Financial History Issue 129 (Spring 2019) | Page 31
agency, the US Securities and Exchange
Commission (SEC), rather than in a large
existing agency with other responsibilities,
the Federal Trade Commission.
Glass did not construct his propos-
als from scratch. Instead, he used exist-
ing models and suggestions put forth by
others. Glass based the regional reserve
bank approach of the Federal Reserve
Act on the existence of clearing houses
in major cities that facilitated transac-
tions between banks in that region. In
drafting the Federal Reserve Act, Glass
borrowed many technical provisions from
the Aldrich Plan. Two decades before the
Glass-Steagall Act separated commercial
and investment banking, the Pujo sub-
committee and Louis Brandeis urged this
very reform. Before Glass proposed cre-
ation of the SEC, the Roper Committee,
Senator King and the Twentieth Century
Fund had called for the establishment of
a specialized securities agency. However,
while Glass did not originate these pro-
posals, he was the person most responsible
for getting them enacted into law.
Glass’s major efforts in the financial area
all had the same goal—preventing the flow
of money from communities around the
country to Wall Street to fund securities
speculation. As an unknown congressman,
Glass had been assigned the difficult task
of designing reserve banking legislation
and getting it enacted into law. Glass was
extremely proud of his accomplishment,
the Federal Reserve Act of 1913. The act cre-
ated a unique geographically decentralized
reserve banking system precisely in order
to curtail the movement of funds from
across the nation to northern financial
markets. Much of Glass’s work after 1913
was designed to preserve this decentralized
system. Thus, one of Glass’s main goals in
the Glass-Steagall Act was to stop the use
of the regional Federal Reserve banks he
helped create in the Federal Reserve Act
from directing money from their local
communities to Wall Street.
In 1934, Glass supported the creation of
the SEC in an attempt to keep the Federal
Reserve System free from entanglement
with securities markets. Glass opposed the
Roosevelt administration’s 1935 banking
legislation since he feared it would convert
the decentralized Federal Reserve System
into a central bank that inevitably would be
controlled by northern financial interests.
Development of Glass’s Beliefs
Glass’s political and economic beliefs had
their origin in his views regarding post-
Civil War Virginia. Like most of his white
southern contemporaries, Glass was an
unabashed racist who saw Reconstruction,
where the federal government disenfran-
chised ex-Confederates and enfranchised
blacks, as an unmitigated disaster. During
the currency debates during the latter part
of the 19th century, Glass developed a
similar animosity toward another outside
force: big city financial interests.
Glass’s views regarding the federal gov-
ernment and Wall Street were reinforced
by his government service during the
Woodrow Wilson administration, where
he was surrounded by other white South-
erners. Like Glass, they were raised in a
region where, in Robert Wiebe’s words,
“Traditional hostilities toward national
interference permeated the atmosphere.”
President Wilson was from the South, as
were his Secretary of the Treasury, Wil-
liam Gibbs McAdoo, and his Chief Eco-
nomic Adviser, Louis Brandeis. Demo-
crats controlled both houses of Congress;
and over half of the Democratic senators
and over 40% of Democratic House mem-
bers were from the South. Southerners
served as Speaker of the House and Major-
ity Leader in the Senate. They were named
as chairmen of 12 of the 14 Senate com-
mittees and 11 of the 13 House committees.
In 1912, Wilson had campaigned for
the presidency against Republican Presi-
dent William Howard Taft and Progres-
sive Party candidate Theodore Roosevelt.
Roosevelt called for the New Nationalism,
which meant greater federal regulation of
big business and finance. Wilson, advised
by Brandeis, advocated the New Freedom,
which meant greater federal efforts to
enhance competition.
Brandeis wrote, “[Roosevelt’s Progres-
sive] Party does not fear commercial
power, however great, if only methods for
regulation are provided. We [the Demo-
crats] believe that no methods of regula-
tion ever have been or can be devised to
remove the menace inherent in private
monopoly and overweening commer-
cial power.” Once Wilson was in office,
Glass was an enthusiastic supporter of
Wilson’s New Freedom programs, which
reflected Glass’s own inclinations. Thus,
Glass authored the Federal Reserve Act,
which provided for a number of regional
reserve banks rather than one central
bank, and he voted for Wilson’s proposals
to strengthen the antitrust laws.
There was a striking similarity in the
backgrounds and views held by Glass and
Brandeis. Both were born in the South
just before the start of the Civil War
(Brandeis in 1856 in Kentucky; Glass in
1858 in Virginia). Both grew up in the
post-Civil War South, with its antipathy
to interference from both the federal gov-
ernment and powerful northern interests.
Both men made an exception to their
opposition to federal government action
in the case of laws aimed at curbing pow-
erful financial interests. Thus, they both
were involved in the development of the
Federal Reserve Act, with is stress on
geographic decentralization and public
control of the banking system. In his 1913
book, Other People’s Money and How the
Bankers Use It, Brandeis called for the
separation of commercial and investment
banking; Glass accomplished separation
in 1933 in the Glass-Steagall Act. In his
book, Brandeis also called for a securi-
ties disclosure law. In 1919, when Glass
was Secretary of the Treasury, he had the
nation’s first securities disclosure bill pre-
pared and introduced in Congress.
The New Deal
Franklin Roosevelt’s election as President
in 1932 presented Glass, Brandeis and other
Wilsonian progressives with a conun-
drum. Even before Roosevelt assumed
office, Glass and other old progressives
worried that he was likely to pursue poli-
cies providing for greatly increased federal
authority. Some of FDR’s early programs,
such as the Securities Act, the Securities
Exchange Act and the Glass-Steagall Act,
implemented New Freedom ideas. But
others, like the National Industrial Recov-
ery Act and the Agricultural Adjustment
Act, embodied the very kind of massive
federal interference in the private sec-
tor that progressives feared. Many, if not
most, of the old Wilsonian progressives,
including Glass, broke with the New Deal.
There is a striking similarity between the
views regarding the New Deal held by Glass
and Brandeis. Both opposed the National
Industrial Recovery Act. Glass called the
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