JEFFERSO N’ S O PINIO N O N THE

B.C . Fo rb e s’ re ve la tio n8 o f the se c re t e xp e d itio n to Je kyll Isla nd , ha d

ha d surp rising ly little imp a c t. It d id no t a p p e a r in p rint until two ye a rs

a fte r the Fe d e ra l Re se rve Ac t ha d b e e n p a sse d b y C o ng re ss,

he nc e it wa s ne ve r re a d d uring the p e rio d whe n it c o uld ha ve ha d

a n e ffe c t, tha t __________________________

7 Pa ul Wa rb urg , The Fe d e ra l Re se rve Syste m, Its O rig in a nd G ro wth, Vo lume I, p . 58, Ma c milla n, Ne w Yo rk, 1930

8 C URRENT O PINIO N, De c e mb e r, 1916, p . 382

7 is, d uring the C o ng re ssio na l d e b a te o n the b ill. Fo rb e s’ sto ry wa s

a lso d ismisse d , b y tho se "in the kno w," a s p re p o ste ro us, a nd a me re inve ntio n. Ste p he nso n me ntio ns this o n p a g e 484 o f his b o o k a b o ut Ald ric h.9

"This c urio us e p iso d e o f Je kyll Isla nd ha s b e e n g e ne ra lly re g a rd e d a s

a myth. B.C . Fo rb e s g o t so me info rm a tio n fro m o ne o f the re p o rte rs. It to ld in va g ue o utline

the Je kyll Isla nd sto ry, b ut ma d e no imp re ssio n a nd wa s g e ne ra lly re g a rd e d a s a me re ya rn." The c o ve rup o f the Je kyll Isla nd c o nfe re nc e p ro c e e d e d a lo ng two

line s, b o th o f whic h we re suc c e ssful. The first, a s Ste p he nso n me ntio ns, wa s to d ismiss the e ntire sto ry a s a ro ma ntic c o nc o c tio n whic h ne ve r a c tua lly to o k p la c e . Altho ug h the re we re b rie f re fe re nc e s to Je kyll Isla nd in la te r b o o ks c o nc e rning the Fe d e ra l

Re se rve Syste m , the se a lso a ttra c te d little p ub lic a tte ntio n. As we

ha ve no te d , Wa rb urg ’ s ma ssive a nd sup p o se d ly d e finite wo rk o n the Fe d e ra l Re se rve Syste m d o e s no t me ntio n Je kyll Isla nd a t a ll,

a ltho ug h he d o e s a d mit tha t a c o nfe re nc e to o k p la c e . In no ne o f his vo lumino us sp e e c he s o r writing s d o the wo rd s "Je kyll Isla nd "

a p p e a r, with a sing le no ta b le e xc e p tio n. He a g re e d to Pro fe sso r Ste p he nso n’ s re q ue st tha t he p re p a re a b rie f sta te me nt fo r the Ald ric h b io g ra p hy. This a p p e a rs o n p a g e 485 a s p a rt o f "The Wa rb urg Me mo ra nd um". In this e xc e rp t, Wa rb urg write s, "The ma tte r o f a unifo rm d isc o unt ra te wa s d isc usse d a nd se ttle d a t Je kyll Isla nd ."

Ano the r me mb e r o f the "First Na me C lub " wa s le ss re tic e nt. Fra nk Va nd e rlip la te r p ub lishe d a fe w b rie f re fe re nc e s to the c o nfe re nc e . In the Sa turd a y Eve ning Po st, Fe b rua ry 9, 1935, p . 25, Va nd e rlip wro te :

"De sp ite my vie ws a b o ut the va lue to so c ie ty o f g re a te r p ub lic ity fo r the a ffa irs o f c o rp o ra tio ns,

the re wa s a n o c c a sio n ne a r the c lo se o f 1910, whe n I wa s a s se c re tive , ind e e d , a s furtive , a s a ny

c o nsp ira to r. . . . Sinc e it wo uld ha ve b e e n fa ta l to Se na to r Ald ric h’ s p la n to ha ve it kno wn tha t he

wa s c a lling o n a nyb o d y fro m Wa ll Stre e t to he lp him in p re p a ring his b ill, p re c a utio ns we re ta ke n tha t wo uld

ha ve d e lig hte d the he a rt o f Ja me s Stillma n (a c o lo rful

a nd se c re tive b a nke r who wa s Pre sid e nt o f the Na tio na l C ity Ba nk d uring the Sp a nish-Ame ric a n Wa r,

a nd who wa s tho ug ht to ha ve b e e n invo lve d in g e tting us into tha t wa r) . . . I d o no t fe e l it is a ny e xa g g e ra tio n to sp e a k o f o ur se c re t e xp e d itio n to Je kyll Isla nd a s the o c c a sio n o f the a c tua l c o nc e p tio n o f wha t e ve ntua lly

b e c a me the Fe d e ra l Re se rve Syste m." In a Tra ve l fe a ture in The Wa shing to n Po st, Ma rc h 27, 1983, "Fo llo w

The Ric h to Je kyll Isla nd ", Ro y Ho o p e s write s: "In 1910, whe n Ald ric h a nd fo ur fina nc ia l e xp e rts wa nte d a p la c e to

me e t in se c re t to re fo rm the

c o untry’ s b a nking syste m , the y fa ke d a hunting trip to Je kyll a nd fo r

10 d a ys ho le d up in the

C lub ho use , whe re the y ma d e p la ns fo r wha t e ve ntua lly wo uld

b e c o me the Fe d e ra l Re se rve Ba nk." __________________________

9 Na tha nie l Wrig ht Ste p he nso n, Ne lso n W. Ald ric h, A Le a d e r in Ame ric a n Po litic s, Sc rib ne rs, N.Y. 1930, C ha p . XXIV "Je kyll Isla nd " p . 379

8 Va nd e rlip la te r wro te in his a uto b io g ra p hy, Fro m Fa rmb o y to

Fina nc ie r:10 "O ur se c re t e xp e d itio n to Je kyll Isla nd wa s the o c c a sio n o f the

a c tua l c o nc e p tio n o f wha t

e ve ntua lly b e c a me the Fe d e ra l Re se rve Syste m. The e sse ntia l p o ints o f the Ald ric h Pla n we re

a ll c o nta ine d in the Fe d e ra l Re se rve Ac t a s it wa s p a sse d ." Pro fe sso r E.R.A. Se lig ma n, a me mb e r o f the inte rna tio na l b a nking

fa mily o f J. & W. Se lig ma n, a nd he a d o f the De p a rtme nt o f Ec o no mic s a t C o lumb ia Unive rsity, wro te in a n e ssa y p ub lishe d b y the Ac a d e my o f Po litic a l Sc ie nc e , Pro c e e d ing s, v. 4, No . 4, p . 387- 90:

"It is kno wn to a ve ry fe w ho w g re a t is the ind e b te d ne ss o f the Unite d Sta te s to Mr. Wa rb urg . Fo r

it ma y b e sa id witho ut fe a r o f c o ntra d ic tio n tha t in its fund a me nta l

fe a ture s the Fe d e ra l Re se rve Ac t is the wo rk o f Mr. Wa rb urg mo re tha n a ny o the r ma n in the

c o untry. The e xiste nc e o f a Fe d e ra l Re se rve Bo a rd c re a te s, in e ve rything b ut in na m e , a re a l

c e ntra l b a nk. In the two fund a me nta ls o f c o mma nd o f re se rve s a nd o f a d isc o unt p o lic y,

the Fe d e ra l Re se rve Ac t ha s fra nkly a c c e p te d the p rinc ip le o f the Ald ric h Bill, a nd

the se p rinc ip le s, a s ha s b e e n sta te d , we re the c re a tio n o f Mr. Wa rb urg a nd Mr. Wa rb urg a lo ne . It must no t b e fo rg o tte n tha t Mr. Wa rb urg ha d a p ra c tic a l o b je c t in the se p rinc ip le s, a s ha s b e e n sta te d , we re the c re a tio n o f Mr. Wa rb urg a nd Mr. Wa rb urg a lo ne . It must no t b e fo rg o tte n tha t Mr. Wa rb urg ha d a p ra c tic a l o b je c t in

sug g e stio ns fro m tim e to tim e , it wa s inc umb e nt o n him to re me mb e r tha t the e d uc a tio n o f the

c o untry must b e g ra d ua l a nd tha t a la rg e p a rt o f the ta sk wa s to b re a k d o wn p re jud ic e s a nd re mo ve susp ic io n. His p la ns the re fo re c o nta ine d a ll so rts o f

e la b o ra te sug g e stio ns d e sig ne d to g ua rd the p ub lic

a g a inst fa nc ie d d a ng e rs a nd to p e rsua d e the c o untry tha t the g e ne ra l sc he me wa s a t a ll p ra c tic a b le . It wa s the ho p e o f Mr. Wa rb urg tha t with the la p se o f time it mig ht b e p o ssib le to e limina te fro m the la w a fe w

c la use s whic h we re inse rte d la rg e ly a t his sug g e stio n fo r

e d uc a tio na l p urp o se s." No w tha t the p ub lic d e b t o f the Unite d Sta te s ha s p a sse d a trillio n

d o lla rs, we ma y ind e e d a d mit "ho w g re a t is the ind e b te d ne ss o f the Unite d Sta te s to Mr. Wa rb urg ." At the time he wro te the Fe d e ra l Re se rve Ac t, the p ub lic d e b t wa s a lmo st no ne xiste nt.

Pro fe sso r Se lig ma n p o ints o ut Wa rb urg ’ s re ma rka b le p re sc ie nc e tha t the re a l ta sk o f the me mb e rs o f the Je kyll Isla nd c o nfe re nc e wa s to p re p a re a b a nking p la n whic h wo uld g ra d ua lly "e d uc a te the c o untry" a nd "b re a k d o wn p re jud ic e s a nd re mo ve susp ic io n". The c a mp a ig n to e na c t the p la n into la w suc c e e d e d in d o ing just tha t.

10 Fra nk Va nd e rlip , Fro m Fa rmb o y to Fina nc ie r

C HAPTER TWO The Ald ric h Pla n

"Fina nc e a nd the ta riff a re re se rve d b y Ne lso n Ald ric h a s fa lling within his so le p urvie w a nd jurisd ic tio n. Mr. Ald ric h is e nd e a vo ring to

d e vise , thro ug h the Na tio na l Mo ne ta ry C o mmissio n, a b a nking a nd

c urre nc y la w. A g re a t ma ny hund re d tho usa nd p e rso ns a re firmly o f the o p inio n tha t Mr. Ald ric h sums up in his p e rso na lity the g re a te st

a nd mo st siniste r me na c e to the p o p ula r we lfa re o f the Unite d Sta te s. Erne st Ne wma n re c e ntly sa id , ‘ Wha t the So uth visits o n the Ne g ro in a p o litic a l wa y, Ald ric h wo uld me te o ut to the mud sills o f the No rth, if he c o uld d e vise a sa fe a nd p ra c tic a l wa y to

a c c o mp lish it.’ "--Ha rp e r’ s We e kly, Ma y 7, 1910." The p a rtic ip a nts in the Je kyll Isla nd c o nfe re nc e re turne d to Ne w

Yo rk to d ire c t a na tio nwid e p ro p a g a nd a c a mp a ig n in fa vo r o f the "Ald ric h Pla n". Thre e o f the le a d ing unive rsitie s, Princ e to n, Ha rva rd ,

a nd the Unive rsity o f C hic a g o , we re use d a s the ra llying p o ints fo r this p ro p a g a nd a , a nd na tio na l b a nks ha d to c o ntrib ute to a fund o f five millio n d o lla rs to p e rsua d e the Ame ric a n p ub lic tha t this c e ntra l

b a nk p la n sho uld b e e na c te d into la w b y C o ng re ss. Wo o d ro w Wilso n, g o ve rno r o f Ne w Je rse y a nd fo rme r p re sid e nt o f

Princ e to n Unive rsity, wa s e nliste d a s a sp o ke sma n fo r the Ald ric h Pla n. During the Pa nic o f 1907, Wilso n ha d d e c la re d , "All this tro ub le

c o uld b e a ve rte d if we a p p o inte d a c o mmitte e o f six o r se ve n p ub lic -sp irite d me n like J.P. Mo rg a n to ha nd le the a ffa irs o f o ur

c o untry." In his b io g ra p hy o f Ne lso n Ald ric h in 1930, Ste p he nso n sa ys: "A p a mp hle t wa s issue d Ja nua ry 16, 1911, ‘ Sug g e ste d Pla n fo r

Mo ne ta ry Le g isla tio n’ , b y Ho n. Ne lso n Ald ric h, b a se d o n Je kyll Isla nd

c o nc lusio ns." Ste p he nso n sa ys o n p a g e 388, "An o rg a niza tio n fo r fina nc ia l p ro g re ss ha s b e e n fo rm e d . Mr. Wa rb urg intro d uc e d a re so lutio n a utho rizing the e sta b lishme nt o f the C itize ns’ Le a g ue , la te r the Na tio na l C itize ns Le a g ue . . . Pro fe sso r La ug hlin o f the Unive rsity o f C hic a g o wa s g ive n c ha rg e o f the Le a g ue ’ s p ro p a g a nd a ."11

It is no ta b le tha t Ste p he nso n c ha ra c te rize s the wo rk o f the Na tio na l

C itize ns Le a g ue a s "p ro p a g a nd a ", in line with Se lig ma n’ s e xp o sitio n of

11 Na tha nie l Wrig ht Ste p he nso n, Ne lso n W. Ald ric h, A Le a d e r in Ame ric a n Po litic s, Sc rib ne rs, N.Y. 1930

10 Wa rb urg ’ s wo rk a s "the e d uc a tio n o f the c o untry" a nd "to b re a k

d o wn p re jud ic e s". Muc h o f the five millio n d o lla rs o f the b a nke rs slush fund wa s sp e nt

und e r the a usp ic e s o f the Na tio na l C itize ns’ Le a g ue , whic h wa s ma d e up o f c o lle g e p ro fe sso rs. The two mo st tire le ss p ro p a g a nd ists fo r the Ald ric h Pla n we re Pro fe sso r O .M. Sp ra g ue o f Ha rva rd , a nd J. La ure nc e La ug hlin o f the Unive rsity o f C hic a g o .

C o ng re ssma n C ha rle s A. Lind b e rg h, Sr., no te s: "J. La ure nc e La ug hlin, C ha irma n o f the Exe c utive C o mmitte e o f the

Na tio na l C itize ns’ Le a g ue sinc e its o rg a niza tio n, ha s re turne d to his p o sitio n a s p ro fe sso r o f p o litic a l e c o no mic s in the Unive rsity o f

C hic a g o . In June , 1911, Pro fe sso r La ug hlin wa s g ive n a ye a r’ s le a ve fro m the unive rsity, tha t he mig ht g ive a ll o f his time to the

c a mp a ig n o f e d uc a tio n und e rta ke n b y the Le a g ue . . . He ha s wo rke d ind e fa tig a b ly, a nd it is la rg e ly d ue to his e ffo rts a nd his p e rsiste nc e tha t the c a mp a ig n e nte rs the fina l sta g e with fla tte ring p ro sp e c ts o f a suc c e ssful o utc o me . . . The re a d e r kno ws tha t the Unive rsity o f C hic a g o is a n institutio n e nd o we d b y Jo hn D. Ro c ke fe lle r, with ne a rly fifty millio n d o lla rs."12

In his b io g ra p hy o f Ne lso n Ald ric h, Ste p he nso n re ve a ls tha t the

C itize ns’ Le a g ue wa s a lso a Je kyll Isla nd p ro d uc t. In c ha p te r 24 we find tha t: The Ald ric h Pla n wa s re p re se nte d to C o ng re ss a s the re sult o f thre e ye a rs o f wo rk, stud y a nd tra ve l b y me mb e rs o f the Na tio na l Mo ne ta ry C o mmissio n, with e xp e nd iture s o f mo re tha n thre e hund re d tho usa nd d o lla rs.*

Te stifying b e fo re the C o mmitte e o n Rule s, De c e mb e r 15, 1911, a fte r the Ald ric h p la n ha d b e e n intro d uc e d in C o ng re ss, C o ng re ssma n Lind b e rg h sta te d ,

"O ur fina nc ia l syste m is a fa lse o ne a nd a hug e b urd e n o n the p e o p le . . . I ha ve a lle g e d tha t the re is a Mo ne y Trust. The Ald ric h p la n is a sc he me p la inly in the inte re st o f the Trust . . . Why d o e s the Mo ne y Trust p re ss so ha rd fo r the Ald ric h Pla n no w, b e fo re the p e o p le kno w wha t the mo ne y trust ha s b e e n d o ing ? "

Lind b e rg h c o ntinue d his sp e e c h, "The Ald ric h Pla n is the Wa ll Stre e t Pla n. It is a b ro a d c ha lle ng e to

the G o ve rnme nt b y the c ha mp io n o f the Mo ne y Trust. It me a ns

a no the r p a nic , if ne c e ssa ry, to intimid a te the p e o p le . Ald ric h, p a id

b y the G o ve rnme nt to re p re se nt the p e o p le , p ro p o se s a p la n fo r the trusts inste a d . It wa s b y a ve ry c le ve r mo ve tha t the Na tio na l Mo ne ta ry C o mmissio n wa s c re a te d . In 1907 na ture re sp o nd e d mo st

b e a utifully a nd g a ve this c o untry the m o st b o untiful c ro p it ha d e ve r

ha d . O the r ind ustrie s we re b usy to o , a nd fro m a na tura l sta nd p o int

a ll the c o nd itio ns we re rig ht fo r a mo st __________________________

12 C ha rle s A. Lind b e rg h, Sr., Ba nking , C urre nc y a nd the Mo ne y Trust, 1913, p . 131

* In 1911, the Ald ric h Pla n b e c a me p a rt o f the o ffic ia l p la tfo rm o f the Re p ub lic a n Pa rty.

11 p ro sp e ro us ye a r. Inste a d , a p a nic e nta ile d e no rmo us lo sse s up o n us.

Wa ll Stre e t kne w the Ame ric a n p e o p le we re d e ma nd ing a re me d y

a g a inst the re c urre nc e o f suc h a rid ic ulo usly unna tura l c o nd itio n. Mo st Se na to rs a nd Re p re se nta tive s fe ll into the Wa ll Stre e t tra p a nd p a sse d the Ald ric h Vre e la nd Eme rg e nc y C urre nc y Bill. But the re a l p urp o se wa s to g e t a mo ne ta ry c o mmissio n whic h wo uld fra me a p ro p o sitio n fo r a me nd me nts to o ur c urre nc y a nd b a nking la ws whic h wo uld suit the Mo ne y Trust. The inte re sts a re no w b usy

e ve rywhe re e d uc a ting the p e o p le in fa vo r o f the Ald ric h Pla n. It is re p o rte d tha t a la rg e sum o f mo ne y ha s b e e n ra ise d fo r this p urp o se . Wa ll Stre e t sp e c ula tio n b ro ug ht o n the Pa nic o f 1907. The

d e p o sito rs’ fund s we re lo a ne d to g a mb le rs a nd a nyb o d y the Mo ne y Trust wa nte d to fa vo ur. The n whe n the d e p o sito rs wa nte d the ir mo ne y, the b a nks d id no t ha ve it. Tha t ma d e the p a nic ."

Ed wa rd Vre e la nd , c o -a utho r o f the b ill, wro te in the Aug ust 25, 1910 Ind e p e nd e nt (whic h wa s o wne d b y Ald ric h), "Und e r the p ro p o se d mo ne ta ry p la n o f Se na to r Ald ric h, mo no p o lie s will d isa p p e a r,

b e c a use the y will no t b e a b le to ma ke mo re tha n fo ur p e rc e nt inte re st a nd mo no p o lie s c a nno t c o ntinue a t suc h a lo w ra te . Also , this will ma rk the d isa p p e a ra nc e o f the G o ve rnme nt fro m the

b a nking b usine ss."

Vre e la nd ’ s fa nta stic c la ims we re typ ic a l o f the p ro p a g a nd a flo o d unle a she d to p a ss the Ald ric h Pla n. Mo no p o lie s wo uld d isa p p e a r, the G o ve rnme nt wo uld d isa p p e a r fro m the b a nking b usine ss. Pie in the sky.

Na tio n Ma g a zine , Ja nua ry 19, 1911, no te d , "The na me o f C e ntra l Ba nk is c a re fully a vo id e d , b ut the ‘ Fe d e ra l Re se rve Asso c ia tio n’ , the na me g ive n to the p ro p o se d c e ntra l o rg a niza tio n, is e nd o we d with the usua l p o we rs a nd re sp o nsib ilitie s o f a Euro p e a n C e ntra l Ba nk."

Afte r the Na tio na l Mo ne ta ry C o mmissio n ha d re turne d fro m Euro p e , it he ld no o ffic ia l me e ting s fo r ne a rly two ye a rs. No re c o rd s o r minute s we re e ve r p re se nte d sho wing who ha d a utho re d the Ald ric h Pla n. Sinc e the y he ld no o ffic ia l me e ting s, the me mb e rs o f the c o mmissio n c o uld ha rd ly c la im the Pla n a s the ir o wn. The so le ta ng ib le re sult o f the C o mmissio n’ s thre e hund re d tho usa nd d o lla r

e xp e nd iture wa s a lib ra ry o f thirty m a ssive vo lum e s o n Euro p e a n

b a nking . Typ ic a l o f the se wo rks is a tho usa nd p a g e histo ry o f the Re ic hsb a nk, the c e ntra l b a nk whic h c o ntro lle d mo ne y a nd c re d it in

G e rma ny, a nd who se p rinc ip a l sto c kho ld e rs, we re the Ro thsc hild s

a nd Pa ul Wa rb urg ’ s fa mily b a nking ho use o f M.M. Wa rb urg

C o mp a ny. The C o mmissio n’ s re c o rd s sho w tha t it ne ve r func tio ne d

a s a d e lib e ra tive b o d y. Ind e e d , its o nly "me e ting " wa s the se c re t

c o nfe re nc e he ld a t Je kyll Isla nd , a nd this c o nfe re nc e is no t me ntio ne d in a ny p ub lic a tio n o f the C o mmissio n. Se na to r C ummins p a sse d a re so lutio n in C o ng re ss o rd e ring the C o mmissio n to re p o rt o n Ja nua ry 8, 1912, a nd sho w so me c o nstruc tive re sults o f its thre e ye a rs’ wo rk. In the fa c e o f this c ha lle ng e , the Na tio na l Mo ne ta ry

C o mmissio n c e a se d to e xist.

12 With the ir five millio n d o lla rs a s a wa r c he st, the Ald ric h Pla n

p ro p a g a nd ists wa g e d a no -ho ld s b a rre d wa r a g a inst the ir o p p o sitio n. And re w Fra me te stifie d b e fo re the Ho use Ba nking a nd

C urre nc y C o mmitte e o f the Ame ric a n Ba nke rs Asso c ia tio n. He re p re se nte d a g ro up o f We ste rn b a nke rs who o p p o se d the Ald ric h Pla n:

C HAIRMAN C ARTER G LASS: "Why d id n’ t the We ste rn b a nke rs ma ke the mse lve s he a rd whe n the Ame ric a n Ba nke rs Asso c ia tio n g a ve its unq ua lifie d a nd , we a re a ssure d , una nimo us a p p ro va l o f the sc he me p ro p o se d b y the Na tio na l Mo ne ta ry C o mmissio n? "

ANDREW FRAME: "I’ m g la d yo u c a lle d my a tte ntio n to tha t. Whe n tha t mo ne ta ry b ill wa s g ive n to the c o untry, it wa s b ut a fe w d a ys p re vio us to the me e ting o f the Ame ric a n Ba nke rs Asso c ia tio n in Ne w O rle a ns in 1911. The re wa s no t o ne b a nke r in a hund re d who

ha d re a d tha t b ill. We ha d twe lve a d d re sse s in fa vo r o f it. G e ne ra l Ha mb y o f Austin, Te xa s, wro te a le tte r to Pre sid e nt Wa tts a sking fo r a

he a ring a g a inst the b ill. He d id no t g e t a ve ry c o urte o us a nswe r. I re fuse d to vo te o n it, a nd a g re a t ma ny o the r b a nke rs d id like wise ."

MR. BULKLEY: "Do yo u me a n tha t no me mb e r o f the Asso c ia tio n

c o uld b e he a rd in o p p o sitio n to the b ill? " ANDREW FRAME: "The y thro ttle d a ll a rg ume nt." MR. KINDRED: "But the re p o rt wa s g ive n o ut tha t it wa s p ra c tic a lly

una nimo us." ANDREW FRAME: "The b ill ha d a lre a d y b e e n p re p a re d b y Se na to r

Ald ric h a nd p re se nte d to the e xe c utive c o unc il o f the Ame ric a n Ba nke rs Asso c ia tio n in Ma y, 1911. As a me mb e r o f tha t c o unc il, I re c e ive d a c o p y the d a y b e fo re the y a c te d up o n it. Whe n the b ill

c a me in a t Ne w O rle a ns, the b a nke rs o f the Unite d Sta te s ha d no t re a d it."

MR. KINDRED: "Did the p re sid ing o ffic e r simp ly rule o ut tho se who wa nte d to d isc uss it ne g a tive ly? "

ANDREW FRAME: "The y wo uld no t a llo w a nyo ne o n the p ro g ra m who wa s no t in fa vo r o f the b ill."

C HAIRMAN G LASS: "Wha t sig nific a nc e ha s the fa c t tha t a t the ne xt

a nnua l me e ting o f the Ame ric a n Ba nke rs Asso c ia tio n he ld a t De tro it in 1912, the Asso c ia tio n d id no t re ite ra te its e nd o rse me nt o f the p la n o f the Na tio na l Mo ne ta ry C o mmissio n, kno wn a s the Ald ric h sc he me ? "

ANDREW FRAME: "It d id no t re ite ra te the e nd o rse me nt fo r the simp le

fa c t tha t the b a c ke rs o f the Ald ric h Pla n kne w tha t the Asso c ia tio n wo uld no t e nd o rse it. We we re re a d y fo r the m , b ut the y d id no t

b ring it up ."

13 And re w Fra me e xp o se d the c o llusio n whic h in 1911 p ro c ure d a n

e nd o rse me nt o f the Ald ric h Pla n fro m the Ame ric a n Ba nke rs Asso c ia tio n b ut whic h in 1912 d id no t e ve n d a re to re p e a t its e nd o rse me nt o f the Ald ric h Pla n fro m the Ame ric a n Ba nke rs Asso c ia tio n b ut whic h in 1912 d id no t e ve n d a re to re p e a t its

C ha irma n G la ss the n c a lle d a s witne ss o ne o f the te n mo st p o we rful

b a nke rs in the Unite d Sta te s, G e o rg e Blume ntha l, p a rtne r o f the inte rna tio na l b a nking ho use o f La za rd Fre re s a nd b ro the r-in-la w o f Eug e ne Me ye r, Jr. C a rte r G la ss e ffusive ly we lc o me d Blume ntha l, sta ting tha t "Se na to r O ’ G o rma n o f Ne w Yo rk wa s kind e no ug h to sug g e st yo ur na me to us." A ye a r la te r, O ’ G o rma n p re ve nte d a Se na te C o mmitte e fro m a sking his ma ste r, Pa ul Wa rb urg , a ny

e mb a rra ssing q ue stio ns b e fo re a p p ro ving his no mina tio n a s the first

G o ve rno r o f the Fe d e ra l Re se rve Bo a rd .

G e o rg e Blume ntha l sta te d , "Sinc e 1893 my firm o f La za rd Fre re s ha s

b e e n fo re mo st in imp o rta tio ns a nd e xp o rta tio ns o f g o ld a nd ha s the re b y c o me into c o nta c t with e ve ryb o d y who ha d a nything to

d o with it."

C o ng re ssma n Ta ylo r a ske d , "Ha ve yo u a sta te me nt the re a s to the p a rt yo u ha ve ha d in the imp o rta tio n o f g o ld into the Unite d Sta te s? " Ta ylo r a ske d this b e c a use the Pa nic o f 1893 is kno wn to

e c o no mists a s a c la ssic e xa mp le o f a mo ne y p a nic c a use d b y g o ld mo ve me nts.

"No ," re p lie d G e o rg e Blume ntha l, "I ha ve no thing a t a ll o n tha t,

b e c a use it is no t b e a ring o n the q ue stio n."

A b a nke r fro m Phila d e lp hia , Le slie Sha w, d isse nte d with o the r witne sse s a t the se he a ring s, c ritic izing the muc h va unte d "d e c e ntra liza tio n" o f the Syste m. He sa id , "Und e r the Ald ric h Pla n the

b a nke rs a re to ha ve lo c a l a sso c ia tio ns a nd d istric t a sso c ia tio ns, a nd whe n yo u ha ve a lo c a l o rg a niza tio n, the c e nte re d c o ntro l is

a ssure d . Sup p o se we ha ve a lo c a l a sso c ia tio n in Ind ia na p o lis; c a n yo u no t na me the thre e me n who will d o mina te tha t a sso c ia tio n? And the n c a n yo u no t na me the o ne ma n e ve rywhe re e lse . Whe n yo u ha ve ho o ke d the b a nks to g e the r, the y c a n ha ve the b ig g e st influe nc e o f a nything in this c o untry, with the e xc e p tio n o f the ne wsp a p e rs."

To p ro mo te the De mo c ra tic c urre nc y b ill, C a rte r G la ss ma d e p ub lic the so rry re c o rd o f the Re p ub lic a n e ffo rts o f Se na to r Ald ric h’ s Na tio na l Mo ne ta ry C o mmissio n. His Ho use Re p o rt in 1913 sa id , "Se na to r Ma c Ve a g h fixe s the c o st o f the Na tio na l Mo ne ta ry

C o mmissio n to Ma y 12, 1911 a t $207,130. The y ha ve sinc e sp e nt

a no the r hund re d tho usa nd d o lla rs o f the ta xp a ye r’ s mo ne y. The a no the r hund re d tho usa nd d o lla rs o f the ta xp a ye r’ s mo ne y. The

a nd C urre nc y C o mmitte e find s little tha t b e a rs up o n the p re se nt sta te o f the c re d it ma rke t o f the Unite d Sta te s. We o b je c t to the Ald ric h Bill o n the fo llo wing p o ints:

14 Its e ntire la c k o f a d e q ua te g o ve rnme nt o r p ub lic c o ntro l o f the

b a nking me c ha nism it se ts up . Its te nd e nc y to thro w vo ting c o ntro l into the ha nd s o f the la rg e

b a nks o f the syste m. The e xtre me d a ng e r o f infla tio n o f c urre nc y inhe re nt in the syste m. The insinc e rity o f the b o nd -fund ing p la n p ro vid e d fo r b y the

me a sure , the re b e ing a b a re fa c e d p re te nse tha t this syste m wa s to

c o st the g o ve rnme nt no thing . The d a ng e ro us mo no p o listic a sp e c ts o f the b ill. O ur C o mmitte e a t the o utse t o f its wo rk wa s me t b y a we ll-d e fine d

se ntime nt in fa vo r o f a c e ntra l b a nk whic h wa s the ma nife st o utg ro wth o f the wo rk tha t ha d b e e n d o ne b y the Na tio na l Mo ne ta ry C o mmissio n."

G la ss’ s d e nunc ia tio n o f the Ald ric h Bill a s a c e ntra l b a nk p la n ig no re d the fa c t tha t his o wn Fe d e ra l Re se rve Ac t wo uld fulfill a ll the func tio ns o f a c e ntra l b a nk. Its sto c k wo uld b e o wne d b y p riva te sto c kho ld e rs who c o uld use the c re d it o f the G o ve rnme nt fo r the ir o wn p ro fit; it wo uld ha ve c o ntro l o f the na tio n’ s mo ne y a nd c re d it re so urc e s; a nd it wo uld b e a b a nk o f issue whic h wo uld fina nc e the

g o ve rnme nt b y "mo b ilizing " c re d it in time o f wa r. In "The Ra tio na le o f

C e ntra l Ba nking ," Ve ra C . Smith (C o mmitte e fo r Mo ne ta ry Re se a rc h

a nd Ed uc a tio n, June , 1981) write s, "The p rima ry d e finitio n o f a

c e ntra l b a nk is a b a nking syste m in whic h a sing le b a nk ha s e ithe r a

c o mp le te o r re sid ua ry mo no p o ly in the no te issue . A c e ntra l b a nk is no t a na tura l p ro d uc t o f b a nking d e ve lo p me nt. It is imp o se d fro m o utsid e o r c o me s into b e ing a s the re sult o f G o ve rnme nt fa vo rs."

Thus a c e ntra l b a nk a tta ins its c o mma nd ing p o sitio n fro m its

g o ve rnme nt g ra nte d mo no p o ly o f the no te issue . This is the ke y to its p o we r. Also , the a c t o f e sta b lishing a c e ntra l b a nk ha s a d ire c t infla tio na ry imp a c t b e c a use o f the fra c tio na l re se rve syste m , whic h

a llo ws the c re a tio n o f b o o k-e ntry lo a ns a nd the re b y, mo ne y, a a llo ws the c re a tio n o f b o o k-e ntry lo a ns a nd the re b y, mo ne y, a

d e p o sits o r re se rve s. The Ald ric h Pla n ne ve r c a me to a vo te in C o ng re ss, b e c a use the

Re p ub lic a ns lo st c o ntro l o f the Ho use in 1910, a nd sub se q ue ntly lo st the Se na te a nd the Pre sid e nc y in 1912.

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