CHAPTER TWO
The Aldrich Plan
"Finance and the tariff are reserved by Nelson Aldrich as falling within his
sole purview and jurisdiction. Mr. Aldrich is endeavoring to devise, through
the National Monetary Commission, a banking and currency law. A great
many hundred thousand persons are firmly of the opinion that Mr. Aldrich
sums up in his personality the greatest and most sinister menace to the
popular welfare of the United States. Ernest Newman recently said, 'What
the South visits on the Negro in a political way, Aldrich would mete out to the
mudsills of the North, if he could devise a safe and practical way to
accomplish it.' "-Harper's Weekly, May 7, 1910."
The participants in the Jekyll Island conference returned to New York to
direct a nationwide propaganda campaign in favor of the "Aldrich Plan".
Three of the leading universities, Princeton, Harvard, and the University of
Chicago, were used as the rallying points for this propaganda, and national
banks had to contribute to a fund of five million dollars to persuade the
American public that this central bank plan should be enacted into law by
Congress.
Woodrow Wilson, governor of New Jersey and former president of Princeton
University, was enlisted as a spokesman for the Aldrich Plan. During the
Panic of 1907, Wilson had declared, "All this trouble could be averted if we
appointed a committee of six or seven public-spirited men like J.P. Morgan
to handle the affairs of our country."
In his biography of Nelson Aldrich in 1930, Stephenson says:
"A pamphlet was issued January 16, 1911, 'Suggested Plan for Monetary
Legislation', by Hon. Nelson Aldrich, based on Jekyll Island conclusions."
Stephenson says on page 388, "An organization for financial progress has
been formed. Mr. Warburg introduced a resolution authorizing the
establishment of the Citizens' League, later the National Citizens League . . .
Professor Laughlin of the University of Chicago was given charge of the
League's propaganda." 11
It is notable that Stephenson characterizes the work of the National Citizens
League as "propaganda", in line with Seligman's exposition of
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11 Nathaniel Wright Stephenson, Nelson W. Aldrich, A Leader in American
Politics, Scribners, N.Y. 1930
Warburg's work as "the education of the country" and "to break down
prejudices".
Much of the five million dollars of the bankers slush fund was spent under
the auspices of the National Citizens' League, which was made up of college
professors. The two most tireless propagandists for the Aldrich Plan were
Professor O.M. Sprague of Harvard, and J. Laurence Laughlin of the
University of Chicago.
Congressman Charles A. Lindbergh, Sr., notes:
"J. Laurence Laughlin, Chairman of the Executive Committee of the
National Citizens' League since its organization, has returned to his position
as professor of political economics in the University of Chicago. In June,
1911, Professor Laughlin was given a year's leave from the university, that
he might give all of his time to the campaign of education undertaken by the
League ... He has worked indefatigably, and it is largely due to his efforts
and his persistence that the campaign enters the final stage with flattering
prospects of a successful outcome . . . The reader knows that the University
of Chicago is an institution endowed by John D. Rockefeller, with nearly fifty
million dollars." 12
In his biography of Nelson Aldrich, Stephenson reveals that the Citizens'
League was also a Jekyll Island product. In chapter 24 we find that: The
Aldrich Plan was represented to Congress as the result of three years of
work, study and travel by members of the National Monetary Commission,
with expenditures of more than three hundred thousand dollars.*
Testifying before the Committee on Rules, December 15, 1911, after the
Aldrich plan had been introduced in Congress, Congressman Lindbergh
stated,
"Our financial system is a false one and a huge burden on the people ... I
have alleged that there is a Money Trust. The Aldrich plan is a scheme
plainly in the interest of the Trust . . . Why does the Money Trust press so
hard for the Aldrich Plan now, before the people know what the money trust
has been doing?"
Lindbergh continued his speech,
"The Aldrich Plan is the Wall Street Plan. It is a broad challenge to the
Government by the champion of the Money Trust. It means another panic, if
necessary, to intimidate the people. Aldrich, paid by the Government to
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represent the people, proposes a plan for the trusts instead. It was by a very clever
move that the National Monetary Commission was created. In 1907 nature
responded most beautifully and gave this country the most bountiful crop it
had ever had. Other industries were busy too, and from a natural standpoint
all the conditions were right for a most
12 Charles A. Lindbergh, Sr., Banking, Currency and the Money Trust,
1913, p. 131
* In 1911, the Aldrich Plan became part of the official platform of the
Republican Party.
prosperous year. Instead, a panic entailed enormous losses upon us. Wall
Street knew the American people were demanding a remedy against the
recurrence of such a ridiculously unnatural condition. Most Senators and
Representatives fell into the Wall Street trap and passed the Aldrich
Vreeland Emergency Currency Bill. But the real purpose was to get a
monetary commission which would frame a proposition for amendments to
our currency and banking laws which would suit the Money Trust. The
interests are now busy everywhere educating the people in favor of the
Aldrich Plan. It is reported that a large sum of money has been raised for
this purpose. Wall Street speculation brought on the Panic of 1907. The
depositors' funds were loaned to gamblers and anybody the Money Trust
wanted to favour. Then when the depositors wanted their money, the banks
did not have it. That made the panic."
Edward Vreeland, co-author of the bill, wrote in the August 25, 1910
Independent (which was owned by Aldrich), "Under the proposed monetary
plan of Senator Aldrich, monopolies will disappear, because they will not be
able to make more than four percent interest and monopolies cannot
continue at such a low rate. Also, this will mark the disappearance of the
Government from the banking business."
Vreeland's fantastic claims were typical of the propaganda flood unleashed
to pass the Aldrich Plan. Monopolies would disappear, the Government
would disappear from the banking business. Pie in the sky.
Nation Magazine, January 19, 1911, noted, "The name of Central Bank is
carefully avoided, but the 'Federal Reserve Association', the name given to
the proposed central organization, is endowed with the usual powers and
responsibilities of a European Central Bank."
After the National Monetary Commission had returned from Europe, it held
no official meetings for nearly two years. No records or minutes were ever
presented showing who had authored the Aldrich Plan. Since they held no
official meetings, the members of the commission could hardly claim the Plan
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as their own. The sole tangible result of the Commission's three hundred thousand
dollar expenditure was a library of thirty massive volumes on European
banking. Typical of these works is a thousand page history of the
Reichsbank, the central bank which controlled money and credit in
Germany, and whose principal stockholders, were the Rothschilds and Paul
Warburg's family banking house of M.M. Warburg Company. The
Commission's records show that it never functioned as a deliberative body.
Indeed, its only "meeting" was the secret conference held at Jekyll Island,
and this conference is not mentioned in any publication of the Commission.
Senator Cummins passed a resolution in Congress ordering the Commission
to report on January 8, 1912, and show some constructive results of its three
years' work. In the face of this challenge, the National Monetary Commission
ceased to exist.
With their five million dollars as a war chest, the Aldrich Plan propagandists
waged a no-holds barred war against their opposition. Andrew Frame
testified before the House Banking and Currency Committee of the
American Bankers Association. He represented a group of Western bankers
who opposed the Aldrich Plan:
CHAIRMAN CARTER GLASS: "Why didn't the Western bankers make
themselves heard when the American Bankers Association gave its
unqualified and, we are assured, unanimous approval of the scheme
proposed by the National Monetary Commission?"
ANDREW FRAME: "I'm glad you called my attention to that. When that
monetary bill was given to the country, it was but a few days previous to the
meeting of the American Bankers Association in New Orleans in 1911. There
was not one banker in a hundred who had read that bill. We had twelve
addresses in favor of it. General Hamby of Austin, Texas, wrote a letter to
President Watts asking for a hearing against the bill. He did not get a very
courteous answer. I refused to vote on it, and a great many other bankers did
likewise."
MR. BULKLEY: "Do you mean that no member of the Association could be
heard in opposition to the bill?"
ANDREW FRAME: "They throttled all argument."
MR. KINDRED: "But the report was given out that it was practically
ANDREW FRAME: "The bill had already been prepared by Senator
Aldrich and presented to the executive council of the American Bankers
Association in May, 1911. As a member of that council, I received a copy the
day before they acted upon it. When the bill came in at New Orleans, the
bankers of the United States had not read it."
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MR. KINDRED: "Did the presiding officer simply rule out those who wanted to
discuss it negatively?"
ANDREW FRAME: "They would not allow anyone on the program who was
not in favor of the bill."
CHAIRMAN GLASS: "What significance has the fact that at the next
annual meeting of the American Bankers Association held at Detroit in 1912,
the Association did not reiterate its endorsement of the plan of the National
Monetary Commission, known as the Aldrich scheme?"
ANDREW FRAME: "It did not reiterate the endorsement for the simple fact
that the backers of the Aldrich Plan knew that the Association would not
endorse it. We were ready for them, but they did not bring it up."
Andrew Frame exposed the collusion which in 1911 procured an
endorsement of the Aldrich Plan from the American Bankers Association but
which in 1912 did not even dare to repeat its endorsement, for fear of an
honest and open discussion of the merits of the plan.
Chairman Glass then called as witness one of the ten most powerful bankers
in the United States, George Blumenthal, partner of the international
banking house of Lazard Freres and brother-in-law of Eugene Meyer, Jr.
Carter Glass effusively welcomed Blumenthal, stating that "Senator
O'Gorman of New York was kind enough to suggest your name to us." A
year later, O'Gorman prevented a Senate Committee from asking his master,
Paul Warburg, any embarrassing questions before approving his nomination
as the first Governor of the Federal Reserve Board.
George Blumenthal stated, "Since 1893 my firm of Lazard Freres has been
foremost in importations and exportations of gold and has thereby come into
contact with everybody who had anything to do with it."
Congressman Taylor asked, "Have you a statement there as to the part you
have had in the importation of gold into the United States?" Taylor asked
this because the Panic of 1893 is known to economists as a classic example of
a money panic caused by gold movements.
"No," replied George Blumenthal, "I have nothing at all on that, because it is
not bearing on the question."
A banker from Philadelphia, Leslie Shaw, dissented with other witnesses at
these hearings, criticizing the much vaunted "decentralization" of the
System. He said, "Under the Aldrich Plan the bankers are to have local
associations and district associations, and when you have a local
organization, the centered control is assured. Suppose we have a local
association in Indianapolis; can you not name the three men who will
dominate that association? And then can you not name the one man
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everywhere else. When you have hooked the banks together, they can have the
biggest influence of anything in this country, with the exception of the
newspapers."
To promote the Democratic currency bill, Carter Glass made public the
sorry record of the Republican efforts of Senator Aldrich's National
Monetary Commission. His House Report in 1913 said, "Senator MacVeagh
fixes the cost of the National Monetary Commission to May 12, 1911 at
$207,130. They have since spent another hundred thousand dollars of the
taxpayer's money. The work done at such cost cannot be ignored, but, having
examined the extensive literature published by the Commission, the Banking
and Currency Committee finds little that bears upon the present state of the
credit market of the United States. We object to the Aldrich Bill on the
following points:
Its entire lack of adequate government or public control of the banking
mechanism it sets up.
Its tendency to throw voting control into the hands of the large banks of the
system.
The extreme danger of inflation of currency inherent in the system.
The insincerity of the bond-funding plan provided for by the measure, there
being a barefaced pretense that this system was to cost the government
nothing.
The dangerous monopolistic aspects of the bill.
Our Committee at the outset of its work was met by a well-defined sentiment
in favor of a central bank which was the manifest outgrowth of the work that
had been done by the National Monetary Commission."
Glass's denunciation of the Aldrich Bill as a central bank plan ignored the
fact that his own Federal Reserve Act would fulfill all the functions of a
central bank. Its stock would be owned by private stockholders who could
use the credit of the Government for their own profit; it would have control
of the nation's money and credit resources; and it would be a bank of issue
which would finance the government by "mobilizing" credit in time of war.
In "The Rationale of Central Banking," Vera C. Smith (Committee for
Monetary Research and Education, June, 1981) writes, "The primary
definition of a central bank is a banking system in which a single bank has
either a complete or residuary monopoly in the note issue. A central bank is
not a natural product of banking development. It is imposed from outside or
comes into being as the result of Government favors."
Thus a central bank attains its commanding position from its government
granted monopoly of the note issue. This is the key to its power. Also, the act
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of establishing a central bank has a direct inflationary impact because of the
fractional reserve system, which allows the creation of book-entry loans and
thereby, money, a number of times the actual "money" which the bank has
in its deposits or reserves.
The Aldrich Plan never came to a vote in Congress, because the Republicans
lost control of the House in 1910, and subsequently lost the Senate and the
Presidency in 1912.
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CHAPTER THREE
The Federal Reserve Act
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