Few people can answer the question, “What exactly is money?” 100 years ago today, savvy fellows who had clear ideas about money were meeting on Jekyll Island, Georgia, pretending to be duck hunting, traveling incognito, generally acting like men of mystery as they discussed redesigning U.S. finances around an independent central bank now known as the Federal Reserve.
Interestingly, history books rarely mention such interesting phenomena. Minneapolis’ Fed office has written about it, however, as has a recent Atlanta Constitution article and thousands of web-based conspiracy-theorists. Michael Whitehouse, a Fed economic historian, presents many germane elements of the tale.
The U.S. faced bankruptcy in 1907; but for gold and cash that J.P. Morgan advanced, what was even then the world’s biggest economy would have imploded. Paul Warburg, meanwhile, one of Europe’s richest scions, had moved to America to marry another financier’s violinist daughter and, just in time for this cataclysm, take over her father’s bank—Kuhn-Loeb.
Men like Morgan and Warburg wanted banking systems that could avoid ‘panics’ rather than depend on profitable but scary bailouts. Politicians, especially well-off Republicans, wholeheartedly agreed. One such was Senate Finance Committee Chairman Nelson Aldrich, whose daughter had married J.D. Rockefeller’s son.
Many citizens, though, regarded very suspiciously a banking system established by bankers—like appointing foxes to operate chicken coops. Nonetheless, the crisis-induced National Monetary Commission sent Chairman Aldrich to study such institutions as England’s central bank for almost two years.
This fabulously rich ‘gentleman,’ Rockefeller’s father-in-law, had the job of formulating a new system. But Whitehouse explains: “Aldrich was ‘bewildered …and… faced … the difficult task of writing a highly technical bill while… harassed by the daily grind of his parliamentary duties.’”
So Warburg and Aldrich and additional financiers: Benjamin Strong, head of Morgan Trust and early Fed Chairman; Henry Davison, another Morgan partner, reputedly J.P.’s most trusted lieutenant; Frank Vanderlip, present for Rockefeller’s First National City Bank; and some others spent a ‘duck-hunting’ holiday on a Morgan-owned island to pen a Congressional bill for Aldrich.
Essentially, three years later, this strategy yielded the Federal Reserve Act, instantly confirming cities like Atlanta as regional powerhouses, anointing them Fed Districts and giving them committee memberships of almost unimaginable power. A private financial institution that nonetheless had ties to the government, the Fed received regulatory and market tools that gave bankers money management of the entire U.S.
The rest, as they say, is history.