Previously, we saw the post-bellum era in the light of political economy: who controls the money and what kind shall it be? Those decades were but an overture to a concerted scheme to change the nature of money and government. The plot thickens …
The Indianapolis Monetary Convention
Every special interest has a Very Good Reason why some policy should be adopted that favors them. Protectionists love tariffs – high prices on Main Street be damned. Remember the northern tariff benefited the manufacturers of the region at the expense of the agricultural South.
The silver miners wanted a free market that supported their productivity even if the federal government had to pick up the tab with a premium. The Populists wanted ‘an elastic money’.and no one thought of the law of supply and demand. Everyone wants more money and few understand that extra units of currency are actually the hidden tax of inflation.
Monetary reform in the guise of the Indianapolis Monetary Convention of January 12, 1897 promised to find an answer.
The alleged grassroots movement of midwestern businessmen, with behind-the-scenes advice from banking interests, particularly the J.P. Morgan faction, petitioned President McKinley to appoint a presidential commission to craft legislation for a national monetary reform bill. This effort produced a bill which passed in the House but died an ignominious death in the Senate.
Snatching a potential victory from the jaws of that defeat, the secretary of the Indianapolis executive committee, George Foster Peabody,appointed the group’s own commission. Peabody, of an elite Boston family and an investment banker, had picked influential bankers, high-powered businessmen, people having railroad interests, and academics. Funding for the commission came from the banking and corporate world and included J.P. Morgan personally.
Their first major effort was a detailed monetary questionnaire sent to hundreds of chosen experts. Selected portions of the document were sent to newspapers throughout the country.
This public relations effort and other measures to form public opinion reached over 7,000 newspapers, along with support through letters from prominent businessmen and a large cadre of organized partisans. The goal of affirming the monometallism gold standard ended the influence of the Bryan and Populist believers of free silver.
Lobbying in Washington, led by Mark Hanna, McKinley’s “brain” and manager of his campaigns of 1896 and 1900, left no stone unturned. Hanna also urged a public letter-writing effort in support of a proposed reform bill.
The Monetary Commission met in Washington on September 22, 1897 and worked into December to produce a preliminary report:
REPORT OF THE MONETARY COMMISSION
TO THE EXECUTIVE COMMITTEE OF
THE INDIANAPOLIS MONETARY CONVENTION
and quoting the resolution establishing the committee
that it has become absolutely necessary that a consistent, straightforward
and deliberately-planned monetary system shall be inaugurated, the
fundamental basis of which should be: first, that the present gold standard
should be maintained; second, that steps should be taken to insure the
ultimate retirement of all classes of United States notes by a gradual and
steady process, and so as to avoid injurious contraction of the currency or
disturbance of the business interests of the country, and that until such
retirements provision should be made for a separation of the revenue and
note-issue departments of the Treasury ; third, that a banking system be
provided which should furnish credit facilities to every portion of the
country and a safe and elastic circulation, and especially with a view of
securing such a distribution of the loanable capital of the country as will
tend to equalize the rates of interest in all parts thereof.
By now, enough public relations schemes had influenced the people. A second convention in Indianapolis in early 1898 included nearly 500 delegates from 31 states – and a thorough sampling of the nation’s corporate leaders. Bankers were included and academic economists, also.
The second convention approved of the monetary commission work on January 26, 1898 and requested a final report of greater detail. This was finished and printed for distribution in June 1898. Improvements included a broader currency base – and specifically, a central bank with sole authority to issue bank notes.
McKinley’s Secretary of the Treasury, Lyman Gage agreed with this idea, and asserted that, without a central bank, the Panic of 1893 would not be the last. With Mark Hanna’s help, he sponsored bills in the House to no avail.
1900 – The Gold Standard Act
Agreeing to support the gold standard helped McKinley get the presidency and the new century was a fine time to deliver.
The groundwork had been done by the Indianapolis conventions and the independent monetary commission reports – along with that great public relations effort of Hanna and friends. The Congress met in December, 1899 and the Gold Standard Act of 1900 came to official life in March. Some of the fine print favored currency that was flexible, “especially at harvest time” and in other instances of the need for money …
Certain factions would never be satisfied and the insistence of more reform of the banking system continued. All this agitation came from the large bankers. Small town and rural banks had no problem with the existing system – mainly because their business model apparently was founded on common sense. (Maybe they were the models for “George Bailey”.)
No system exists without someone wanting to tinker and ‘improve’ it – to their benefit. Morgan’s Chase National Bank and the American Bankers Association crafted further reform proposals which became the Fowler Bill. One provision suggested other assets than government bonds for banks would be a Good Idea, expanding the fractional reserve notion even more.
Better yet, the big banks wanted to legalize branch banking for the national banks. This would be accomplished by a third factor: centralization of the banking system via a troika at the Treasury, a preliminary step to a true central bank.
The Indianapolis Monetary Convention favored this but small banks across the country and ordinary people writing their representatives in government succeeded in killing the Fowler Bill.
Enter Plan B and Senator Nelson Aldrich of Rhode Island. The Aldrich Bill of 1903 would have authorized New York national banks to issue “emergency currency” as necessary, backed by other assets, principally railroad and municipal bonds. Not for nothing was Aldrich known in the press as the “general manager of the nation” though mention of his connection to the Rockefeller interests was ignored. Even with reputation and influence, the Aldrich Bill failed.
Too, Aldrich never saw a tariff he did not like, especially when it protected American factories. Wealthy when he entered public service, he retired a multimillionaire from his investments in sugar, rubber, street railroads – and banking. Tariff induced higher prices on Main Street weren’t his problem.
The Panic of 1907
Surely, it was only happenstance that J.P.Morgan claimed the Knickerbocker Trust Company was insolvent.
The initial instability happened on Wall St on October 14, in a failed attempt to corner the stock of United Copper Company, with collateral damage to an associate at Knickerbocker a week later. By the following day, a bank run on the Knickerbocker began.
Contagion spread. Trust Company of America and Lincoln Trust Company. Twelfth Ward Bank, Empire City Savings Bank, Hamilton Bank of New York, First National Bank of Brooklyn, International Trust Company of New York, Williamsburg Trust Company of Brooklyn, Borough Bank of Brooklyn, Jenkins Trust Company of Brooklyn and the Union Trust Company of Providence.
The New York Stock Exchange was in danger of failing. The City of New York reckoned insolvency by November 1.
J.P. Morgan left a church conference in Richmond, Virginia and assembled a cabal of prominent bankers. The cabal saved the Exchange with $23 million and Morgan bought $30 million city bonds. There were peripheral issues handled by President Theodore Roosevelt, U.S. Steel and a potential anticompetition takeover of Tennessee Coal, Iron and Railroad company.
To fix such problems in 1908, the Aldrich–Vreeland Act established a National Monetary Commission, of which good ol’ Nelson was both sponsor and chairman. Thirty reports were issued leading to an Aldrich Plan, the rudiments of a central bank.
A year later, Aldrich found a tariff feature he did not like and co-authored the Payne-Aldrich Tariff Act of 1909. This struck down excessive import duties on fine European art – and ultimately benefited some of America’s museums.
That was the same year Aldrich introduced a constitutional amendment for an income tax – a policy he had strongly opposed only a decade before.
Columbia University gathered other academics and interested persons after the Panic and the last speaker was one Paul Warburg. His main points were the superiority of the European banking system over the American one (no surprise!) and the need for a government central bank to replace competition. “Small banks,” he said, constituted the real danger. Yes …
Next, Paul Warburg and the Creature, Aldrich (again), the Crimes of 1913, Liberty Bonds, the gold standard can’t pay for a war, stay tuned!
