A History of Money and Banking in the United States: The Colonial Era to World War II (28 page)

Let the masses be hoodwinked into regarding the Indianapolis Monetary Convention as a spontaneous grassroots outpouring of small Midwestern businessmen. To the
cognoscenti
, any organization featuring Henry Payne, Alexander Orr, and especially George Foster Peabody meant but one thing: J.P. Morgan.

The Indianapolis Monetary Convention quickly resolved to urge President McKinley to (1) continue the gold standard, and (2) create a new system of “elastic” bank credit. To that end, the convention urged the president to appoint a new monetary commission to prepare legislation for a new revised monetary system. McKinley was very much in favor of the proposal, signaling Rockefeller agreement, and on July 24 he sent a message to Congress urging the creation of a special monetary commission. The bill for a national monetary commission passed the House of Representatives but died in the Senate.7

Disappointed but intrepid, the executive committee, failing a presidentially appointed commission, decided in August 1897

to go ahead and select its own. The leading role in appointing this commission was played by George Foster Peabody, who 6Ibid., pp. 231, 233. See also Louise Ware,
George Foster Peabody
(Athens: University of Georgia Press, 1951), pp. 161–67.

7See Kolko,
Triumph
, pp. 147–48.

194

A History of Money and Banking in the United States:
The Colonial Era to World War II

served as liaison between the Indianapolis members and the New York financial community. To select the commission members, Peabody arranged for the executive committee to meet in the Saratoga Springs summer home of his investment banking partner, Spencer Trask. By September, the executive committee had selected the members of the Indianapolis Monetary Commission.

The members of the new Indianapolis Monetary Commission were as follows:8

Chairman was former Senator George F. Edmunds, Republican of Vermont, attorney, and former director of several railroads.

C. Stuart Patterson, dean of University of Pennsylvania Law School, and a top official of the Morgan-controlled Pennsylvania Railroad.

Charles S. Fairchild, a leading New York banker, president of the New York Security and Trust Company, former partner in the Boston Brahmin investment banking firm of Lee, Higginson and Company, and executive and director of two major railroads. Fairchild, a leader in New York state politics, had been secretary of the Treasury in the first Cleveland administration.

In addition, Fairchild’s father, Sidney T. Fairchild, had been a leading attorney for the Morgan-controlled New York Central Railroad.

Stuyvesant Fish, scion of two longtime aristocratic New York families, was a partner of the Morgan-dominated New York investment bank of Morton, Bliss and Company, and then president of Illinois Central Railroad and a trustee of Mutual Life.

Fish’s father had been a senator, governor, and secretary of state.

Louis A. Garnett was a leading San Francisco businessman.

Thomas G. Bush of Alabama was a director of the Mobile and Birmingham Railroad.

J.W. Fries was a leading cotton manufacturer from North Carolina.

8See Livingston,
Origins
, pp. 106–07.

The Origins of the Federal Reserve

195

William B. Dean was a merchant from St. Paul, Minnesota, and a director of the St. Paul–based transcontinental Great Northern Railroad, owned by James J. Hill, ally with Morgan in the titanic struggle over the Northern Pacific Railroad with Harriman, Rockefeller, and Kuhn, Loeb.

George Leighton of St. Louis was an attorney for the Missouri Pacific Railroad.

Robert S. Taylor was an Indiana patent attorney for the Morgan-controlled General Electric Company.

The single most important working member of the commission was James Laurence Laughlin, head professor of political economy at the new Rockefeller-founded University of Chicago and editor of its prestigious
Journal of Political Economy.
It was Laughlin who supervised the operations of the commission’s staff and the writing of the reports. Indeed, the two staff assistants to the commission who wrote reports were both students of Laughlin’s at Chicago: former student L. Carroll Root, and his current graduate student Henry Parker Willis.

The impressive sum of $50,000 was raised throughout the nation’s banking and corporate community to finance the work of the Indianapolis Monetary Commission. New York City’s large quota was raised by Morgan bankers Peabody and Orr, and heavy contributions to fill the quota came promptly from mining magnate William E. Dodge; cotton and coffee trader Henry Hentz, a director of the Mechanics National Bank; and J.P. Morgan himself.

With the money in hand, the executive committee rented office space in Washington, D.C., in mid-September, and set the staff to sending out and collating the replies to a detailed monetary questionnaire, sent to several hundred selected experts. The monetary commission sat from late September into December 1897, sifting through the replies to the questionnaire collated by Root and Willis. The purpose of the questionnaire was to mobilize a broad base of support for the commission’s recommendations, which they could claim represented hundreds of expert views. Second, the questionnaire served as an important public relations device,
196

A History of Money and Banking in the United States:
The Colonial Era to World War II

making the commission and its work highly visible to the public, to the business community throughout the country, and to members of Congress. Furthermore, through this device, the commission could be seen as speaking for the business community throughout the country.

To this end, the original idea was to publish the Indianapolis Monetary Commission’s preliminary report, adopted in mid-December, as well as the questionnaire replies in a companion volume. Plans for the questionnaire volume fell through, although it was later published as part of a series of publications on political economy and public law by the University of Pennsylvania.9

Undaunted by the slight setback, the executive committee developed new methods of molding public opinion using the questionnaire replies as an organizing tool. In November, Hugh Hanna hired as his Washington assistant financial journalist Charles A. Conant, whose task was to propagandize and organize public opinion for the recommendations of the commission. The campaign to beat the drums for the forthcoming commission report was launched when Conant published an article in the December 1 issue of
Sound Currency
magazine, taking an advanced line on the report, and bolstering the conclusions not only with his own knowledge of monetary and banking history, but also with frequent statements from the as-yet-unpublished replies to the staff questionnaire.

Over the next several months, Conant worked closely with Jules Guthridge, the general secretary of the commission; they first induced newspapers throughout the country to print abstracts of the questionnaire replies. As Guthridge wrote some commission members, he thereby stimulated “public curiosity” about the forthcoming report, and he boasted that by “careful manipulation” he was able to get the preliminary report

“printed in whole or in part—principally in part—in nearly 9See Livingston,
Origins
, pp. 107–08.

The Origins of the Federal Reserve

197

7,500 newspapers, large and small.” In the meanwhile, Guthridge and Conant orchestrated letters of support from prominent men across the country, when the preliminary report was published on January 3, 1898. As soon as the report was published, Guthridge and Conant made these letters available to the daily newspapers. Quickly, the two built up a distribution system to spread the gospel of the report, organizing nearly 100,000 correspondents “dedicated to the enactment of the commission’s plan for banking and currency reform.”10

The prime and immediate emphasis of the preliminary report of the Indianapolis Monetary Commission was to complete the promise of the McKinley victory by codifying and enacting what was already in place de facto: a single gold standard, with silver reduced to the status of subsidiary token currency. Completing the victory over Bryanism and free silver, however, was just a mopping-up operation; more important in the long run was the call raised by the report for banking reform to allow greater elasticity. Bank credit could then be increased in recessions and whenever seasonal pressure for redemption by agricultural country banks forced the large central reserve banks to contract their loans. The actual measures called for by the commission were of marginal importance. (More important was that the question of banking reform had been raised at all.) The public having been aroused by the preliminary report, the executive committee decided to organize a second and final meeting of the Indianapolis Monetary Convention, which duly met at Indianapolis on January 25, 1898. The second convention was a far grander affair than the first, bringing together 496 delegates from 31 states. Furthermore, the gathering was a cross-section of America’s top corporate leaders. While the state of Indiana naturally had the largest delegation, of 85 representatives of boards of trade and chambers of commerce, New York sent 74 delegates, including many from the Board of Trade and 10Ibid., pp. 109–10.

198

A History of Money and Banking in the United States:
The Colonial Era to World War II

Transportation, the Merchants’ Association, and the Chamber of Commerce in New York City.

Such corporate leaders attended as Cleveland iron manufacturer Alfred A. Pope, president of the National Malleable Castings Company; Virgil P. Cline, legal counsel to Rockefeller’s Standard Oil Company of Ohio; and C.A. Pillsbury of Minneapolis-St. Paul, organizer of the world’s largest flour mills. From Chicago came such business notables as Marshall Field and Albert A. Sprague, a director of the Chicago Telephone Company, subsidiary of the Morgan-controlled tele-phone monopoly, American Telephone and Telegraph Company. Not to be overlooked was delegate Franklin MacVeagh, a wholesale grocer from Chicago, and an uncle of a senior partner in the Wall Street law firm of Bangs, Stetson, Tracy and MacVeagh, counsel to J.P. Morgan and Company. MacVeagh, who was later to become secretary of the Treasury in the Taft administration, was wholly in the Morgan ambit. His father-in-law, Henry F. Eames, was the founder of the Commercial National Bank of Chicago, and his brother Wayne was soon to become a trustee of the Morgan-dominated Mutual Life Insurance Company.

The purpose of the second convention, as former Secretary of the Treasury Charles S. Fairchild candidly explained in his address to the gathering, was to mobilize the nation’s leading businessmen into a mighty and influential reform movement. As he put it, “If men of business give serious attention and study to these subjects, they will substantially agree upon legislation, and thus agreeing, their influence will be prevailing.” He concluded, “My word to you is, pull all together.” Presiding officer of the convention, Iowa Governor Leslie M. Shaw, was, however, a bit disingenuous when he told the gathering, “You represent today not the banks, for there are few bankers on this floor. You represent the business industries and the financial interests of the country.” There were plenty of bankers there, too.11 Shaw 11Ibid., pp. 113–15.

The Origins of the Federal Reserve

199

himself, later to be secretary of the Treasury under Theodore Roosevelt, was a small-town banker in Iowa, and president of the Bank of Denison who continued as bank president throughout his term as convention governor. More important in Shaw’s outlook and career was the fact that he was a longtime close friend and loyal supporter of the Des Moines Regency, the Iowa Republican machine headed by the powerful Senator William Boyd Allison. Allison, who was to obtain the Treasury post for his friend, was in turn tied closely to Charles E. Perkins, a close Morgan ally, president of the Chicago, Burlington and Quincy Railroad, and kinsman of the powerful Forbes financial group of Boston, long tied in with the Morgan interests.12

Also serving as delegates to the second convention were several eminent economists, each of whom, however, came not as academic observers but as representatives of elements of the business community. Professor Jeremiah W. Jenks of Cornell, a proponent of trust cartelization by government and soon to become a friend and adviser of Theodore Roosevelt as governor, came as delegate from the Ithaca Business Men’s Association.

Frank W. Taussig of Harvard University represented the Cambridge Merchants’ Association. Yale’s Arthur Twining Hadley, soon to be the president of Yale, represented the New Haven Chamber of Commerce, and Frank M. Taylor of the University of Michigan came as representative of the Ann Arbor Business Men’s Association. Each of these men held powerful posts in the organized economics profession, Jenkins, Taussig, and Taylor serving on the currency committee of the American Economic Association. Hadley, a leading railroad economist, also served on the boards of directors of Morgan’s New York, New Haven and Hartford and Atchison, Topeka and Santa Fe Railroads.13

12See Rothbard, “Federal Reserve,” pp. 95–96.

13On Hadley, Jenks, and especially Conant, see Carl P. Parrini and Martin J. Sklar, “New Thinking about the Market, 1896–1904: Some American Economists on Investment and the Theory of Surplus Capital,”
Journal of Economic History
43 (September 1983): 559–78. The authors point
200

A History of Money and Banking in the United States:
The Colonial Era to World War II

Both Taussig and Taylor were monetary theorists who, while committed to a gold standard, urged reform that would make the money supply more elastic. Taussig called for an expansion of national bank notes, which would inflate in response to the

“needs of business.” As Taussig14 put it, the currency would then “grow without trammels as the needs of the community spontaneously call for increase.” Taylor, too, as one historian puts it, wanted the gold standard to be modified by “a conscious control of the movement of money” by government “in order to maintain the stability of the credit system.” Taylor justified governmental suspensions of specie payment to “protect the gold reserve.”15