The first step in this direction was openly a stop-gap measure.
In 1908, Congress passed the Aldrich-Vreeland Act which, basically, accomplished two objectives. First, it authorized the national banks to issue an emergency currency, called script, to substitute for regular money when they found themselves unable to pay their depositors. Script had been used by the bank clearing houses during the panic of 1907 with partial success, but it had been a bold experiment with no legal foundation. Now Congress made it quite legal and, as Galbraith observed, 'The new legislation regularized these arrangements. This could be done against the security of sundry bonds and commercial loans—these could, in effect, be turned into cash without being sold.'3
1. Moody, pp. 117-18,150
2. Kolko,
3. This legalized script was used only once—in 1914 at the outbreak of World War I. See Galbraith, p. 120.
COMPETITION IS A SIN
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The second and perhaps most important feature of the Act was to create a National Monetary Commission to study the problems of American banking and then make recommendations to Congress on how to stabilize the monetary system. The commission consisted of nine senators and nine representatives. The Vice-Chairman was Representative Edward Vreeland, a banker from the Buffalo area. The chairman, of course, was Senator Nelson Aldrich.
From the start, it was obvious that the Commission was a sham.
Aldrich conducted virtually a one-man show. The so-called fact-finding body held no official meetings for almost two years while Aldrich toured Europe consulting with the top central bankers of England, France, and Germany. Three-hundred thousand tax dollars were spent on these junkets, and the only tangible product of the Commission's work was thirty-eight massive volumes of the history of European banking. None of the members of the Commission were ever consulted regarding the official recommendations issued by Aldrich in their name. Actually, these were the work of Aldrich and six men who were not even members of the Commission, and their report was drafted, not in a bare Congressional conference room in Washington, but in a plush private hunting resort in Georgia.
And this event finally brings us back to that cold, blustery night at the New Jersey railway station where seven men, representing one-fourth of the wealth of the world, boarded the Aldrich private car for a clandestine journey to Jekyll Island.
THE JEKYLL ISLAND PLAN
As summarized in the opening chapter of this book, the purpose of that meeting was to work out a plan to achieve five primary objectives:
1. How to stop the growing influence of small, rival banks and to insure that control over the nation's financial resources would remain in the hands of those present;
2. How to make the money supply more elastic in order to reverse the trend of private capital formation and to recapture the industrial loan market;
3- How to pool the meager reserves of all the nation's banks into one large reserve so that at least a few of them could protect themselves from currency drains and bank runs;
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THE CREATURE FROM JEKYLL ISLAND
4. How to shift the inevitable losses from the owners of the banks to the taxpayers;
5. How to convince Congress that the scheme was a measure to protect the public.
It was decided that the first two objectives could be achieved simply by drafting the proper technical language into a cartel agreement and then re-working the vocabulary into legislative phraseology. The third and fourth could be achieved by including in that legislation the establishment of a lender of last resort; in other words, a true central bank with the ability to create unlimited amounts of fiat money. These were mostly technical matters and, although there was some disagreement on a few minor points, generally they were content to follow the advice of Paul Warburg, the man who had the most experience in these matters and who was regarded as the group's theoretician. The fifth objective was the critical one, and there was much discussion on how to achieve it. To convince Congress and the public that the establishment of a banking cartel was, somehow, a measure to protect the public, the Jekyll Island strategists laid down the following plan of action: 1. Do not call it a cartel nor even a central bank.
2. Make it look like a government agency.
