PROGRESSIVISM
Neither the political prejudice of the past nor the ghost of Andrew Jackson . . . will stand in the way.
—NELSON ALDRICH
Financial questions are perplexing and elusive ones.
—WILLIAM HOWARD TAFT
AS THE TAFT ADMINISTRATION got under way, Nelson Aldrich’s work on monetary reform was sidetracked by an explosive issue—the tariff. Always a contentious subject, the tariff heated the political stove and energized Aldrich’s many opponents, including within his own party. Just when he was on the cusp of proposing the first serious banking reform in half a century, Aldrich put himself at risk of becoming a marginal—even a hated—figure.
Republicans had always supported high tariffs, but by 1909 there was a consensus that duties were too high. They were seen by the party’s progressive wing as a burdensome tax on trade and unfair to farmers, who depended on selling goods into export markets. Since the tariff tilted the economic playing field, benefiting favored industries while jacking up prices for consumers, it was hated by laissez-faire Democrats as well. Taft, a principled but politically maladroit leader, called on Congress to enact significant reductions. This put Aldrich in a delicate spot: he could either legislate against the interests of his business friends or antagonize his party’s progressives, whose support would be vital on the issue of banking reform.
Even a glimpse at Aldrich’s mail gives a hint of the tariff’s critical importance, and of the enormous influence that Aldrich wielded in the Senate. He was bombarded with pleas from corporations who regarded trade protection as their sovereign right. U.S. Steel lobbied him on steel duties; National Biscuit sought help on biscuits. Aldrich heard from producers of iron, of vanillin, of plate glass, of glass bottles, of jewelry, of leather hides, of lead pencils, of newsprint, of wallpaper, of glue, of umbrella frames. He especially heard from the textile industry in New England, which had long enjoyed his particular protection. The stakes were high. An agent of the Royal Weaving Company in Pawtucket, Rhode Island, typified the pressure, bluntly stating, “I would like to feel sure that our industry is taken care of.”
Against these letters Aldrich had to balance, or at least consider, a deluge of pleas from foreign embassies. Cuba wanted duty-free entry for pineapples, Brazil for coffee, Great Britain for “canned kippered herrings.” France sought lower barriers for silk muslin, Norway for sardines, and Turkey for raisins, figs, dates, and, indeed, “crude opium.”
The tariff battle showcased Aldrich’s legislative prowess. Its complexity played to his mastery of detail. Always at ease working in the shadows, Aldrich negotiated with the House leaders in secret, sometimes absconding for lengthy motorcar sessions in Washington’s Rock Creek Park. Meanwhile, Paul Warburg despaired of making progress on monetary reform while its foremost statesman was absent. “I pray every day,” he scribbled to Piatt Andrew, “for a speedy end of the Tariff wrangle so that the deck may be cleared for action on the currency question.” Andrew at least kept the Monetary Commission humming, overseeing its research, corresponding with economists, and hobnobbing with politicos. Andrew basked in the notion that he was helping history unfold. An economist with a sense of larger purpose, he took a day off from commission work and motored to Gettysburg; on another, he went to watch Orville Wright attempt to fly in an “aeroplane.”
The tariff work thrust Aldrich together with Taft, leading to a friendship that was useful to Aldrich but politically risky for the President. The senator became a regular at the White House; in the warm evenings the two hashed out duty schedules on the White House portico. Taft pressed Aldrich to lower duties, but the affable chief executive found it difficult to confront the senator, whom he increasingly admired.
The President had more success on the related matter of an income tax amendment. The issues were connected, as progressives hoped that income taxes, once approved, would displace the tariff as a revenue source. Economists such as Columbia’s Seligman believed that a progressive tax could be a tool for social equity and level the disparities that the tariff supposedly created.
Aldrich did agree, reluctantly, to Taft’s call for a resolution for an income tax amendment (which now would need three-quarters of the state legislatures for ratification). But on the more central issue of lowering the tariff, he was unwilling to betray his business cronies, who, he felt, had always stuck by him. Despite the disapproval from many in his party, and despite the pleadings of his president, Aldrich produced a tariff that was highly favorable to textiles and to industry overall. While Taft did win some battles, the lack of substantive reform may be judged by the praise heaped on Aldrich by the National Association of Manufacturers, whose president gloated that the bill “meets the full approval of the manufacturers represented at this association.” Broadly speaking, the Payne-Aldrich tariff (the House sponsor was the fiercely protectionist Sereno E. Payne of New York) slightly reduced the duty, but the structure of protectionism remained intact.* Aldrich had been handed a chance to champion reform and had smothered it. He would soon pay a price.
Effectively, Payne-Aldrich marked the beginning of a civil war within the Republican Party. Taft was branded as incapable of standing up to Aldrich—not exactly the enemy of progressives but no longer useful to their cause. The senator himself was the enemy. Aldrich had been hoping to use this time to quietly work out details of currency reform. He now became the subject of bitter attacks.
Senator Jonathan Dolliver of Iowa shouted at Aldrich on the Senate floor that he would have to accept the “moral consequences” of the tariff, on cotton in particular. Robert La Follette and other progressives smoothly shifted gears from attacking Aldrich on the tariff to savaging whatever he might be cooking up in banking reform. Iowa’s other senator, Albert B. Cummins, told an audience in Chicago he suspected that Aldrich’s prospective remedy would be “a central bank” and that his “scheme” would be intolerable, for it would subject the currency to the authority of a few selfish men and, ultimately, “enslave the financial world.” Cummins knew nothing about banking, but he sensed Aldrich’s vulnerability.
A perceptive journalist wrote that Aldrich, on whom his party’s hopes for currency reform depended, was now “distrusted, disliked, even hated and vilified as few other men in public are hated and vilified.” The portrait wasn’t entirely bleak. The writer applauded his legislative skills; indeed, he saluted Aldrich as “the ablest man in the U.S. Senate.” But a chasm separated Aldrich from the public. He was too chilly and remote to appeal to people’s “sentiment.” His hair thinning, now a wispy white, he was barely known to the public, for, as this critic lamented, “nobody has really given us an intimate view of the man.”
As if to escape the hostile political climate, in August 1909 Aldrich and Andrew embarked on a second European study tour. In England they met with the cream of British political life, including the young president of the Board of Trade, Winston Churchill. Aldrich may have hoped that political conditions at home would improve in his absence, as if progressivism were only a passing storm. The bankers in his circle, frustrated at Aldrich’s leisurely pace, tried to push matters along. Harry Davison, now in the upper echelon at Morgan’s, arranged for dinners and speaking engagements for Aldrich upon his return. George Reynolds, who had accompanied the Monetary Commission the previous summer, hatched the idea of the senator’s making a barnstorming tour in the West to repair his political standing. Warburg gave him a nudge. These banker-advisers, a generation younger, took it upon themselves to lighten the older man’s burden. In Davison’s case, the difference in age aroused a mutual interest and friendship.
Davison also looked after Aldrich financially. When Bankers Trust, of which Davison was a founder, sold public stock, Davison allotted one hundred shares to Aldrich at a price of $40,000—well below the market value. “I am particularly pleased to have you have this stock, as I believe it will give a good account of itself,” Davison wrote helpfully. “It is selling today on a basis of a little more than $500 a share [$50,000 total]. I hope, however, you will see fit to put it away, as it should improve with seasoning.” Davison did not think of this gift as at all unethical. Morgan’s habitually looked after its friends, which accorded with its self-image as a benevolent institution. In truth, feathering the nest of a politician who was charged with reforming the banking laws was hardly an act of altruism; it was very much in Morgan’s economic interest.
Aldrich, of course, was accustomed to leveraging his position for private gain. Over the summer he wrote to the president of Mexico, Porfirio Díaz, asking him to intervene regarding “some interests of mine”—most likely rubber—threatened by an action in the Mexican courts. Aldrich by now was a very wealthy man, devoting significant time to rebuilding his house at Warwick—windowsills were a particular concern—and to his securities transactions and buying a yacht.
The focus returned to banking in September, when The Wall Street Journal published a series favorable to a central bank. Even ordinary Americans began to show interest. The school superintendent in Oberlin, Ohio, made inquiries to the Monetary Commission; T. R. Brandt, cashier of the First National Bank of Tombstone, Arizona, sent Aldrich suggestions, as did an anonymous writer who signed his letter “A Business Man.” Books rolled off the presses, including Money and Currency by one D. W. Ravenscroft, who modestly described himself as “having had no education.” Currency questions had always stirred the imagination of cranks, but a genuine intellectual ferment swirled around the topic of a central bank. The most interesting proposal was that of Victor Morawetz, a railroad lawyer, who argued that the United States was too big and diverse a territory for a single central bank. Instead, Morawetz proposed a system of independent regional banks.
President Taft did not get more than superficially involved in the issue, though his occasional comments were supportive. In the fall of 1909, he spent some of his dwindling political capital on Aldrich, expressing his full confidence that whatever remedy the Monetary Commission proposed would be free of “Wall Street influences.” This was becoming the litmus test of monetary reform—a Jacksonian condition that any new institution be free of the taint of either Wall Street or Washington. And it was into Jackson territory—nine midwestern cities, starting with Chicago and finishing in Detroit—that, in the first part of November, Aldrich was bound.
Given that it was unfriendly terrain, Aldrich made a reasonably good showing. His handlers had prepared a full schedule of lunches with local notables and lectures in the evenings. The senator stressed that a healthy banking system was vital irrespective of geography. “Our system,” he told the Commercial Club in St. Louis, “must be one which will satisfy the manufacturers of New England, the agriculturists of the Mississippi valley, and the miners of the Rocky Mountains and the Pacific Coast, and the merchants of all sections.” He encouraged farmers to support him on the grounds that they were also capitalists. Local coverage tended to be more favorable after his appearances than before. A newspaper in Milwaukee, barely concealing its surprise, declared, “Senator Aldrich does not in the slightest degree suggest the czar-like manipulator of the Senate that some have painted him.” Aldrich had to be pleased in Omaha when a man in the audience exclaimed, “You must be an elk because you shed your horns so easily.”
However, there was also ominous criticism of Aldrich in nearly every city. The influential Kansas City Star published bitingly satirical “questions” for the visitor, such as “What do you do when you are not running the Senate? Do you know any insurgent Senators by sight? Did you ever see a voter? What did he look like?” More disappointing, few critics bothered to reflect on his message or evaluate central banking on its merits.
Aldrich had read enough of the commission histories to realize that talk of a central bank set off profoundly American fears of federal (or Wall Street) domination. He felt he was fighting a phantom, he said: “the ghost of Andrew Jackson.” Although Warburg and he were not in frequent touch, they arrived at similar conclusions and used strikingly similar turns of phrase.
Warburg by now was well versed in the country’s political traditions; indeed, in his papers there is a tantalizing scrap from the diary of Philip Hone, a one-term mayor of New York, who wrote, on the occasion of Jackson’s death in 1845, “The universal American nation is in mourning. Stripes, black . . . darken the columns of the newspapers. . . . Now, to my thinking, the country had greater cause to mourn on the day of his birth than on that of his decease.” Warburg would never have voiced such disrespectful musings, though he may have felt them. But Jacksonism, he held, was not incurable. Warburg believed that if Americans were exposed to the arguments for a central bank, their fears would melt before the steamroller of (as he saw it) his irrefutable logic. Popular antagonism, he maintained, was due to “ignorance” rather than “the ghost of Andrew Jackson.”
Aldrich, similarly, thought the public had to be educated before he could propose legislation. When the commission met in late November 1909—its first formal meeting in a year—the members were eager to draft a bill, but Aldrich decreed that the next stage would be to blanket the country with educational literature. After his battering out west, Aldrich had no desire to face the public, though he was amenable to airing his ideas in forums he judged to be safe. The Economic Club of New York, which held its gala dinner in the Hotel Astor at the end of the month, was just such a refuge, with Davison, J. P. Morgan, and Andrew looking on approvingly from the head table. Aldrich’s address suggested just how much he had come under Warburg’s spell. He touted the idea of a central reserve that banks could draw upon “as water is drawn from a great reservoir”—a distinctly Warburgian image. And Aldrich made plain his favorable impression of the European central banks, whose distinguishing features he described in some detail. He stressed that commercial banks in Europe held only a thin wedge of “till money,” rarely more than 3 or 4 percent of their deposits. They felt confident keeping so little cash, he noted, because they believed “a credit at the central bank is better and safer than a corresponding amount in their own possession.” To New Yorkers for whom the 1907 Panic was still a recent memory, this was an arresting thought.
Banking reform and the progressive movement each hurtled ahead, like separate freight cars approaching a fateful junction. While progressivism appealed to people in each of the major parties, progressives within the Republican camp were increasingly rebelling against the party leadership. Early in 1910, Frank Vanderlip fretted to James Stillman, “The insurgents have been showing growing strength and the President increasing weakness.” The Taft-Aldrich wing was losing ground.
Aldrich was unprepared to deal with the progressives. He did not fully appreciate that the movement was about more than just a series of laws regulating food safety and railroads fares. Progressivism embodied an attitudinal shift toward a more benevolent and representative society; it was concerned with elevating the condition of the poor and giving a greater say, and a greater role, to the swelling ranks of the middle class. Its guiding ethos was that education and empirical research could foster scientific, nonpartisan reform—although very little that progressivism achieved was actually nonpartisan. Its effects were seen over a wide range of topics: settlement houses, worker pensions, primary elections, corporate regulations, and the growth of public schools.
To judge from newspaper sales, the public was more interested in and better informed on these issues than ever before. But Aldrich was unaccustomed to courting public opinion (he was chosen by the legislature, one recalls, not by the Rhode Island electorate at large). His success at accumulating a fortune had made him less—not more—tolerant of his social inferiors. He had little faith in the ability of the mass of people to govern themselves, and he had little interest in the vast sections of America outside his ken—farmers, for instance, or what farmers thought and felt about banking. It is true that much of what passed for political discourse on banking was unsophisticated and demagogic, and often wrong. But Aldrich did not try to engage these other opinions, or even debate his rivals in the Senate. Despite his ability to get things done behind closed doors, he did not really subscribe to democratic give-and-take. As his authority in the chamber waned, his interest flagged. Also, for much of the winter of 1910 he was laid up by a troublesome cold. He had one solace and searing ambition, which was to reform the country’s banking system.
Warburg alternately prodded and encouraged him. When a poll of bankers responded, conditionally, that they favored a central bank, Warburg wrote to the senator, “One cannot help feeling very confident.” But he was careful not to alienate Aldrich by moving too quickly, for he knew that the senator was not yet ready to publicly commit to a central bank.
Warburg also delivered a pair of speeches that showed his keen understanding of the American character. His “United Reserve Bank” lecture at the YMCA of New York, in March 1910, offered a twist on his earlier “modified central bank.” For one thing, the term “central bank” had been banished. His new appellation, “united bank,” suggested a more federal structure, patterned on the federal government itself. To allay the fear that it would reincarnate the Second Bank (the long-ago dragon slain by Andrew Jackson), Warburg envisioned a network of twenty reserve banks scattered around the United States. And rather than belittle the fear of centralization, he made it sound familiar, not an unfortunate current in American thought so much as a distinctive element of Americana, one to be respectfully accommodated. Warburg’s scheme, therefore, was an adaptation: “It is a scheme based upon conditions peculiar to our country and our form of government. It recognizes the vast territorial area of the United States, the diversity and dissimilarity of interests, and even the traditional, sectional, and partisan prejudices of the people.”
Although Warburg was building on Morawetz’s concept of sectional banks, there was a key difference. Morawetz was proposing unconnected banks; Warburg’s would be joined. “These sectional reserve banks,” he stressed, “must in the end act as a unit.” To avoid repeating the catastrophic experience of 1907, when the banks of each city or region had to fend for themselves, reserves at the various branches of Warburg’s “united bank” would be part of a single larger reserve. Notwithstanding his seductive nomenclature, Warburg ultimately envisioned “one big bank.”
In a second lecture in 1910, before the Academy of Political Science, Warburg tried to establish a link between central banking and America’s frontier traditions. He argued that a central reserve would be a plus for country banks, freeing them from the need to depend on Wall Street. Indeed, he argued, “central banks are not oligarchic but democratic institutions.” This was turning Jacksonism on its head.
The “United Reserve Bank” lecture paid a serious dividend: the Merchants’ Association, the group that Warburg had been methodically lobbying, abruptly dropped its opposition and endorsed a central bank. This ratified Warburg’s suspicion that businesspeople were fluid in their thinking and would succumb to his efforts at persuasion. He boldly capitalized on his alliance with the Merchants’ Association by persuading it to distribute thirty thousand copies of his address. By the late spring of 1910, Warburg could claim considerable progress.
It was roughly then that Theodore Roosevelt, having emerged from his African hunting expedition to civilization in Khartoum, got news of Taft’s capitulation on the tariff and of other supposed heresies of the President. An uneasy correspondence between the two men followed. In June, after a string of regal visits to European capitals, Roosevelt disembarked in New York to a hero’s welcome—an exuberant throng met him at the dock. For five miles along his route, people stood to greet the former president. Out of respect for Taft, Roosevelt promised to stay silent on politics for sixty days. After four days, he broke his pledge. Soon, he traveled to see Taft at his summer home in Beverly, Massachusetts. Pleasantries were exchanged, noble sentiments professed, but the friendship was over.
While not yet ready for a public break, Roosevelt privately charged that Taft was corrupted by his alliance with Aldrich. Writing to his friend Senator Henry Cabot Lodge, Roosevelt fumed, “We have had no national leadership of any real kind since election day 1908. Taft is absolutely connected in the popular mind with Aldrich . . . and company.” Roosevelt conveniently overlooked the working arrangement that he, as president, had forged with Aldrich as well as his own cowardice when it came to tariff reform. In fact, he overlooked his own letter to the same Henry Cabot Lodge of precisely a year earlier, in which he had observed, “My intercourse with Aldrich gave me a steadily higher opinion of him.” But his judgment that Aldrich had become political dynamite was correct.
As progressives battled for control of the party, particularly in the Mississippi Valley, they wielded the shame of the Payne-Aldrich tariff as a cudgel against Taft and the party regulars. Aldrich now was less a leader of his party than its greatest liability. In midsummer, Senator Joseph L. Bristow, a Republican from Kansas (yet another Aldrich detractor from the Plains), accused Aldrich of having raised the tariff on rubber to boost the value of his personal holding in Intercontinental Rubber Company. The Kansas Republicans were in the midst of a vicious primary battle, and Aldrich was a useful target. The insurgents swept the primary, winning six of eight contested seats. It happened that Bristow’s charge was groundless: Payne-Aldrich had raised the duty on manufactured rubber goods, but Intercontinental exclusively sold crude rubber. Because there was no domestic supply of the raw material, duties were irrelevant. Due to the seriousness of the allegation, Aldrich broke his customary policy of refusing to comment and issued a lengthy denial, which included the sentence “The Senator’s statement that I had any pecuniary interest in the [tariff] change is absurdly false in every particular.” Bristow never attempted to substantiate his charge.* Nonetheless, Aldrich’s reputation was further tarnished.
With the Payne-Aldrich tariff weighing on voters’ minds, Roosevelt boarded a private railroad car for a tour of sixteen states that provided fresh evidence of the progressive juggernaut. In town after town he was greeted like a faith healer. Vanderlip reported, “Roosevelt is certainly making a triumphal progress through the West. . . . The popularity of the man is amazing.” Significantly, Roosevelt proposed a far more radical agenda than he had pursued as president—steeply progressive taxes, workmen’s compensation, child labor protections, the right of the “community” to restrict private property for the general good. He called for a more representative political system, for a “moral awakening” of the people, and for a considerably more active federal government.
In another time, Aldrich’s scheme for a central bank might have fit neatly into this agenda. Aldrich envisioned a central bank as an antidote to individualism run amok. This was an enlightened idea—a “progressive” idea—but at that moment, nothing proposed by Aldrich would be entertained by his party’s liberal wing. When it came to banking, western so-called progressives were backward-looking and prone to conspiracy theories. Roosevelt, an eastern progressive, was not an enemy of bankers, but he did not have the patience to study the issue in any depth. Although he supported the notion of financial reform, it was only in the vaguest terms.
Aldrich intended to wait out the 1910 midterm elections, continue with the Monetary Commission after he retired from the Senate in 1911, and draft a bill. But the bankers around him were worried. With the Republicans weakened by internal strife, their ability to effectively legislate was in doubt. In October, Perkins anxiously wrote to the overseas Morgan, “The political pot is boiling here.”
Shifting tactics, Aldrich decided to escape from Washington and craft a plan for banking reform in virtual solitude, accompanied only by a few of his trusted allies. He was feeling battered from so much personal criticism and under pressure from the bankers to show some tangible results. The idea of a working trip in a warmer climate appealed.
Then, in late October, his plans were delayed again. Aldrich, who was in New York, exited a trolley at Sixtieth Street and Madison Avenue and began walking west, toward the apartment of his son Winthrop, when he realized that Winthrop’s apartment, on Park Avenue, was actually to the east. The senator, a fortnight shy of his sixty-ninth birthday, pivoted and started toward Park without noticing a trolley headed southbound. The collision hurled him several feet and knocked him unconscious. He awoke in a confused state, described as “a slight shock.” Taft, who had remained loyal to his friend, immediately cabled, “I am greatly distressed to hear of the accident to you and sincerely hope the injury is only slight. I shall be glad to be assured on this point.”
On election day, Taft and the Republicans received a shellacking. The Democrats won the House, decisively, for the first time in sixteen years. In the Senate, the Democrats gained twelve seats, enough to combine with Republican insurgents and effectively control the upper chamber. Thus, the entire Congress was suddenly tilted toward the progressives. Democrats also picked up a stack of governorships, including that of Woodrow Wilson in New Jersey. The leftward shift in the electorate seemed to reflect a more general upheaval in American society. As the historian Frederick Jackson Turner remarked the following month, “It is hardly an exaggeration that we are witnessing the birth of a new nation in America.” This nation counted over 90 million people, of whom more than a third were immigrants or the offspring of immigrants, largely eastern and southern Europeans, and of whom 8 million belonged to labor unions. The days of building a political stronghold on small Rhode Island towns were over.
Aldrich, for so long a leader in a conservative era, was now in the strange position of having to appeal to a Congress he barely recognized and to a political consensus from which he was excluded. His only hope was that the commission plan—once it was written—would be judged impartially. “We shall appeal to the thoughtful men of this country,” he told a posh crowd of seven hundred, largely bankers, at the Hotel Astor. And yet any hope that the new Congress, in the heat of its crusading fervor, would grant Aldrich an unbiased evaluation, strictly on the merits, he must have known was a pipe dream. He was dejected by his party’s loss at the polls and saw no hope in conventional politics. Sufficiently recovered from his accident, he reinstated his plan for a working trip. His plan was so secret that when the Monetary Commission met after the election, Aldrich did not even mention it.
Two years earlier, Stillman had suggested that Aldrich convene a private bankers’ group at Warwick, but November was no time to be in Rhode Island. Instead, Aldrich opted for a rendezvous on Jekyl Island, in the warm waters off the coast of Georgia. At long last energized, he hastily assembled his team of bankers.