in 1920. The bank invested heavily in sugar mills and railroads in a new investment hotspot: Cuba. In the United States, machinery development, steel production, and automobile construction all rose. Finally, Populist farmers participated in the frenzy, going heavily into debt and obtaining subsidies from new Federal Land Banks (established in 1916) to purchase tractors and land.

However, the economy was stretched thin and ensnared by industrial backlogs and striking unions. The Fed’s expansionary monetary policy ended up boosting only prices: the 13 percent increase in overall spending from 1919 to 1920 was associated with a 0.9 percent fall in real GDP and a significant rise in consumer prices of 16 percent. This overheating strained the economy and made the Treasury’s financing strategy more unsustainable.

With the Victory Loan financing complete in late 1919, the Fed finally received approval from the Treasury to tighten. Fed officials had grown increasingly nervous as the higher prices and low interest rates triggered gold to flow out of the country. By June 1920 the New York Fed raised its discount rate to 7 percent. Reserve banks’ rates, however, were still not at penalty levels, and member banks borrowed an additional $472 million during the year. By December New York banks owed around $672 million to the New York Fed. The tab totaled roughly one-fourth of the Federal Reserve System’s aggregate loans. Perhaps the most notorious lending was to Chase National Bank. This emerging Wall Street behemoth became associated with the House of Morgan—its chairman, Albert Wiggin, a protégé of George Baker and Henry Davison, participated in J. P. Morgan & Co.’s insider stock purchases. Wiggin’s bank had borrowed $134 million from the New York Fed, $10 million of which landed in his family’s pockets. Chase’s splurge was more than what the Federal Reserve Bank of Kansas City lent to 1,100 member banks.

Wall Street’s increased borrowing, however, was offset by the Fed’s $327 million reduction in acceptances and its own holdings of government securities. Member bank reserves started to drop. As monetary conditions contracted and interest rates rose, the unprofitability of the boom investments was revealed. The Depression of 1920–1921 had begun. From 1920 to 1921 the money supply deflated 5 percent, overall spending dropped 17 percent, and consumer prices sank 11 percent.

Lacking new infusions of Fed credit, the overexpanded banks, businesses, and farmers reeled from their losing malin-vestments. Guaranty Trust, National City, and Chase suffered declines in their stock prices ranging from 30 to 60 percent. Wall Street-financed businesses in Cuba turned unprofitable, and a devastating bank panic occurred in October. Automobile production and industrial activity in the United States nosedived. The punishment was the most intense in agriculture; overleveraged farmers unable to repay their loans ruined rural unit banks. Higher taxes on surviving banks could not save the Populists’ illconceived state-level deposit-insurance systems created earlier in the century, and the programs all failed throughout the 1920s.

The depression had broader ramifications. Real GDP decreased 2.3 percent, and the unemployment rate, which had dipped down to an abnormally low 1.4 percent in 1919, shot up to 11.7 percent in 1921. The Democrats suffered the blowback in the election of 1920. Upset at Democrats’ plans to remain involved in European affairs and frustrated at the economic difficulties at home, the public voted Republican Warren G. Harding of Ohio into the White House. The Republicans would control the presidency and both houses of Congress for ten years.

Despite the harsh decline, the economy started recovering quickly in early 1921. Leaving the market to wring excesses from the system, laissez-faire policies pursued by the outgoing Wilson administration, the new Harding administration, and the Federal Reserve encouraged the bankruptcy of unprofitable businesses and the reallocation of resources to more profitable avenues. “The reaction,” writes Joseph Schumpeter, “was sharp and unimpeded and, because it was sharp and unimpeded, relatively short.”

From 1919 to 1920, Congress dismantled some of the wartime economy and slashed government spending 66 percent. Further cuts in the military caused total expenditures to shrink an additional 48 percent between 1920 and 1922. These cuts, which totaled 82 percent, allowed for the reallocation of labor and capital goods from the military back to private-sector production. On the tax front, Congress lowered taxes in 1921 and made further cuts in later years under President Calvin Coolidge. The tax cuts incentivized individuals and firms to save and work by allowing them to keep a greater portion of the fruits of their labor.

On the monetary side, member bank reserves contracted 15 percent from early 1920 through mid-1921. Total spending fell 17 percent in 1921 before remaining constant from 1921 to 1922. Businesses responded to the deflation by cutting the wages they had excessively bid up during the boom. US Steel, for instance, raised wages 9.5 percent in early 1920 and then cut them 40 percent by the summer of 1921. The result: businesses quickly reemployed labor and other idle resources. From 1921 to 1922 unemployment fell to 6.7 percent and real GDP increased 5.5 percent, and these trends continued in 1923.

The recovery from the Depression of 1920–1921 would be the country’s last free-market adjustment process during a depression. The Federal Reserve raised interest rates to arrest the unsustainable boom but did not learn the lesson that its credit expansion had caused the business cycle in the first place. Nor did anyone else, for Wall Street, businesses, and farmers all looked forward to the resumption of credit subsidies.

Significantly, after the free-market recovery got well underway, the central bank sowed the seeds of another business cycle. From June 1921 to December 1922 the New York Fed slashed its discount rate to 4 percent, and the Federal Reserve purchased $409 million of government securities and acceptances. This occurred largely at the initiative of Strong, who conducted the purchases for the other regional Fed banks through a reorganized governors’ council. The Federal Reserve Board did fight back and forced Fed banks to reduce their holdings through October 1923. But it was a half measure against the easing: the New York Fed and other regional banks had abandoned making their discount rates penalty rates, which incentivized member banks to borrow $266 million.

As a consequence of the 18 percent spike in member bank reserves, from 1921 to 1923 the money supply expanded over 16 percent. Initially, total spending in the economy remained constant between 1921 and 1922. But the monetary juice then worked its magic, jolting spending 16 percent between 1922 and 1923. Market interest rates fell, stimulating production in real estate, electrical equipment, automobiles, and other capital-intensive industries.

There were two reasons for the Fed’s about-face on interest rates. First, high interest rates frustrated the overexpanded agricultural sector. The new American Farm Bureau Federation lobbied Congress to make the Fed more public, limit discount rate increases, and expand access to credit markets. While Congress gained no greater control over the Fed, farmers succeeded in expanding the Federal Reserve Board from five to six presidentially appointed members and secured new special privileges in the form of taxpayer-funded loans and subsidies. These interventions managed only to divert taxpayer money into losing enterprises and failed to lift farmers out of their doldrums. The industry remained in a depressed state throughout the decade, in part because the protectionist Fordney-McCumber Tariff of 1922 reduced farm exports.

Second, and far more important, were the desires of Wall Street bankers. The end of the Great War had led many Wall Street barons to plan for augmented US influence, the postwar maintenance of their bankers’ balances, and the promotion of the dollar internationally. With the war over, Paul Warburg, no longer on the Federal Reserve Board, went back to advocating that the Federal Reserve subsidize acceptances. Preparing to profit from Fed policy, he contemplated setting up an American acceptance bank to finance European trade, for “a wide market must be our aim.”Thanks to the endorsement of Leffingwell and Glass, Morgan partner Thomas Lamont served as a financial advisor to the US delegation at the Paris Peace Conference in early 1919. While there, Lamont recommended to the Reparations Commission that Germany pay $30 to $40 billion in reparations. Though much lower than British and French demands, it was the highest figure proposed among the American advisors, and in May 1921 the Reparation Commission agreed upon $33 billion. Germany, devastated from the war and burdened with obligations impossible to pay, would need to look to Wall Street creditors. And Wall Street would look to easy money from the Fed.

The Money Lords

The 1920s unquestionably marked the high tide of Wall Street’s “Money Lords.”During the decade these titans exercised unsurpassed influence over the US banking sector and reorganized monetary systems in Europe and Latin America. The powerful Fed governor Benjamin Strong, so indispensable to New York City, continued to pump in credit to reshape the worldwide financial dispensation and enhance the city’s bankers’ balances. Paid-for intellectuals reveled in prestigious and lucrative jobs that administered the new monetary order. By the middle of the decade the dollar had turned into a world reserve currency that surpassed even the pound, and with its newfound status came increased demand for Wall Street’s services. Ron Chernow describes J. P. Morgan & Co. in these years as “sunning in postwar glory.”With Strong at the helm, it was the best of times for this special-interest group.

A more expansionary New York Fed did many things for Wall Street. Easy money reduced New York banks’ perceived risk of failure and made them more attractive repositories for other banks’ balances. Cheap credit also enabled Wall Street to make more foreign loans: as Strong put it, he wanted “a level of interest rates . . . which would facilitate foreign borrowing in this country.”Wall Street aimed to build on the progress achieved during the war years and to transform the dollar into a world reserve currency through a gold-exchange standard. The British pound and American dollar would be fellow world currencies, linked through gold redemption. Most of the currencies of the rest of Europe, as well as Latin America, would be exchangeable for dollars and pounds instead of specie. Thus, when America and Great Britain inflated, their currencies would not be redeemed but instead be used as the basis for credit expansion by other countries.

Wall Street channeled its internationalist vision into a new intellectual outfit, establishing the New York–based Council on Foreign Relations (CFR) in 1921. Its president, John Davis, worked as a high-profile attorney for J. P. Morgan & Co. and served as the Democrats’ presidential candidate in 1924. Lamont, Warburg, and newly installed Morgan partner Leffingwell helped finance the institution, and Warburg and Leffingwell served as directors. The CFR sponsored research study groups for bankers, lawyers, politicians, and academics to write papers and policy briefs that promoted American hegemony and foreign investment. Such intellectual backing provided valuable ammunition for Wall Street’s plans. Though the CFR’s influence was at first limited, its prominence increased in the coming decades.

Meanwhile, Strong continued the inflationary parade. The Federal Reserve Board had dissolved the extralegal governors’ council in favor of a new Open Market Investment Committee. Strong, undeterred, quickly seized control. From October 1923 through November 1924 the New York Fed cut its discount rate to 3 percent, and Fed banks purchased $601 million in government securities and acceptances. Strong concentrated these purchases in New York institutions. Member bank reserves jumped upward another 13 percent, pushing the money supply up 8 percent. From 1923 to 1926, as the entire financial system continued to pyramid credit and stockpile reserves in New York City, the money supply rose 19 percent and total spending increased over 13 percent. The Fed’s money printing sprouted new investments, such as in Florida real estate—the assessed value of property in Miami, for instance, skyrocketed 568 percent from 1922 to 1926.

Once again Wall Street banks received the money first, and their real incomes grew at the expense of the later recipients. One of the first receivers was Bankers Trust Company. The Morgan-dominated institution, which Strong had worked at for thirteen years (1901–1914), developed a profitable business in buying and selling government securities and would become one of the earliest dealers the Federal Reserve bought from. Another beneficiary was Warburg. In early 1921 he had launched the International Acceptance Bank of New York (IAB) and lobbied the New York Fed to liberalize eligibility for its acceptance purchases. The New York Fed obliged and made the IAB one of the few acceptance dealers it purchased from. Thus, Warburg, after repeatedly advocating a central bank to stimulate the acceptance market, had positioned himself to profit enormously from the Fed’s acceptance policy.

Flush with cash from Strong’s expansionary policies, Wall Street commenced its development of the gold-exchange standard in Europe. It started with war-torn Germany, which wrecked its currency trying to finance government expenditures after the harsh reparations imposed by the Treaty of Versailles, reparations that J. P. Morgan & Co. had helped impose. In 1923, the CFR set up a committee that recommended revising Germany’s reparations schedule to jumpstart its economy. The recommendations led to the Dawes Plan of 1924, the brainchild of Owen Young, a man who checked all the right boxes: the chairman of General Electric was now a director of the New York Fed and became a director of the CFR in 1927. General Electric had connections to the major German electrical manufacturer Allgemeine Elektrizitäts Gesellschaft (AEG), and Morgan partner Edward Stettinius and First National Bank’s George Baker Jr. sat on its board. Young’s Dawes Plan proposed that private bankers loan $200 million to Germany so it could spread out reparations payments and capitalize a new German central bank that held dollars and pounds in its reserves. The loan would be paid back with higher taxes foisted on the German public.

The Dawes Plan blew up a credit bubble as German regional governments borrowed heavily from Wall Street and other financial centers for infrastructure development, which diverted scarce labor and other supplies from Germany’s private sector. Of the $1.2 billion loaned to Germany from 1924 to 1930, American bankers collected $50 million in fees alone. J. P. Morgan & Co. led in American loans, and Jack Morgan proclaimed the Dawes Plan “the most important and responsible job we have had to tackle since the end of 1915.”The House of Morgan tried to get its partner Dwight Morrow appointed as the agent general who monitored the German economy. President Coolidge, a close friend of Morrow, reluctantly realized that such a Wall Street denizen in the role would infuriate midwestern German American voters. While the Morgans had to settle for S. Parker Gilbert, they bought his allegiance by making arrangements to increase his salary from $7,000 to $50,000 and made him a Morgan partner after his tenure.

After instituting the Dawes Plan, the money lords turned to Great Britain. Once the world’s foremost superpower, Great Britain had strained its finances in World War I and prohibited gold exports in May 1918. When the conflict ended, Britain desperately wanted to return to the gold standard so it could encourage other European countries to hold the pound as reserves. Jack Morgan agreed, desiring to “add to the number of gold basis countries.”Indirectly linking the pound to the dollar through gold would prevent Britain from forming its own independent currency bloc in which the currencies of British satellites would be redeemable only in a fiat pound. A gold-based pound would enable Wall Street banks to either take over or supplant the British banking system.

Montagu Norman, the governor of the Bank of England, was close friends with Morgan, Strong, and the reigning partners at Morgan, Grenfell & Co. He wanted to resume gold convertibility, not at the depreciated current market rate ($4.34 a pound) given Britain’s much higher price level, but unreasonably at the former rate ($4.86 a pound) to reclaim the pound’s prewar glory. Returning at this overvalued exchange rate required a monetary contraction to lower British prices vis-à-vis the US—an infeasible path because the country’s unemployment insurance subsidies and special privileges to trade unions made wage cuts very difficult. The easier alternative was for the Federal Reserve to inflate and depreciate the dollar.

In Strong’s words, “The maintaining of lower interest rates in this country” should be continued because “the burden of this readjustment must fall more largely upon us than upon them.” In April 1925 the New York Fed loaned the Bank of England $200 million, and J. P. Morgan & Co. followed with a New York Fed– guaranteed $100 million credit to the British government. Great Britain resumed convertibility that month. Strong later praised the House of Morgan and declared that no other bank had “shown greater loyalty and a more effective cooperation with the reserve bank and its policies.”The CFR in turn praised Strong, and an article in its prestigious journal Foreign Affairs declared that Norman and Strong were “entitled to the gratitude of the world for their vision, wisdom, and energy.”

Much to Norman’s chagrin, Strong’s actions were not enough, and gold flowed out from Great Britain and threatened the pound’s newly established convertibility. The central bankers decided to organize a secret conference in July 1927, where Strong agreed to further expand credit to weaken the dollar. Through December he dragooned Fed governors to loan banks another $140 million and purchase $445 million in acceptances and government securities, which increased bank reserves by 9 percent. Strong even duped the Kansas City Fed into lowering its discount rate on the grounds that it would help struggling farmers. His actions infuriated Federal Reserve Board member Adolph Miller, the Federal Reserve Bank of Chicago, midwestern bankers, and Secretary of Commerce Herbert Hoover. Strong proceeded nonetheless, and from 1926 to 1928 the money supply rose 11 percent.

At the conference Strong confided to Charles Rist, an economist at the Bank of France, that he would give “a little shot of whiskey” to the stock market.Stock prices, which had previously moved roughly in tandem with dividends, diverged widely as investors bid up prices higher and higher. Prices of high-tech stocks in communications, electrical equipment, appliances, and chemicals soared over 200 percent from 1926 to 1929. The stimulus to financial markets enriched Strong’s Morgan friends, as Morgan partner George Whitney’s brother Richard worked as the vice president of the nation’s premier stock exchange, the New York Stock Exchange (NYSE). Throughout the decade the NYSE advised the New York Fed on “the state of the money situation” and what interest rate banks should be able to charge on call loans (loans used to purchase stocks).The NYSE had a vested interest in keeping the rate low to pump up stock prices and communicated its desire to the Fed. Since the New York Fed dutifully told Wall Street banks they could borrow funds so they could lower the call loan rate charged to speculators, Strong’s shot of whiskey encouraged stock market lending to soar. Between 1927 and 1928 J. P. Morgan & Co.’s call loans, for instance, more than doubled from $54 million to $110 million.

The Federal Reserve, largely through the maneuverings of Strong, had engineered a significant expansion of credit over the course of the decade. Between June 1921 and December 1928 Fed easing was the primary factor that caused member bank reserves to increase 49 percent. It is true that gold reserves increased $866 million (29 percent), but banks chose to use the gold to pay back their loans to the Fed and thereby decrease their reserves, even though the Fed’s discount rate policy was encouraging them to borrow more. What mattered was that the central bank pumped in credit, increasing the reserves that it controlled by nearly $2 billion (93 percent). Expansionary monetary policy, therefore, was the primary reason why the money supply rose 55 percent (6.4 percent per annum).

The Fed’s easy money caused a frothy bubble to form. Nominal spending rose 41 percent (5 percent per year) from 1922 to 1929 as businesses embarked on long-term production processes throughout the economy. The end of the decade was especially speculative. In the late 1920s, developers announced the construction of the Empire State Building and other recordbreaking skyscrapers in New York City, many of which did not reflect present real-estate demand.

While J. P. Morgan & Co. and the New York Fed were reconstructing the European monetary system through domestic credit expansion, National City Bank and the investment bank Dillon, Read & Co. expanded into South America. The major architect of reconstructing South American currencies on the gold-exchange standard was the intellectual Edwin Kemmerer. Another economics professor from Princeton, Kemmerer became the foremost expert on currency reform after Charles Conant died in 1915. Influenced by the monetary theorist Irving Fisher, Kemmerer helped transform the definition of inflation away from an increase in the money supply to an increase in the “supply of circulating media in excess of trade needs.”This was a short step away from the modern definition of a rise in the general level of prices, which obscures the causal relationship between changes in the money supply and changes in prices.

Kemmerer traveled to Colombia, Chile, Ecuador, and Bolivia and helped set up central banks that held dollar-denominated reserves. In reorganizing their currencies and finances, Kemmerer arranged for the countries to receive loans from Dillon, Read & Co. and National City Bank. Kemmerer received the support of Strong and the New York Fed, which dispatched representatives to accompany his missions. Flush with dollar reserves, Wall Street loans, and new central banks, South America experienced wild booms in highways, railroads, and construction in the 1920s.

Kemmerer misleadingly professed himself a detached man of science with “no connection with Dillon[,] Read & Co. or any other banking house that in any way or manner effected [sic] or touched my work.”In reality, he corresponded frequently and maintained friendly relationships with National City Bank officials, and Dillon, Read & Co. secretly paid Kemmerer a $3,000 annual retainer and donated $25,000 to Princeton so he could become the first chair of international economics. Moreover, Kemmerer, who earned $7,000 a year from Princeton, also earned fees between $70,000 and $100,000 on his South American missions. Even his assistants’ salaries, writes Emily Rosenberg, “amounted to small fortunes in the budgets of impoverished countries, sometimes exceeding those of the local presidents.”Kemmerer’s takings were quite the income for someone who was president of the American Economic Association in 1926. The actions of the “Money Doctor” vividly illustrate the symbiotic relationship between intellectuals eager for prestigious and lucrative positions and Wall Street banks desirous of government largesse.

By the end of the decade Wall Street had accomplished its goals through its central banker Governor Strong. His easy discount window kept New York a magnet for bankers’ balances and solidified the cartel. From 1921 to 1928, as a share of central reserve city bank deposits, New York maintained its dominance at 76 percent while further increasing its bankers’ balances from 70.5 percent to 76.8 percent. These balances became increasingly cartelized in Wall Street’s elite institutions, with the share of the eight largest banks increasing from 72.1 percent in 1913 to 94.2 percent in 1926.

Strong’s involvement in creating the gold-exchange standard promoted the international use of the dollar. By 1929, twenty-eight countries were on the gold-exchange standard at overvalued exchange rates and mainly held pounds or dollars as reserves. Foreign acceptances in dollars exceeded foreign acceptances in pounds by a factor of two to one, and the dollar surpassed the pound as a reserve currency, constituting 55 percent of the foreign exchange reserves of central banks and governments. Leffingwell later summarized J. P. Morgan & Co.’s efforts to Lamont: “It seems to me that the job we did in the reconstruction of currencies all over the world was a good one.”Wall Street’s plans had come to fruition.

The money lords amassed the profits. At their center reigned the House of Morgan. Partners collected on average $1 million a year, with Morgan and Lamont earning as much as $5 million (Lamont had become the number two after Henry Davison’s untimely death in 1922). Moreover, in addition to maintaining close connections with Bankers Trust, Guaranty Trust, and First National, the Morgans engaged in business deals with Chase’s Wiggin and Charles Mitchell, the president of National City Bank. In 1929, National City, Guaranty Trust, and Chase ranked as the nation’s three largest banks in terms of assets—National City’s totaled $2.2 billion, Guaranty’s $2 billion, and Chase’s $1.7 billion (by comparison, J. P. Morgan & Co.’s assets totaled $680 million). It is all too clear, then, that in the years following the passage of the Federal Reserve System in 1913—and not before, as commonly assumed—the Money Trust was stronger than ever.

When Strong died in October 1928, Wall Street did not lose its grip on the New York Fed. His successor was George Harrison, Strong’s deputy and a “Morgan loyalist,” according to Ron Chernow.Though not as forceful a central banker as Strong, Harrison was a suitable replacement for Wall Street. Furthermore, beginning in January 1929 National City’s Mitchell served as a director of the august institution. The 1930s appeared to augur continued good times for Wall Street and the Morgans at their central bank.

Their optimism was misplaced, for they had built the world economy on a house of cards. There is no question that some of the impressive 3.1 percent per annum rise in real GDP per capita from 1922 to 1929 represented genuine economic growth from electrification, assembly line production, and other technological innovations. The government’s low-tax policy had partially encouraged this, and broad segments of society enjoyed the gains in wealth. Alongside this process, however, the Federal Reserve’s interest rate slashing blew up bubbles in real estate and high-tech industries far above expected short-term profits. The relatively constant consumer prices misled Strong, Fisher, Kemmerer, and other economists. They failed to realize that the absence of price inflation did not mean the absence of monetary inflation and its distortionary consequences: consumer prices were higher than they would have been without the monetary expansion, and prices in capital goods industries were unsustainably increasing. There were not enough savings to finance the long-term production processes because at the same time businesses were taking out loans consumers were borrowing from nonbank institutions to buy new automobiles, radios, and other appliances (the ratio of consumer debt to consumption spending increased from 5.7 percent in 1922 to 9.1 percent in 1929). Therefore, “the effect of Strong’s low-interest-rate policy,” writes Barry Eichengreen, was “less to rebalance the world economy than to unbalance the economy of the United States.” This would become devastatingly apparent at the end of the decade, when the public reaped the disastrous consequences of Wall Street’s moneymaking machine.

The Federal Reserve System is the epitome of regulatory capture of the corporatist state by big business. From the beginning Wall Street and its hired economists spearheaded the drive for a central bank. Big bankers overcame the Populist legislative threat in 1913 by having one of its own assume the reins of power at the New York Fed. Though not without fits and struggles, Benjamin Strong became the veritable head of the entire Federal Reserve System and maneuvered around the Federal Reserve Board. He used his position, in peacetime and war, to practice expansionary monetary policy and international monetary coordination that aided Wall Street banks, especially those associated with J. P. Morgan & Co. He was their ideal central banker, indispensable in their quest to absorb more bankers’ balances and become worldwide financial intermediaries. Thus, when it came to the Federal Reserve, personnel indeed was policy.

With Wall Street’s dominance of the Federal Reserve, corporatism had ascended the American throne.

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Paul M. Warburg, “Looking Forward,” spring 1927, in The Federal Reserve System: Its Origin and Growth (New York: Macmillan, 1930), 1:456.

Benjamin J. Klebaner, “Paul M. Warburg,” in Encyclopedia of American Business History and Biography: Banking and Finance, 1913–1989, ed. Larry Schweikart (New York: Facts on File, 1990), 446–48.

Thomas Lamont, “The Effect of the War on America’s Financial Position,” Annals of the Academy of Political Science 60 (July 1915): 110.

Paul Warburg, Speech of May 3, 1916, quoted in Ron Chernow, The Warburgs: The Twentieth-Century Odyssey of a Remarkable Jewish Family (New York: Random House, 1993), 158.

Edwin Seligman, “The Economic Prospects of the United States after the War,” Scientia, XXI (1917): 233, quoted in Joseph Dorfman, The Economic Mind in American Civilization, vol. 3, 1865–1918 (New York: Augustus M. Kelley, 1969), 486. Benjamin M. Anderson, Economics and the Public Welfare: A Financial and Economic History of the United States, 1914–1946 (Indianapolis, IN: Liberty Fund, 1979), 25–33; Chernow, Warburgs, 161–62; R. R. Palmer and Joel Colton, A History of the Modern World, 8th ed. (New York: McGraw-Hill, 1995), 702–12, 718–22; Melchior Palyi, The Twilight of Gold, 1914–1936: Myths and Realities (Chicago: Henry Regnery, 1972), 26–29; and Carl P. Parrini, Heir to Empire: United States Economic Diplomacy, 1916–1923 (Pittsburgh: University of Pittsburgh Press, 1969), 41–42.

Frank Vanderlip to James Stillman, December 31, 1915, quoted in Nomi Prins, All the Presidents’ Bankers: The Hidden Alliances That Drive American Power (New York: Nation Books, 2014), 44.

Vincent P. Carosso, Investment Banking in America: A History (Cambridge, MA: Harvard University Press, 1970), 215–16; Harold van B. Cleveland and Thomas F. Huertas, Citibank, 1812–1970 (Cambridge, MA: Harvard University Press, 1985), 76–81, 83–84, 91–94, 311, 365; Parrini, Heir, 58, 60–64, 95–96, 109; and Richard Sutch and Susan B. Carter, eds., Historical Statistics of the United States, vol. 3, Economic Structure and Performance (New York: Cambridge University Press, 2006), 158.

Henry Davison to Thomas Lamont, August 1914, quoted in Ron Chernow, The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance (New York: Simon and Schuster, 1990), 185.

Carosso, Investment, 212, 214–15; Chernow, Morgan, 186; Roberta A. Dayer, “Strange Bedfellows: J. P. Morgan & Co., Whitehall and the Wilson Administration during World War I,” Business History 18, no. 2 (July 1976): 128; Justus D. Doenecke, Nothing Less than War: A New History of America’s Entry into World War I (Lexington: University Press of Kentucky 2011), 20–21; Benjamin O. Fordham, “Revisionism Reconsidered: Exports and American Intervention in World War I,” International Organization 61, no. 2 (Spring 2007): 286; Martin Horn, “A Private Bank at War: J. P. Morgan & Co. and France, 1914–1918,” Business History Review 74, no. 1 (Spring 2000): 97; Priscilla Roberts, “The First World War as Catalyst and Epiphany: The Case of Henry P. Davison,” Diplomacy and Statecraft 18, no. 2 (2007): 319–20; Priscilla Roberts, “Willard D. Straight and the Diplomacy of International Finance during the First World War,” Business History 40, no. 3 (July 1998): 24–25; and Charles Callan Tansill, America Goes to War (Boston: Little, Brown, 1938), 36–42, 53–54, 70–78.

Dayer, “Morgan,” 128.

Henry Davison to E. C. Grenfell, November 16, 1914, quoted in Tansill, America, 80.

Chernow, Morgan, 187–88; Cleveland and Huertas, Citibank, 83, 365; Dayer, “Morgan,” 128–29; Martin Horn, J. P. Morgan & Co. and the Crisis of Capitalism: From the Wall Street Crash to World War II (New York: Cambridge University Press, 2022), 58; Ross M. Robertson, “St. Louis: Central Reserve City, 1887–1922,” Federal Reserve Bank of St. Louis Monthly Review 36, no. 8 (August 1954): 89; and Tansill, America, 79–84, 133.

Henry Davison to Benjamin Strong, April 9, 1915, quoted in Priscilla Roberts, “‘Quis Custodiet Ipsos Custodes?’: The Federal Reserve System’s Founding Fathers and Allied Finances in the First World War,” Business History Review 72, no. 4 (Winter 1998): 596.

Allan Meltzer, A History of the Federal Reserve, vol. 1, 1913–1951 (Chicago: University of Chicago Press, 2003), 76–80; Priscilla Roberts, “Benjamin Strong, the Federal Reserve, and the Limits to Interwar American Nationalism Part I: Intellectual Profile of a Central Banker,” Federal Reserve Bank of Richmond Economic Quarterly 86, no. 2 (Spring 2000): 70; Roberts, “Founding,” 592–96; Murray N. Rothbard, “The Federal Reserve as a Cartelization Device: The Early Years, 1913–1930,” in The Progressive Era, ed. Patrick Newman (Auburn, AL: Mises Institute, 2017), 484, 501–2; and Tansill, America, 87–88.

Board of Governors of the Federal Reserve System, Banking and Monetary Statistics, 1914–1941 (Washington, DC: Federal Reserve System, 1943), 373; Chernow, Warburgs, 160–61, 166–67; Meltzer, History, 1:74, 138, 192–97; Roberts, “Founding,” 596–604; Rothbard, “Cartelization,” 503; Sutch and Carter, Historical, 3:596; and Tansill, America, 96–108.

Carosso, Investment, 205–6; Chernow, Morgan, 195, 197–99; Chernow, Warburgs, 167–68; Dayer, “Morgan,” 130–31, 146; John Douglas Forbes, J. P. Morgan, Jr., 1867–1943 (Charlottesville: University Press of Virginia, 1981), 94–95; and Tansill, America, 90, 93, 96, 104–5, 112–14.

E. C. Grenfell to Chancellor of the Exchequer, McKenna, November 28, 1916, quoted in Roberta A. Dayer, Finance and Empire: Sir Charles Addis, 1861–1945 (London: Macmillan, 1988), 89.

Carosso, Investment, 206; Chernow, Warburgs, 162; Dayer, “Morgan,” 132–34; Ivan Eland, Recarving Rushmore: Ranking the Presidents on Peace, Prosperity, and Liberty (Oakland, CA: Independent Institute, 2009), 213–16; Roberts, “Founding,” 605–7; and Tansill, America, 117–23, 127–32.

W. Elliot Brownlee, Federal Taxation in America: A History, 3rd ed. (New York: Cambridge University Press, 2016), 93–106; Robert Higgs, “The World Wars,” in Government and the American Economy: A New History, ed. Price Fishback (Chicago: University of Chicago Press, 2007), 435; Patrick Newman, “The Depression of 1920–1921: A Credit Induced Boom and a Market Based Recovery?” Review of Austrian Economics 29, no. 4 (December 2016): 394–95; and Richard Sutch and Susan B. Carter, eds., Historical Statistics of the United States, vol. 5, Governance and International Relations (New York: Cambridge University Press, 2006), 81.

Woodrow Wilson to Jack Morgan, April 4, 1917, quoted in Prins, Bankers, 48.

Board of Governors, Banking, 373, 439, 450; W. Elliot Brownlee, “Russell Cornell Leffingwell,” in Schweikart, Encyclopedia, 216–18, 221; Carosso, Investment, 224–27; Forbes, Morgan, 100–101; William C. McNeil, “Seymour Parker Gilbert, Jr.,” in Schweikart, Encyclopedia, 144–45; and Murray N. Rothbard, The Mystery of Banking, 2nd ed. (Auburn, AL: Ludwig von Mises Institute, 2008), 238.

Board of Governors, Banking, 373; and Milton Friedman and Anna Jacobson Schwartz, Monetary Statistics of the United States: Estimates, Sources, Methods (New York: National Bureau of Economic Research, 1970), 9–17.

Quoted in Sheridan A. Logan, George F. Baker and His Bank, 1840–1955 (Stinehour Press and Meriden Gravure, 1981), 195.

Dayer, “Morgan,” 134–43; James Grant, The Forgotten Depression, 1921: The Crash That Cured Itself (New York: Simon and Schuster, 2014), 59; Edward M. Lamont, The Ambassador from Wall Street: The Story of Thomas W. Lamont, J. P. Morgan’s Chief Executive (Lanham, MD: Madison Books, 1994), 92–93; Logan, Baker, 197; and Rothbard, “Cartelization,” 486–87.

Dayer, “Morgan,” 143.

Carosso, Investment, 204; Horn, Morgan, 58; and Chase Peterson-Withorn, “From Rockefeller to Ford, See Forbes’ 1918 Ranking of the Richest People in America,” Forbes, September 29, 2017, https://www.forbes.com/sites/chase-withorn/2017/09/19/the-first-forbes-list-see-who-the-richest-americanswere-in-1918/.

Higgs, “Wars,” 435.

Higgs, “Wars,” 435; Louis Johnston and Samuel H. Williamson, “What Was the U.S. GDP Then?,” MeasuringWorth (accessed November 7, 2024), https://www.measuringworth.com/datasets/usgdp12/; and Sutch and Carter, Historical, 3:158.

Benjamin Strong to Wilford King, January 30, 1922, quoted in Lester V. Chandler, Benjamin Strong, Central Banker (Washington, DC: Brookings Institution, 1958), 121.

Benjamin Strong to R. H. Treman, September 12, 1919, quoted in Silvano A. Wueschner, Charting Twentieth-Century Monetary Policy: Herbert Hoover and Benjamin Strong, 1917–1927 (Westport, CT: Greenwood Press, 1999), 10.

Benjamin Strong to Russell Leffingwell, February 6, 1919, quoted in Chandler, Strong, 139–40.

Grant, Depression, 51; Meltzer, History, 1:90–96; Newman, “Depression,” 396; and Wueschner, Charting, 10–17.

Board of Governors, Banking, 439, 463; and Grant, Depression, 113–16.

Board of Governors, Banking, 373; Cleveland and Huertas, Citibank, 101–5; James Freeman and Vern McKinley, Borrowed Time: Two Centuries of Booms, Busts, and Bailouts at Citi (New York: Harper Collins, 2018), 98–106; Friedman and Schwartz, Statistics, 17–19; Grant, Depression, 20; and Murray N. Rothbard, America’s Great Depression (Auburn, AL: Ludwig von Mises Institute, 2008), 118–19.

J. Lawrence Broz, The International Origins of the Federal Reserve System (Ithaca, NY: Cornell University Press, 1997), 202; Cleveland and Huertas, 105–6; Freeman and McKinley, Borrowed, 104–6; Friedman and Schwartz, Statistics, 17–19; Johnston and Williamson, “GDP”; Newman, “Depression,” 396–400; Parrini, Heir, 115–17; Rothbard, America’s, 218; Christopher W. Shaw, “‘We Must Deflate’: The Crime of 1920 Revisited,” Enterprise and Society 17, no. 3 (September 2016): 627; and Sutch and Carter, Historical, 3:158.

Board of Governors, Banking, 133, 373–74, 439; Chernow, Morgan, 370–71; Committee on the History of the Federal Reserve System, “Albert H. Wiggin,” Register of Papers, November 3, 1955, 2, Federal Reserve Archival System for Economic Research FRASER; Friedman and Schwartz, Statistics, 18–19; Grant, Depression, 108–9; Johnston and Williamson, “GDP”; Meltzer, History, 1:103–8; Newman, “Depression,” 397–400; Sutch and Carter, Historical, 3:158; and Alexander Tabarrok, “The Separation of Commercial and Investment Banking: The Morgans vs. the Rockefellers,” Quarterly Journal of Austrian Economics 1, no. 1 (March 1998): 6.

Charles W. Calomiris and Stephen H. Haber, Fragile by Design: The Political Origins of Banking Crises and Scarce Credit (Princeton, NJ: Princeton University Press, 2014), 187–88; Grant, Depression, 128–31, 176; Peter James Hudson, Bankers and Empire: How Wall Street Colonized the Caribbean (Chicago: University of Chicago Press, 2017), 143–49, 194, 222–23; Johnston and Williamson, “GDP”; Newman, “Depression,” 400–405; Sutch and Carter, Historical, 5:201; and Eugene Nelson White, The Regulation and Reform of the American Banking System, 1900–1929 (Princeton, NJ: Princeton University Press, 1983), 165, 188–204, 217.

Joseph Alois Schumpeter, Business Cycles: A Theoretical, Historical, and Statistical Analysis of the Capitalist Process (London: McGraw-Hill, 1939), 2:786.

David T. Beito, “Andrew Mellon,” in Schweikart, Encyclopedia, 273; Board of Governors, Banking, 373–74; Brownlee, “Leffingwell,” 221; Philip H. Burch Jr., Elites in American History, vol. 2, The Civil War to the New Deal (New York: Holmes and Meier, 1981), 256, 298–99; Johnston and Williamson, “GDP”; M. Susan Murnane, “Selling Scientific Taxation: The Treasury Department’s Campaign for Tax Reform in the 1920s,” Law and Social Inquiry 29, no. 4 (Autumn 2004): 826–29, 834–35, 839; Lawrence L. Murray, “Bureaucracy and Bi-partisanship in Taxation: The Mellon Plan Revisited,” Business History Review 52, no. 2 (Summer 1978): 208, 211, 214, 217–23; Patrick Newman, “Defending the Austrian Interpretation of the 1920–21 Depression: Reply to Borazan,” Quarterly Journal of Austrian Economics 26, no. 4 (Winter 2023); Newman, “Depression,” 404–10; Gene Smiley and Richard H. Keehn, “Federal Personal Income Tax Policy in the 1920s,” Journal of Economic History 55, no. 2 (June 1995); and Sutch and Carter, Historical, 5:81.

Board of Governors, Banking, 374, 440; Friedman and Schwartz, Statistics, 19–22; Johnston and Williamson, “GDP”; Patrick Newman, “Expansionary Monetary Policy at the Federal Reserve in the 1920s,” Advances in Austrian Economics 20 (2016): 119–21, 124–25; Rothbard, America’s, 134, 138; Rothbard, “Cartelization,” 496; William Howard Shaw, The Value of Commodity Output since 1869 (New York: National Bureau of Economic Research, 1947), 75–77; Sutch and Carter, Historical, 3:158; and Richard Vague, A Brief History of Doom: Two Hundred Years of Financial Crises (Philadelphia: University of Pennsylvania Press, 2019), 18–19.

Rothbard, America’s, 121–22, 137–39, 153, 217–19; Murray N. Rothbard, “From Hoover to Roosevelt: The Federal Reserve and the Financial Elites,” in A History of Money and Banking in the United States: The Colonial Era to World War II, ed. Joseph T. Salerno (Auburn, AL: Ludwig von Mises Institute, 2005), 283–86; Elizabeth Sanders, Roots of Reform: Farmers, Workers, and the American State, 1877–1917 (Chicago: University of Chicago Press, 1999), 264–65; and Wueschner, Charting, 21, 35–36.

Paul Warburg, 1920, quoted in Klebaner, “Warburg,” 447.

Chernow, Morgan, 206–8; Chernow, Warburgs, 186–90; Klebaner, “Warburg,” 447; and Lamont, Ambassador, 105–14, 121–22, 201.

Matthew Josephson, The Money Lords: The Great Finance Capitalists, 1925– 1950 (New York: Weybright and Talley, 1972).

Chernow, Morgan, 205.

Benjamin Strong to S. Parker Gilbert, April 18, 1922, quoted in Chandler, Strong, 211.

Brownlee, “Leffingwell,” 216; Chernow, Morgan, 254–55; Parrini, Heir, 65, 112; Rothbard, America’s, 137–39, 153; Rothbard, “Hoover,” 268, 270–71; Robert D. Schulzinger, The Wise Men of Foreign Affairs: The History of the Council on Foreign Relations (New York: Columbia University Press, 1984), 17–20, 30, 267; George Selgin, “New York’s Bank: The National Monetary Commission and the Founding of the Fed,” in Money: Free and Unfree (Washington, DC: Cato Institute, 2017), 163–65; and Laurence H. Shoup and William Minter, Imperial Brain Trust: The Council on Foreign Relations and United States Foreign Policy (New York: Authors Choice Press, 2004), 14–23, 104–5, 301.

Board of Governors, Banking, 374, 440; Barry Eichengreen, Hall of Mirrors: The Great Depression, the Great Recession, and the Uses—and Misuses—of History (New York: Oxford University Press, 2015), 24–31; Friedman and Schwartz, Statistics, 20–25; Kenneth D. Garbade, “The Early Years of the Primary Dealer System,” Federal Reserve Bank of New York Staff Reports, no. 777 (June 2016): 2–9; Johnston and Williamson, “GDP”; Klebaner, “Warburg,” 447; Newman, “Expansionary,” 120; Rothbard, America’s, 95–96, 126–31, 135, 146, 153; Rothbard, “Cartelization,” 496, 502–3; and Anna Jacobson Schwartz, “Benjamin Strong,” in Schweikart, Encyclopedia, 401.

Jack Morgan to Mrs. J. P. Morgan Sr., October 12, 1924, quoted in Forbes, Morgan, 145.

Anderson, Economics, 106–11, 115–21, 158–63; Chernow, Morgan, 190, 251–52, 306; Roberta A. Dayer, “Anglo-American Monetary Policy and Rivalry in Europe and the Far East, 1919–1931,” in Anglo-American Relations in the 1920s: The Struggle for Supremacy, ed. B. J. C. McKercher (London: Macmillan, 1991), 171; Barry Eichengreen and Marc Flandreau, “The Rise and Fall of the Dollar (or When Did the Dollar Replace Sterling as the Leading International Currency?),” European Review of Economic History 13, no. 3 (December 2009): 394; John Douglas Forbes, Stettinius, Sr.: Portrait of a Morgan Partner (Charlottesville: University Press of Virginia, 1974), 56–58, 127; Gabriel Kolko, Main Currents in Modern American History (New York: Pantheon Books, 1984), 208; Lamont, Ambassador, 201–2, 208–9; McNeil, “Gilbert,” 144, 147; Palyi, Twilight, 116–17; Emily S. Rosenberg, Financial Missionaries to the World: The Politics and Culture of Dollar Diplomacy, 1900–1930 (Durham, NC: Duke University Press, 2003), 168–73; Stephen A. Schuker, “Owen D. Young,” in Schweikart, Encyclopedia, 482–83; Schulzinger, Wise, 21–22; Shoup and Minter, Imperial, 301; and Mira Wilkins, The Maturing of Multinational Enterprise: American Business Abroad from 1914 to 1970 (Cambridge, MA: Harvard University Press, 1974), 5, 7, 67–68.

Jack Morgan and George Whitney (Morgan, Grenfell & Co.) to J. P. Morgan & Co., October 6, 1925, quoted in Kathleen Burk, “The House of Morgan in Financial Diplomacy, 1920–1930,” in McKercher, Anglo-American, 141.

Benjamin Strong to Andrew Mellon, May 27, 1924, quoted in Chandler, Strong, 283.

Benjamin Strong to Dwight Morrow, November 9, 1927, quoted in Vincent P. Carosso, The Morgans: Private International Bankers, 1854–1913 (Cambridge, MA: Harvard University Press, 1987), 619.

Franz Schneider Jr., “Federal Reserve Policy: Its International Implications,” Foreign Affairs 7, no. 4 (July 1929): 544. Burk, “Morgan,” 129–30, 137–38; Chandler, Strong, 308–19; Chernow, Morgan, 244, 246, 271–76; Dayer, “AngloAmerican,” 171–72; Barry Eichengreen, Golden Fetters: The Gold Standard and the Great Depression, 1919–1939 (New York: Oxford University Press, 1995), 71, 102, 192; Rothbard, America’s, 144–53; Murray N. Rothbard, “The GoldExchange Standard in the Interwar Years,” in Rothbard, History, 358–78, 400; and Shoup and Minter, Imperial, 17–18.

Benjamin Strong, quoted in Charles Rist, “Notice biographique,” Revue d’économie politique 65, no. 6 (November–December 1955): 1006; translation mine.

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Rosenberg, Financial, 225.

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Chernow, Morgan, 382.

Liaquat Ahamed, Lords of Finance: The Bankers Who Broke the World (New York: Penguin Books, 2009), 319; and Freeman and McKinley, Borrowed, 135–36.

Eichengreen, Hall, 24.

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