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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.
Eric
de Carbonnel
Market Skeptics
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