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William Jennings Bryan and the Founding of the Fed


If William Jennings Bryan is remembered at all these days, other than as the real-life model for “Matthew Harrison Brady”–the buffoonish Bible-quoting opponent of Darwinism portrayed by Fredric March in the movie version of “Inherit the Wind”– it is as the three-time populist presidential candidate whose campaign for a revival of bimetallism,  at the long-defunct ratio of 16:1, split the Democratic party in two, and whose “Cross of Gold” speech at the 1896 Democratic Convention gave goose-bumps both to his audience and to Wall Street’s plutocrats, albeit for very different reasons.

Bryan’s plea for renewed coining of silver ultimately served only to assure William McKinley’s victory, and to thereby pave the way for silver’s official demonetization with the passage, in 1900, of the Gold Standard Act.  But though the fact is often overlooked, Bryan’s influence upon the development of the United State’s currency system went far beyond his failed effort to revive bimetallism.  For Bryan also played a crucial part in the paper currency reform movement that was to lead, thanks in no small way to his influence, to the passage of the Federal Reserve Act.

To appreciate Bryan’s role, one must recall the circumstances that lead, during the last decades of the 19th century, to widespread pleas for the reform of the existing U.S. currency arrangement.   During the Civil War the Union, seeking to replenish its depleted coffers, passed the National Banking Acts.  Those acts provided for the establishment of federally (as opposed to state) chartered banks, subject to the requirement that any notes issued by the new banks be fully, or (at $110 nominal backing for every $100 of notes outstanding) more than fully, secured by U.S. government bonds.  

When the number of applications for national bank charters (and associated bond sales) proved disappointing, chiefly because state banks were not tempted to convert to them, the authorities responded by subjecting outstanding state bank notes to a 10% tax.  The prohibitive tax forced most state banks to either secure federal charters or go out of business altogether, with only a relatively small number managing to survive despite no longer being able to issue their own currency.  Thus by the war’s end, or not long thereafter (for the implementation of the 10% tax was eventually delayed until August 1866), national banks had become the country’s only suppliers of banknotes, which, together with U.S. Treasury notes (“greenbacks”) also authorized during the war, made up the total stock of United States paper currency.

Because the stock of greenbacks was itself legislatively fixed, with the intention of eventually withdrawing them altogether, national banknotes were the only component of the paper currency stock that might conceivably expand, once a ceiling on their quantity was lifted in 1875, to accommodate either temporary or permanent growth in the demand for currency.  However, that capacity was undermined by the bond-security provision, which linked the total potential stock of national banknotes to the extent of the federal governments’ indebtedness, and, particularly, to the outstanding quantity of those particular government bonds that had been deemed eligible for securing such notes.   Because the Treasury enjoyed surpluses for most of the years between 1879 (when gold payments were resumed) and 1893, and took advantage of them to reduce the federal debt, national banks, rather than finding it profitable to supply more currency as the nation grew, supplied less.   Total national banknote circulation, which stood at over $300 million around 1880, had fallen to less than half that amount a decade later. 

What’s more, because acquiring and holding the necessary securities, with their increasingly high market prices and correspondingly low yields, was so costly, national banks were not at all inclined to acquire them just for the sake of providing for temporary spikes in the demand for currency, such as occurred every “crop moving” season.  Consequently every autumn witnessed some tightening in the money market, as farmers came to withdraw currency from rural banks, and those banks were compelled, by the high cost of bond collateral, to draw instead on their cash reserves.   Because national banking laws allowed country banks to reckon as part of their legal reserves deposits lodged with “reserve city” correspondents, while those bankers were  in turn allowed to treat their own correspondent balances in New York (the “central reserve city”) as cash, Wall Street tended to bear the brunt of this tightening, which on several occasions, and most notoriously in 1893 and 1907, manifested itself in full-fledged financial panics.

The troubles stemming from our “inelastic” currency arrangements had a straightforward solution.  That solution was not, as so many monetary economists today assume (knowing as they do the solution that was actually settled upon, but lacking understanding of the  roots of the problem), a central bank.  It was simply to free national banks, and perhaps state banks as well, from the Civil-War era shackles that, owing to long-obsolete fiscal considerations, were preventing them from supplying notes on the same terms as those governing their ability to create demand deposits.   Once allowed to back their notes with their general assets, national banks could swap notes for deposits, either permanently or temporarily, without limit, thereby conserving both their own cash reserves and those of their city correspondents.   State banks, once freed from the obnoxious 10% tax, might do likewise.   Reform, in other words, was a simple matter of leaving bankers equally free to supply customers with either paper or ledger-entry promises, according to the customers’ needs.

That that is precisely what the banks would have done, had they been permitted, and that it could have worked, were far from being untested conjectures.  For proof one had only to look north.  For Canada’s currency exhibited precisely the sort of elasticity that it’s U.S. counterpart lacked, growing steadily while the stock of national bank notes shrank, and rising and falling with the coming and going of the harvest season.   How come?  Central banking had nothing to do with it.    Instead, Canada’s paper currency stock, like the U.S. stock, consisted mainly of commercial banknotes.  The key difference was that Canadian banks, unlike the national banks, could issue notes based on  assets of their own choosing.

Canada’s system differed as well in other crucial respects, though ones that did not bear so directly upon it’s currency’s elasticity.  Chief among these was the fact that Canadian banks were able to establish nationwide branch networks, and the fact that entry into the industry was very strictly limited.  Canadian banks therefore tended to be much larger, much more diversified, and much less prone to fail than their U.S. counterparts.  An important, though often overlooked, connection exists between banks’ freedom  to issue notes and their ability to establish branch networks, in that the cost of keeping additional cash reserves is among the more important costs connected to the establishment of branches.  To the extent that banks are free to issue their own notes, the need for cash reserves, whether at branches or at the home office, is greatly reduced.  Consequently, the fact that Canada’s banks enjoyed a relatively high degree of freedom of note issue meant that they were also better able to exploit gains from branching.  Well developed branch networks, in turn, indirectly contributed to the elasticity of Canada’s currency stock, by allowing for local clearings that substantially reduced the cost of mopping-up surplus notes.

That numerous attempts should have been made to reshape the U.S. system along Canadian lines, especially by allowing national (and perhaps also state) banks to issue “asset currency,” but also by allowing for unlimited branching, shouldn’t be surprising.  What is (or ought to be) surprising is the fact that none of these eminently sensible plans succeeded.  Instead, every one–including the Baltimore, Indianapolis Monetary Commission, Gage, Carlisle, and Fowler plans–was either voted down by Congress, or scuttled in committee.

I had long supposed that opposition to unit banking, from “Main Street” unit banks naturally, but also from “Wall Street” banks that profited from the correspondent business that unit banking brought, was responsible for the failure of these attempts.  But that explanation isn’t entirely satisfactory, because at least some asset currency plans didn’t call for branch banking.  Something else was to blame for the utter failure of the asset currency movement.  And that something else turns out to have been…William Jennings Bryan.  For if Bryan was a tireless champion of silver, he was no less unremitting in his violent opposition to any sort of bank-issued currency, and to asset currency especially.

As a Democratic congressman (1891-95), Bryan fought not only against opposition measures calling either for asset currency or for a repeal of the 10% tax on state bank notes, but also against those sponsored by the Cleveland administration itself. So far as he was concerned, state banking was just another name for “wildcat” banking; and the Constitution’s clause declaring that “No state shall…emit bills of credit” meant that allowing banks of any sort to issue notes was tantamount to surrendering a sovereign power of Congress to private corporations.(1) When, in the wake of Panic of 1893, Cleveland again called for a repeal of 10% tax, Bryan

delivered an impassioned speech in which he blamed the “crime of demonetization” [of silver] for the deflation of agricultural prices following 1873 and asserted that the federal government alone should issue paper money.  He would make all government money legal tender and prohibit, as the New Deal did, the writing of contracts calling for payment in any particular kind of money.  Furthermore, he would retire national bank notes in favor of government money.(2)

Though beaten in the 1896 presidential election, and again in his 1900 bid, Bryan retained control of the progressive minority within the Democratic party, which he employed skillfully and effectively in “waging incessant war against asset currency”(3), especially by putting paid to attempts to include any sort of currency reform allowing for such currency in the Democratic platform. “If you said anything against Bryan,” a representative of long standing recalled many years later, “you got knocked over, that is all.”(3)

The Panic of 1907, far from causing Bryan to modify his blanket opposition to any relaxation of existing currency laws, only made his opposition to asset currency more resolute than ever, by convincing him that bankers would stoop to anything to retain control over the nation’s money. Replying, in the midst of the panic, to “editorials in the city dailies, demanding an asset currency,” Bryan claimed that “The big financiers have either brought on the present stringency to compel the government to authorize an asset currency or they have promptly taken advantage of the panic to urge the scheme which they have had in mind for years.”(4) Democrats, Bryan continued, “are duty bound to…oppose asset currency in whatever form it may appear” as “a part of the plutocracy’s plan to increase its hold upon the government”:

The democrats should be on their guard and resist this concerted demand for an asset currency.  It would simply increase Wall Street’s control over the nation’s finances, and that control is tyrannical enough now.  Such elasticity as is necessary should be controlled by the government and not by the banks.(5)

As if not content to assail a good idea using bad arguments, Bryan went on to endorse a genuinely rotten alternative: nationwide deposit insurance:

What we need just now is not an emergency currency but greater security for depositors. …All bank depositors should be made to feel secure, and they could be made to feel secure by a guarantee fund raised by a small tax on deposits. What depositors feel sure of their money they will not care to withdraw it.(6)

During the 1908 presidential campaign, his third and last bid for the presidency, Bryan, in deference to the party’s divided opinion on the subject, downplayed the currency question, but lost to Taft anyway. Four years later, however, he was instrumental in securing Wilson’s nomination, which he favored in part because Wilson seemed to echo his own beliefs in declaring, in a 1911 speech, that “The greatest monopoly is the money monopoly.” When further examined by Bryan, Wilson passed with flying colors by again stating that he would oppose any currency plan “which concentrates control in the hands of the banks”(7). Wilson was thus able to secure the democratic nomination, for which he thanked Bryan by making him his Secretary of State.

By the time of Wilson’s election, former advocates of asset currency had for some years given up any hope of achieving their preferred reforms, and had instead turned their attention to the alternative of establishing a “central reserve” bank, charged with supplying currency to supplement, and perhaps replace, the limited quantities forthcoming from the national banks. But here again they encountered opposition from progressives, including Bryan, who was no less opposed to reforms that smacked of European-style (or, for that matter, Bank of the United States-style) central banking than he had been to asset currency itself. The Aldrich plan, ostensibly the fruit of the National Monetary Commission’s extensive deliberations, but really a scheme secretly cobbled together by Aldrich and his banker friends at Jekyll Island, was (according to Paolo Coletta) “particularly anathema to Bryan…because it called for a single, privately controlled central bank located in New York.”(8) Bryan also believed–correctly–that “big financiers” were behind Aldrich’s “scheme.”(9)

Though he also wished to steer clear of a European-type central bank Wilson thought the Aldrich plan “about sixty or seventy per cent correct,” and so had Carter Glass come up with an alternative that differed chiefly in proposing numerous regional reserve banks governed by a Federal Reserve Board. But because the proposed Board was mainly to consist of bankers, and so left them in charge of the nation’s currency, Glass’s plan also dissatisfied Bryan, who “was exceedingly disturbed at those provisions of the [bill] contemplating currency in the form of bank notes rather than greenbacks” (10), and who, as the most prominent member of Wilson’s cabinet, was capable of killing Glass’s bill, just as he’d killed previous asset currency measures. When Robert Owen, an old associate who was now chairman of Senate Banking and Currency Committee, drafted an alternative calling instead for new Treasury issues to replace existing national banknotes, Bryan naturally preferred it, placing the Glass plan, which was already encountering stiff opposition from bankers, in still greater jeopardy.

Yet Wilson managed, by means of some very clever politicking, to rescue Glass’s Federal Reserve plan. To scare the bankers into supporting it he had William McAdoo, his Treasury Secretary, offer (to Glass’s considerable dismay) a “compromise” that would have replaced banknotes, not with redeemable Treasury notes (as contemplated by Owen’s plan), but with legal-tender notes resembling the Civil War-era greenbacks.(11) To win Bryan over, he had Glass revise his bill by making Federal Reserve Notes obligations “of the United States” as well as of the Federal Reserve banks themselves, and by excluding banker representation from the Federal Reserve Board.(12) When Glass’s bill, having made it through the House Banking Committee, was attacked by Bryanite Democrats at the party caucus, Glass stunned and silenced them by brandishing Bryan’s letter calling for his supporters “to stand by the president and assist him in securing the passage of this bill at the earliest possible moment” (13). Thanks to Bryan’s support, the Federal Reserve Act became law just two days shy of Christmas, 1913.

And so it happened that, through his unrelenting efforts over the course of more than two decades, William Jennings Bryan, the most stalwart enemy of both private currency and currency monopoly since Andrew Jackson, helped to create a currency monopoly far more powerful than any that Jackson could ever have envisaged, and far more capable of gratifying Wall Street, at the expense of the rest of the nation, than Wall Street alone, left perfectly free from government controls, could ever have devised.

(1) Paolo E. Coletta, “William Jennings Bryan and Currency and Banking Reform,” Nebraska History 45 (1964), p. 33.

(2) Ibid., p. 35.

(3) Gerald D. Dunne, A Christmas Present for the President, Federal Reserve Bank of St. Louis, p. 9.

(4) William Jennings Bryan, “The Asset Currency Scheme,” The Commoner 7 (43) (November 8, 1907).

(5) Ibid.

(6) Ibid. Besides overlooking the moral hazard problem, Bryan’s argument neglects the fact, crucial to a proper appreciation of the advantage of asset currency, that bank customers often wish to convert deposits into currency for reasons, like paying itinerant workers, having nothing to do with doubts concerning the safety of bank deposits.

(7) Colette, p. 41

(8) Ibid., p. 42.

(9) James Neal Primm, A Foregone Conclusion: The Founding of the Federal Reserve Bank of St. Louis, St. Louis: Federal Reserve Bank of St. Louis, 2001.

(10) Dunne, p. 11.

(11) Ibid., p. 13.

(12) Glass went along with this plan only owing to his understanding, the correctness of which Wilson readily affirmed, that the supposed obligation “would be a mere pretense,” the government’s obligation being “so remote that that it could never be discerned” (Colette, pp. 48-9).

(13) Dunne, p. 19.

  • AlgernonSidney

    Is it correct to characterize Andrew Jackson as a “stalwart enemy of both private currency and currency monopoly”? His opposition to those who gained via govt monopoly power of 2nd Bank of US isn’t the same thing.

    • George Selgin

      Well, while some of Jackson’s associates really just wanted their own monopoly bank, Jackson himself objected to the 2nd B.U.S. because it was a monopoly, because it was a (private) corporation, and because it issued paper currency. I think that covers the description. Whether he himself was entirely consistent, or sincere, is another matter, of course.

      • AlgernonSidney

        I’m not a student of the period, but my impression is that Jackson’s concern was that the Bank of the US constituted rich private owners using the power of govt. to enrich themselves via of the monopoly power the 2nd Bank of the US gave them. Is it not true that all banks were issuing paper currency (redeemable in gold/silver) in the 1830s, and that Jackson took no initiative to curb that?

        • George Selgin

          Yes, there were indeed state banks of issue, and Jackson left them alone. But as president in an era in which states’ rights were still taken very seriously, he was not in a position to do otherwise. That he was averse to banks of all kinds, and that this aversion had roots in his own dealings with them prior to becoming president, is nevertheless generally recognized.

  • Justin Merrill

    When Larry White’s book, “The Clash of Economic Ideas”, was published there was a panel of discussants at GMU that included Perry Mehrling. I mentioned that the book maybe underplayed the role of populist monetary cranks’ influence on policy, particularly in the US and leading up to the creation of Bank of Canada. Major C.H. Duncan and Gerry McGeer stirred up enough fervor that the Bank of Canada was created as a compromise to prevent full nationalization. As you point out, W.J. Bryan may have started a chain of events that led to the Fed’s creation as well (though a perfect example of bootleggers and Baptists).

    The funny thing is that Perry and Larry both replied that by modern standards they were “money cranks”.

    • George Selgin

      I believe you mean Major Douglas; and yes, he was indeed extremely influential in Canada. The Bank of Canada was established in part as a sop to his followers.

      • Justin Merrill

        Yep, I meant Major Douglas; thanks for the catch.

  • vikingvista

    “The greatest monopoly is the money monopoly.”

    I can’t tell if I should take this as profound irony or profound honesty, given Wilson’s now obvious lust for state monopoly. Wilson being a politician, I assume the former. What was the context of that statement?

    Great read, BTW.

    • George Selgin

      It was, I believe, uttered while WW was still an academic, or a university president (though the latter are not, to judge from experience, any more sincere than politicians).

  • Yoshifumi

    Why exactly did the demand for currency rise during the harvest? Does it work like this: first farmers need cash to hire laborers to harvest their crops so they withdraw money from the bank. Then after the harvest they sell all their crops for cash, which they then redeposit? Why is it a problem if there’s not enough money to be withdrawn, shouldn’t prices just adjust? I’d love to understand this.

    • George Selgin

      You are quite correct in your understanding, Yoshifumi. The problems is that the temporary contraction of bank reserves, and hence in bank lending and the money stock, is, first of all, quite unnecessary: it is but an avoidable consequence of the fact that banks are left relatively free to supply one type of IOU (deposits), while being prevented from supplying another (notes0 on similar terms. The problem also isn’t one readily solved through deflation, for several reasons. First, it is not so easy for general prices to adjust downward in response to a temporary and perhaps at least partly unanticipated decline in demand; second, the deflation imposes hardship on debtors, and may in fact lead some to default, thereby aggravating the downturn; finally, because the problem is not merely a general shortage of M but a particular shortage of currency relative to deposit-money, a decline in P, which raises in the same proportion the real balances of all kinds of money, isn’t capable even in principal of entirely solving it.

      I hope this answers your good question.

      • vikingvista

        “because the problem is not merely a general shortage of M but a particular shortage of currency relative to deposit-money, a decline in P, which raises in the same proportion the real balances of all kinds of money, isn’t capable even in principal of entirely solving it”

        Does the restriction in note creation relative to deposit creation itself cause a change in the relative prices in things paid by those methods? E.g., would it cause the price of cash-paid day labor to increase relative to deposit-paid corporate labor?

      • Yoshifumi

        Thank you for the response. So the basic problem is that when farmers demand cash, it unnecessarily sucked reserves out of banks because the banks couldn’t just print new cash to give them.

  • Mike Sproul


    The quantity theory of money might lead you to expect that a 10% rise in money demand would cause the value of money to rise by something close to 10%, but there is another theory: The real bills doctrine (aka backing theory), which says that the value of a dollar is equal to the value of the assets backing it. So, for example, if the Fed holds assets worth 100 oz. of silver as backing for $100 it has issued, then $1=1 oz. If the public’s demand for money rises 10%, and if the Fed does not issue any more dollars, then each dollar remains worth 1 oz, since that is the value of the backing. The public will certainly feel the 10% lack of money (as they did between the civil war and 1913), but the lack of money does not increase the value of the money.

    • George Machen

      The lack of money indeed does not increase the value of the money in terms of its backing (in oz. of the monetary metal, e.g., gold), but inasmuch as under real bills the money supply in use tracks the amount of gold redeemable on demand plus the gold-exchange value of newly-produced things currently offered in or earmarked to markets, then the lack of money *does* increase the value of the money in terms of the reciprocal of those quantities-prices. Seems to me that aspects of the Quantity Theory are still in play under real bills, even if bone of contention between the two is not.

      • George Machen

        Oh drat, can’t edit: “…even if the bone of contention between the two is not.”

      • George Machen

        In other words, the “price” of money doesn’t change with respect to its backing, but the “price” of the backing, in turn, does change with respect to the things it can purchase in markets. And people price things in terms of their gold-exchange value (the backing’s worth value). So people will still *act* in accordance with changes in their thusly perceived value of money, no?

    • George Selgin

      I’m afraid that, as usual, I must register my disagreement with Mike, both regarding his particular argument here, and concerning the real bills doctrine in general Notwithstanding the claims of the latter, if the demand for real balances increases 10%, and the nominal quantity doesn’t change, the tendency will be for the general price level to decline. My point above was, in part, that no such decline can itself serve to correct a difference between the desired and the actual currency:deposit ratio.

      The real bills doctrine, I cannot repeat often enough, if one of the most egregious errors ever committed in the realm of monetary economics, though one that, like cockroaches and kudzu, appears impossible to eradicate. I maintain no hope of even disabusing Mike of his belief in it, let alone successfully combating it more generally. But I am at least determined, to whatever extent possible, to not let my posts take part in its propagation!

    • George Machen

      cf. Free banking and classical liberalism: a potted history
      by Larry White June 4th, 2011

      • Mike Sproul

        George M:

        “In other words, the “price” of money doesn’t change with respect to its backing, but the “price” of the backing, in turn, does change with respect to the things it can purchase in markets. ”

        Correct, though a 10% increase in money demand in one corner of the world will probably have a negligible effect on the value of gold in the rest of the world.

        This is George S’s post, and I’ll respect his right to refuse to discuss the real bills doctrine on his own territory. But anyone who is interested can find my defense of the RBD in my paper entitled “Three False Critiques of the Real Bills Doctrine”.

  • MichaelM

    What a wonderful post. This kind of post is why I come to this blog and why I hope it does not die.

    George, are you planning to ever write a more in-depth analysis of the history of the currency and monetary politics in the United States, at least in this specific period, or will all the research and writing you’ve done on the topic remain scattered across a dozen papers and blog posts? I tend to enjoy the work you do on historical topics (Good Money is still one of my favorite history books — and I’ve got a lot of them!) and I would love to see a more detailed version of your take on this topic. I have done some looking into it myself but, not being a professional scholar, I neither have the time nor resources (nor talent!)to devote to the research that you so obviously do.

    • George Selgin

      Thanks for the praise, MichaelM. I’ve actually given some thought to the idea of gathering together some of my writings (perhaps along with some of Larry White’s) on American monetary history; I’ve also long intended to finish “The Little Fed Book,” which would draw on the same material for its first chapters.

      As an excuse for not diving into either project I could plead that I’ve been distracted by other work and obligations. But a more important reason, perhaps, has to do with the fact that the good ol’ Terry College of Business responded to my last book (of which you speak so highly) with a kick to my posterior powerful enough to propel me to one of the most godforsaken parts of our Great Republic, from whence I only narrowly managed to escape. (The place has since been entirely depopulated.)

      Why, I’ll be lucky if, having now committed some spare thoughts about Bryan to these pages, I manage to avoid receiving a notice from the Dean informing me that he is docking part of my (already meager) pay, as well as adding 5 sections of Economics 1000 to my (already heavy) teaching load.

  • John S

    I hate to be so presumptuous as to think that I can give you career advice, but might it not be possible for you to transfer to an institution that would allow you more time for research, writing, and blogging? I think it’s clear that your comparative advantage lies in communicating your expertise on free banking theory and history rather than teaching general principles of monetary economics. Perhaps there is room for you at GMU with Larry White? Or maybe you could teach a Coursera course on Free Banking? (the Dean might appreciate the publicity for Terry.)

    I completely agree with MichaelM’s thoughts on this post, Good Money, and the future of this blog. Whatever the future entails, I look forward to your next project.

    • George Selgin

      John S, you are on to something there. Perhaps I shall look into it.

  • 789

    Dear Sir

    As I can see, you have not used even one primary source for your article.

    Yes, Jennings Bryan gave his support to what became the federal reserve act; yes, he also believed that his performance at the scopes trial was not to the detriment of Christian belief –he did not seem to comprehend that if he relegates the very first chapter of the Book to allegory that is open to wide (and wider) interpretation, he pulls the foundation from under the whole book…..

    But, to ascribe the Federal Reserve Act to him is purposefully deflecting responsibility from the real authors of the act

    What was the Fed Res Act ?
    comparing the text of the fed res act to the text of the National currency Bank Act of February 1863, we may see clearly that the act of December 1913 was merely an adjustment, upgrade, adjustment of the national currency bank act

    Who was/were the authors ?
    Who gave advise to Portland Chase and Honest Lincoln ? Joseph Seligman and August Belmont.
    The reason we know of the Jekyll island retreat is because Eustace Mullins read about it in Mr. Lindberg’s speech (the rest of the conspiracy book-peddlers heard of it from Mullins); Mr. Lindberg was referring to Mr. Forbes’s 1916 article, in which he tells the tale and names another Seligman (a grand-son) as the true author of the Act which adjusted the system which his grand-father helped to bring into existence.

    In 100 years we know not of even one writer on the subject who took the time and trouble to read the text of the Fed Res Act (and the Nat Bank Act); or who took the trouble to read the legislative history of the act……

    • George Selgin

      This is a blog post, not a treatise; hence, the fact that it cites sources at all is actually rather exceptional. And one of them is straight from the horse’s mouth–you can hardly get more “primary” than that!

      It is a matter of semantics whether one considers the FRA a mere modification to the NBA; the fact remains that Federal Reserve currency ultimately superseded national banknotes, and that a better reform would have freed the latter from Civil-War era limits. Bryan stood fast against that better option.

      Finally, Mr. Forbes’s article was published three years after the Jekyll Island meeting, and included in Men Who are Making America, in 1917. The affair was by then essentially public knowledge. Lindberg Sr. presumably learned about it by reading Forbes (he said nothing about Jekyll Island in his 1911 “Money Trust” testimony to Congress, and surely would have done so had he known). Nathaniel Stephenson also included a chapter about the meeting in his widely-read 1930 biography of Aldrich. By the time Mr. Mullins wrote about the Jekyll Island meeting it was old news.

      • 789

        Representative Lindbergh, February 12, 1917, in the House (out-loud):—

        (conspiracy book-peddlers only know about Jekyll island because of Mullins; if you read conspiracy literature from the 1930s, no mention of Jekyll island)

        Hearings before the Committee on Banking and Currency, United States Senate
        Wednesday, September 17, 1913.

        I will take up question No. 4, which was as follows:
        Should national banks continue to have a bond-secured currency?
        I answer “no,” and for several reasons.

        First, this currency is of less value to the banks or to the community than the capital invested in the bonds would be if it was employed, as it should be, in the more proper and profitable forms of banking.

        To illustrate: In round figures $700,000,000 of bank capital is invested in these bonds; $35,000,000 more of their cash is impounded in the redemption fund to which the Government finds it necessary to add $25,000,000 more; making $60,000,000 absorbed in maintaining current redemption for the notes issued against the bonds. $650,000,000, or 87.8 per cent of the entire issue, was thus redeemed in 1912.

        We may assume that one-half of these notes are constantly loaned and earning 6 per cent for the banks, say $25,000,000 per annum, to which add $20,000,000 interest on the bonds, or $50,000,000 in all accruing to the banks on a total investment of $730,000,000, or a trifle less than 7 per cent per annum.

        Now, if these bonds were sold to the Government for new legal tender United States notes, and the bank notes destroyed, the proceeds ($700,000,000) held in bank reserves would enable them to carry the five to seven billions of credit which is now needed and can not be granted, and from which at 6 per cent they would receive $300,000,000 per year, or six times the present return, while general business, using the credit, would reap a far greater return.

        Second. The bank note is a mongrel in our currency. It is given, as I believe unjustly, certain monetary privileges and masquerades as money until it reaches the bank, where its real character is disclosed, and it runs immediately to the redemption bureau, for the sole reason that it is not money and can not stand in bank reserves.

        Eighty-seven per cent of the entire issue runs back in a single year, and the 5 per cent fund of the banks being found insufficient, the Government furnishes the rest.

        Third, a bank note secured by any kind of collateral is a form of credit; it is a promise to pay money, and therefore can not be justly or wisely given legal tender powers and made the basis of further expansion of credit or promises to pay money. There is no bottom to that pit. The piling up credit upon credit is dangerous, and therefore a remedy is not possible through the issue of credit notes of any kind.

        Every note or coin that carries legal tender power and circulates in the Nation should be issued by the General Government, not as a loan secured by bonds or any other collateral –for this is banking, and the Government should not engage in banking– but by issuing it in exchange for an equivalent in value, just as the gold coin and gold certificate are issued. This is a Government function and can not be safely or lawfully delegated.

        The bonded debt of the Nation in the hands of the banks is an equivalent in value to the money it represents. It is an evidence that an equivalent sacrifice has been made to the community by the holder of it, and, when surrendered, affords the most just and direct way to supplement the mining of gold and furnish the banks with the needed legal cash basis for their credit.

        • George Selgin

          Sir, I’ll respond to your latest, but only by way of making clear why the response will be my last (1) Mr. Lindbergh’s 1917 speech, to which you supply a link, makes no explicit mention at all of Jekyll Island, or even of Aldrich; (2) in any case the speech came after Forbes’s article and book appeared; (3) the 1913 speech likewise makes no reference to the Jekyll Island affair; (4) I have no idea, and care rather less, where conspiracy theorists get their facts. But whether they happen to have relied on Mr. Mullins or not to learn about the Jekyll Island meeting, they certainly need not have done so.

          Personally, indeed, knowing what I do about Mr. Mullins, I am somewhat less inclined to believe that the Jekyll Island meeting ever happened than I would be had he never written that it did.

          • 789

            Had you had the courage to read what Lindbergh said, you would have noticed that he referred to the Thursday, October 19, 1916, issue of “Leslie’s Illustrated Weekly Newspaper,” in which B.Ch. Forbes’ article appeared, and the story was told (and Warburg and Seligman were ‘blaimed’)—

            He [Mr. Warburg] opened fire in January, 1907, with an elaborate article on “Defects and Needs of Our Banking System,” followed with a blast, “A Plan for a Modified Central Bank,” several months later, and he never ceased to raise his voice and ply his pen until currency legislation was engraved on our statue books. He was and is a Central Bank advocate: yet as early as 1910, realizing the political difficulties, he evolved a plan for “A United Reserve Bank of the United States,” the underlying principles of which are embodied in the law now in force. The centralization of reserves under properly balanced authority and the rediscounting of an improved type of commercial paper so as to transform immobile promissory notes into bills of exchange — were the two cardinal reforms he constantly emphasized — and succeeded in having written into the Owen-Glass law.

            (Mr. Forbes had no idea Jennings Bryan had any hand in the passing of the Glass-Owen bill)

          • George Selgin

            Lindbergh refers to Forbes’s work, but only obliquely, without mentioning Forbes or Jekyll Island or any details concerning that gathering. But the point is precisely that Forbes’s work was, as I have said, widely available by 1917, having been serialized in Leslie’s–then a very popular magazine–and then published (also in 1917) as a book. All this is fully consistent with what I claimed in my first response above, to wit: that the facts about Jekyll Island were in no important sense revealed either by Lindbergh or by Mullins. Lindbergh’s innovation consisted of his assertion that there were many other meetings like it, for which he offered no evidence at all.