may not always have Pierpont Morgan
with us to meet a banking crisis.”
As a first step towards reform, Aldrich
pushed the passage of the Aldrich-Vreeland Act through Congress in May 1908,
with one of its key provisions being the
establishment of the National Monetary
Commission to study central banking
practices in other countries. He also made
it a point to meet with Warburg and,
after hearing his views on central banking
issues, Aldrich invited him to address his
commission at a meeting at New York’s
Metropolitan Club. Although Warburg
was a proponent of European-style currency management that allowed for sensible adjustments of the money supply to
safeguard the financial system and promote the economy, he did not argue that
a US central bank, like those in Europe,
needed to operate independently from
the federal government. And with the
geographic expanse of the country, he
suggested setting up a network of central
banks rather than a single bank in New
York or some other money market city.
Aldrich embraced Warburg’s ideas and
brought him and a group of leading American financiers to a secret, several day meeting in November of 1910 at the stately Jekyll
Island Club off the barrier reefs of Georgia.
The purpose of the meeting, where Warburg was a “first among equals,” was to
structure an American style central bank,
and by the time the conferees boarded
Aldrich’s private railroad car for the return
trip from Georgia, the first version of the
so-called Aldrich Plan had been created.
The plan envisioned a National Reserve
Association that would conduct its business through a string of 15 interconnected
banks throughout the United States.
Under the Aldrich Plan the governance
of the National Reserve would be controlled by a mix of private bankers and
government policy makers. The association would, in accordance with Warburg’s
conception, rediscount commercial paper
offered to it by member banks to provide
enhanced liquidity and increase the elasticity of the money supply. And it would
serve as a fiscal agent for the US Treasury
in gathering reserves held at the association’s banks in the event a lender of last
resort was needed.
In early 1912, a little over a year following
the Jekyll Island meeting, Aldrich presented
the National Monetary Commission’s final
report, with the Warburg-inspired Aldrich
Plan as its spine. The Aldrich Plan became
the Aldrich Bill, but, with none of the three
presidential candidates endorsing it, the
bill went nowhere in Congress during the
1912 election year. Teddy Roosevelt, who
ran under the Bull Moose Party, had earlier expressed support for a central bank
and suggested that Warburg would be the
ideal person to run it: “Why not give Mr.
Warburg the job? He would be the financial boss, and I would be the political boss,
and we could run the country together.”
But not long after, Roosevelt pulled
his support, citing a belated concern that
the Aldrich Plan would place the country’s currency and credit system in private hands, not subject to effective public
control. Even the Republican candidate,
Howard Taft, in his unsuccessful run as
the incumbent, failed to endorse the plan.
But the most vehement opposition to
the Aldrich Bill came from the Democrats. Bryan was a powerful force at the
party’s stormy 1912 convention, and he
viewed central banking as an activity that
benefited only the interests of the Eastern
banking elite. As a condition for releasing
his delegates to Woodrow Wilson, he promoted a plank in the party’s platform that
stated, “The Democratic Party is opposed
to the Aldrich Plan or a central bank.”
After Wilson trounced Taft and Roosevelt, with his fellow Democrats gaining
firm control of both houses of Congress,
it appeared to Warburg that the efforts
for bank reform had been for naught. He
was certain that the Democrats — belonging to a party, in Warburg’s opinion, that
was controlled by “a powerful wing wedded to the wildest monetary and banking
doctrines” — would let the Unites States
operate for the indefinite future without a
central bank.
But Warburg was wrong. Glass understood the financial perils the country would
face without a central bank and emerged as
a champion of a banking reform. He identified the “Siamese twins of disorder” — an
inelastic currency and a fractionated reserve
system — and believed that, without a central bank, it was just a matter of time until
the next financial panic surfaced. (Glass
knew the country needed a central bank,
but, given his party’s well-known position
on central banking, he avoided calling it
that. Even much later, when writing about
the creation of the Federal Reserve, Glass
clarified that “wherever the term ‘central
bank’ occurs in this narrative it means a
28 FINANCIAL HISTORY | Fall 2015 | www.MoAF.org
‘central bank of banks’ dealing only with
the member bank of a system and not a
central bank in the European sense, transacting business with the public.”)
Glass didn’t wait long after the 1912 elections to move on bank reform. He traveled
through snow on the day after Christmas,
from Lynchburg, Virginia to Wilson’s
home in Princeton, New Jersey, to present
the president-elect with an alternative to
the Aldrich Plan. After Wilson gave his
approval in principle, Glass went to work
in earnest. He received assistance from
able committee members and staff, but
any tracing of the bill’s progress shows
Glass pulling the laboring oar. The passage of the Federal Reserve Act (initially
the Glass-Owen Bank and Currency Act)
was in large part a Glass production with a
fairly quick — if sometimes heated — reconciliation achieved between the House
and Senate versions. Wilson signed the
Act into law in December 1913, almost one
year to the day that Glass raised the central
bank topic with him.
Glass’s legislative accomplishment was
remarkable not just for its speed, but for
the re-evaluation of the central bank issue
he prompted among his fellow Democrats.
Perhaps only Glass, with his populist bona