Warburg, of course, was right. Aldrich was well known as a Republican spokesman for big business and banking His loyal ties were further publicized by recently sponsored tariff bills to protect the tobacco and rubber trusts. The Aldrich name on a bill tor banking reform was an easy target for the opposition On December 15, 1911, Congressman Lindbergh rose before the House or Representatives and took careful aim:
The Aldrich Plan is the Wall Street Plan. It is a broad c h a l l e n g e to the government by the champion of the money trust. It means another pank, if necessary, to intimidate the people. Aldrich, paid by the government to represent the people, proposes a plan for the trust.
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instead.
1. H.S. Kenan,
COMPETITION IS A SIN
449
The Aldrich Bill never came to a vote. When the Republicans lost control of the House in 1910 and then lost the Senate and the Presidency in 1912, any hope there may have been of putting through a Republican bill was lost. Aldrich had been voted out of the Senate by his constituents, and the ball was now squarely in the court of the Democrats and their new president, Woodrow Wilson.
How this came to pass is an interesting lesson on reality politics, and we shall turn to that part of the story next.
SUMMARY
Banking in the period immediately prior to passage of the Federal Reserve Act was subject to a myriad of controls, regulations, subsidies, and privileges at both the federal and state levels.
Popular history portrays this period as one of unbridled competition and free banking. It was, in fact, a half-way house to central banking. Wall Street, however, wanted more government participation. The New York bankers particularly wanted a 'lender of last resort' to create unlimited amounts of fiat money for their use in the event they were exposed to bank runs or currency drains. They also wanted to force all banks to follow the same inadequate reserve policies so that more cautious ones would not draw down the reserves of the others. An additional objective was to limit the growth of new banks in the South and West.
This was a time of growing enchantment with the idea of trusts and cartels. For those who had already made it to the top, competition was considered chaotic and wasteful. Wall Street was snowballing into two major banking groups: the Morgans and the Rockefellers, and even they had largely ceased competing with each other in favor of cooperative financial structures. But to keep these cartel combines from flying apart, a means of discipline was needed to force the participants to abide by the agreements. The federal government was brought in as a partner to serve that function.
To sell the plan to Congress, the cartel reality had to be hidden and the name 'central bank' had to be avoided. The word
THE CREATURE FROM JEKYLL ISLAND
the illusion of decentralization, but the mechanism was designed from the beginning to operate as a central bank closely modeled after the Bank of England.
The first draft of the Federal Reserve Act was called the Aldrich Bill and was co-sponsored by Congressman Vreeland, but it was not the work of either of these politicians. It was the brainchild of banker Paul Warburg and was actually written by bankers Frank Vanderlip and Benjamin Strong.
Aldrich's name attached to a banking bill was bad strategy, because he was known as a Wall Street Senator. His bill was not politically acceptable and was never released from committee. The groundwork had been done, however, and the time had arrived to change labels and political parties. The measure would now undergo minor cosmetic surgery and reappear under the sponsorship of a politician whose name would be associated in the public mind with anti-Wall Street sentiments.
Chapter Twenty-Two
THE CREATURE
SWALLOWS
