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case against Fed

case against Fed

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Published by Carl Wells
case against Fed
case against Fed

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Published by: Carl Wells on Apr 01, 2013
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  • Introduction: Money and Politics
  • The Genesis of Money
  • The Ludwig von Mises Institute • 15
  • What Is the Optimum Quantity of Money?
  • Monetary Inflation and Counterfeiting
  • Legalized Counterfeiting
  • Loan Banking
  • Deposit Banking
  • Problems for the Fractional-Reserve Banker: Insolvency
  • Booms and Busts
  • Types of Warehouse Receipts
  • Enter the Central Bank
  • Easing the Limits on Bank Credit Expansion
  • The Central Bank Buys Assets
  • Origins of the Federal Reserve: Wall Street Discontent
  • Putting Cartelization Across: The Progressive Line
  • The Central Bank Movement Revives, 1906-1910
  • Culmination at Jekyll Island
  • The Fed At Last: Morgan-Controlled Inflation
  • The New Deal and the Displacement of the Morgans
  • Deposit "Insurance"
  • How the Fed Rules and Inflates
  • What Can Be Done?
  • Index

Now that the groundwork had been laid for a central bank
among scholars, bankers, and interested public opinion, by the
latter half of 1910 it was time to formulate a concrete practical
plan and to focus the rest of the agitation to push it through. As
Warburg wrote in the Academy of Political Science book on

114 • The Ludwig von Mises Institute

Murray N. Rothbard

Reform of the Currency: "Advance is possible only by outlin-
ing a tangible plan" to set the terms of the debate.

The tangible plan phase of the central bank movement
was launched by the ever-pliant Academy of Political Science
of Columbia University, which held a monetary conference in
November, 1910, in conjunction with the New York Chamber of
Commerce and the Merchants' Association of New York. The
members of the NMC were the joint guests of honor at this
conclave, and delegates to it were chosen by governors of
twenty-two states, as well as presidents of twenty-four cham-
bers of commerce. Also attending this conference were a
large number of economists, monetary analysts and repre-
sentatives of the nation's leading bankers. Attendants at the
conference included Frank Vanderlip, Elihu Root, Jacob
Schiff, Thomas W. Lamont, partner of the Morgan bank, and
J. P. Morgan himself. The formal sessions of the conference were
organized around papers delivered by Laughlin, Johnson,
Bush, Warburg, and Conant. C. Stuart Patterson, Dean of the
University of Pennsylvania Law School and member of the
finance committee of the Morgan-oriented Pennsylvania Rail-
road, who had been the chairman of the first IMC and a member
of the Indianapolis Monetary Commission, laid down the
marching orders for the assembled troops. He recalled the
great lesson of the IMC, and the way its proposals had
triumphed because "we went home and organized an aggres-
sive and active movement." He then exhorted the troops: "That
is just what you must do in this case, you must uphold the
hands of Senator Aldrich. You have got to see that the bill which
he formulates . . . obtains the support of every part of this

The Ludwig von Mises Institute • 115

The Case Against the Fed

With the movement fully primed, it was now time for
Senator Aldrich to write the bill. Or rather, it was time for the
senator, surrounded by a few of the topmost leaders of the
financial elite, to go off in seclusion, and hammer out a
detailed plan around which all parts of the central banking
movement could rally. Someone, probably Henry P. Davison,
got the idea of convening a small group of top leaders in a
super-secret conclave, to draft the bill. The eager J. P. Morgan
arranged for a plush private conference at his exclusive
millionaire's retreat, at the Jekyll Island Club on Jekyll Island,
Georgia. Morgan was a co-owner of the club. On November
22,1910, Senator Aldrich, with a handful of companions, set
forth under assumed names in a privately chartered railroad
car from Hoboken, New Jersey to the coast of Georgia, alleg-
edly on a duck-hunting expedition.

The conferees worked for a solid week at the plush Jekyll
Island retreat, and hammered out the draft of the bill for the
Federal Reserve System. Only six people attended this super-
secret week-long meeting, and these six neatly reflected the
power structure within the bankers' alliance of the central
banking movement. The conferees were, in addition to
Aldrich (Rockefeller kinsman); Henry P. Davison, Morgan
partner; Paul Warburg, Kuhn Loeb partner; Frank A. Vander-
lip, vice-president of Rockefeller's National City Bank of
New York; Charles D. Norton, president of Morgan's First
National Bank of New York; and Professor A. Piatt Andrew,
head of the NMC research staff, who had recently been made
an Assistant Secretary of the Treasury under Taft, and who
was a technician with a foot in both the Rockefeller and
Morgan camps.

116 • The Ludwig von Mises Institute

Murray N. Rothbard

The conferees forged the Aldrich Bill, which, with only
minor variations, was to become the Federal Reserve Act of
1913. The only substantial disagreement at Jekyll Island was
tactical: Aldrich attempted to hold out for a straightforward
central bank on the European model, while Warburg, backed
by the other bankers, insisted that political realities required
the reality of central control to be cloaked in the palatable
camouflage of "decentralization." Warburg's more realistic,
duplicitous tactic won the day.

Aldrich presented the Jekyll Island draft, with only mi-
nor revisions, to the full NMC as the Aldrich Bill in January,
1911. Why then did it take until December, 1913 for Congress
to pass the Federal Reserve Act? The hitch in the timing
resulted from the Democratic capture of the House of Rep-
resentatives in the 1910 elections, and from the looming
probability that the Democrats would capture the White
House in 1912. The reformers had to regroup, drop the highly
partisan name of Aldrich from the bill, and recast it as a
Democratic bill under Virginia's Representative Carter
Glass. But despite the delay and numerous drafts, the struc-
ture of the Federal Reserve as passed overwhelmingly in
December 1913 was virtually the same as the bill that
emerged from the secret Jekyll Island meeting three years
earlier. Successful agitation brought bankers, the business
community, and the general public rather easily into line.

The top bankers were brought into camp at the outset;
as early as February, 1911, Aldrich organized a closed-door
conference of twenty-three leading bankers at Atlantic City.
Not only did this conference of bankers endorse the Aldrich
Plan, but it was made clear to them that "the real purpose of

The Ludwig von Mises Institute • 117

The Case Against the Fed

the conference was to discuss winning the banking commu-
nity over to government control directly by the bankers for
their own ends." The big bankers at the conference also
realized that the Aldrich Plan would "increase the power
of the big national banks to compete with the rapidly grow-
ing state banks, (and) help bring the state banks under con-

By November, 1911, it was easy to line up the full Ameri-
can Bankers Association behind the Aldrich Plan. The threat
of small bank insurgency was over, and the nation's banking
community was now lined up solidly behind the drive for a
central bank. Finally, after much backing and filling, after
Aldrich's name was removed from the bill and Aldrich him-
self decided not to run for reelection in 1912, the Federal
Reserve Act was passed overwhelmingly on December 22,
1913, to go into effect in November of the following year. As
A. Barton Hepburn exulted to the annual meeting of the
American Bankers Association in late August 1913: "The
measure recognizes and adopts the principles of a central
bank. Indeed, if it works out as the sponsors of the law hope,
it will make all incorporated banks together joint owners of
a central dominating power."34

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