For several years, leading bankers such as Jacob Schiff had predicted disaster and some had proposed reforms, such as assigning central banking functions to the Treasury or creating an asset-based currency, but neither Congress nor President Theodore Roosevelt had taken action. In 1906, with some financial constriction already under way, a committee of the New York Chamber of Commerce recommended creating a central bank patterned after the Reichsbank. The Aldrich Bill, passed in 1907, authorized but did not mandate central banking activity by the Treasury.

Between 1903 and 1906, with their vaults full of gold, banks had extended credit freely; business growth had surged, and visions of boundless prosperity had beckoned. Finally, production had caught up with demand, inventories began to accumulate and business slowed down. The Bank of England and the Reichsbank raised their discount rates late in 1906, and at first the gold flow to the United States was reduced, and then reversed. As money tightened, the stock market declined, with a sharp break in March 1907. The boom was over; in May, a deeper business slump was under way which dragged on during the summer. In early October, nervous depositors began a run on New York banks, which dried up call money and caused a further decline in the stock market. An uneasiness spread over the country, banks withdrew reserves from reserve city banks, which in turn called back reserves from New York and the other central reserve cities. As Frank A. Vanderlip put it, the public was suspicious of banks and withdrew its deposits to hoard cash, and banks were suspicious of each other and hoarded their reserves, all with a paralyzing effect on the economy. Eventually banks throughout the country suspended payments, refusing to pay out cash on demand. This was hard on depositors and business, but it saved all but the weakest banks.[1]

In 1895, J.P. Morgan had acted as a lender of last resort, and the banks looked to him for help in 1907. Either he could not stop the panic or he chose not to. After sitting on the sidelines until mid-October, he stepped in with some allies to aid some banks, after he had refused to help the Knickerbocker Trust, which closed its doors on October 22. Morgan did not like trust companies, which he believed were promoters of speculation, and he may have believed Knickerbocker deserved to fail. He did rescue New York City by purchasing an emergency $30 million bond issue, and he persuaded other strong banks to resume lending to brokers to prevent the stock exchange from closing.

The Treasury was more active than Morgan, though partly at his instigation. For several years, it had placed some of its funds in national banks instead of the sub-treasuries, and in the spring of 1907 it increased deposits and reduced withdrawals. In early September, Secretary George Cortelyou began depositing $5 million a week in banks, and with two more giant trusts about to go under, he loaned $25 million interest-free and without restriction to New York banks on October 23. He poured in another $10 million in the next eight days, but the banks restricted payments to depositors anyway and turned to another time-tested expedient to reduce suspensions.

In the late 1800s and early 1900s, clearing-house associations in New York, St. Louis, Philadelphia and other major cities issued clearing-house loan certificates and cashier's checks when the money dried up.

In 1873 and again in 1893, clearing-house associations in New York, St. Louis, Philadelphia and other major cities had issued clearing-house loan certificates when money dried up. Banks who were members could pledge illiquid securities in return for certificates that could be used to settle imbalances with other banks. Weak banks with a lot of bad paper could not qualify, but sound banks top-heavy with long-term loans were saved from short-term starvation. In 1907, the New York Clearing House issued $101 million in certificates and $256 million was the national total. The St. Louis Association made $11 million in certificates available to its members, and none of them failed. Nationally, bank failures barely exceeded the figures for "normal" years and did not outnumber new banks created.

After the breathing spell afforded by payment restrictions, banks furnished cash on demand to depositors in January 1908, and within a few weeks, depositors regained confidence. In February, they began to return currency to the banks. Contemporaries viewed the events of 1907 as a relatively mild contraction that became severe because of the bankers' panic and the restriction of payments. Later scholars have questioned this description, but it was widely agreed at the time that changes in the financial system were urgently needed to prevent a recurrence.[2] Many bankers hoped that the corrections would not be too drastic. Some favored creating a central currency reserve to meet emergencies, which would not be touched in ordinary times. During the panic, Cortelyou had used Treasury funds in this way, but he had too little cash available to stave off the restriction of payments.

Another proposal would have empowered national banks to supplement their government bond-backed notes with notes backed by cash in vault and deposits in reserve (or central reserve) city banks. This requirement, using the same assets employed to back deposits, would have solved the inelasticity problem. There was also support among bankers for a banker-controlled central bank such as that advocated by Frank A. Vanderlip of the National City Bank of New York. Vanderlip had gathered support from several leading New York businessmen for his plan, but few congressmen liked it. Agrarians and most Midwestern bankers saw too much Wall Street in the scheme.[3]

William Jennings Bryan, waging his third presidential campaign in 1908, made an issue of federally guaranteed bank deposits. This idea, which he had first advocated in 1894, was popular not only with farmers but with country bankers in the Midwest. Worried supporters of Republican nominee William Howard Taft reported in August that country bankers thought a federal guarantee would free them from the dictation of the East and New York in currency matters. Larger bankers, in the East especially, hated the idea because it would involve the government in banking, a dangerous precedent which carried the potential of taxing all banks to finance the guarantees.

After considering its options, Congress in 1908 enacted the Aldrich-Vreeland bill, which had two major features. The first, a stopgap measure, authorized emergency currency which could be issued by any group of 10 national banks, individually sound and with a combined capital and surplus of at least $5 million. This currency was available to any member of the association in amounts up to 75 percent of its commercial paper held by the association or up to 90 percent of the value of its holdings of approved state and federal bonds. The act's second provision, largely a device to avoid decisive action, established a National Monetary Commission composed of nine senators and nine representatives.

Senator Nelson W. Aldrich of Rhode Island was named chairman of the commission, which guaranteed the hostility of Democrats and insurgent Republicans such as Robert W. La Follette of Wisconsin to anything it might recommend. Aldrich, a former banker, was allied with the House of Morgan; he had written the Gold Standard Act of 1900, and he was the Senate's leading protectionist. He was as obnoxious to Democrats and insurgents as Bryan was to conservatives.

After touring Europe to study its banking systems and techniques, Aldrich and the other commissioners returned convinced that the United States should have a central bank controlled by bankers and issuing notes based on commercial paper. This was a surprising reversal for Aldrich, who previously had opposed any significant changes in the existing system, believing that only bond-related notes should be issued. The commission made no immediate proposal for legislation, knowing that an extensive campaign would be required to educate bankers and the public, especially after the Democrats gained control of the House of Representatives in 1910.

Various proposals for reform were under discussion by banking groups in 1909. The American Bankers' Association in 1906 had endorsed a system of regional clearing houses through which banks could issue notes secured by bonds and guaranteed by a fund derived from a tax on the notes when issued. This plan had been drafted by a currency commission of the ABA headed by A. Barton Hepburn of the Chase National Bank but dominated by Midwestern bankers who resented New York's financial hegemony. Western growth and the proliferation of banks had eroded some of Wall Street's dominance, and Chicago and St. Louis bankers liked the trend.[4]

The standing of St. Louisan Festus Wade among American bankers led him to play an important, if at times irritating, role in the formative period of Federal Reserve legislation.

Charles H. Huttig, president of the Third National Bank, and Festus J. Wade, president of the Mercantile Trust Company, represented St. Louis on the currency commission. They were prominent members of the banker and businessmen's group, conservative Democrats and some Republicans, who united politically behind the "good-government" Democratic Mayor Rolla Wells (1901-1909). Their detractors called them the "Big Cinch," a testament to their economic and political domination of the city. Huttig was a director of the Mercantile Trust, the St. Louis and Suburban Railroad, and the Laclede Gaslight Company. For years a leader in the ABA, he became its president in 1912 (the ABA itself had been organized in 1876 at the suggestion of St. Louis banker James T. Howenstein).[5]

Festus J. Wade, a brilliant, driving achiever, had an unusual background for a St. Louis banker. His family had come from Ireland to St. Louis in 1860, when he was a year old. Wade began working when he was 11 years old and had a dozen jobs from waterboy on a construction crew to driver for John Scullin and James Campbell's Northwestern horsecar line before he was 23, when he became secretary of the St. Louis Agricultural and Mechanical Fair Association. After studying part-time at a business college for four years, he entered a real estate partnership in 1893, where he was an immediate success. In 1899, he founded the Mercantile Trust Company, with considerable help from Scullin, the president of Scullin Steel, and Campbell, the organizer and principal stockholder of the four-city North American Utilities Company. Almost immediately the Mercantile Trust was second only to Julius Walsh's Mississippi Valley Trust Company among Missouri's banking houses. Wade took it from there, and by 1907 Mercantile had absorbed three of its competitors, including the large Missouri Lincoln Trust Company, and soon it had outdistanced all of its Missouri rivals.[6]

Wades formidable reputation was enhanced by such feats as forcing the St. Louis Terminal Railway monopoly to admit the Rock Island Railroad to its ranks, and blocking for several years, with Mayor Wells and on behalf of the railroads, the construction of a municipal free bridge across the Mississippi. His directorships included the Big Four Railroad Company, the Metropolitan Life Insurance Company, the St. Louis and San Francisco Railroad, and not surprisingly, the Scullin Steel Company and North American Utilities. During the formative period of the Federal Reserve legislation, Wade was in frequent contact with the other leading bankers and politicians involved.[7]

Banking reform acquired a regional look in 1909. Maurice Muehleman and Theodore Gilman of New York both published regional plans, but Victor Morawetz, a noted railroad attorney with ties to the House of Morgan, made the greatest impact in an address to the American Political Science Association. He suggested that since a European-style central bank was politically impossible and perhaps inappropriate in the American federal system, properly distributed sectional banks under a central board would serve as well. Morawetz did not care whether the board was private, governmental or mixed.[8]

Paul Warburg emerged as an early spokesman for banking reform in 1910 with his plan for a "United Reserve System," a central bank with a regional flavor.

In December 1909, the Banking Law Journal published the results of a poll conducted by Paul M. Warburg revealing that nearly 60 percent of the banker respondents favored a central bank--as long as it was not dominated by Wall Street.[9] Warburg, a member of a powerful Hamburg banking family, had come to New York in 1902 to work for Kuhn, Loeb and Company, which was headed by his father-in-law, Jacob Schiff. Shortly after he joined the firm, he wrote a critique of the American banking system for his senior partners, giving them the benefit of his expert knowledge of international banking and the Reichsbank. Schiff advised him not to circulate his memorandum further; warning that advocacy of central banking would damage his standing among bankers. Warburg complied, but after the Panic of 1907 had shattered the complacency of his fellows, he emerged as a major spokesman for reform.[10]

Warburg met Nelson Aldrich in 1907 and was not impressed by the senator's knowledge of banking, but they became a team after Warburg proposed his "United Reserve System" at a meeting of the Academy of Political Science in 1910. With Aldrich in the audience, he outlined this plan for a central bank with a regional flavor. Twenty well-distributed banking associations, controlled by a central bank in Washington with a capital stock of $100 million, would stabilize the American economy. The central board would be elected by the associations, its bank and public stockholders, and the government. It would set discount rates for the associations and issue notes against commercial paper purchased from them. Only paper representing actual transactions (real bills) would qualify for rediscount.[11]

The real bills doctrine, long dominant in Europe, was advocated by J. Laurence Laughlin, the distinguished economist who had drawn up the asset currency plan of the Indianapolis Monetary Commission in the late 1890s, and it was popular with many Midwestern bankers. Currency based on real bills was supposed to be elastic and self-regulating, expanding and contracting as business activity rose and fell. Warburg favored it, but he knew it was not self-regulating. There was no guarantee against over-expansion of credit, and at the other end of the scale, there was always a chance that demand for commercial paper would dry up, making a central reservoir with the means and power to intervene essential.[12]

Aldrich was so impressed with Warburg's formulation that he invited him; along with Frank A. Vanderlip of the National City Bank, Morgan partner Henry Davison, and A. Piatt Andrew of Harvard University to join him for a secret conference on Jekyll Island, Georgia, an exclusive resort owned by John D. Rockefeller and J. P. Morgan. Since the Monetary Commission had not yet produced a recommendation, the three Wall Street bankers, the academic economist, and Aldrich were ready to rectify the omission. To guard against revelations of their identity and their purpose, they took elaborate precautions, traveling separately to Hoboken, where they boarded a private railroad car for Savannah, using only their first names in front of the train crew.[13]

Warburg's United Reserve System was the point of departure for the week-long session, and the document that emerged did not stray far from his ideas. The draft was written by Vanderlip, who had developed a popular style while he was a baseball reporter in Chicago. Senator Aldrich, choosing pride of authorship over good judgment, brought the proposal to the National Monetary Commission as his own. The commission published it and recommended it on January 11, 1911, pointing out that the National Banking system was no system at all, that it was a breeder of panics, that it supplied an inelastic currency and that it did not provide for cooperation among banks. To remedy these weaknesses, the Aldrich plan set up a "National Reserve Association," which, according to the Monetary Commission, would provide an elastic currency without drawing down reserves, and extend credit based on cotton, grain and other commodities "without expensive shipments of cash:" In panics, it would provide loans to banks under pressure, "more important than currency circulation:" The commission stressed the point that the NRA would decentralize credit, freeing banks from reliance on New York banks.

The NRA was to be one bank with 15 branches. In each branch region, local associations of 10 banks or more with a combined capital and surplus of $5 million or more would be components of the branches. Any national bank could join an association, as could state banks and trust companies if they met the standard for a national bank charter. Member banks were to choose the association and branch directors, with a minority of directors selected by banks in proportion to their stock ownership in the NRA.[14] The central board would have 46 directors, with 39 chosen by the branches, a governor named by the president from a list presented by the elected board, two deputy governors elected by the board and subject to dismissal by the board, and the Secretaries of Commerce and Labor, Agriculture and the Treasury. Elected members would serve three-year terms. The Executive Committee, which would have done most of the work, was to have nine members; five elected by the board, the governors, the two deputy governors and the Comptroller of the Currency. Warburg reportedly had urged more government participation, but Aldrich and others overruled him. The bankers were to be in control.[15]

The NRA differed in important ways from European central banks. It would deal only with the government or its members, except in bond or specie purchases, and it could not pay interest on deposits. It would fix the discount rate, uniform in all regions, and change it when appropriate, and issue notes against bonds and rediscounted paper representing commercial and industrial transactions (real bills). Notes drawn to carry stocks, bonds or other investments were not eligible for rediscount. It would also replace national bank notes with its own notes, thus substituting an elastic for an inelastic currency. Though the branches chose their own boards, most important policy decisions were to be made by the central board. The level discount rate mandated in the plan denied the regionalism the NRA's framers so frequently stressed. But in the election of the central board's directors by the branch boards and in the provision that no more than four directors could be elected from one region, the regional principle was observed.

In May 1911, the currency commission of the American Bankers' Association (including St. Louisans Huttig and Wade) endorsed the Aldrich plan after insisting that banks be allowed to count the NRA's notes as reserves.[16] Paul Warburg had been busy all spring, orchestrating the formation of support groups to help make the case for the plan to Congress. On January 18, 1911, a "Businessman's Monetary Conference" adopted a resolution (written by Warburg) endorsing the Aldrich plan, and a few weeks later the "National Citizens' League for the Promotion of a Sound Banking System" opened for business. The League was as free of Wall Street appearance as possible. Professor Laughlin was its chairman, Chicago was its headquarters, merchants and manufacturers rather than bankers were on its board, and none of its officers were from New York. The league did not formally endorse the Aldrich Plan, but some of its members stumped the country for it, speaking to businessmen's groups. Wall Street bankers stayed out of the limelight, publishing no endorsements and making no speeches. Many local business groups and 29 of the 46 state banking associations announced their support. Speeches and promotional literature stressed decentralization and guaranteed that there would be no more panics.[17]

Reflecting skepticism among businessmen, the National Association of Manufacturers would not endorse the Aldrich plan. Daniel Tompkins, a former NAM president, who led the opposition, called it an invention of "Aldrich, the Standard Oil Company, and the Steel Trust."[18] Theodore Roosevelt, who ordinarily avoided the subject of banking but who was ready to throw his hat in the presidential ring again, privately opposed it. President Taft pronounced it good, but he doubted that it would ever pass the Democratic Congress. Congressman E. B. Vreeland urged prompt action, warning that Progressive or Democratic "radicals" might beat Aldrich to the punch with a government-dominated banking system. Warburg shared his impatience; state banks were multiplying prodigiously and he hoped the reform would encourage large national banks with branches at the state banks' expense.[19]

Dissension struck the Citizens' League in 1911. Its president, J. Laurence Laughlin, had opposed the concession on reserves exacted by the ABA's currency commission, and in July, writing to Paul Warburg, he charged that no bill with Aldrich's name on it would ever get through Congress. Warburg immediately shut off the New York funds that supported the league, and Laughlin backed off, going so far as to persuade Roosevelt not to oppose the plan publicly. Then in November, the Aldrich Plan seemingly scored its biggest victory, the endorsement of the American Bankers' Association. But as its price, the ABA had required a fateful concession: the power to remove the governor of the NRA was transferred from the president to the system's board of directors, thus removing the last trace of government control from the Aldrich Plan.[20] William Jennings Bryan noted that "big financiers" were backing Aldrich's "currency scheme"; its passage would give them control of everything. President Taft drove another stake into the heart of the plan in his December message, protesting all the while that he favored it. After endorsing it, he added: "there must be some form of governmental supervision and ultimate control."[21]

Republican Senator Nelson W. Aldrich (left) and Democrat Congressman Carter Glass authored major versions of Federal Reserve legislation.

In January 1912, the Aldrich bill was submitted to Congress. The Democrats did not like it; neither its principles nor its sponsorship passed muster. Since the rift between the "old guard" and the insurgent Republicans made a sweeping Democratic victory likely in the fall elections, why not have banking reform under Democratic auspices? According to Virginia Democratic congressman Carter Glass, "the bill was never considered by any committee of either House . . . it provided a central bank, for banks, and by banks."[22]

In the exciting presidential campaign of 1912, the Republican organization supported Taft, enabling him to fend off a strong challenge from Theodore Roosevelt for the nomination. Frustrated there, Roosevelt charged into the newly formed Progressive Party and grabbed its presidential nomination from the hands of Robert M. LaFollette, by whose standards Roosevelt was not a progressive at all. At the Democratic convention, after Speaker of the House Champ Clark of Missouri failed narrowly on successive ballots to obtain a two-thirds majority, Governor Woodrow Wilson of New Jersey was nominated on the 46th ballot. A switch by the still-potent Bryan from Clark to Wilson on the 14th ballot was a decisive factor, and Wilson was in the Nebraskan's debt. Ironically, though Wilson had routed the bosses and sponsored some progressive legislation in New Jersey, he was basically as conservative as Taft or Roosevelt; he had never supported Bryan or his principles.

President Taft, who had offended Wall Street with his vigorous anti-trust prosecutions-he had violated the detente reached by Roosevelt and J.P Morgan-got no help from the large bankers in the campaign. Both Roosevelt, whose views were well-known, and Wilson, whose views were not, opposed anti-trust prosecutions simply because a business combination was large; it had to have misused its power (the rule of reason). George Perkins, a Morgan partner, had been Roosevelt's closest adviser for years, and the third-party ticket got the majority of financial-center support. But Wilson also did well; Jacob Schiff was one of his largest contributors. As predicted, Wilson won the presidency in an electoral landslide and the Democrats controlled both houses of Congress.

Woodrow Wilson

Wilson's position on banking reform, if any, was not publicly known. He had stuck to generalities during the campaign, going no further than supporting the Democratic platform, which rejected the Aldrich plan and central banking while endorsing reform in principle. The Progressives had been more direct, denouncing the Aldrich Plan and stealing Bryan's thunder with "currency is fundamentally a government function . . . {it) should be protected from domination or manipulation by Wall Street."[23]

Wilson's vagueness during the campaign was small consolation to the largest bankers, especially after they learned that Bryan was to be his Secretary of State. They feared retaliation from the Democrats because they had supported a banker-owned central bank, although the president-elect seemed "sound" to those who had known of him or his work during his academic career. The National Citizens' League had continued its educational and informational drive through the campaign and after, and it had done its work so well that Congress and the incoming administration were inundated with pleas and demands for banking reform legislation.

Even more important, because it brought the popular press and the public into the picture, was the congressional investigation of the "Money Trust." Democrat Arsene Pujo's subcommittee of the House Banking Committee held public hearings in 1912 and early 1913 that revealed a level of concentration in the financial world that startled nearly everyone and stirred public resentment. After interviewing J. R. Morgan, George F. Baker, Jacob Schiff and other Wall Street figures, the committee concluded that a "few leaders of finance" controlled railroads, industrial corporations and public utilities and held the control of the nation's money and credit in their hands. Morgan and the banks allied with him held 341 directorships in 112 of the country's largest corporations. Morgan testified that he had no power in these firms and that he had taken away the Equitable Life Assurance Society from Thomas Fortune Ryan simply because it would be "a good thing to have."[24]

Paradoxically, these revelations stirred up demand for legislation to bring the big bankers into line, the same bankers who had been behind the drive for banking reform all along. Central-bank reformers wasted no time; they wanted a banking system and they wanted the right kind. Colonel E.M. House, who was to be Wilson's White House chief-of-staff, was eager to oblige. He consulted with Paul Warburg and J. P. Morgan, Jr. long before inauguration day. In view of Jacob Schiff's campaign support for Wilson, it was not surprising that House and Warburg got together, nor was it surprising that House persistently advocated the Aldrich plan, with a gloss on it to conceal its origins. Carter Glass, who became chairman of the House banking committee in the new Congress, resented the Colonel's efforts to influence the President's views on banking legislation. He claimed that House had no idea why he favored a central bank, but it seems likely that the Colonel had a very good idea after he talked with Warburg.[25]

Glass's currency subcommittee had begun its work before the 1912 elections, and it was to begin its hearings in January 1913. Glass had been a small city Virginia newspaper editor before his election to Congress, and neither he nor the other members of the subcommittee knew very much about banking systems. President Wilson was not an expert either, but he was more knowledgeable than the committee or its chairman. He had taught economics for 10 years and was well acquainted with the writings of Walter Bagehot and W. Stanley Jevons on central banking.[26]

To help the committee's "intelligent amateurs," as Glass called them, he hired H. Parker Willis, associate editor of the New York Journal of Commerce as the committee's banking expert. Willis, a professional economist, was a close friend and protégé of J. Laurence Laughlin, his former professor at the University of Chicago. Naturally, Willis was a real bills exponent, and through his extensive writings for the National Citizens' League, he was identified with the principles of the Aldrich bill. Chairman Glass opposed the central-bank feature of chat ill-fated proposal, but he too favored private control of the system. As the plan evolved, it became clear that there was little difference in the thinking of the framers of the first draft (Willis, Laughlin, and Glass) and Paul Warburg.[27]

After preparing memoranda on various proposed banking systems during the summer of 1912, Willis, with Glass's consent, invited Laughlin to draft an outline for the committee's benefit. By this time, the three men knew that a regional approach was essential. Clearly, they were indebted to Victor Morawetz for the basic structure of their developing system, but none of the three ever acknowledged the debt. Laughlin submitted several plans, and by October, according to Willis, a rough draft of the Glass bill was completed, considerably influenced by Laughlin's contributions. It called for an unspecified number of regional reserve banks (apparently they had 15 to 20 in mind), calculated to eliminate the concentration of reserves in New York City. National banks would be required to be stockholding members of their reserve banks, and their existing reserves would be transferred to those banks immediately. The reserve banks would issue federal reserve notes with a gold and liquid paper cover (real bills); they would rediscount commercial paper for member banks, setting their own discount rates, and they would displace the subtreasuries as fiscal agents of the government. They would be jointly liable, required to shift funds from one to the other when needed. The Comptroller of the Currency would supervise the system.[28]

Carter Glass did not share much with the Bryan wing of his party, but he agreed with them that the National Banking System was badly flawed because it concentrated reserves in Wall Street, where banks invested them in the lucrative call money market, thereby feeding stock market speculation. For Glass, the worst feature of this sequence was the high interest rates in New York chat lured funds from country banks that should have been invested at home. On one occasion, he suggested to the president-elect that the bill might prohibit banks from paying interest on deposits from other banks. Wilson liked the idea, but he pointed out that, if included, it would endanger the entire reform bill.

For the same reason, Glass was against a central bank that would concentrate reserves. Consequently, joint liability was of key importance. Funds would be dispersed over the country, but the regional banks together would hold a pool of reserves. Glass would have the best of both worlds: a system that would function as a central bank in emergencies without geographical concentration of its resources.[29] Festus Wade of St. Louis, an early partisan of the Aldrich plan, speaking for the American Bankers' Association, told Glass after the details of the plan were known that it did not matter what the system was called, "it will be a central bank in the last analysis."[30]

On December 26, 1912, Glass and Willis took their secret draft to Woodrow Wilson, who was in bed with a cold at his home in Princeton, New Jersey. According to Glass, Wilson had insisted on their coming despite his illness because he wanted "speedy and sweeping" currency reform. Wilson had lashed out at the Money Trust in his "New Freedom" campaign addresses, charging that it crushed smaller businesses whenever it found them inconvenient, and he was not hostile to central banking. But he knew that an out-and-out central bank, identified as such, would not be politically feasible. When Glass and Willis described their plan, he told them they were on the right track, but then he startled them by advocating a "capstone," a presidentially appointed "altruistic" board of control which would supervise the regional reserve banks and set policy for the system.[31]

Neither of Wilson's guests disagreed openly, but they were uncomfortable. The capstone would replace the Comptroller of the Currency as the supervising authority and it would make policy for the system, which they had intended to be in the hands of bankers. Glass thought somebody had gotten to Wilson, presumably an advocate of the Aldrich plan, but that seems unlikely. A government board of control would suit Bryan and the Progressives more than the bankers. Thereafter, Glass had to direct his efforts toward obtaining banker representation on the central board.

Willis and Glass went to work immediately after the conference, revising their draft bill and preparing for the committee hearings which were to begin on January 7, 1913. During the next few weeks Wilson and his aides met with several major bankers, including Paul Warburg and A. Barton Hepburn, chairman of the board of the Chase National Bank. Warburg and Hepburn said they would cooperate, Warburg even suggesting during his committee testimony that there were other roads to an effective banking system than the Aldrich plan. Unlike other prominent Wall Street bankers, Hepburn had for years been active in the leadership of the American Bankers' Association, and his views were closer to those of the Midwest bankers than to his New York peers. At the hearings, Warburg, Hepburn, George Reynolds of Chicago and Festus Wade of St. Louis pleased Glass by avoiding specific plans, simply voicing support for regional reserve banks, commercial paper cover for notes, elastic credit and cooperation among regional banks. Despite Warburg's apparent friendliness, Glass never trusted him, believing that he was conspiring to revive the Aldrich plan. Throughout the hearings, witnesses and minority committee members attempted to get a central reserve bank on the agenda, despite Glass's pointing out that both the Democratic and Progressive campaign platforms repudiated the idea.[32]

After giving their testimony, Wade, Reynolds, Hepburn and other bankers met privately and agreed to support a regional plan and try to persuade others to do the same, reserving the privilege to make suggestions for improvements. Glass appreciated this and corresponded frequently with Wade thereafter. At times the Reynolds-Wade group's "improvements" tested the supersensitive Glass's patience. In exasperation he told Wade in early July that, since he had made several changes requested by "you and your associates;" the bill should be supported "by men of your type:" Glass described Wade to Secretary of the Treasury William McAdoo as "the fiercest, but frankest of the adverse banking group;" and on another occasion, "a belligerent without guile."[33]

On January 30, Glass handed Wilson a revised draft of the reform bill. It called for 15 or more regional reserve banks, each controlled by a board elected by its member banks. Over the system, there was to be a Federal Reserve Commission consisting of two representatives of each regional bank, three members appointed by the President, the Secretary of the Treasury, the Secretary of Agriculture and Comptroller of the Currency-unless more districts were added, 36 members in all. To supervise the operations of the regional banks, there would be a Federal Reserve Board, Wilson's "capstone." The Board would have nine members, three elected by the banker members of the Commission plus the six public members of the Commission. The Board was to report to the Commission at the latter's quarterly meetings on the activities of the regional banks. The lines of responsibility between the two bodies were not clearly defined in the draft bill, but it was apparent that the Board would have the more active role. According to Glass, Wilson was enthusiastic about the draft, which, except for the above, varied little from the earlier version.[34]

With Wilson's go-ahead to encourage them, Glass and Willis hid themselves away to rewrite what they believed would be the final draft of the administration's bill. They completed it by the first of May and circulated it among the president's close associates. But rough water lay just ahead. Secretary of State Bryan, still the hero of millions of Democrats, and Senator Robert L. Owen of Oklahoma, chairman of the Senate Banking Committee on the one side and the major bankers on the other, were dissatisfied, for different reasons and about different sections of the bill. Not only was Owen a Bryanite, he was irritated by Glass's secrecy. As the Virginian's senate counterpart, he had reasonably expected to be consulted on, or at least informed about, the bill while it was in preparation. Bryan's disquiet was potentially devastating.

Why the experienced Glass had not anticipated the depth of Bryan's opposition is hard to understand. Perhaps he was misled by the secretary's silence in the cabinet and in the columns of his family's publication, The Commoner, on currency questions. Bryan wanted to be loyal to the president, and he had instructed his brother Charles not to publish anything on the topic until Wilson's position was known. When the details of the Glass bill were released, he was shocked. Except for the absence of a central reserve bank and the public majority on the Federal Reserve Board, admittedly significant differences, the Glass bill looked a lot like the Aldrich bill. In a private session with the President on May 19, the agrarian Achilles warned that if certain features of the plan were not removed he would use his influence in Congress and the country to defeat it. He was against banker dominance of the regional boards and the Commission, banker membership on the Federal Reserve Board, and asset-backed bank notes instead of government notes. He reminded the president later, through Wilson's aide Joseph Tumulty, that only government notes would be consistent with recent Democratic platforms.[35]

Meanwhile, Senator Owen had prepared a reform bill of his own, providing for eight regional reserve banks under the supervision of a National Currency Board of seven members, all presidential appointees. Two-thirds of the reserve bank directors would be elected by member banks and one-third appointed by the president of the United States. Currency would consist of U .S. notes redeemable in gold, issued to the reserve banks on the security of their assets, including commercial paper in their vaults. To check inflation, the banks would pay interest on the notes issued to them. Because demand for these notes would fluctuate with credit needs, they would provide an elastic currency, replacing national bank notes. In other respects, the Owen bill resembled the Glass bill.[36] Bryan preferred the Owen bill, and so did Samuel Untermyer, the Pujo Committee counsel who kept pressing for transfer of banking and currency legislation from Glass's committee to his own.

Treasury Secretary McAdoo

This division in the ranks alarmed Treasury Secretary McAdoo, who stepped forward with another plan, claiming that it would unite bankers and Bryan behind reform. He had discussed the question with some bankers, Senator Owen, Colonel House, Samuel Untermyer, Bryan and Comptroller of the Currency John Skelton Williams. Apparently, the plan was written by Untermyer, with help from Owen and Williams. It called for a central bank (the National Reserve), which would have 15 branches and be a part of the Treasury Department. National Reserve Board members would be appointed by the president. Treasury notes backed by gold would replace the existing national bank notes and greenbacks. McAdoo seemed to believe that bankers would approve because his plan would provide a central bank. On the other hand, the agrarian "radicals" would like the government bank and note issue feature. When he outlined the plan to Glass, the astounded congressman asked him if he was serious. McAdoo responded, "Hell, yes." Fearing that the president would go along to appease Owen and Bryan, Glass wrote despairingly to Willis that he doubted now that all their work had achieved anything. But after being assured by George Reynolds of Chicago that the bankers had not encouraged McAdoo, Glass conferred on June 7 with President Wilson, who agreed to support him. Two days later, McAdoo backed off and agreed to help Glass with his bill thereafter (which he did). Later McAdoo claimed that his proposal had been a feint, intended only to scare the bankers into backing the Glass bill. Glass did not believe him. If Glass had worked with Senator Owen from the beginning, he would have had a somewhat different bill, but he would have slept better.[37]

Wilson now had to conciliate Bryan without totally alienating the bankers, and he had to bring Glass along. As his banking reform manager in the House, Glass was important to the president, but not as important as Bryan. After McAdoo, Joseph Tumulty and Wilson himself had talked to the adamant Westerner, the president informed Glass that the Federal Reserve notes had to be government obligations. Glass was speechless at first, but then he reminded Wilson that since the notes already had a substantial gold and commercial paper cover, the government obligation would be a sham. The president agreed, adding, "If we can hold the substance . . . and give the other fellow the shadow, why not if we can save our bill." As Glass pointed out to a group of bankers, the security behind the notes was more than enough to keep the noteholder from reaching the Treasury counter, saying further, ". . . we have yielded to the sentiment for a government issue, but retained the substance of a bank issue."[38]

On June 11, Wilson called in his most trusted economic adviser, Louis D. Brandeis, a crusading Boston attorney who had worked closely with him in developing his New Freedom themes. Brandeis agreed that only the government should issue currency, and recommended that bankers be excluded from the Federal Reserve Board on the grounds that their private interests precluded them from serving impartially. A week later, after Brandeis had sent him a detailed statement of his views, Wilson informed a chagrined Glass and a happy Owen and McAdoo that he had decided not only on a government note issue, but a central board of government appointees only. Bryan and the progressives had won a big victory and a little one (the shadow victory). President Wilson had no choice if he wanted banking reform; even Brandeis's advice was no more than confirmation-Wilson must have known what his friend would say. Bryan may or may not have understood that the Federal Reserve notes were still bank money; he was satisfied and he told the president so at the next cabinet meeting, saying that he would support the bill "to the end of the fight."[39]

Glass and Willis then revised their bill as ordered, and the new version was released to the public on June 20. Most of its details were as they had been in the Glass bill, but, in some significant areas, Owen's (and Bryan's) influence prevailed, as ordered by the president. The unwieldy Federal Reserve Commission was out; control was vested in a Federal Reserve Board of seven members, including the Secretary of the Treasury as chairman, the Secretary of Agriculture, the Comptroller of the Currency and four appointed by the president. One of the four would be named governor by the president and would be the "active managing officer" of the Board.

There were to be no less than 12 Federal Reserve banks, each controlled by a board of nine directors. Three bankers elected by the member banks would be Class A directors; three directors representing agriculture, industry and commerce, also elected by the member banks, would comprise Class B; and three chosen by the Federal Reserve Board would make up Class C. One of the Class C directors would be designated by the Board as its Federal Reserve Agent and Chairman.

Discount rates for each district would be set by the Federal Reserve Board each week, but they were not required to be uniform. The Board could determine the kind of paper eligible for discount, but it must be of 45 days or less maturity and based on real bills. Paper drawn for investment purposes, unless secured by public bonds, would not qualify. The currency, limited to $500 million, would "purport on its face" to be a government obligation, but notes would be issued to the reserve banks at their request only if they could furnish a 331/3 percent gold and 100 percent paper cover.[40]

Cries of outrage from bankers followed the release of these details. The Banking Law Journal charged that the bill was intended to create "a vast engine of political domination" over the nation's productive interests. The New York Times bemoaned the triumph of the "Nebraska Idea" which reflected "the rooted distrust of banks and bankers" that had always resided in the Democratic Party. The New York Sun, the voice of Wall Street, said that government currency and a government board of control over the banking system was "covered all over with the slime of Bryanism."[41]

Galvanized by this reaction, President Wilson ran at full throttle for the next few days. On June 23 he addressed a joint session of Congress on behalf of the Glass-Owen bill, emphasizing the urgent need for an elastic currency, decentralization of reserves and public control of the banking system. Then he discussed legislative strategy with Speaker Champ Clark before meeting at the White House on the 25th with Glass, Owen, McAdoo and the ABA currency commission's George Reynolds of Chicago, Festus Wade of St. Louis, Sol Wexler of New Orleans and John Perrin of Los Angeles. The bankers obtained some concessions, the most important of which transferred control of discount rates in the Federal Reserve districts from the Federal Reserve Board to the Federal Reserve banks, subject to the review and "determination" of the Board. Another provided for gradual instead of immediate retirement of the 2 percent bonds that backed national bank notes.

But the bankers did not achieve their main objective. According to Carter Glass, when they implored the president to provide for banker representation on the Federal Reserve Board, Wilson dumbfounded them with, "Will one of you gentlemen tell me in what civilized country on earth there are important governmental boards of control on which private interests are represented?" No one said a word. The bankers surely knew the English and German precedents, but it was clear from the president's tone that further argument was futile. On the next day, the Glass-Owen bill was submitted to the House and Senate.[42]

Safely out of the White House, the ABA commissioners made it clear that they were not satisfied. They would support the bill in principle, but they would oppose certain provisions. Lower reserve requirements, banker representation on the central board and fewer regional reserve banks were still on their list of demands, and they wanted a bankers' advisory committee whether there was or was not banker representation on the Federal Reserve Board.[43]

Ominously for the administration and for the bankers, too, Southern and Western agrarians were in a rebellious mood. Led by Representatives Robert L. Henry and Joe Eagle of Texas, the insisted that the interlocking directorates of the financial and corporate world had to be destroyed before any banking legislation was adopted. As it stood, the Glass-Owen bill itself, with its banker-controlled regional banks, would create a new and bigger financial trust under government protection. Unimpressed by the "shadow" government obligation for federal reserve notes, they denounced such "asset currency" as a betrayal of the Jacksonian tradition. Furthermore, they were outraged that there was no credible provision for agricultural credit. The "corn-tassel" congressmen, as Glass called them, wanted a farmer and a laborer on the system's central board, and they wanted three kinds of legal tender currency. Commercial currency ($300 million) could be loaned at will by the reserve banks; industrial currency ($200 million) would be allocated to states for public works; and agricultural currency ($200 million) would be loaned by reserve banks directly to cotton, wheat and corn growers upon presentation of warehouse receipts. The loans would not mature until the commodity reached a market price of 60 cents a bushel for corn, a dollar for wheat and 15 cents a pound for cotton.[44]

On July 23, the agrarians showed their muscle in the House Currency and Banking Committee by pushing through an amendment prohibiting interlocking directorates. Prospects for the reform bill looked darker every day until President Wilson took the reins-bargaining, persuading, pressuring. He promised to take care of interlocking directorates in the pending anti-trust bill, and he turned a committee member around by instigating pressure from the congressman's district. The committee then rejected the Henry amendments and approved the Glass bill. But Henry and his cohorts did not give up; they simply shifted their attack to the Democratic caucus, which began meeting in early August. With a nudge from Secretary Bryan, Glass attempted to disarm the opposition by agreeing to make agricultural paper eligible for discount. Henry brushed him off, reminding his colleagues of Bryan's long fight against asset currency. Several regular Democrats supported Henry, and again the bill was in jeopardy. This time Bryan himself stepped in to save it. In a letter to Glass, which the Virginian was pleased to read to the caucus, he called the Henry amendments irrelevant and the Glass bill adequate in its major provisions. He wanted his friends to understand that he was with the president "in all details,"[45]

After their initial shock, the agrarians turned their wrath against their "peerless leader." As historian Paolo Coletta put it, "men who had sworn by Bryan for a generation now swore at him."[46] But their rage and their breath was wasted. The Democratic caucus approved the Glass bill by an overwhelming margin on August 28, committing every House Democrat to support it.

At this point, bankers were divided in their views of the Glass-Owen bill. Because there was neither a central bank nor banker control of the central board, the New York financial giants opposed it. Frank Vanderlip, president of the National City Bank, in an open letter to Glass and Owen, spoke for most of his peers when he charged that the banking system would be at the mercy of political intriguers. A. Barton Hepburn of the Chase National Bank, always something of a maverick in Wall Street, opposed the same features of the bill, but he kept trying to work with Glass. Paul Warburg, always cordial in his relationship with Glass and Willis, published two severely critical articles during and after the Democratic caucus. He also wrote to Colonel House expressing his disappointment that "after all of your and my trouble" there are still government notes, 12 reserve banks, and "practically government management."[47]

In Chicago, James Forgan of the First National Bank called the Glass bill "unworkable . . . fundamentally unsound," but George Reynolds of the Continental and Commercial Bank pointed out that bankers were faced with "a condition and not a theory," and that they had better settle for what they could get. Festus Wade of St. Louis shared that opinion, perhaps because Glass had reminded him during Congressman Henry's assault on the bill that there were worse fates than the he offered. Most Southern and Western country bankers favored the Federal Reserve plan or something stronger. Preferring the government to Wall Street, some of them wanted a nationalized central bank and most of them federally guaranteed deposits. Midwestern country bankers were less aggressive; but state banking associations in Illinois, Iowa, Missouri and Wisconsin approved the main outlines of the bill at meetings in September. On one point, country bankers in all sections were agreed: they wanted agricultural credits.[48]

Some of the financial center bankers shifted their positions from time to time, and most of them were more hostile in public than they were in communicating with Glass, Owen or Wilson. George Reynolds told Glass in June that the moderate bankers who dominated the ABA would accept much less than they demanded publicly, and, as if to prove his point, he denounced the bill root and branch to Minnesota bankers a few weeks later. Late in August, representatives of 47 state banking associations and 191 clearinghouses, meeting in Chicago at the invitation of the ABA currency committee, passed resolutions demanding a central bank and banker control. James Forgan called on Congress to scrap the Glass-Owen bill totally, but George Reynolds warned his colleagues that such a demand could terminate their influence altogether. Accordingly, the delegates conceded in the preamble to their negative resolution that the Federal Reserve bill had many excellent features.[49]

In September, the Senate Banking and Currency Committee took up the banking bill. Despite Wilson and Bryan's power with Senate Democrats, only Chairman Owen and three other majority members of the committee were friendly to the measure. Gilbert M. Hitchcock of Nebraska, James O'Gorman of New York, James A. Reed of Missouri and the five Republican members were hostile. Hitchcock, a conservative, was Bryan's chief rival in his home state; O'Gorman, a Tammany Democrat, resented Wilson's anti-machine rhetoric and personal intervention in the legislative process; and Reed, a hard-drinking ex-mayor of Kansas City, loved the maverick role and disdained Wilson's moralistic approach to government. With his oratorical eloquence and talent for invective, Reed was a heavy load for Wilson throughout his presidency.[50]

These recalcitrants dragged out the hearings through October, giving everyone against the bill a chance to be heard. Even some bankers who had supported it in August now saw an opportunity to demand changes in the measure. Glass and Wilson knew the committee was stalling, but said nothing publicly for several weeks. Finally, the president threatened to take the fight to the people of Missouri, Nebraska and New York, but Reed, O'Gorman and Hitchcock were unmoved. Charging that the big bankers were willing to bring on a panic to win their point, Wilson first asked the Democratic caucus to bring the dissenters into line and then invited the three to the White House. He believed that he convinced Reed and O'Gorman to cooperate, but to his astonishment and nearly everyone else's, Frank Vanderlip, one of the authors of the Aldrich bill, proposed a brand-new scheme to the committee which two-thirds of them immediately endorsed.[51]

Vanderlip's plan called for a central bank with 12 branches, all completely controlled by the government. National banks, the public and the government would all subscribe its $100 million in capital. It would issue notes backed by commercial assets and a 50 percent gold reserve, and it would perform the usual central banking functions. Vanderlip revealed that he had written the plan at the request of Reed, O'Gorman, Hitchcock and agrarian Republican Senator Joseph Bristow of Kansas. Since its total absence of banker control repudiated its author's previous position, Wilson and Glass assumed that Vanderlip was simply trying to defeat the Federal Reserve bill.[52]

Reed and Bristow and the LaFollette progressives liked the Vanderlip plan's government-control feature, and Hitchcock approved the central bank aspect. Ironically, despite the fact that Vanderlip was a real Wall Street titan, Reed coupled his endorsement of the proposal with a blast at the Federal Reserve bill as the creation of "Wall Streeter" H. Parker Willis, who was an assistant financial magazine editor. Now thoroughly convinced that the large bankers were trying to do him in, Wilson called in the Senate's Democratic leaders and told them that he would not let bankers dictate to him, and that they must enforce party discipline. With the threat of both presidential and senatorial retaliation facing them. O'Gorman and Reed surrendered. Now the committee was deadlocked: six Democrats for Glass-Owen and five Republicans and Hitchcock for a slightly altered version of the Vanderlip plan. Both bills were reported out of committee, but on November 30, the Senate Democratic caucus, after adding federally guaranteed bank deposits, approved the Glass-Owen bill, committing all Democrats to it on the final vote.[53]

Toward the end of October, business and banker opinion began to swing definitely toward the administration bill. The U .S. Chamber of Commerce and the Merchant's Association of New York both approved it. Jacob Schiff of Kuhn- Loeb, Henry Davison of the House of Morgan and even crusty old James Stillman of the National City Bank gave public endorsements or private instructions to support the measure. Apparently, a good many bankers had become alarmed that there would be no action at all, the worst of the possibilities. On November 13, Glass and Vanderlip debated their plans before 1100 bankers and businessmen at the Hotel Astor in New York. Vanderlip conceded that there were good features in the Glass- Owen bill, and praised Wilson and Glass for their good intentions. The audience was definitely on Glass's side of the argument, a gratifying personal triumph for the Virginian.[54]

From St. Louis, Festus Wade had congratulated Glass on September 23 on the passage of his bill in the House, thanking him for his devotion to banking reform, saying that "one becomes a better citizen by coming into contact with men entrusted with the affairs of the nation and finding such untiring energy, unfaltering integrity, and indomitable spirit:" Wade had written Wilson after the Vanderlip plan became public that the people would never accept such a central bank, and in November he and other leading St. Louis bankers issued a statement that the Federal Reserve bill was the best ever presented."[55]

Unlike his former collaborators, ex-Senator Aldrich opposed the Glass-Owen bill to the last. Speaking in New York on October 15, he attacked the regional concept; denounced the note-issue provision as "populism," "Bryanism," "fiatism," and "greenbackism;" said the Federal Reserve Board was a socialistic central bank; and predicted that the rediscount feature would be inflationary. Bryan welcomed Aldrich's speech, saying that his enmity was the only thing needed to pass the bill. During the Senate debates, another veteran Republican, Senator Elihu Root, predicted the bill would bring a roaring inflation and lead to paternal government, decadence and ruin. He proposed to eliminate guaranteed deposits, increase reserve requirements and curtail the note issue. Democrats agreed to raise the gold cover of the notes from 331/3 to 40 percent, but they ignored Root's other suggestions. In this phase as well as in the rest of the debate, Senator James A. Reed stoutly defended the administration bill.[56]

The Senate tilted toward centralization as opposed to the House, although many members thought it a non-issue in view of the Federal Reserve Board's powers and the joint liability of the reserve banks. In fact if not in form, they were creating what would be a central bank. Most senators favored fewer regional banks; Hitchcock wanted four. Finally, the Senate settled for eight to 12 regional banks as opposed to Glass's 12 or more; deleted the Secretary of Agriculture and the Comptroller of the Currency from the central board; lengthened the maturity of eligible agricultural paper from the House's 90 days to 180 days; and authorized domestic acceptances.[57]

First Board of Governors of the Federal Reserve System. Seated: Charles S. Hamlin, William G. McAdoo, Frederic A. Delano. Standing: Paul M. Warburg, George Skelton Williams, W.P.G. Harding, Adolph C. Miller.

With Christmas near at hand and President Wilson grimly denying adjournment before there was a final vote on a banking and currency bill, the Senate passed the Federal Reserve measure on December 19 by a vote of 54 to 34. All Democrats, five Republicans and one Progressive made up the majority. In the reconciliation conference, the House agreed to eight to 12 reserve districts, deletion of the Secretary of Agriculture from the Federal Reserve Board, and lengthened maturity for agricultural paper. But the House conferees rejected domestic acceptances and guaranteed deposits, and they would not remove the Comptroller from the central board. Nor would they relinquish the requirements that member banks retain part of their reserves in their own vaults. (Within three years, Congress amended the act to allow domestic acceptances and permit all reserves to be deposited in the reserve banks. The latter eventually became a requirement.) The conference also set 10-year terms for the five appointed Federal Reserve Board members, with staggered terms for the first appointees. Under this provision, no president after Wilson could appoint an entire board, even in two terms. No one imagined then that any president would serve longer.[58]

On December 22, 1913, the House passed the conference bill by a five-to-one margin, and the Senate approved it the next day by nearly two to one. A few hours after the Senate vote, President Wilson signed the Federal Reserve Act. He thanked Glass and Owen for their contributions and spoke animatedly about the benefits the Federal Reserve System would bring to the country. He had reason to be pleased. Not only was the act his greatest domestic achievement, it was a major milestone in American history.[59] As Bryan wrote to Wilson in January, "You made a master stroke and it will immortalize you, and no one with lesser faith and courage could have achieved it." Bryan deserved some credit himself, as Wilson and Glass had acknowledged at various stages of the bill's progress. However insignificant technically his insistence on government obligation notes may have been, politically it was absolutely essential. He had aborted the agrarian rebellion in the House, and on two separate occasions he prevented his followers from making bimetallism a condition for the success of the bill. He could have killed the measure, perhaps even by staying on the sideline, but he did not.[60]

Almost immediately after the act was signed, it was hailed on all sides as an enormous achievement, and suddenly it had a thousand fathers. Carter Glass spent much of his life thereafter denying that this or that person was its "real author," including such remote possibilities as Secretary McAdoo, Colonel House and Samuel Untermyer. Glass gave Wilson the principal credit, with Parker Willis and himself close behind as the actual authors. In the realm of ideas, and in some of the language of the bill, Paul Warburg was a major contributor, as was J. Laurence Laughlin, with Victor Morawetz the author of the regional concept. But if the Federal Reserve Act was the Aldrich Bill thinly disguised, as Robert M. LaFollette said it was, Aldrich himself did not know it. Paul Warburg opposed government control of the central board and more than five regional banks almost to the last ditch. But on the day Wilson signed the Federal Reserve Act, Warburg wrote to Glass that the "fundamental thoughts" he had labored for over the years had been enacted at last.[61]

Like the federal constitution, which had a host of enemies before it was ratified, the Federal Reserve Act had many friends once it was in being. The next steps were crucially important and closely watched; the President's choices for the Federal Reserve Board, and the selection of the number and locations of the Federal Reserve banks.