WATCH NOW
The people who met Berkley in Jekyll Island thought that the entire wiring structure of the banks suffered from serious problems, and in their eyes, the banking system indeed suffered issues. It is a well-established fact how Jekyll Island delegates’ addressed the problem since before and after the meeting, some spoke publicly and several others wrote extensively on this very topic. All of them summarized their worries in the plan which they drafted at the Jekyll Island, as well as in the National Monetary Commission reports.
Concerned with financial panics which disrupted economic activity periodically in the United States in the 19th century, these men were just like the other Americans. In fact, these nationwide panics occurred on an average of every 15 years. As a result, long and deep recessions were triggered after these financial institutions had to suspend their operations for a while. Although American banks had large reserves of cash, they were placed in vaults of thousands of banks across the nation, which is why they were soon frozen and could not be accessed. The huge required reserves of cash that American banks held also became scattered. During crises, these reserves were never usable, which only worsened the situation. As for during booms, big cities such as New York were the prime place where excess reserves flowed as banks invested them in call loans. These repayable loans to brokers were much easier to manage, and as a result, these brokers also loaned the funds to investors whose stock purchases were used for collateral. This system of America made bank reserves immobilized which caused equity markets to be volatile. This was a major factor that contributed to financial instability.
On the other hand, European bankers allocated a large part of their portfolios to short-term loans to traders and producers. Such and other loans were already an asset, as hyper-inflation made it nearly impossible to keep this money in cash. These loans were flexible for a number of reasons. For one, banks, always having a number of clients with whom they had established business relationships, agreed to issue borrowers guarantees, securing payment from the borrowers’ ‘guaranteed’ accounts. Secondly, banks were paid to finance merchandise being produced and sold, with the promise of having collateral from the borrower in the event of a default. Participants from Jekyll Island were concerned about the United States inelastic currency supply as well. The dollar value was pegged to gold, just like all other currencies, and the amount of currency that could be issued was pegged to an issue of a special class of federal government bonds stocks. The currency supply did not increase or decrease with the seasonal changes in cash demands such as the fall harvest or holiday shopping season, causing major interest rate fluctuations between months. Severe Long Term Deflections were created by the inelastic currency supply combined with low quantities of gold.
Likewise, participants of the Jekyll Island conference thought that a multitude of outdated structures restricted America’s economic and financial development. First of all, American banks were not allowed to do business outside the country. So American traders had to pay for exports and imports through financial institutions located in Europe, mainly London. Meanwhile, American banks were unable to work together in clearing checks without being confined to one city. This made interstate and intercity commerce very expensive because of the high risk and cost involved in transporting money over long distances.
In a 1907 article published in the New York Times, Paul Warburg, a prominent investment banker at Kuhn, Loeb and Co, stated that United States financial forecasting was at approximately the same point that had been in Europe when the Medicis were in power, and during the time of Hammurabi in the Asian continent, while elaborating about the financial systems of the US and Europe.
In the US, when the Panic of 1907 set in, in midway through Warburg’s analysis, his mention was intensely focused by US Congress as the Chair of the Senate Finance Committee, Nelson Aldrich, primarily being a Republican. In 1908, a primary bill was introduced by Aldrich with an aim to study reforms in the financial system, with the aid of Nelson Aldrich along with Edward Vreeland. Aldrich, from the onset, employed several members into the commission, including economist from Harvard, A. Piatt Andrew, and J.P Morgan’s partner, Henry Davison. Over the next two years, the banking systems of both America and Europe underwent intense and thorough investigation, alongside meetings with central banks and bankers around Europe.
By the end of 1910, Aldrich was even more convinced about the need for a central bank in America. As Congress was to start meeting in a few weeks, Aldrich – at the suggestion of Davison – decided to get a small group of people together so that he could try to bring together all the information he had and write a working proposal for a central bank.
The group consisted of Aldrich, his private secretary Arthur Shelton, Davison, Andrew (who, by 1910, had become the assistant Treasury secretary), Frank Vanderlip, the National City Bank president and former Treasury official, and Warburg.
Most probably, J.P. Morgan, one of the members of the Jekyll Island Club, got the group access to the club. The club was established in 1886 and its members included Morgan, Marshall Field and William Kissam Vanderbilt I whose huge cottages spread all over the island. In 1904 Munsey’s Magazine called the club “the richest, the most exclusive, the most inaccessible” in the whole world.
Aldrich and Davison invited someone whose expertise was relevant to the meeting topic, but Aldrich was also fully aware that their association with Wall Street could paint them in a negative light and worsen the chances of the bill being passed politically. Therefore, he undertook very risky measures to keep the meeting a secret such as pretending that this meeting was disguised as duck hunting and telling the gentlemen to show up at the train station in New jersey one by one. From that point onwards, the gentlemen were instructed to use only their first names to remain unidentified. Afterwards, the staff nicknamed the group ‘the First Name Club’ and they embraced that title.
Benjamin Strong, now the vice president of the Bankers Trust Company and the future founding chief executive officer (governor turned president) of the Federal Reserve Bank of New York, was part of this group too. But Strong is probably not in the Jekyll Island meeting notes. Vanderlip’s autobiography has him tagged as a participant, but I could not find a second indicator of Strong’s attendance.
Most of the experts and journalists including the founder of Forbes magazine, Bertie Charles (B. C.) Forbes have claimed that Strong did not attend the meeting. It was, however, Strong’s intention to meet the participants of Jekyll Island that allowed him to come up with very intelligent ideas even when he was not physically attending the meeting. Strong received plenty of consultations from other members of the First Name Club and Forbes claimed that Strong also participated by changing the First Name Club to ‘Ben’.
The entire group began to understand that while some common principles were shared – establishing an elastic currency supplied by a bank which kept reserves for all the other banks – there were lots of disagreements in the details. “Figuring out those details was a desperately trying undertaking,” in Warburg’s words. Secluded as they were, the men began to wake up early and work late into the night for over a week. According to Vanderlip’s autobiography, “We had disappeared from the world onto a deserted island. We put in the most intense period of work that I have ever experienced.” We have to remember that a lot of the information needed to create that work was missing.
By the end of the retreat in Jekyll Island, Aldrich, along with his colleagues, had a perfected plan of setting up a Reserve Association of America, a single central bank with sub branches located in all states in the country there would be fifteen branches in total. Each branch would be governed by boards of directors elected by the member banks located in each district wherein, larger banks would get to vote more. The sub-branches would be in charge of holding the reserves of all member banks, issuing currency, discounting commercial paper, transferring balances and checking clearences. The main branch would be lending, setting discount rates for the system as a whole, and buying and selling securities.
After Aldrich returned home, he became sick and was unable to jot down the group’s final report. Consequently, Vanderlip and Strong commuted to Washington to set the plan up for Congress. Aldrich reported to the National Monetary Commission in January 1911 without informing the committee members regarding the formulation of the plan. A year later, a final report accompanied with the legislative text went to Congress and there were a few changes made such as the reserve bank being named the National Reserve Association.
In his report, the Commission stated that the method was scientific and control was democratic, allowing for the creation of an institution. A large population of the people particularly democrats opposed the version of democracy which could have given large banks undue influence on the central banks leadership. With the presidential election on the horizon, the Democrats made it part of the platform of campaign to disregard the Aldrich plan. With Woodrow Wilson winning the presidency and Democrats controlling both houses, Aldrich’s National Reserve Association seems to have been put away.
The Democratic Party had vested interests in reform too: President Wilson and the chairmen of the House and Senate Committees on Banking and Currency, Carter Glass and Robert Owen. Both Glass and Owen promulgated the draft legislation that Wilson endorsed, which called for the establishment of a central banking system. He also consulted with Warburg, whose technical knowledge commanded respect across the aisle. Political circles, including Wilson’s chief adviser, Colonel E. M. House, had meetings and conversations with Warburg about banking reform in general and the Glass and Owen framework specifically. Eleanor’s uncle, William McAdoo, and other senior policymakers and advisers to Wilson’s regime, Henry Morgenthau, also participated. Morgenthau was sure, he claimed, that he forwarded his copy of the [January 10th, 1913] memo to Wilson (Warburg, 1930, p. 90). These ideas were the basis for the formal Federal Reserve Act which was approved by the Congress and signed by the president by the end of 1913. The specific provisions of the final bill were more or less identical to those of the Aldrich Plan. Compromise between the democratic factions made it possible to resolve the most serious differences on the political and decision making caps.
B.C. Forbes somehow got to know of the Jekyll Island trip and wrote about it in 1916 in an article printed in Leslie’s Weekly (October 19, 1916 p. 423), which was summarised a few months later in a Current Opinion Gazette article. In 1917, Forbes again described the meeting in a collection of biographies of Davison, Vanderlip Warburg and others, called Men Who Are Making America. Not so many eyes fell on the revelation cum people who did considered it as “a mere yarn”, says Aldrich’s biographer.
The meeting participants themselves negated the existence of that meeting for twenty years until Aldrich’s biography was published in 1930. The reason to come clean must be the publication in 1927 of memoir of Carrter Glass, An Adventure in Constructive Finance. In it, Glass, by then a senator, boasted claiming credit for the father got the main ideas of the Federal Reserve Act which spurred the Jekyll Island participants to shed light on their participation in the Federal Reserve creation.
Warburg was in particular very critical of the account Glass provided. In 1930, he published a two-volume account of the history of the Fed that included a line-by-line analysis of the Aldrich and Glass-Owen bills for their comparison. In the preface of his book he wrote, “I had gone to California for a three months’ rest when the appearance of a series of articles written by Senator Glass… gave me the impetus to recollect and put on record certain events connected with the history of banking reform.” Warburg’s book does not discuss Jekyll Island per se, although he notes that
“In November of 1910, I was asked to attend a small meeting with a few gentlemen at the request of Senator Aldrich… to determine what form the new banking bill would take. … when the meeting conclude the basic principles embodied in the rough draft of what was later called the Aldrich Bill had been agreed upon… The proceedings of the meeting were completely secret. Even the existence of the meeting was not allowed to get into the public domain.”
I cannot tell you too much about the fascinating conference that took place in which, as I understood, Aldrich was the one who attending it was the one who made all the participants sign a nondisclosure agreement. There is, however, a biography of senator Aldrich in the public domain that attributes the Holland episode concerning which I enlarge further on the Vermont gentlemen. -Warburg 1930
Disputes over the authorship of the Federal Reserve Act received wide publicity during the late 1920s. In his speeches and writings, as well as in the New York Evening Post and the New York Times, he defended and justified his claim for the lion’s share of the credit. Critics replied in like manner, in the same publications and even in some of the academic journals. For instance, Samuel Untermyer, former counsel to the House Committee on Banking and Currency, came out with a pamphlet bearing the title “Who is Entitled to the Credit for the Federal Reserve Act? An Answer to Senator Carter Glass,” and had this to say about Senator Glass’s claims to primary authorship “It is a fiction. It is a fable. It’s a work of imagination” (Untermyer 1927). In 1914, Edwin Seligman, the prominent professor at Columbia University, wrote ‘in its fundamental features the Federal Reserve Act is the work of Mr. Warburg more than of any other man’. This was debated between Seligman and Glass via a series of letters published in the New York Times in 1927.
To watch more movies like Jekyll Island 123website.
Also Watch for more movies like: 123movies.
