*****Frank Vanderlip And The Creation Of The Federal Reserve*****

With the Fed's authority under attack, I thought it would be fun to read about its creation. One of the architects of the Federal Reserve was Frank Vanderlip, the president of Citibank in the early 1900's. Frank Vanderlip is also my great-grandfather, which is why I have a copy of his autobiography, FROM FARM BOY TO FINANCIER. While reading the extracts of this book below, there are several interesting points to note:

1) America as a manufacturing powerhouse.

2) The press as an effective watchdog (and not the pushovers they are today).

3) A different take on bank compensation.

4) The strength of American banks back then.

5) Gold and its use as a bank reserve asset (gold standard).

6) The banking panic of 1907 (CHAPTER XVII)

7) The creation of the Federal Reserves (CHAPTER XXI)


I hope you find it has interesting as I did. (Sorry for any spelling mistakes, I scanned the book and used OCR (optical character recognition).)

(emphasis mine) [my comment]

FROM FARM BOY TO FINANCIER
By Frank A. Vanderlip

CHAPTER I
ON THE FARM

I was a farm boy and going for the cows was one of my earliest duties; to go along was all I was required to do for the dog did the work, showing admirable intelligence at his job, rounding up the cows and nipping the heels of any that were lazy. In our part of the world two miles from Oswego, Illinois, Snap was indexed as a shepherd dog, but he was really a collie, although not, like Mr. Morgan' s gift, a show dog…


A few years later, I was made, one summer, the herd boy, cook and tutor of thirty-six calves. They had to be taught to drink. The way you did that was to cup milk in your hand from a pail to the calf' s mouth, gradually overcoming his inclination to put his head up for milk; but even when one was induced to lower his head into a pail a contrary impulse to bunt would frequently result in the upset of a pail. The pails contained a fluid that was made of milk and hay tea, an infusion of hay boiled in kettles suspended over bonfires in the yard. Each calf had a name that was entered on a ruled page of a patent medicine almanac and each name was checked as that calf was fed. At the end of that summer for my work my father gave e a calf for my own and when it was sold I was richer than I had dreamed of being; I had twelve dollars.

What I did buy with my twelve dollars gained from the sale of the calf was a six years' subscription to the New York Weekly Tribune, with a premium of Webster' s unabridged dictionary. That offer was advertised to me by a sign hanging on the wall of the village post- office in Oswego. I have the dictionary yet and I suspect that rooted in my mind are some of the Tribune' s prejudices planted there by the fierce things printed during the Hayes-Tilden controversy. I would explore the dictionary at random and I know I got my calf' s worth…


CHAPTER II
FACTORY OVERALLS

WINTER in Illinois then meant frosty window-panes for weeks upon weeks. My tall and bearded father had what was spoken of as a heavy cold. He coughed a great deal. We did not dream then that in such a bland fluid as milk there might lurk so dreadful an affliction; to-day, of course, in most states a great deal of money is spent to destroy infected cattle. One day in the yard when it was deep with snow my father had a severe coughing spell, and when he straightened up I saw on the whiteness at his feet a scarlet stain; a death warrant…


My grandfather came and tried to help my mother run the farm, but he did not do it very well; the seeds of tragedy were in that soil. The little brother, ten years younger than I, grew thin and gaunt and then died of tuberculosis. It was tragedy, too, when with all our hopes centered on a flock of young turkeys, their legs would begin to curl up with a fatal ailment we called turkey rheumatism. A whole year' s work was wiped out in a visitation of cholera; by twos and threes or even fours the hogs would lie down and die; they died quickly from cholera. It was a great strain for us to meet all the responsibilities. There was a mortgage for $5,000 on the farm and the interest rate was 10 per cent. An old gentleman in Aurora named Budlong owned the document and I remember being sent to him once with the interest, for half a year, in cash, pinned in my pocket. We never saw bank checks and had no bank account; consequently we had to hoard carefully any cash we got…


I can feel even now a flush of embarrassment as I think of my first appearance in the machine-shop where I became an apprentice. I was aware of a continuous scrutiny by the men who worked at the lathes, the benches and the planers. They were making, there and in the foundry, large wood-working machinery; big planers and enormous circular-saws. The factory was owned by the Hoyts, cousins of my grandmother, but that faint distinction did not lessen my blushes. As the morning slowly wore on I learned how to make the bolts that were used to fasten the knives on the planers…

CHAPTER III
ESCAPE FROM OVERALLS

IF I could have lived my life according to a program of desire I would have been engaged in pure science all my days; physics interested me intensely when I was in Aurora. I had a chum named Wynn Meredith. His enthusiasm for electricity infected me. When we saw design for a dynamo in the Scientific American we determined to make one. I had the castings made in the shop. The project took us several months. I got a real lesson out of winding the armature. I learned that you missed doing a thing right at one turn you never could cover it up with the next. If I failed to spool the wire on with every strand snugly in its place the hump of the flaw would show in spite of everything until I unwrapped enough wire to make it right. Our dynamo worked, and years afterward I heard that it was still being used in a little silver-plating factory in Aurora…

I even tried to get a job with the new electric company which had put arc lamps on steel towers one hundred and fifty feet high in order to light the city. They offered me work inserting carbons in the lamps, but I decided I was not sufficiently interested in electricity for that; every lamp was to be reached only after a hazardous, dizzy climb; I had too much caution. I figured I might learn more about electricity at college and began sending for catalogues. In the meantime, I was earning a little extra money teaching algebra to some of my shop-mates at fifty cents an hour, but I was spending the money taking German lessons; and from Myron Stolp, an inventor of uncommercial devices and son of one of the town' s big men, I was taking mathematics, descriptive geometry. I was determined I was not going to spend the rest of my life in overalls at a lathe in a machine-shop. But how was I to get out? Looking backward now I am amazed that in six moves I got out of overalls and became the president of the nation' s biggest bank. Then, of course, I was not even thinking of banking.

Wynn Meredith had decided to go to the University of Illinois, but I wanted to attend a college that could increase my understanding of electricity. Cornell, the only one that offered such a course, was, however, too far away for my purse, so I also went to Champaign…


I have somewhere in my archives my account-book of that year and the expenditures total $226. It had been money saved out of my $4.43 a week; none of it was borrowed, but with the end of the school year when it was all gone there was nothing for me to do but to go back to the shop, to put on my overalls and take my place again at a lathe. The general superintendent of the plant found time to tell me that they planned to put me at other jobs, and I was given to understand that some day I might rise to a position like that of Ambrose Higgins, the foreman. Somehow the knowledge that Mr. Higgins' s job was what was in store for me settled the thing, stiffened my spine. I made up my mind right then and there that I would not have my career in that shop. I was getting $1.25 a day; a journeyman machinist able to work at my trade at lathe or bench. I might have gone anywhere with such a passport, but I knew I had to get out of overalls and do something, anything else. I think I was really desperate then. I yearned as much as ever to go to college, but it seemed out of the question since I was the only man of a family of women; and I had no one with influence to smooth a path for me. That was when my eye was caught by an advertisement of a course of shorthand taught by mail. Tachygraphy it was called [tachygraphy = The art and practice of rapid writing.]. I subscribed. With a piece of chalk I practiced making the shorthand characters on the tail stock of my lathe. I worked diligently because I had persuaded myself that those cabalistic signs were going to be the wizard formula by means of which I was to be released from the enchantment of overalls and a factory…

… The very day of the shutdown I read in the Aurora Eveninq Post an item of news that probably had been written and set in type by the person concerned; it was an announcement of the departure of the city editor to another city and another job. I had never written anything and can recall now nothing to explain the nerve, the daring that carried me, after a sleepless night, into the office of the publisher of the newspaper to ask him for the job of city editor.

His name was Constantine; he owned the paper and he ran it, but how well he ran it you may gather from the fact that he gave me what I asked for. Six dollars a week was the pay and quite often I had to go out and collect the amount from delinquent subscribers or advertisers, for rarely was there that much money in the till. The paper was housed in a one-story wooden building of two rooms, and which was the most gummy with a deposit of chewing tobacco it would be hard for me to say with accuracy. The year was 1885 and I was twenty-one, but my soul was inches taller because I was now a personage. Calling myself city editor meant more to me then than to have suddenly discovered that I possessed a patent of nobility and might call myself baron.


Then Johnson proposed to me that I might, in view of my shorthand accomplishment, Tachygraphy, take a job in Chicago as a stenographer. I took the job and I had made my second move. I was paid $15 a week…

CHAPTER IV
WHITE-COLLAR WORKER


Then I began to study mortgages as a part of my work, making written reports of my findings. Most of Scudder' s clients were insurance companies; as investors they would engage Scudder to give them a report on some bond issue concerning which they were feeling dubious. It would become my job then to read the mortgage that secured the bonds and to hunt for the holes. I was learning as a young kitten learns to hunt mice, by practice, how to hunt for legal flaws in mortgages. It was a good thing for me to have it etched upon my mind so early that the most handsomely engraved security may be the mask of a piece of financial trickery. I was discovering, too, the meaning of a balance-sheet, learning ways to appraise the prospects of a property based on its past performances. For days on end I might be engaged in making up the income account of a railroad over a series of years. I was getting my first training in finance, and as I look back upon it I wonder at my good luck in stumbling into a situation that offered me such an unparalleled opportunity to learn. There are great organizations nowadays which undertake to do this sort of thing for any investor, but in that time Scudder had gone into an uncharted sea of commerce…


CHAPTER V
VANDERLIP, THE YOUNG REPORTER

JOSEPH FRENCH JOHNSON went to the Chicago Tribune as financial editor and about a year later, in 1889, he induced John Wilkie, who was assistant to Fred Hall, the city editor, to give me a try-out as a reporter…

I was on the staff and my salary was twenty dollars a week. Long afterward in Wall Street, when reporters came into my office in the National City Bank, sometimes they must have thought I was pondering rather long over my answer to a question, but I may say now that actually I was often wondering if they could feel in their work the same excitement with which I had approached mine in those years when I was a' reporter in Chicago. Make no mistake about it: I was a reporter. My deity was the Tribune. The sacrifices laid upon the altar were scoops; none of us in those days knew the meaning of the word hand-out because we were reporters.


Nowhere in a long career in business have I ever found anything to compare with the atmosphere of a newspaper shop in action; there is a feeling, an esprit in the reporters' room that I believe is a too rare element in our world. I believe that even in the small victories of newspaper reporting there is a flavor that is exquisite. When I find myself aware, on the banking side of my mind, that a counting-room is rather too conspicuous in the identity of some journal that I want to admire, I long for the means to prove what I feel to be true; that if a newspaper were to concern itself first and last with the various phases and shapes of brilliant reporting, its best reporters and editors might be so richly paid as never to desert their calling even though in importance the business office people shriveled to mere shadows of their present selves. If only some genius could be born and developed who would establish that as truth this would be a better world and I would rephrase what I have always said: The newspaper field is the greatest in the world to have been in.


CHAPTER VI
FINANCIAL EDITOR

… I remained in Chicago and took over Johnson' s job. I became the financial editor of the Chicago Tribune; eventually my salary was $45 a week.

When one starts to pick out threads in the embroidery of recollection unsuspected patterns are revealed; there was, for example, my first experience as an investor, an adventure with far-reaching consequences to my life. Some $3,000 was left to my mother from my father' s estate. It had been guarded ever so carefully but now that I was financial editor of the Tribune I felt quite competent to invest it. Indeed, I think I must have been looking for a likely thing to buy on that day when in search of news I went into the bank of which Lyman J. Gage was president, the First National. The bank was offering the bonds on the Central Market, an enterprise then building in Chicago. Anyway, I decided to buy some of the Central Market stock; that seemed to me to be the ideal shape into which to transform my mother' s tiny fortune.


… But our homecoming was sad enough. The Central Market Company had gone into bankruptcy; the little family fortune was gone and with it practically all the pride and dignity of the financial editor of the Tribune. Well, I was not just a hick by any means and I began to bore into the matter with the determined enthusiasm of a genuine Tribune reporter hunting a scoop.

I found out I was one of a very few persons who had ever paid anything for the stock of the company; I had paid $1oo a share for stock that had been passed around to influential insiders as a bonus. By digging I learned there was a law in Illinois which required that stock had to be paid for in full and armed with that fact I went to a meeting of creditors that was presided over by President Gage of the First National. That was the day, I think, that he became aware of me as a person; previously I had only a slight acquaintance with him; but at the meeting I told those gentlemen who were full of reorganization schemes that they, the creditors, were going to have to pay in full for my shares of the stock which had been issued free to them. There were some conferences with lawyers in which I was politely stubborn and finally I got back my mother' s money and my self-respect.

I became, as financial editor of the Tribune, almost the equivalent of a daily stroke of apoplexy to a masterful financier of the city. He was Charles T. Yerkes who had a sort of Monte Cristo background to make him recklessly daring in his ambitions. Control of the North and West Side street railways was his; likewise he had control of the gas companies, but he was overweeningly bent on extending his power and not particular in the means he employed. As for me, all I wanted was a minimum of one first-page financial scoop each week. Even gentle-mannered managers in that dark age withheld from the public all that they could of the financial facts of their corporations and any one who tried to pry out some financial news about his companies was to Yerkes no better than a spy. Thanks to my work for Scudder I was one financial reporter who really knew how to collate the financial facts of a company. To get all the available published information of a corporation over a series of years, the annual reports, if any, the balance-sheets, and then to follow these through was the sort of picture-puzzle game I liked to play; especially when the end of the trail brought me to a piece of information worthy of Page One.

An early escapade of mine was to buy a share of stock in each of Yerkes' s corporations, using a few hundred dollars I had saved to make the purchase. I made sure that each share was registered in my name, too. Well, the ownership of a share was just like having a legal ticket of admission to the annual meeting of the company' s stock-holders. The first time I made use of that device was in attending the meeting of the West Side Street Railway Company. Mind, I was a stenographer, too, so that literally I missed nothing. [pretty clever]

I got all the figures of the earnings and the number of passengers that had been carried. Then Yerkes spoke to the gathering and complimented himself before them by making it clear to the stock-holders that they really made their profits out of the strap-hangers. Naturally, that was my lead.

I took no one into my confidence as to the means I was using to get my facts and so it was more than a year before the rival newspapers began buying shares of stock for their financial editors. After that the lid was off; we were admitted even if we happened not to be stock-holders, but there was less information presented. However, I had spooned the cream from that pan of milk. I suppose I had become as familiar with the corporate affairs of those Street Railway companies as anybody other than the high officers. I would construct income accounts and publish them before there was any thought of making them public. Once as I stood outside the rail at the desk of an officer in a trust company I noted something peculiar about the number of the bonds he was signing. Each number was preceded by a letter, as A-1ooo, and with that clue I began an investigation which revealed that these bonds were secured by an open-end mortgage; additional bonds were being certified of which the public at that time were unaware; but they were not unaware long. I discovered a trick those companies employed when buying land on which to build a power-house. The company would buy through a subsidiary or some individual a piece of land. Then there would be recorded, quietly, a large mortgage on this property. Subsequently the land would be transferred to the street railway company. That secret mortgage would have precedence over the lien of bonds which the company issued and which the purchasers supposed were secured by a first mortgage. I unearthed a great deal of the financial skullduggery of that period. Afterward, when Yerkes was branching out socially, he provided himself with a family crest having a device of three wolves. He used to point to one of the most viciously fanged wolves. “This one,” he would say, “is Vanderlip.”

I remember that I carried out during the course of weeks an investigation of secret rebates by the railroads. I did a lot of traveling and to accomplish my purpose…


Well, finally I was ready and wrote my story. It was to cover considerably more than two full pages in the Chicago Tribune, but so that the full impact of it might strike in Washington, the management of the paper for the occasion took over the plant of the Washington Star and with its machinery, in conjunction with a prodigal use of telegraph lines, produced in the Capital a complete edition of the Chicago Tribune, one that was the twin of that which at the same time was being sold on the streets of Chicago. When Congress assembled that morning every senator and representative found on his desk a copy of the day' s Chicago Tribune. [Back then, the press really was a effetive watch dog, unlike today…]

in my heart I am now and always have been a newspaperman; at least I think so. Old Joseph Medill helped to make me one for all time on an occasion when I was inclined to feel just a trifle sick at my stomach; scared, if you want to know the truth. Marshall Field, the greatest merchant and the most prodigal advertiser in Chicago, had let it be known that he was much put out by the way I was dealing with financial news. He had come to headquarters with his kick and I was sent for, to come to the sanctum sanctorum where I never before had been, the office of the editor, Joseph Medill; indeed, I had traded greetings with Mr. Medill only once or twice before this occasion. He was old, deaf, and shuffled in his stride. This day, treating me with nice dignity, he explained that Mr. Field was objecting to something I had written for the financial page. Regrettably I have forgotten now what the point of dispute was; but it does not matter because the real issue was whether the largest advertiser could make the editor of the Tribune knuckle down and accept his point of view.

[How would today' s newspapers react to pressure from their largest advertiser?]

Mr. Field was a beautifully groomed man; his mustache was gray. As I listened to his complaint I was well aware that he was no ordinary person. Then I expressed my viewpoint, gratefully aware that the dim-eyed old man behind the desk was listening as judicially to me as he had listened to Marshall Field. I salute him across the years that intervene. If he had truckled then, even a little, all his power would have been gone as was Samson' s when Delilah Cut his hair; but he did not truckle. There was no ranting, no scolding; Joseph Medill simply stood up to the situation. The Tribune was the Tribune. Mr. Field had the right of any reader to make a protest, but Mr. Field was mistaken. The Tribune would proceed. From that day on I think that for the Tribune under Joseph Medill I would have hidden bodies, too, had that been necessary to make us greater.


CHAPTER VII
EX-NEWSPAPERMAN

ONE of the former financial editors of the Tribune, Clinton B. Evans, had established a weekly, the Economist, and made a fair success of it. Near the close of 1894 I left the Tribune to become editor of this publication…


One morning about six weeks later Mr. Gage returned to his office after a visit to the White House.

“I had a talk with the President,” he said.

I looked up to show my interest.

“I told him I wanted to ask just one favor of him and I said it would be the only one I would ask during his administration.”

“Yes, sir?“

“Well, the President said: ‘What is it?' and I said: ‘I want Vanderlip made Assistant Secretary of the Treasury.' ”

I cannot say honestly whether I spoke aloud but I know that every fiber of me was asking what Mr. McKinley had said. Even now I can remember Mr. Gage' s eye-glasses held delicately between his thumb and forefinger as he fanned them in a narrow arc. He was watching me with quiet joy as he told me.

“The President said: ‘All right. Send him over.' ”

Suddenly I remembered that an Assistant Secretary rated a carriage and a pair of horses.


CHAPTER VIII
A JUNIOR CABINET OFFICER

for pretty nearly the first time in my life I had a girl and, of all places, she lived in the White House! What I mean is that I had met a niece of President McKinley, that I sought her company on all possible occasions, that she permitted me to call on her and that I was privileged to escort her to parties and to the theater. I tell you, that was a sensation for me, to go calling on a girl at the White House. In the darkness of my Government carriage with my thoughts cadenced to the clop, clopping of the horses' hoofs as I approached the iron gates and the graveled driveway of the place where our presidents live, often I experienced a Cinderella-like qualm. Suppose the spell were to be broken and I were to find myself grease-blackened and once more in the thralldom of overalls!

I never mounted the steps and crossed the stone porch to the front door of the White House without a feeling of awe; Lincoln' s feet had trod those steps where mine were walking; beyond the door, possibly in corners, I liked to fancy, there still lingered atmosphere that he had breathed. Well, romantic feelings could survive even such notions, but there was a more difficult matter every time I became the escort of the lady to a ball or a theater. We were chaperoned by a White House military aide! …


Although there were three Assistant Secretaries of the Treasury, supposedly of equal rank, each of us receiving every month a check for $375, actually my post acquired somewhat more weight than the other two. This was attributable in part to the circumstance that between Mr. Gage and myself there had grown an affectionate attachment marked by complete trust. I had my own office but it adjoined Mr. Gage' s office. He was a man who, rather than head of the Treasury, ought to have been a member of the Supreme Court; his legal training, his beautifully balanced judicial mind, had equipped him for greatness there. Most things that would have irked him became a part of my job; for instance, I dealt with all the newspaper correspondents. I do not mean to suggest that I usurped any slight part of his vast responsibility because he was very genuinely the head of the department, but I began to revel in the very great authority with which I was entrusted.

I who had never before had anybody working under my direction, found myself with myriads of subordinates; Mr. Gage had placed me in charge of personnel through the device of appointing a personnel committee of three and then making me the chairman of it. In the Treasury Department there were five or six thousand persons. That was in a time when the spoils system in politics was only beginning to be brought under control. All the employees, because there had been a change in administration, a change in the party in control of the government, trembled for their jobs before a host of old soldiers who crowded the corridors to besiege my office. I was the one who dealt with the job hunters' patrons, the senators and the other congressmen who came, some to implore, some to demand. With the nonsensical logic of a nightmare, Civil Service limitations did not apply to Civil War veterans; legally any old soldier who had worn blue was eligible for, with few exceptions, any Government job. I learned a lot of things then.


… I remember one old fellow particularly. After he had haunted the offices for a long time, supported in his plea for reinstatement by an influential politician, a place was made for him, necessarily at the expense of some poor devil who lived thereafter only in the hope of similarly moving in with some future Democratic Administration. Well, after no great while it was reported to me that our professional old soldier was still military in his habits, after a fashion; that he was soldiering on the job.

“Why won' t you work?” I asked him.

“Say,” he chided me, “I worked hard enough to get this job.”

Unhappily, he was not allowed to keep it. I took my own job too seriously.

It was one of the finest things that ever happened to advance my career that Mr. Gage gave me charge of the financial bureaus of the Treasury Department. I might have been given charge of the Customs or else had to focus my attention on the assorted functions of the miscellaneous bureaus that were only indirectly concerned with the big work of the Treasury; but as it happened, in handling the financial bureaus I got a tremendous dose of precisely the kind of experience I had hoped to have when I had accepted the offer to become private secretary to Mr. Gage.

Those rivulets of commerce I had been obliged to study in Scudder' s investigating organization, and the business flow that I had observed as a financial reporter and editor now were revealed to me in the immensity of their currents. As a great river system at its mouth, blending itself with the tidal waters of the sea, reveals distinct colors in the convoluting mixture of fresh and sea water, so there would be disclosed to any one who sat at my post in the Treasury Department another significant mixture. I could see the great swirling currents of two forces of the people; one of the power of their will to be a nation, their political power; the other of their will to work, of their economic power, their wealth. How should these forces that grow out of the people be blended so as to accomplish the greatest good for the greatest number? I did not know then; I do not know now, but I do believe that it is impossible to send the tidewaters of Government much farther in the direction of the stream' s source without causing the people to thirst, to hunger and to die.


CHAPTER IX
THE SPANISH-AMERICAN WAR

… then McKinley asked him to repeat to the cabinet his idea as to the proper way of dealing with the Spanish ships which were then crossing the Atlantic toward the Antilles.

“I' m glad you asked me that question,” Roosevelt said and became red with excitement. “I will tell you what I think we ought to do. We ought to send our warships to meet them on the high seas and sink every damned one of them.”


My acquaintance with Roosevelt in Washington was not so close, but afterward when I had become a banker I had an extraordinary experience with him. He was going to make a speech in Kansas City and two or three days beforehand, to my utter surprise, he senP to my office in Wall Street the manuscript of his proposed speech, with a request for me to go through it carefully and make any suggestions that occurred to me. I took a blue pencil and I went through it, almost in the manner of a copy-reader, and on the margins put notes about things I thought ought to be left out or emphasized. He seemed to like what I had done because for a long time after that he continued to send me his speeches. He told me one time that Elihu Root and I were the only two men who would ever edit a speech for him. He frequently, but not always, followed my suggestions.

Mr. Gage was fond of quoting the adage: “The revenue of the state is the state.” He lad good excuse to quote it on April 21, 1898; war was declared. A short while before, with hardly a word of debate, Congress had appropriated $50,000,000for the public defense; with the outbreak of war it showed courage by enacting a far-reaching tax bill so that the people began forthwith to pay something on account for their war. Grave possibilities of attack by the Spanish fleet on the cities of our Eastern seaboard created fears that were translated into swift activity; coast defenses were hastily strengthened, harbors mined, ships bought and the markets of the world searched for munitions of war. Money was being poured out in such extraordinary volume that provision was made for a $200,000,000 bond issue; that became my job—to handle the details of that loan flotation.


… we had to use the Secret Service, busy under Chief Wilkie rounding up Spanish spies, to uncover the schemes of those who realized that the owners of these new bonds would have a profit the minute they came into their possession. For instance, from Chicago a fake bid came in bearing all the names on the payrolls of the street railway lines, of hosts of conductors and cablemen. A number of shrewd traders devised similar schemes but all such applications were thrown out.

Actually, there was in the arrangements every element of popular success. The bonds were issued in a popular cause. They were issued at a time when money was easy and securities were high. They were issued at par; so that there was no calculation to discourage the most inexperienced investor. Any man with twenty dollars knew that he could invest it and get a twenty dollar security back. There was no commission, no premium, no restriction as to the character of the remittance. Subscribers were permitted to send their money in any form in which credits could be forwarded. There could not have been more perfect conditions for a successful popular loan.


… the man on the desk repeated the news of victory in Cuba; Santiago had fallen. While most of the hundreds of clerks were cheering the announcement a few of us were checking the total of the subscription. The people had subscribed $1,400,000,000 to the war loan; $7 subscribed for every $1 that had been offered. That really was something to get excited about. It turned out that every subscriber asking for more than $4500 received nothing so that the distribution was very wide. The allotment was made to a total of 320,000 purchasers and of these 230,000 were persons who had asked for bonds in amounts ranging between $20 and $500.

CHAPTER X
AN INVITATION FROM WALL STREET

WELL, with that news from Cuba the country' s eyes were pretty well focused on such heroes as the Rough Riders and their new Colonel, Theodore Roosevelt; but some one had been watching Prank A. Vanderlip, too. On me, during my work in handling that $200,000,000 bond issue, there had been fixed, quite unknown to me, the sharp and piercing eyes of James Stillman, the head of the biggest New York bank, the biggest bank in the United States.


So he talked with me for an hour or more, always about New York banking, and with the assistance of only one or two words from Vanderlip. Then, without preliminaries, he said to me, “When you are through with the Treasury, and I understand Mr. Gage wants you to stay there for another year, we want you to come into the City Bank as vice-president.” [City Bank = Citibank]

If he had suddenly struck at me with the fire-tongs, or if he had produced a telegram from McKinley offering to send me to the Court of St. James as Ambassador, I would not have been more surprised…


CHAPTER XI
“STILLMAN' S MONEY TRAP”


From the beginning I was treated differently any other person in the bank. Seemingly Mr. Stillman always had in his mind the intention to prepare me for an extraordinary position, but not from any direct word of his did I learn that this was the case. In later years I asked him several times what it had been that he saw in me, what he had intended to accomplish; but to such questions he never gave me any really satisfactory reply…

When I returned from Europe I had been informed by Mr. Stillman that the Board of Directors would meet on the fifteenth of July and that he would want me in his office when the meeting began. After they had been in session a little while in the room adjoining, Mr. Stillman had appeared and had asked me to step into the board-room. Then he had made a mass introduction and indicated for me to sit in the chair beside him. That was the first board-meeting I had ever attended. These board-meetings were held at half past one every Tuesday, and the following Tuesday just before the meeting Mr. Stillman sent for me. Thereafter, he said, he wished me to attend all the boardmeetings. That was mystifying to every one. None of the old officers had ever been asked to sit with the Board of Directors.


I knew a great number of bankers; the influential ones all over the country. As Assistant Secretary of the Treasury I had had charge of all the relationships between the Treasury and the National Banks. So I began to write letters to some of these acquaintances soliciting the accounts of their banks for the National City Bank. In comparison with the high-pressure drives for new business that developed in banking later, it is almost incomprehensible that until I came there the City Bank never had solicited an account. By doing so I had violated a taboo.

That I should have elected to do this is not surprising because, obviously, lending of the bank' s money was as yet outside my province. The bank had experts, seemingly, who knew quite all there was to know about lending; but with respect to the other matter, the increasing of deposits, absolutely nothing was being done openly. To get a good account for the bank, Mr. Still- man would have risked his life, but he never would have stated his purpose in words. There would be dinners, there would be calls, there would be all manner of graceful attentions paid to the one controlling the money, but the convention was that no one could, with dignity, ask for an account. Wasn' t that silly?


.... I remember I got in the first year 365 new accounts, one for every day in the year. Before I had finished with the bank, deposits of $200,000,000 had been increased until they could be written in the form of an incredible sum of money—$1,000,000,000.

In that temple of finance of which Mr. Stillman was the high priest there were numerous tacit interdictions of which I became aware as I violated them. There were, for example, those magazine articles that I wrote to fulfill an obligation accepted before I came into the service of the bank…


There had arrived in the United States about that time a most influential Japanese, Viscount Shibusawa, who was characterized in the press as the Morgan of Japan. Mr. Stillman, who wished to give a dinner in his honor, telephoned me quite early one morning while I was at breakfast to ask me to meet him …

… What he had to say he spoke excitedly in Japanese. When this was translated I discovered that he was speaking of our meeting as a most happy coincidence. What he was reading, he explained, was something that had attracted his interest in Europe so that he had caused it to be translated. The Japanese characters on the scroll in his hands, he explained, were the translation of some articles about the American commercial invasions of Europe written by Frank A. Vanderlip.

Mr. Stillman extended his dinner invitation and then we left. On the way to the bank Mr. Stillman said not one word about Shibusawa' s scroll, but a few days later Mr. Simonson, who was the last person in the bank who would have thought of doing such a thing, came to my desk to speak about my articles in Scribner' s. He said the bank would like to republish them in a booklet if I did not object. Of course he had been instructed to do this by Mr. Stillman. Quite pleasantly I told him I had not the slightest objection; but that the copyright was held by Scribner' s and that the bank would have to seek their permission. This was done; ten thousand copies were printed and distributed and then forty thousand more, and eventually the papers I had written were translated through the bank' s initiative into seven languages including the Japanese. That incident was just one of the things by which Mr. Stillman became reconciled to the fact that I was deeply stained with printer' s ink.


… Mr. Stillman all during our outing would instruct me. Often he would conclude a talk about some quite prominent business man by saying, “Never loan money to him.” There came to be indexed in my mind many against whom I had been warned by Mr. Still- man. Down in Wall Street then these men appeared to be admirably solvent, and yet, in the course of time, I noticed that those of whom he had spoken warnings were not solvent. For my part I talked to him about the need for banking law reform. I had given a good deal of attention to this subject, theoretically. I believed that the whole system of National bank-notes was unsound, wrong; there were ideas in my head then that later on were expressed in the Federal Reserve Bank Act. So we talked and became friends and eventually the relationship between us was like that between a father and a son. Yet I could feel that the thing he loved most in the world was the Bank. He was devoted to the City Bank as a devout person is to his church. However, I myself became whole-heartedly enlisted in that service to which Mr. Stillman was dedicated: The Bank!

CHAPTER XII
THE MASTER OF THE CITY BANK

[Most of this chapter is about Stillman]


Although no bank in all the world ever before had done anything of the sort, I began issuing on behalf of the National City Bank a four-page paper which I called Government Bonds and Finance.

I had an excuse, as I say, but actually the responsible factor was the split personality within me, the frustrated journalist who read in the poor circulars of the bond-houses a challenge to produce a good one. Mine was good. Because the issue of those bonds had been in my charge when I was a Government official only a short while before when I had been at the Treasury, there was no one in the country who possessed a better understanding of the subject…


CHAPTER XIII
THE BANK' S YOUNGEST VICE-PRESIDENT

LOOKING at myself from Mr. Stillman' s viewpoint I suppose it was thrilling for him to be training one as responsive as I. Since I had no side-issues my whole mind, all my energies were devoted, every hour, to the City Bank. I did not play. I did not know how to play. I never have learned how to play. I would go abroad but always with a driving purpose to find out more about the currents of world commerce; all that I had previously learned was acquiring new significance…


… Moscow I met Sergius de Vitte, as I met all the other finance ministers of Europe, and I found him and others alert to the fact that American exports had been expanding prodigiously; the value was expressed at the end of 1901 as $1,500,000,000; in six years we had sold abroad of goods and raw materials two billion dollars worth more than we had bought. In many European cities the street-lamps and the street railways derived their energy from American dynamos. The shoes clattering on the pavements of European cities were American shoes. Increasingly, the sheep that ran to the far side of their English pastures at the sound of locomotive whistles had been frightened by mechanisms made in America. The flagstaff above Windsor Castle originally had been a fir tree in a Washington forest. The typewriters, the type-setting machines, the cash-registers and sewing- machines that were helping to speed up life on the Continent and elsewhere in the world were all importations from America and, in their sum, a matter of concern to the statesmen of Europe. The lack of balance in the trade was what troubled them. I was back in Europe again in the summer of 1902 and in October of that year I made my first speech as a vice-president of the City Bank. The result was a break in the stock-market.

[Back then, the US was the world' s industrial powerhouse (like China is today).]

I had gone to Wilmington, North Carolina, as the guest of the Chamber of Commerce and at a dinner I had made this speech. In it I had reported that the United States, in the opinion of keen foreign observers, had reached the high-water mark of its overflow of exports into the European industrial field. That speech had been carefully prepared and probably as a result of the swift market-reaction to it an article about me appeared in the Saturday Evening Post some time afterward and it was headed “The Voice of Wall Street.” I was thrilled by that, of course, but I knew that the throat of the youngest vice-president of the City Bank was not exactly the place from which the Voice of Wall Street should emanate…


CHAPTER XIV
TAKING ROOT

[Mr. Stillman] had just had a visit with the elder J. P. Morgan and what they discussed was the succession of command in the triumvirate of dominating financial structures in Wall Street. They had agreed that everything should be concentrated by Morgan on Henry Davison, by George F. Baker on another young man and by Stillman on me. We were, in short, the chosen successors of the three great men of Wall Street. Baker' s man, after all, did not come into succession but Davison certainly became the leading active partner of J. P. Morgan and Company…


My responsibilities in the National City Bank in 1905 were such that I must have seemed to be working under tension. I had, within six months after I had joined the bank, left the platform and the other officers to seek a floor where my expanding staff could spread itself around me and freely grow. I sat at a desk where my varied activities were dramatized for all by the semi-circle of telephones and the panel of push-buttons placed within reach of my left hand; my right hand had other things to do. Any man, no matter what his importance, walking into such a scene, was likely to seat himself, if at all, only on the edge of a chair and to begin a conference by saying, “I know how busy you are.” I was busy, yes, but sometimes the visitors were men I did not wish to have feel hurried; on the contrary, when I made an appointment with a man I wanted him to feel wholly at his ease; to feel that we had time to discuss the matter in hand.

What I did to release the tension of my office conferences, and, if the truth must be told, on myself, was to acquire, deliberately, at the age of forty, the habit of smoking. Until then I never had used tobacco... [Ouch. They didn' t have warnings on cigarettes back then…]


Quite early in my career, when I was getting a salary of $10,000 a year, I reported to Mr. Stillman that I had received an offer of the presidency of a trust company in Chicago. I had no desire to take the offer, and I did not suggest to him that I was even considering it.

“You are getting twenty thousand a year; you should not be thinking of anything but the City Bank,” said Mr. Stillman.

Well, doubling my salary was an effective way of dealing with what may have appeared to Mr. Stillman as a situation. He had no desire to be niggardly [Despite the similarity in spelling, this word has no connection with the word nigger] with me, yet he was opposed to paying salaries of too generous proportions to his subordinates [a bank president opposed to generous compensation?!?]. It was his theory that spending a large salary takes a good deal of a man' s time and attention and that he is, accordingly, less useful. There is a good deal in that. I think it has become evident in recent years that some extraordinarily big salaries, especially those that were augmented by fantastic bonuses, did not invariably buy better work from the men who received them… [Anyone else agree with this?]


CHAPTER XV
MEN BEHIND THE BANK

[This chapter is mostly about other Wall Street bankers. I am including the passage below for conspiracy theorists.]


William Rockefeller, with a stock interest in the National City Bank that was, for awhile, second only to that of Mr. Stillman, was an important figure in our councils. His face was handsome (gray-mustached), his manners velvety, his operations devious: gnawing at him was an obsession to capture a fortune as great as that of his brother John. During the first year of my service in the bank William' s nephew, John D., Jr., had been on the board of the bank. Mr. Stillman' s astonishing complaint against the young man was that he had a suspicious nature. Probably the younger Rockefeller had been cautioned by his father against voicing knowledge for just such reasons as prompted Mr. Stillman to be on his guard when the barber, Herr Bischoff, was around.


CHAPTER XVI
A FOREIGN INVESTMENT


“You,” he said, “are to succeed me as president.”

This was in December, 1906. Mr. Stillman planned to effect the change at the annual meeting in the following month. Night after night we met at his home to lay out a program. Just before the annual meeting, however, he confided to me that there was considerable opposition to his retirement. The other officers were shocked by his intention. I remember that he reported to me, and he was amused, that G. S. Whitson, the eldest of the vice-presidents, had behaved almost as if he were going to suffer a stroke of apoplexy.

“On the whole,” said Mr. Stillman, “it may be wise for us to wait. Let' s do this in June. In the meantime I am going abroad and I am holding you responsible for everything.”

Unwisely, this was kept as just a little secret between Mr. Stillman and me; it would have been much better for me if he had announced that, while he was away, I was the boss. Well, who would not be willing to wait from January until June? Before June came, though, something quite unforeseen occurred.

Shivers began to run through the nation' s financial mechanism. These were the first tremors of an economic earthquake. Before I got through with the experiences of that year I had begun to know some of the terror that always had made the master of the City Bank preach his creed of caution. I think my graying hair became white in that panic year of 1907.


CHAPTER XVII
1907

THE specters that haunt a banker when his world goes mad are terrible. I can tell you because I remember 1907. [Today' s bankers have long forgotten these fears…]

A “run” is always appropriate material for the nightmare of a banker. Just fancy yourself as a banker— and discovering outside your plate glass façade an ever-lengthening column of men and women, all having bankbooks and checks clutched in their hands. Fancy those who would be best known to you, the ones with the biggest balances, pushing to the head of the line— there to bargain excitedly with the depositors holding the places nearest the wickets of the paying tellers. Even that won' t give you a hint of what a banker' s dread is like unless you heighten the effect with a swarm of hoarse-throated newsboys, each with his cry pitched to an hysterical scream; and then give the hideous concert an over-tone of sound from the scuffling feet of a mob.

Although the depositors never gathered as a mob outside our bank, I knew the flavor of terror just from contemplating the possibility. We had the biggest and strongest bank in the country, but obviously we could not hope to be in a position, ever, to pay their cash to all of our depositors if they should demand it simultaneously. Bigness does not save an elephant staked on an ant-hill. Bigness will not save a bank if a run endures long enough. In that year, 1907, the size of the National City Bank was regarded as phenomenal in America, and more than impressive in London, Paris, Berlin and St. Petersburg. We had in our own vaults as our lawful reserves more than $40,000,000—and three-quarters of that sum was in gold. On our books were sums representing millions due us from other banks; we had paper that represented nearly $120,000,000 of loans and discounts; we had many other millions in the form of Government bonds; every day we held possession of pieces of paper representing millions of dollars which were expressed on our books as “exchanges for clearing house.” In August, 1907, we were a fabulous organism.

Our total resources were:

$231,455,057.07

But, of course, our liabilities were:

$231,455,057.07

[
In 1906, City Bank owned 45 tons of gold.
In 2006, Citibank owned 0 tons of gold.

In 1906, City Bank had cash reserves equaling 17%of its liabilities.
In 2006, Citibank had cash reserves equaling 1.2% of its liabilities.
]


In our individualistic banking system of that time, the trust companies, operating under too-tolerant state laws, were engaged in some unsound banking practices. These created an annoying element of unfair competition for the more strictly controlled National Banks. In that period none of the rapidly growing trust companies was a member of the Clearing House Association. Some of the stronger trust companies made shift to use the facilities of the clearing house by having special arrangements with one or another of the banks which were members. In such a case, a bank would send a trust company' s daily accumulation of checks for collection to the clearing house, just as if those checks were a part of the bank' s own business. This parasitical device, akin to the habitual borrowing by an improvident neighbor of one' s lawn-mower, finally tried the patience of the National Bank of Commerce, which had been performing this service for the Knickerbocker Trust Company. In a curt announcement, the public read that the National Bank of Commerce had declined any longer to clear the checks of the Knickerbocker. The depositors of the Knickerbocker believed they read in this statement something of deeper significance. They began to pour into the trust company, determined to withdraw their deposits. The Knickerbocker did not have much cash. Trust companies were not required to keep cash reserves against their deposits at a ratio at all comparable with that required of the National Banks in the central reserve cities, New York, Chicago and St. Louis, which had to have in their vaults, always, cash equal to 25 per cent of their demand deposits. Lacking cash, the Knickerbocker quickly had to close its doors.

Immediately, an already timorous public grew suspicious of most of the other trust companies, and lines of depositors began to form in front of their doors. Extra editions of the newspapers, falling prices registered in the stock-market, wild rumors, these things contributed force to the wave of emotion that engulfed the banking system.

Almost every caller was some one needing to be soothed. One acquaintance who came to my desk was a man with black eyebrows so mobile from excitement they seemed likely, any moment, to scamper up his forehead and vanish into his hair. He was Julian Street, the young author, and he was clutching in a trousers' pocket something unprecedented in the pockets of all other authors I had ever known. Street had fifty yellow $1,000 bills. He explained possession credibly; the money was part of his wife' s inheritance and, after an adventure, he had just retrieved it from one of the trust companies.

On that first morning of the panic Street had taken fright as had every one else; you could catch the infection of terror over the telephone from the tone of a voice. A short while before a considerable part of his wife' s fortune had been turned into cash. Pending reinvestment, it was on deposit with one of the trust companies; but even the strongest trust companies had become suspect. As he came down-town everywhere Street saw men and women dashing about in the manner of ants when their hill is trod on. He determined to get the money and bring it to me.

When he presented his certificate of deposit at the trust company he was invited into a conference with a vice-president. This man attempted to reason with Street; he said the company was as strong as the country itself and that it was foolish for Mr. Street to incur the risk of robbery or loss by some other means. But Street was firm, and so another official added his arguments and when he could not change the client' s mind, the president himself joined the group. For nearly three hours those men argued and cajoled. Probably their pride was involved, but all that they said simply frightened Street more, until he was the personification of the 1907 panic.

“The country is in terrible shape,” he said, “if you three men can spend hours making such a to-do about an account of this size.”

“But for your own good, Mr. Street. . .“

“Cash !” roared Street. “I want the cash. Read what it says on this certificate: payment on demand. I demand the cash.”

“Not so loud, please, Mr. Street, because we are simply trying to keep you from a foolish action. What can you do with the money?”

“None of your business. I want that cash.”

“Well, if you insist, let us give you a certified check.”

“Cash,” repeated Street shrilly, “or I go out and give the story to the newspapers.”

They surrendered then and gave him his bundle of thousand dollar bills…

Madness, of course, is the word for the sudden, unreasonable, overpowering fright that communicates itself through all the human herd at such a time as that to which I refer. From too much usage, the word “panic” has ceased to have its proper cutting-edge as a tool for the mind. It has degenerated into a mere time symbol in our vocabularies, a sort of asterisk, marking the calendar of our memory opposite such years as 1873, 1893, and 1907. Yet, a banking panic, such as occurred in 1907, is actually akin to that which happens when a leaking ship' s company is mastered by fear, instead of a stern captain, and rushes for the small boats, forgetful of all obligations except the brutish one of self-preservation. This swift contagion comes, when it does, as quickly as you can say the word:

“panic !“


Those weeks in October and November were a period of swift education for most bankers, and I was certainly an eager student. I was learning that the banking reforms which I had long been preaching would have to be expressed in the form of some sort of a central banking organization. We would have to invent a wholesale banking mechanism that would relieve our economic system from the intolerable strains to which periodically it was being subjected


While he was in the midst of its dull phrases a telephone bell rang and, as Oakleigh Thorne answered it, the lawyer stopped reading.

“Barney has committed suicide,” said Thorne. “Shot himself with a pistol.”

No one commented. The lawyer went on reading. That was not callousness. We simply had no time to express our feelings. At that moment the battle was on; we were in it.

[No bankers shooting themselves today. They are too busy paying themselves bonuses…]


CHAPTER XVIII
THE NEW PRESIDENT OF THE CITY BANK


[Mr. Stillman] left me in charge, but he did not tell the other vice-presidents that I was to be held responsible for what they might do. What it boiled down to was that Mr. Stillman regarded me as the de facto president, but my associates in the bank did not so regard me. It was a situation not too comfortable…


Henry Davison and Paul Warburg were others who had my deep respect after the panic. These two and Ben Strong and I were among the few men who, at that time, were fully persuaded that the remedy for the weakness in our banking system was the creation of some sort of a central institution to hold the reserves of the country. Only when such a common reservoir existed, we were convinced, would it be possible to use the reserves effectively.

We were entirely right because, if the Federal Reserve System had been in existence in 1907, the thing that brought about the financial paralysis, the mad scramble for individual reserves, would not have occurred; there would have been no panic in 1907. However, even when the madness was over, and when their lesson should have been well learned, many of the oldest, the most distinguished and respected bankers of the country, were still opposed to banking law reforms. They understood the old, the haphazard system. Consequently, they were disposed to reprove younger men, who wanted to change, by reminding them that the existing national banking system had served the nation through the years of expansion after the ‘sixties; it should not, they insisted, become the plaything of tinkerers or theorists. Their minds were as little engaged by the obvious as are those of their successors by the weaknesses of the gold standard. Nevertheless, Paul Warburg continued to write lucidly about the central banks of Europe. Ben Strong was equally zealous in his advocacy of change, and I wrote articles, delivered speeches and argued with every banker with whom I came in contact. The minds of legislators were somewhat quicker to grasp, to see, that there was a problem, but, for lack of banking experience, such minds were not likely to develop a blueprint of a workable machine. It was going to be a big job.

Reform, no matter how urgently required, was not primarily my job. My job was running the City Bank. It was an institution to be proud of in 1908; mightily proud. That others who were alive in that time would agree with me is shown by the fact that the deposits had increased during the months when most institutions were shriveling, somewhat, from the effects of a widespread disposition to hoard against a possibly worse panic. Also, some who had been hoarding money had faith, when they brought their buried treasure to light once more, only in the nation' s biggest bank. The simple fact that we were far and away the biggest was prestige enough to satisfy the most timid soul with riches in his hands.

Some years after I had become president, and while I was visiting Mr. Stillman at his house in 19 Rue Rembrandt, Paris, he confided to my secretary, Ned Currier, the reason why he was living in “exile.” “When I made Mr. Vanderlip president of the bank,” he told Currier, “I realized that if I did not get out of the way, Mr. Schiff, Mr. Morgan, Mr. Harriman, Mr. Baker and others would not go to Mr. Vanderlip, but would come to me as they always had done, and the only way I could avoid this, and make Mr. Vanderlip a real president, was to move abroad for the greater part of the time.” He was living in that splendid house he had bought in the rue Rembrandt, one that was filled with art treasures, and hung with ancient tapestries. That was where he received the letter I wrote to him at the end of the first week in May, 1908. I refer to the letter now only because it seems typical of the many I wrote. I had just returned after a week in his company. “. . . . deposits,” I reported to him, “[have] continued to grow rapidly while loans remained about stationary. Today we had the largest amount of cash in the vault we have ever had in the existence of the bank and a reserve of 43 per cent.”

...
In December, 1908, I had a letter from Paris which told me:

The object of this is to urge upon you the necessity of keeping the operating expenses of the bank down, and not to increase salaries at this time. With poor business, small earnings (for those of the bond department are now only equalizing the lean years it has had) and low interest rates, no increases are warranted.

In fact in all other lines of business wages and operating expenses have been reduced. Those who are really worthy of more pay must wait until general earnings are better, if they are not willing to they are not of the right stuff and had better go[A very different argument than you hear from Wall Street today, isn' t it?]


CHAPTER XIX
THE ELDER MORGAN AS AN ALLY


“I am still in an unhappy frame of mind,” I said, addressing myself to Mr. Morgan, Sr. “I feel that the City Bank by every right is entitled to keep its first position. Any plan evolved by itself, or its friends, that would make an institution larger than the City Bank—— well, that would be unfortunate.”

Breathing forth a blast of blue cigar-smoke, Mr. Morgan said: “Absolutely I agree with you !”


CHAPTER XX
AN ADVENTURE WITH E. H. HARRIMAN


The Union Pacific, Mr. Harriman had concluded, ought to sell something quite valuable which it owned; a large amount of Wells Fargo & Company stock. The reason relayed to the board by Mr. Kahn, from Mr. Harriman, was that competing railroads objected to the operation over their lines of an express company owned by a competitor railroad. We were told this was particularly true of the Chicago, Milwaukee & St. Paul Railway. Mr. Harriman, we were assured, desired the directors to authorize the sale of the express company stock. He wanted the thing done as soon as possible.

The matter had come before us with what I felt to be disturbing suddenness. I wanted to know how so much stock could be sold without loss. It was listed on the exchange, but because it was so closely held transactions in it rarely occurred. In spite of the fact that opposition to Mr. Harriman was akin to lèse majesté, I asked for more time to consider the proposal. So the matter was laid over.

Privately, then, I addressed some inquiries to friends on the board of the Chicago, Milwaukee & St. Paul Railway, and when I was told no objections of any kind had been raised, and that, further, there was no basis for objection, my view was strengthened that the proposed sale was extraordinary. My opposition became unyielding. One other director sided with me, and so the sale did not occur. Again and again it was brought up for consideration, but we stood fast.

Because of his power to shift railroad deposits, and for other obvious reasons, Mr. Harriman was an important figure in the eyes of Mr. Stillman, Mr. Sterling, and William Rockefeller. Any crotchet of Harriman was something that might, I knew, have unpleasant repercussions. I was entirely aware of this on a day when a friend came into the bank to inform me that Harriman had sailed from Europe for New York, after declaring that he was coming home for just one reason—to get my scalp.

Harriman came home, but on the surface there never was any unpleasantness between us. Eventually, at a price $4,500,000 higher than could have been obtained at the time it first was proposed to sell the Wells Fargo stock, the sale was made…


CHAPTER XXI
A CONCLAVE ON JEKYL ISLAND

DESPITE my views about the value to society of greater publicity for the affairs of corporations, there was an occasion, near the close of 1910, when I was as secretive, indeed, as furtive as any conspirator. None of us who participated felt that we were conspirators; on the contrary we felt we were engaged in a patriotic work. We were trying to plan a mechanism that would correct the weaknesses of our banking system as revealed under the strains and pressures of the panic of 1907. I do not feel it is any exaggeration to speak of our secret expedition to Jekyl Island as the occasion of the actual conception of what eventually became the Federal Reserve System.

Congress, after 1907, had realized that something had to be done to strengthen our banking system. To provide itself with a better understanding of the problem, there had been appointed a joint commission of twenty-five members of both houses, under the chairmanship of Senator Aldrich, who was on the whole the best informed and the most dominant man in Congress on financial measures. This group had gone to Europe, had interviewed bankers and the heads of the central banks, and then, after a pleasant summer, they had returned to the United States without any definite idea of what they ought to do. Senator Aldrich did not know what they ought to do, either, although he really had been working hard for two years.

For me the beginning of the adventure, I should think, was a letter that came from Mr. Stillman in Paris. He said he had just had a long conference with Senator Nelson Aldrich (Zivil in our code) who was very keen to get to work on banking and currency revision. Aldrich, Mr. Stillman reported, regretted that Henry Davison of J. P. Morgan and Company and I had been unable to join him in Europe during the summer; he felt that over there we might have had plenty of time for our discussions, and been free from interruptions. In a moment of entire candor he would have said: “free from reporters.” Mr. Stillman said he had told Mr. Aldrich that freedom from interruptions was essential, but that it could be accomplished by getting Davison and me down to his estate in Rhode Island without any one' s knowing of it. That was Mr. Aldrich' s plan as he left Paris. Mr. Stillman wrote me that I should make everything else subservient to giving my whole time and thought to a thorough consideration of the subject. He said Aldrich was persuaded that he could accomplish more by getting out of the Senate, so as to put the work of revision on a non-partisan basis. Mr. Stillman expressed to me his fear that after revision the banks might not be so well off. He wrote that from that time on Davison and I ought to follow the matter very closely, and keep in touch with Aldrich. Aldrich, I was informed, believed in some sort of centralization, but not in the establishment of a central bank such as France had. Mr. Stillman also reported to me that in his talk with Senator Aldrich he himself had not expressed any views, except as he had impressed on the senator his belief in the necessity of not being too much influenced by “our Wall Street point of view.”

But would the electorate have believed that? I question their ability to do so. Just to give you a faint idea: Senator Aldrich was the father-in-law of John D. Rockefeller, Jr., and himself a very rich man. Once I had written to Woodrow Wilson at Princeton, inviting him to speak at a dinner. Wishing to impress him with the importance of the occasion, I had mentioned that Senator Aldrich also had been invited to speak. My friend Dr. Wilson had astonished me by replying that he could not bring himself to speak on the same platform with Senator Aldrich. He did come and make a speech, however, after I had reported that Mr. Aldrich' s health would prevent him from appearing. Now then, fancy what sort of head-lines might have appeared over a story that Aldrich was conferring about new money legislation with a Morgan partner and the president of the biggest bank.

On October 28, 1910, I wrote to Mr. Stillman in Paris: “Senator Aldrich met with what came very near being a severe, if not fatal automobile accident. You probably have seen the report of it in the papers. He was pretty well bruised, having cuts on each side of his face. He is very much better now, but the accident has naturally postponed the conference that was in mind. He will be about in a few days and Mrs. John D., Jr., tells me that they do not think there will be any serious effect from the accident.”

As the time for the assembling of Congress drew near, Senator Aldrich became increasingly concerned about the report he must write on behalf of the joint monetary commission; likewise, there ought to be, he knew, a bill to present to the new Congress and none had been drafted. This was how it happened that a group of us went with him to the Jekyl Island Club on the coast of Georgia.

Since it would be fatal to Senator Aldrich' s plan to have it known that he was calling on anybody from Wall Street to help him in preparing his report and bill, precautions were taken that would have delighted the heart of James Stillman. Those who had been asked to go were Henry Davison, Paul Warburg, Ben Strong, and myself. From Washington came A. Piatt Andrew, who was then an Assistant Secretary of the Treasury, and who now is a member of Congress from Massachusetts. We were told to leave our last names behind us. We were told, further, that we should avoid dining together on the night of our departure. We were instructed to come one at a time and as unobtrusively as possible to the railroad terminal on the New Jersey littoral of the Hudson, where Senator Aldrich' s private car would be in readiness, attached to the rear end of a train for the South.

When I came to that car the blinds were down and only slender threads of amber light showed the shape of the windows. Once aboard the private car we began to observe the taboo that had been fixed on last names. ‘We addressed each other as “Ben,”“Paul,”“Nelson,”“Abe” (it is Abram Piatt Andrew). Davison and I adopted even deeper disguises, abandoning our own first names. On the theory that we were always right, he became ‘Wilbur and I became Orville, after those two aviation pioneers, the Wright brothers. Incidentally, for years afterward Davison and I continued the practice, in communications, and when we were together.

The servants and the train crew may have known the identities of one or two of us, but they did not know all, and it was the names of all printed together that would have made our mysterious journey significant in Washington, in Wall Street, even in London. Discovery, we knew, simply must not happen, or else all our time and effort would be wasted. If it were to be exposed publicly that our particular group had gotten together and written a banking bill, that bill would have no chance whatever of passage by Congress. Yet, who was there in Congress who might have drafted a sound piece of legislation dealing with the purely banking problem with which we were concerned? Indeed, there were surprisingly few bankers, besides those of us who had been called together, who had given the special matters under consideration any thorough study whatever. Most bankers were reluctant to accept any change; George Baker was.

We proceeded, in the rear room of that private car, to get to work as soon as the train was moving. That first discussion of the banking structure and of what ought to be done about it produced scraps of ideas as formless as the contents of a rag-bag. Every one had some little piece of a project to throw on the table for discussion and every one' s pet scheme encountered some other fellow' s objection. We had traveled a good many miles without making much progress, when I told my companions of a piece of advice, as to the proper way to conduct a conference, that had been given me by Frank Trumbull, a dear friend of mine who was then the chairman of the board of the Chesapeake & Ohio Railway.

“What we ought to do first,” I said, “is to set down those things about which we are agreed; then, one by one, we can take up those things about which we seem to disagree.”

From then on we made swift progress. I was appointed amanuensis and in my paleolithic shorthand recorded those proposals which we all were ready to echo as we heard them; of course we knew that what we simply had to have was a more elastic currency through a bank that would hold the reserves of all banks.

We were taken by boat from the mainland to Jekyl Island and for a week or ten days were completely secluded, without any contact by telephone or telegraph with the outside. We had disappeared from the world onto a deserted island. There were plenty of colored servants but they had no idea who Ben and Paul and Nelson were; even Vanderlip, or Davison, or Andrew, would have meant less than nothing to them. There we worked in a club-house built for people with a taste for luxury. The live-oak trees wear fantastic beards of Spanish moss on Jekyl Island; in November brown leaves make its forests utterly charming. Without our ever stopping to hunt, deer, turkey and quail appeared on the table; there were pans of oysters not an hour old when they were scalloped; there were country hams with that incomparable flavor that is given to them in the South. We were working so hard that we ate enormously. We worked morning, noon and night.

We put in the most intense period of work that I have ever had. Sometimes Davison and Strong would be up at day-break to get a horseback ride, or a swim before breakfast, but right after breakfast the six of us would gather around the table and resume where our discussion had ended the previous midnight. We stuck to the plan of putting down on paper what we agreed upon; there was no back-tracking, no wrangling. Harry Davison was a splendid person to prevent wrangles in any company. Warburg, the best equipped man there in an academic sense, was so intense and apparently felt a little antagonism toward Aldrich, so that some of our moments of strain might have developed into real hindrance had it not been for Davison. Always he could be counted on to crack a joke just at the right moment to ease a strain. No telephones rang, none could bother us to ask for an opinion of the market, there were no directors' meetings, no interruptions whatever. Thanksgiving occurred during that week and we ate wild turkey with oyster stuffing and went right back to work. We gave, each of us, every bit of our mental energy to the job and I enjoyed that period as I never have enjoyed anything else. I lived during those days on Jekyl Island at the highest pitch of intellectual awareness that I have ever experienced. It was entirely thrilling.

As we dealt with questions I recorded our agreements in that shorthand I had first practiced with chalk on the tail stock of my lathe back in Aurora. If it was to be a central bank, how was it to be owned, by the banks, by the government, or jointly? When we had fixed upon bank ownership and joint control, we took up the political problem of whether it should be a number of institutions, or only one. Should the rate of interest be the same for the whole nation or should it be higher in a community that was expanding too fast and lower in another that was lagging? Should it restrict its services to banks? What open-market operations should be engaged in? Those were the sort of questions we dealt with, and finally, at the end of our week we had whipped into shape a bill that we felt, pridefully, should be presented to Congress. As I recall it, Warburg had some objections, but we were in substantial agreement on the measure we had created. We returned to the North as secretly as we had gone South. It was agreed that Senator Aldrich would present the bill we had drafted to the Senate. It became known to the country as the Aldrich Plan. Aldrich and Andrew left us at Washington, and Warburg, Davison, Strong, and I returned to New York.

Congress was about to meet; but on a Saturday we got word in New York that Senator Aldrich was ill, too ill to write an appropriate document to accompany his plan. Ben Strong and I went on to Washington and together we prepared that report. If what we had done then had been made known publicly, the effort would have been denounced as a piece of Wall Street chicanery, which it certainly was not. Aldrich never was a man to be a mere servant of the so-called money- interests. He was a conscientious, public-spirited man. He had called on the four of us who had Wall Street addresses because he knew that we had for years been studying aspects of the problem with which it was his public duty to deal.

As is now well known, the bill we drafted did not get through Congress. Aldrich retired from the Senate, and then a Democratic majority came down to Washington along with Woodrow Wilson who had defeated President Taft. The platform on which he was elected contained a statement expressing the opposition of the Democratic Party to the Aldrich Plan or a central bank. There was a good deal of discussion about that. It was contended that originally the platform committee had agreed upon the statement: “We are opposed to the Aldrich Plan for a central bank.”

Now, although the Aldrich Federal Reserve plan was defeated when it bore the name of Aldrich, nevertheless its essential points were all contained in the plan that finally was adopted. It provided an organization to hold the reserves of all member banks and arranged that they would always be ready to relieve a member-bank under pressure by rediscounting loans that it held. The law as enacted provided for twelve banks instead of the one which the Aldrich plan would have created; but the intent of the law was to coordinate the twelve through the Federal Reserve Board in Washington, so that in effect they would operate as a Central Bank. There can be no question about it: Aldrich undoubtedly laid the essential, fundamental lines which finally took the form of the Federal Reserve Law.

CHAPTER XXII
MILLIONAIRE


A million and a half dollars became mine almost with the swiftness with which it might have happened to Aladdin. I had come from Washington in 1901 possessing barely $2,000…


CHAPTER XXIII
RECRUITING FOR THE CITY BANK

[Nothing fascinating in this chapter]

CHAPTER XXIV
WALL STREET ADJUSTS ITSELF TO WAR

The next morning at the bank there arrived a cable message from London. It was from Lord Reveistoke and when it had been decoded Mr. Stillman read aloud to me: “War is inevitable.”

Germany and Austria started war against Serbia on Tuesday; by Friday, although actual war remained localized along the Serbian front, it was obvious the situation of all nations was wholly critical. On the advice of bankers it was decided to close the New York Stock Exchange. There had begun at New York a heavy export of gold; to get that gold European owners were selling out their American securities and as always when sellers greatly outnumber buyers, prices were dropping. A fearful strain existed in every part of the financial mechanism.

As in 1907 the foremost problem was how to create an extraordinary amount of sound currency. Some of us began to think at once that arrangements should be made for the issuance of Clearing House Certificates; but from Washington came word that William Gibbs McAdoo, the Secretary of the Treasury, desired that we should avoid doing this. He was confident such a step would be unnecessary because of the greater elasticity given to our currency by the passage of the Aldrich-Vreeland Act. This untried measure was a forerunner of the Federal Reserve legislation. Under the provisions of the Aldrich-Vreeland Act National Banks were permitted, during an emergency, to take out National bank-notes, temporarily, against the deposit of self-liquidating commercial paper; that is, notes given to banks by people engaged in commerce. Mr. McAdoo asked for a conference, in Washington, with representatives of the Clearing House Association. Accordingly, on Friday night two men departed for the capital to talk with him. One was Francis L. Hine, the president of the First National Bank (Baker' s institution), who was president of the Clearing House Association; the other was William Woodward, president of the Hanover National Bank, and who was acting chairman of the important Clearing House Committee in place of Albert H. Wiggin, who as it happened was in Europe at this time. I was a member of the committee.

Saturday brought to us the shocking news that the Central Powers had declared war on Russia. During the preceding night I had come to the conclusion that the Government was too optimistic in its view of what could be accomplished under the Aldrich-Vreeland Act. So, I arranged to meet at the Clearing House Association with the members of the Clearing House Committee who were in New York; three, of course, were absent, Woodward, Hine and Wiggin. I pressed on the others my view that because of limiting conditions the Treasury could not practically distribute all of the emergency currency it was being contended was ready for shipment from Washington to New York. A bank, I knew, could get these National bank-notes only in proportion to the total amount of commercial loans which it might have, and would use it only as it individually thought desirable.

My associates on the committee had been informed there would be more than $150,000,000 of this emergency currency available on Monday morning. I was persuaded there would be considerably less. So, I determined to get some first-hand information from one who had long been my eyes and ears in Washington; that was Milton E. Ailes, then a vice-president of the Riggs National Bank.


I told Currier to ask Ailes to find out precisely how much of the emergency currency was available for each New York bank. I specified that I wanted the information bank by bank; not merely a round sum. Late in the afternoon I got word from Ailes; the information was dismaying.

Instead of more than $150,000,000 as we had been led to believe, there was no more than $98,000,000 of emergency currency available for New York banks, and there was no certainty each bank would use the full amount available for it. For some banks in a position to use much there was little; for others that would make use of little there was excess.


Well, we had a fine row. Mr. McAdoo, whose forcefulness I have always admired, was at first courteous in his insistence that there was no need to issue Clearing House Certificates, but John Skelton Williams entered the discussion with a challenging manner that was hard to endure.

“Just how much emergency currency is practically available, Mr. Williams?” I asked him.

His answer came like a roll of drums, “One hundred and fifty-four million dollars, sir.”

“Well,” I said, “your information does not coincide with the figures on the list that I have received from our correspondent-bank in Washington. The amount yesterday afternoon was ninety-eight millions. The amount which will practically be used is far less.”

Both McAdoo and Williams were made explosively indignant by the bare suggestion that I presumed to be better posted than themselves about the business of the Treasury Department. As our argument grew intense this fact, in Williams' eyes, took on vastly more significance than it deserved.

I read off the amount of currency which was available for each bank. Every time I spoke an amount and named a bank, somewhere around the room an informed head nodded confirmation. My figures were irrefutable. Mr. McAdoo was chagrined and Mr Williams was enraged. The Comptroller made it apparent that he felt there was some impropriety in the fact that I was better informed than he was; my contention was that the only impropriety was that a responsible official had been so poorly informed about a matter of such vital concern to the nation.

Well, Clearing House Certificates were issued and they were needed. Without them we should have been in a fine mess; probably some banks would have been in serious difficulties. Secretary McAdoo accepted our point of view; but Comptroller Williams was chiefly concerned because a private citizen, a banker if you please, had walked into the Treasury Department and gathered some information. When he returned to Washington he summoned Ailes. What Ailes told him I have forgotten, but the young people of to-day have a proper phrase to deal with such an empty situation. They simply ask, “So what?”

“Gold is trumps,” James Stillman cautioned me as he sailed for Europe in September, 1914. He was never more right. London very much wanted about $98,000,000 due on a New York City bond issue; it was wanted in gold. Everything in America that was owned in Europe seemed to be for sale as the war began. Those who sold wanted gold. That was the most cogent of the reasons for keeping the New York Stock Exchange closed month after month. There simply was not enough gold to buy back all our bonds and stocks that were owned abroad and if the attempt to do so had not been effectively hampered it would have been as apparent in 1914 as it is in 1934 that the gold standard is something that ceases to work when everybody is suddenly eager to possess gold. With the Stock Exchange closed and stock and bond trading reduced to a small volume of illicit transactions, we managed to ride the storm.

it was soon apparent to most business men that the war was going to create a fabulous market for American goods, for American labor and for American capital. I had been made chairman of a committee that raised a pool of $100,000,000 in gold to ship abroad to preserve American credit. Just as soon as it was known overseas that we had that gold and would ship it on demand, the demand eased. None of that $100,000,000 of gold was exported. What began to come over then were orders for goods and requests for credits.


Banking is an essential function in the existence of a society in which masses of individuals have removed themselves, or are born away from the soil. The average man, I think, looks upon bankers as a group apart from the herd and, in the main, leeches. Yet that average man' s breakfast really reaches him only because it has been constantly attended by banking processes. Somebody has to furnish credit to buy the wheat from the farmer; there has to be credit first to build and then to operate the railroad that carries the wheat to an elevator and then to a miller; and the miller has to have credit while transforming the wheat into flour and then a baker has to have credit while he changes the flour into bread…


CHAPTER XXV
FRESH FIELDS TO CULTIVATE


There was a place out in California that I felt I ought to see, a 16,000-acre ranch that I had bought, with others, sight unseen as traders say. The property was situated on the seacoast, partly within the limits of Los Angeles…


The road over which I drove as I filled my eyes with a first sight of Palos Verdes Ranch was the corridor of one of the most exciting experiences of my life…

I had grown used to tackling pretty large financial measures, but the problems of sixteen thousand acres of land in the edge of a great city cannot be condensed on a sheet of paper as neatly as can a very great financial undertaking.

[
Frank Vanderlip owned 16,000 acres in Rancho Palos Verdes, pretty much in the center of Los Angeles.



Can you imagine how much that would be worth today?
]


CHAPTER XXVI
NEW PLANS FOR THE BANK


In 1915 certain developments, one of which was the frailty of Mr. Stillman' s health, made me conclude it was high time I took some steps to secure my own fortune. I was well-to-do, yes; but I wanted to be fixed to maintain myself in the job I had. It entailed an expensive life. Moreover, I had some excuse for entertaining a notion of riches different from that of most; during fourteen years I had been associating with men who possessed gigantic fortunes; Stillman, Morgan, Frick, Carnegie, Baker, Harriman, William Rockefeller and others. I occupied one of the most conspicuous banking positions in the world and my salary was $100,000 a year. Does that seem an excessive sum of money? In six months of 1915 the enterprise under my command had net earnings of $3,406,000… [For comparison, Sanford Weill (ex-Citibank CEO) was paid about $953 million in compensation from 1995 to 2005. Adjusted for inflation, that makes around 4.5 million a year in 1915 dollars.]

… I then owned 12,500 shares; more than Morgan, and what was hazardous, more than William Rockefeller. Frank Vanderlip had become the second largest stock-holder of the National City Bank…


CHAPTER XXVII
TROUBLE WITH A ROCKEFELLER

FROM the beginning of my career in the City Bank there were temperamental differences between William Rockefeller and me. We were so clearly fated to clash that the really astonishing thing is that I did not sooner come into conflict with him.

James Stillman, who truly enjoyed the society of Mr. Rockefeller, over and over warned me that the velvety politeness of his friend masked a character accustomed to work in darkness. Down the eighteen years of my association with the City Bank I knew that to be so, just as surely as I knew that a continued friendliness meant that much Rockefeller wealth would continue to be a part of our precious organism—the Bank. I wished to avoid giving offense to Mr. Rockefeller but I could not without wholly changing my character. Altogether, I was too lacking in compliance for his comfort. So matters for dispute arose between us. The first of these of any consequence was my refusal to divide with him the 10,000 shares of City Bank stock that I had optioned, and then bought, from the Morgans.

But there was another dispute that particularly galled Mr. Rockefeller.
In spite of the fact that I had become the second-largest stock-holder I should say that he was, excepting Mr. Stillman, the most influential director. Besides his enormous fortune there was to be considered his family relationship with Mr. Stillman. The two sons of Mr. Rockefeller, William G. and Percy A., were married, respectively, to Elsie and Isabel, the daughters of James Stillman. Now, Mr. Rockefeller was also a director of the New York Central Railroad, and when we bought for the bank an issue of New York Central bonds he declared himself in on 25 per cent of the profits.

I conceded this to him, because, after all, participations were spread around. However, as a director of the railroad he had agreed to sell those bonds; as a director of the bank he had agreed to buy them. He was, then, both buyer and seller. This dual roIe can be fulfilled with fairness to opposing groups of stockholders, but even under the best of conditions it is a difficult undertaking. As it happened, this sort of thing was the means of some of the worst abuses that occurred in Wall Street.


CHAPTER XXVIII
THE BURDEN OF A BANKER

OF course, throughout my banking career I was regarded as a radical by old-fashioned bankers. I was a banker publicist, but some of them supposed, I fancy simply that I was a fellow who delighted at seeing his name in print. I made speeches, they thought, for the exquisite pleasure of hearing my own voice and for the sake of applause. Mr. Stillman knew better than that. Frequently he commented on the fact that I was making a reputation throughout the country, and internationally, that enabled the bank to cast a big shadow. A great deal of my success at the City Bank was due to the fact that I was, in addition to being a banker, a publicist. To be a publicist banker you have got to think, you have got to have something to say. It was because of those extramural activities of mine that the City Bank was taken out of the groove in which it previously had gone in comfort.


Then Congress passed a War Savings act. No clear scheme had been worked out but it was intended that a way should be found to capture the small change from the pockets of the nation for the purpose of helping to finance the war effort. I was invited to take the chairmanship of the educational committee for the sale of War Savings Certificates; I accepted as of September 25, 1917.

Mr. Stillman had returned to the United States and was in his office at the City Bank daily. He gave his consent for me to take a leave of absence and soon afterward, having relinquished my salary of $100,000 a year, I set out for Washington, to become a dollar-a-year man. There were a lot of us.


CHAPTER XXIX
DOLLAR-A-YEAR MAN


I wrote an explanation of the thrift stamp program in the form of questions and answers and tried to make it simple enough for a child to understand. This information was printed as a circular and mailed to 20,000,000 persons in the United States. Now, how could we mail so many? We simply sent bundles of circulars to all post-offices; the postmasters were directed to see that mail-carriers distributed the circulars as they made their regular mail deliveries. We had contests among artists in order to develop some stirring and attractive posters. Plays were written for presentation in schools. There must have been developed a thousand schemes for getting our project into the public mind and conscience. Eventually we succeeded so well that in all the schools a large proportion of the children were saving their pennies, nickels and dimes by lending them to the Government. Housewives and clerks were saving and helping the Government. In one year from the day that the first stamp was sold the people purchased one billion dollars worth of thrift stamps. Eventually a total of $4,000,000,000 worth were sold…


CHAPTER XXX
I LEAVE THE BANK

… I knew there was something wrong with my health and late in February, 1918…


I had not the faintest idea then that my whole trouble was a diabetic condition. I was constantly tired…


Mr. Stillman had been in fragile health for so long that the news of his death came to me without shock…


By this time I had to deal with a William Rockefeller who no longer masked his unfriendliness. Indeed, after the death of Mr. Stillman he was quite willing that I should see that he was, to use a school-boy phrase, “after me.”

Well, I went to Europe as soon as it was possible to travel after the war. Over there I gained a view that was contrary to the beliefs of most persons. I did not believe that Germany was going to pay her debts. I did not believe that we were going to be the financial center of the world. I believed quite positively that we were going to have to struggle to hold onto any foreign trade whatever. Once more there was stiff competition in the world from all of its people…


There was, he told me, a kind of movement— “plot” was what my loyal friend called it—to get my resignation from the presidency of the City Bank. He had learned that Jimmy Stillman had said he now proposed to become president; moreover, that William Rockefeller was behind Jimmy. I felt chagrin the moment Rockefeller' s name was mentioned. I wanted to get out. I did not want to be put out.

Well, I came on back to Wall Street and saw Jimmy. It was quite true. He did want to be president. We exchanged only a few words and thereafter I let it be known that I would get out gladly.


I came back from Europe on May 19th. In the interval between my return and the announcement of my resignation on June 4th, I had sold my stock and I had made several speeches. Those speeches were not well received in Wall Street, because I said that the country was facing a period of business depression. That sort of information, however true, never is well received in Wall Street. Consequently, many persons erroneously jumped to the conclusion that my speeches were the cause of my resignation.


It would not be fair of me to look backward and say how I might have behaved had I remained in a place of authority in ‘Wall Street ; however, I sometimes find myself wondering how James Stillman, if he had lived, would have conducted himself in that period of almost universal madness that we speak of as the boom era.

I well know that Mr. Stillman would have brought great wisdom and therefore sharp restraint to many expanding operations. It never was his way to think in terms of this year' s profits or the profits of the year to come. What he was concerned with from moment to moment was the solidity of the bank' s position from generation to generation. Yet fairness impels me to add that what happened in the years after 1919 was confusing to the wisest and most experienced minds. Even a wise man is apt to lose faith in his judgment when the disasters he foresees repeatedly fail to occur.


The older I get the more strongly I am persuaded that what we are lacking in our nation and in the world is not economic leadership so much as moral, spiritual leadership. Our greatest need is a philosophy of morality so widely indoctrinated that no man could rise to power among us who was not dominated by that morality.

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11 Responses to *****Frank Vanderlip And The Creation Of The Federal Reserve*****

  1. Anonymous says:

    The last paragraph is right on.

  2. Anonymous says:

    since you have the book already scanned, please offer this on the amazon kindle, so we can read the elisions.
    it is wonderful.
    thank you

  3. Anonymous says:

    Great insight,

    many thanks Eric

  4. Gunther says:

    Eric,
    A fascinating read for the weekend and a good way to put the actual situation into perspective.
    I guess the gold-inventory number for Citibank in 2006 is too high. Are you sure they are not short gold? ;-)
    Thank you for the effort.
    Gunther

  5. Anonymous says:

    As Frank Vanderlip was manouvred out of his position one could say that he wasn't an insider. Just a banker of the old school. However money still seems to migrate to those who shuffle money. From the chapter 'Escape from overalls'. Perhaps in the future it will be seen that people in suits will be associated with criminal activity and there will be a desire to escape from a suit into overalls, which will then be seen as making an honest living!

    Thanks for taking the time to present this.

  6. Anonymous says:

    Wow Eric, thanks for this post. Excellent read. No doubt you have your great-grandfather's shrewd eye for finance and reporting. Keep it up!!

  7. Crystal says:

    Really interesting and captivating. Appreciate you taking the time and sharing.

  8. Anonymous says:

    A most interesting read ... quote from article.
    "There simply was not enough gold to buy back all our bonds and stocks that were owned abroad and if the attempt to do so had not been effectively hampered it would have been as apparent in 1914 as it is in 1934 that the gold standard is something that ceases to work when everybody is suddenly eager to possess gold."
    I read alot on both gold and silver and as Mister Stillman alternatively alluded to ... Gold is trumps, James Stillman cautioned me as he sailed for Europe in September, 1914. He was never more right. London very much wanted about $98,000,000 due on a New York City bond issue; it was wanted in gold.

    The world is facing a crises, another quote ...
    reserves in the banking system
    In 1906, City Bank owned 45 tons of gold.
    In 2006, Citibank owned 0 tons of gold.

    In 1906, City Bank had cash reserves equaling 17%of its liabilities.
    In 2006, Citibank had cash reserves equaling 1.2% of its liabilities.

    over the last year the FED has taken on the bad debts of the banking system and created new money and pumped into favoured banks ... the Fed stole twice from the US people
    1) relived favoured banks of toxic assets.
    2)printed money thus devaluing existing money.
    The rumors are that canadian gold is being doled out by comex to meet its obligations. Also Germany has asked America for its gold back as has Dubai ... both are stalled at the momemt.
    Mr Stillman was right at the end of the day people will want their Gold and theres not much to zero left in Fort Knox. If u cant acquire Gold then silver will surfice, please get some of either whilist this fiat money retains some purchasing power.

  9. GnoseBob says:

    Interesting read. Any Vanderlips still living at Beachwood?? Or at Palos Verdes??
    Milton Ailes was my Dad's uncle, as well as Eugene Ailes who was in charge of the investment side of National City when Mr. Vanderlip was off duck hunting on Jaekel Island.
    I believe they'd all be shocked at the present day criminality on Wall Street.
    Incidentally, Mr. Vanderlip's brother-in-law, Edw. Harden (Baker, Weeks & Harden) as another reporter earlier, beat the War Department in sending news of the battle of Manilla Bay to NY.
    Thanks for posting the book. Never had read it before.

  10. william vazquez says:

    Thanks for the wonderful story .

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