A History of Money and Banking in the United States: The Colonial Era to World War II (44 page)

On the other side of the gold-standard decision were the bulk of the nation’s economists, who signed a mass petition urging immediate return to gold. They were led by two doughty hard-money men: Dr. H. Parker Willis, who had staunchly opposed the Strong-Morgan inflationism of the 1920s and urged rapid liquidation of unsound assets to promote recovery; and Dr. Benjamin M. Anderson, longtime hard-money economist of Chase National Bank, who had influenced Chase President Albert Wiggin in favor of hard-money and laissez-faire policies. In the executive branch, the major opponent of the new fiat regime was Lewis W. Douglas, Arizona scion of the Phelps Dodge copper mining interests, and Roosevelt’s head of the Bureau of Budget. The fiscally conservative Douglas had, in early 1933, persuaded Roosevelt to make severe cuts in the proposed appropriations of the executive agencies.

Even though monetary nationalism had triumphed, the Morgan interests and the other monetary internationalists were anxious to re-establish fixed exchange rates with Britain, 51See Rothbard, “The New Deal,” pp. 93–97; Chernow,
House of
Morgan
, pp. 357–59; and Jordan Schwarz,
1933: Roosevelt’s Decision, the
United States Leaves the Gold Standard
(New York: Chelsea House, 1969).

Fisher was also a partner with James H. Rand, Jr., in a card-index manufacturing firm.

From Hoover to Roosevelt:

305

The Federal Reserve and the Financial Elites
and to rebuild the special relationship with Morgan allies in Britain and western Europe. The ultra-inflationists, led by The Committee for the Nation, were strongly opposed to fixed exchange rates with Britain and wanted to press ahead with monetary or dollar nationalism, higher gold prices, and continued inflation.

Tensions within the administration, and within the industrial and financial communities, centered around the World Economic Conference set for London in June 1933, which had been prepared for a year by the British-dominated League of Nations, in a desperate attempt to restore some sort of fixed-exchange-rate, stabilized international monetary system. The World Economic Conference, with delegates from 64 nations, met on June 12. The gold bloc at the conference, led by the French, urged an immediate restoration of the full, classical gold standard; the British wanted fixed exchange rates, tied to gold or not, but emphasizing that the pound must be cheaper at $4.00, so as not to lose the export advantage Britain had built up in the past two years. The United States, on the other had, wanted to place prime emphasis on continued domestic inflation; currency stabilization, which should not put the pound below $4.25, could wait until some future date after domestic prices had risen.

From the beginning, however, there was great tension between the bulk of the American delegation to London and the Roosevelt administration in Washington. Chief economic adviser to the American delegation was James P. Warburg of Kuhn, Loeb, who took the Morgan line of favoring a new international gold standard at new and more realistic exchange rates.

Morgan-oriented George L. Harrison of the New York Fed, and Professor O.M.W. Sprague, were sent by FDR to work on an agreement for temporary stabilization of exchange rates for the duration of the conference. When, however, Sprague and Harrison concluded an agreement on June 16 with the British and French for temporary stabilization of the three currencies, setting the dollar-sterling rate at $4.00 a pound, and pledging the United States not to inflate the currency in the meanwhile,
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A History of Money and Banking in the United States:
The Colonial Era to World War II

Roosevelt angrily rejected the agreement. Roosevelt gave two reasons to the chagrined Sprague and Harrison: the pound must be no cheaper than $4.25, and Roosevelt could accept no restraint on his freedom to inflate to raise domestic prices.

Harrison quit in disgust and returned home—a harbinger of the fate of the Morgans in the years to come.

The World Economic Conference proceeded with lengthy discussions, both the Americans and British talking about an eventual “gold standard” which would enjoy no domestic gold coin or bullion circulation, with gold to be used only as a medium for settling international balances of payments—a foretaste of the eventual Bretton Woods system after World War II. The stubbornness of the United States finally forced the assembled delegates to agree on an innocuous final declaration at the end of June that committed the United States to very little more than its own resolution for eventual return to a sadly denatured gold standard, coupled with a vague agreement to cooperate in limiting exchange-rate speculation.

This declaration, weak as it was, seemed to offer hope of eventual stabilization, and so it was strongly supported by Sprague, Warburg, and by chief brain truster Raymond Moley, assistant secretary of state, who was head of the American delegation to London. Within the administration, the agreement was strongly supported by Douglas, Baruch, and by Undersecretary of the Treasury Dean G. Acheson. Acheson was a disciple of Morgan-oriented lawyer Henry L. Stimson, and one of his Washington law partners, J. Harry Covington, was a director of the Guggenheim-controlled Kennecott Copper Corporation.

Sending the proposed declaration to Roosevelt on June 30, Moley pointed out that dollar depreciation during June had brought the pound-dollar rate up to $4.40, well above the $4.25

that Roosevelt had insisted on.

On July 1, however, FDR stunned Moley, the delegates, and the American supporters of the agreement by flatly rejecting the declaration, stating that the United States should be allowed the time “to permit . . . a demonstration of the value of price-lifting
From Hoover to Roosevelt:

307

The Federal Reserve and the Financial Elites
efforts which we have well in hand.” But, adding insult to injury, Roosevelt followed up this rejection on July 3 with an arrogant and contemptuous message to the London conference, which became known as his famous “bombshell message.” Here, Roosevelt denounced any idea of currency stabilization as a “specious fallacy.” In particular, he thundered, “old fetishes of so-called international bankers are being replaced by efforts to plan national currencies” in order to obtain a fixed price level. In short, Roosevelt was now totally and publicly committed to the entire nationalist Fisher–Committee for the Nation program for fiat paper money, currency inflation, and a very steep “reflation” of prices. The idea of stable exchange rates or an international monetary order would fade away for the remainder of the 1930s, and monetary nationalism, currency blocs, and economic warfare would be the order of the day for the remainder of the decade.52

The chagrined supporters of the aborted London monetary agreement soon found it necessary to leave the Roosevelt administration. This included Acheson; Warburg, who had been offered the job of undersecretary of the Treasury before Acheson and who was close to his ancient Kuhn, Loeb allies, the Harriman interests; Lewis W. Douglas, who was soon to write a bitter book attacking the New Deal;53 and Moley, who returned to the academy and who helped run
Today
and
Newsweek
with his friends the Astors and Harrimans.

The Committee for the Nation has long been known as the prime mover behind the fiat money and inflationist policy of the early New Deal; what has not been known until recently was the powerful behind-the-scenes role in the committee played by the Rockefeller empire, in conjunction with their 52Rothbard, “The New Deal,” pp. 97–105. On the World Economic Conference, see Leo Pasvolsky,
Current Monetary Issues
(Washington, D.C.: Brookings Institution, 1933). The full text of the Roosevelt bombshell message can be found in ibid., pp. 83–84.

53Lewis W. Douglas,
The Liberal Tradition
(New York: D. Van Nostrand, 1935).

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

longtime international rival, the British Royal Dutch Shell Oil, financed by the Rothschild interests. Thus, a top financier of The Committee for the Nation was James A. Moffett, a longtime director and high official of the Rockefeller flagship company, the Standard Oil Company of New Jersey. Moffett, friend and early supporter of Roosevelt, coordinated his behind-the-scenes agitation for inflation and against the London Economic Conference with New York banker and leading silver-bloc agitator Rene Leon, who functioned as an agent for the powerful Sir Henri Deterding, head of Royal Dutch Shell, who was heading the international agitation for a worldwide cartelized increase in the price of silver. Deterding pressured Roosevelt for inflation, not so much in his capacity as an oil leader, as in a financier of silver production. It turns out that Moffett and Leon, working in tandem, were most influential in successfully pressuring Roosevelt to torpedo the London Economic Conference.

Here was a startlingly clear case of Rockefeller (and Royal Dutch Shell) against Morgan.54

BANKING AND FINANCIAL LEGISLATION:

1933–1935

The Rockefellers’ and other financiers’ war with the Morgans in 1933 had been building for several years. By the late 1920s, the Rockefellers, along with newly rising financial groups, increasingly resented the Morgan grip over both the Federal Reserve, especially the New York Fed, as well as the administration.

54Professor Thomas Ferguson, who has done particularly illuminating research on the Morgan-Rockefeller battle in the New Deal, had access to the Rene Leon papers, which, as well as oral testimony from Leon’s widow, attests to the crucial Leon-Moffett role in persuading Roosevelt to make his decisive repudiation of the London agreement. Moffett was later to join the Rockefeller-controlled Standard Oil of California. Thomas Ferguson, “Industrial Conflict and the Coming of the New Deal: The Triumph of Multinational Liberalism in America,” in
The Rise and Fall of
the New Deal Order
, 1930–1980, Steve Fraser and Gary Gerstle, eds.

(Princeton, N.J.: Princeton University Press, 1989), pp. 28–29.

From Hoover to Roosevelt:

309

The Federal Reserve and the Financial Elites
Bankers enraged at Benjamin Strong and the New York Fed’s low-interest policy on behalf of Britain in the 1920s, were led by Melvin A. Traylor, head of the Rockefeller-controlled First National Bank of Chicago. The Rockefellers had never been England-oriented. Traylor led the Chicago bankers in going to the Democratic convention in 1928 and supporting Al Smith, the Democratic nominee. Averell Harriman, of Brown Brothers, Harriman, solidified his support of the Democratic Party during the same year and for similar reasons. Also, brash new ethnic groups rose to challenge Morgan hegemony and were fiercely fought by the Morgans and their controlled New York Fed: these included the Bank of America, a huge new Italian-American-run commercial bank chain in the West; and the rising Irish-American buccaneer Joseph P. Kennedy of Boston, both of whom were Democrats and emphatically outside the WASP-Morgan-Republican structure.

The crucial event occurred within the Morgans’ showcase New York institution, the Chase National Bank, a commercial bank with an investment banking arm, Chase Securities. As a result of the 1929 crash, the Rockefeller-controlled Equitable Trust Company was in vulnerable shape, and its new head, Winthrop W. Aldrich, engineered a merger into Chase in March 1930, making Chase the world’s largest bank. Aldrich was the brother-in-law of John D. Rockefeller, and was destined to be for decades the key Rockefeller man in banking as well as in the manipulation of politicians.

A titanic three-year struggle immediately ensued for control of Chase between the Rockefeller and the Morgan forces, who had previously been in charge. The CEO of Chase had been Morgan man Albert H. Wiggin, with Wiggin ally Charles McCain as chairman of the board. The Rockefeller forces quickly mobilized to make Winthrop Aldrich president of the bank, a move fought desperately but unsuccessfully by Morgan partner Thomas W. Lamont. Aldrich was now president and subordinate to Wiggin and McCain, but the nose of the camel was now in the tent, as Aldrich strove to oust Wiggin and McCain and take over the bank. Supporting Aldrich in this
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A History of Money and Banking in the United States:
The Colonial Era to World War II

struggle were board members Thomas M. Debevoise, fraternity brother and top counsel to John D. Rockefeller, Jr.;55 Vincent Astor, of the famed Astor family and friend and cousin of Franklin Roosevelt; and Gordon Auchincloss, close friend of Winthrop Aldrich. As the conflict came to a climax in late 1932, Lamont found to his horror that several high Chase officials in the Aldrich camp were supporting Roosevelt. Cementing the closeness of Rockefeller and Chase National to Franklin D. Roosevelt was the crucial role of the shadowy, dominant adviser to President Woodrow Wilson, “Colonel” Edward Mandell House.

House, a Democratic politician from Texas, had inherited railroads and other properties in Texas, and, during Wilson’s day, was very close to the Morgans. Now, however, House, a key behind-the-scenes adviser to Roosevelt, had shifted to the Rockefeller orbit, impelled by the fact that his daughter was married to Gordon Auchincloss.56

At the end of 1932, Aldrich managed to oust Wiggin as chairman of the board of Chase; and he immediately began to use his perch as president to launch a multipronged and savage attack on the Morgan empire. In the first place, he collaborated fully and enthusiastically with the bitter and raucous Pecora–U.S.

Senate Banking and Currency Committee assaults on Wall Street and particularly on the Morgan empire. Aldrich happily fed the Pecora committee data blackening the Wiggin-McCain regime at Chase, and Pecora was able to use such material to vilify demagogically the Morgan and other bankers for activities that were legal and legitimate. Thereby, Pecora could appeal both to the ignorance and to the envy of the bedazzled public. Thus, Pecora was able to hector the Morgan bankers for 55Debevoise served as the general counsel for all three top Rockefeller philanthropies: the Rockefeller Institute for Medical Research, the General Education Board, and the Rockefeller Foundation. John Ensor Harr and Peter J. Johnson,
The Rockefeller Century
(New York: Charles Scribner’s Sons, 1988), p. 160.