WOODROW’S MIRACLE
A democratic nation is richer in genius than any other nation because it releases genius.
—WOODROW WILSON
The Aldrich Plan is 60 to 70 percent correct.
—WOODROW WILSON, private conversation during the 1912 campaign
WILLIAM JENNINGS BRYAN DRAFTED most of the Democratic platform himself, and it placed yet another dagger in the heart of the Aldrich Plan. Disregarding James Laughlin’s plea for restraint, the Great Commoner struck a direct hit: “We oppose the so-called Aldrich bill or the establishment of a central bank.” The plank approved at the Baltimore convention went on to espouse a “systematic revision of our banking laws” to free the country from panics and depressions. Carter Glass might reasonably infer that he had latitude to legislate almost any bill that did not resemble the Aldrich Plan or establish “a central bank.” However, the platform also stressed states’ rights and asserted that credits for farmers—always Bryan’s first constituency—were “of equal importance with the question of currency reform.”
This muddled prescription for banking reforms bespoke a larger truth: the Democrats were a party in transition. The platform was progressive, stressing stronger antitrust laws, a ban on corporate campaign contributions, and an income tax. However, the party was still too traditional to embrace women’s suffrage or a minimum wage—either of which would have offended its southern base. Whether the Democrats would emphasize urban progressivism or agrarian mistrust of Washington would depend on their choice of a leader.
At the outset, Bryan threw the convention into an uproar by proposing that it refuse to nominate anyone beholden to J. P. Morgan, to two of his putative allies who were delegates,* or to “any other member of the privilege-hunting, and favor-seeking class.” Morgan not being remotely in a position to control the Democratic convention, Bryan’s suggestion was sheer demagoguery. It carried overwhelmingly, although there were scattered cries for Bryan to be lynched. Rumors spread through the Fifth Regiment Armory, home to the convention, that he was seeking to promote his own candidacy; more likely, he wished to establish his bona fides as a power broker. Bryan’s vote for presidential nominee, ordained on the first ballot by the Nebraska primary result, went for Champ Clark. The Missouri representative captured a sizable plurality, 440½ votes to Wilson’s 324. But Wilson had an offsetting edge; his supporters were more fervent and more committed.
At Sea Girt, the governor anxiously read the telegraph bulletins as the balloting proceeded. He had no visitors with him—only Ellen and his daughters. Always content in scholarly solitude, he spent the day engrossed in a biography of William Gladstone, the nineteenth-century British statesman also known for his oratory, religiosity, and liberal views. Hoping for news, Wilson stayed awake past midnight.
The next day, Saturday, June 29, the New York delegation shifted its votes to Clark, giving the Speaker a majority. Ellen was teary-eyed, and Wilson was on the verge of releasing his delegates. However, the party required a two-thirds majority. The stampede for Clark never materialized. On the fourteenth ballot, Bryan announced that as the New York bloc—controlled by the corrupt Tammany machine and sympathetic to Wall Street—was with Clark, he, Bryan, was switching to Wilson. From then on, the balloting resembled a war of attrition. On the thirtieth ballot, the lead finally changed hands. Not until July 2—on the forty-sixth ballot—did Wilson claim the prize. He wrote to Mary Peck, “My nomination was a sort of political miracle.”
Woodrow Wilson was fifty-five, with dark brown hair turning iron gray and a square jaw that seemed to thrust him forward. He was a southerner who had spent the last three decades in the North, a conservative admirer of British parliamentary rule reborn as a progressive. Historians have never settled on why Wilson changed his spots. Opportunism was a factor, as were his battles with privileged elites when he was running Princeton. But there was more coherence to his evolving views than is often acknowledged. Wilson believed in laissez-faire—the right of people to determine their affairs—and devoutly believed in the power of competition to restrain business from harmful excess. This was pure Jeffersonian democracy. From his minister father, he had inherited a moralistic view of public life, and his own idealism persuaded him that business leaders would work for the civic good. By the time he left Princeton, however, he had concluded that business could not be trusted to regulate itself. But he never doubted the primacy of private enterprise. Where Wilson wanted the federal government to intervene—notably, in antitrust—it was to level the obstacles to fair competition.
To Wilson, the genius of American democracy lay in its perpetual power to reinvent itself from below. “Every nation is renewed out of the ranks of the unknown men,” he said on the stump in Frankfort, Kentucky. He was genuinely alarmed by the appearance of giant trusts, and by the large, impersonal scale of modern industry. He feared that the individual was being “submerged.” In a phrase strikingly evocative of contemporary times, Wilson fretted that the “middle class is being more and more squeezed out by the processes which we have been taught to call [those of] prosperity.”
Just how conservative Wilson remained may be seen in comparison to Teddy Roosevelt, who was nominated by the hurriedly formed Progressive Party. Roosevelt deemed that big trusts were efficient economic agents and necessary to prosperity; his proposed solution was not to abolish the trusts but to regulate them. Wilson mocked this “government by experts.” Roosevelt’s eerie-sounding “new nationalism” proffered a partnership of (very) big business and government; Wilson wanted to use government to, when necessary, break up the trusts and restore Jeffersonian balance.
Two aspects of Wilson’s philosophy guided him toward banking reform. First, he had few misgivings about federal authority, even if he sometimes parroted southerners’ concerns for states’ rights. His academic work was essentially a long discourse on the use of power in a democracy, and on how the central government could be made most effective. Early on, he had admired the British system because he judged it to be more purposeful than the American-style separation of powers. Indeed, he once mused that had he been alive in 1776, rather than see the nation split into thirteen ragtag fiefdoms, he might have been a Tory.
Also, Wilson saw the banking issue as a subset of the monopoly issue. He feared that giant financial combines were restricting the individual’s, and the small business’s, access to credit. In his acceptance speech, which he delivered at Sea Girt, he conflated financial and other trusts, denouncing the “vast confederacies . . . of banks, railways, express companies, insurance companies, manufacturing corporations, mining corporations . . . and all the rest. . . .” Although not illegal, he said, such confederacies “may control, if they please . . . both credit and enterprise.”
Wilson’s economic analysis was unsophisticated and not quite responsive to the specific banking problem. Individuals did lack credit, but not merely—not even primarily—due to monopoly. He ignored the larger issue identified by Paul Warburg—the need to pool reserves to ensure a continual flow of loans. However, Wilson quite candidly acknowledged his lack of expertise in what he called “the complicated and difficult question of the reform of our banking and currency laws.”* Indeed, he admitted, “I do not know enough about this subject to be dogmatic about it.”
A fair reading is that Wilson was galvanized by his distaste for monopoly to address what he surmised were similar problems in banking. Even if the issues were not strictly analogous, the one gave him license to advocate a serious revision of the other—and to adopt banking reform, at long last, as a progressive cause.
The campaign was highly captivating, even if the outcome was not in much doubt. Roosevelt was strong in the Northeast and upper Midwest, but he and Taft inevitably pulled votes from each other. Meanwhile, Wilson ran virtually unchallenged in the South and West. The four-man struggle—it included the Socialist candidate, Eugene V. Debs—forced a realignment of the major parties. The Democrat ran to the left of the Republican, setting a pattern long to endure. No single issue dominated the campaign, nor were the candidates’ differences particularly sharp, but people sensed the election augured a new direction.
Wilson began by stressing reform of the tariff, which he abhorred as an unnatural distortion in trade, but the tariff issue had lost its sting. After consulting with Louis Brandeis, a Boston lawyer making a name for himself as a strident advocate for government regulation of business, Wilson switched to a more potent theme: breaking up monopolies. Even then, he had a tendency to lose his audience in oratorical clouds and airy distinctions. When Wilson declared, “I am for big business and I am against trusts,” listeners, most of them, scratched their heads.
Roosevelt’s strategy was to attack Wilson as a conservative in disguise. He made the fair point that trust-busting alone could not level the playing field for workers who clamored for the right to organize, or for higher wages. Wilson also supported labor, but his enthusiasm for it was of recent vintage; by contrast, Roosevelt, a wealthy New Yorker with a common touch, had a more intimate connection with factory workers and other urban laborers.
Wall Street was as divided as the rest of America. George Perkins, formerly of Morgan’s, was a leader in Roosevelt’s campaign, which led to a bitter rift with his former firm. J. P. Morgan and Andrew Carnegie supported Taft, the most pro-business candidate. But many financiers—including Paul Warburg and Jacob Schiff, who typically favored Republicans—donated to Wilson. Wall Street moneymen considered Wilson a lesser evil than Roosevelt, and more electable than Taft. Untermyer, the House Banking Committee lawyer, gave $10,000 to Wilson for reasons of his own (he was plotting to hijack the committee’s legislative mission, and wanted Wilson as an ally). Noticing that Jewish bankers were siding with Wilson, Frank Vanderlip sniped that the “Hebrew element” was aligning with the presumed winner—a slur that reflected an anti-Semitic bias typical among bankers of the day.
With Wilson’s election looking increasingly likely, bankers angled for a clearer sign of the Democrat’s agenda. In public, Wilson refused to be pinned down; he told an editorial writer he didn’t want to divert the country from principles to details. His campaign utterances on banking were platitudes.
However, in private Wilson sounded ready to abandon the party’s traditional opposition to a central bank. Conferring with Vanderlip in the home of a key supporter, he complimented Vanderlip’s understanding of the currency question, while shrewdly deflecting Vanderlip’s criticism of his own reticence in public. “You don’t understand politics,” the candidate chided the banker. “It does not make any difference what I think ought to be done. I’ve first got to be elected.” Wilson went even further with Henry Morgenthau, a real estate investor prominent in the Democratic Party who visited the governor in September 1912 at his home in Princeton. Morgenthau reported to New York bankers that Wilson believed the Aldrich bill to be 60 to 70 percent correct. They would have to craft another bill (with another name), Wilson added, but before they were finished, they would get 80 percent of the Aldrich bill.
But even as he sent hopeful signs to bankers, Wilson continued his courtship of Bryan. On a stop in Nebraska, Wilson stayed with the Commoner, the two talking into the night. Bryan also campaigned vigorously for the ticket, raising the possibility that he would have influence—possibly a cabinet post—in a Wilson administration.
Roosevelt supplied the campaign’s most dramatic moment. In October, he was in Milwaukee, bound for a speech, when a man at close range drew a pistol and fired. The bullet pierced the candidate’s rib and bloodied his chest. Irrepressibly curious, Roosevelt demanded of his assailant, a deranged bartender, “Why did you do it?” He refused a doctor’s injunction to get treatment and went directly to the auditorium. Relishing his show of courage, the onetime warrior and big-game hunter informed the crowd, “I have just been shot, but it takes more than that to kill a Bull Moose!” He spoke for fifty minutes. Only then would he go to a hospital. But his heroics came too late.
Wilson won forty states and half again as many votes as Roosevelt (6.3 million votes to 4.1 million, with Taft trailing at 3.5 million). In a sign of the electorate’s leftward shift, Debs captured 6 percent of the vote—the most for a Socialist in America before or since. Although Wilson was held to under 42 percent of the popular vote, his victory was decisive. The Senate turned Democratic for the first time in twenty years, and Democrats won a commanding two-thirds of the House.*
Buoyant from his triumph but fatigued from the campaign, Wilson made plans for a holiday in Bermuda. Before he sailed, three would-be banking reformers besieged him for an audience. How Wilson chose among these suitors would go a long way toward determining the fate of reform.
James Laughlin was the only petitioner with banking expertise. He regretted that the Citizens’ League—now winding down—had not authored its own reform plan, and hungered for recognition. Ill advisedly, Laughlin telegraphed the president-elect and requested a “short interview” before his trip. Wilson declined.
With more bravado, Samuel Untermyer contacted Wilson the day after his victory, professed to have urgent business, and requested “the better part of an entire day.” Wilson diplomatically put him off.
Wilson also heard from Carter Glass, who wrote that he and his assistant, Parker Willis, had “formulated, tentatively, a substitute for what is known as the Aldrich bill.” This considerably overstated their progress, but Glass accurately reflected their purpose. “I think the committee would not like to proceed without some suggestions from you.” Wilson replied—with more warmth than he had to Untermyer—that he would be eager to “commune” with Glass as soon as practicable.
What Wilson described as a “short vacation” was in fact a four-week sojourn. Maneuvering by the various parties during Wilson’s absence was intense. The jousting began with a conference between Willis and Untermyer, instigated by Untermyer. The ostensible purpose was that Untermyer wanted Willis, who remained at his day job at the Journal of Commerce, to write favorably about the Money Trust hearings, which were scheduled to resume at the end of November. However, Untermyer also revealed that, despite the agreement to split the Banking Committee functions, he himself “was planning to have the Money Trust Sub-Committee introduce legislation this winter.” In other words, he was intent on usurping Glass.
Willis communicated this alarming news to Glass the following day. As Willis summarized matters, “Mr. Untermyer contemplates a general campaign [aimed at] gathering to himself all the functions entrusted to the Banking and Currency Committee.”
Equally disconcerting to Glass, Untermyer appeared to be in league, or at least in agreement, with some of the very financiers whose operations were to be explored in the hearings. Willis reported that the brash attorney was adamant that any banking bill include a “central reserve association,” which sounded far too much like a central bank to Glass. Indeed, Untermyer was explicit that the legislation preserve “the main ideas of the Aldrich bill.”
Glass’s personal rivalry with Untermyer now assumed the character of a holy crusade. Furious, and realizing that his ability to lead the reform was at stake, Glass wrote to the committee chairman, Arsène Pujo, denouncing Untermyer’s “impertinent activity” and seeking Pujo’s reassurance. Pujo did reaffirm Glass’s authority over currency legislation, but Glass hardly expected Untermyer to back down so easily. Pujo was retiring at the end of the session, and the prospect that Untermyer would influence the selection of the next chair drove Glass nearly to despair.
According to Laughlin, Glass blamed Untermyer’s political machinations on Jewish financiers who were “prompting” him from the shadows. Laughlin himself could not resist sniping at the supposed deviousness of these bankers. He wrote to Willis, “Moral: Put not your trust in Hebrews.” The gentile establishment regarded Jews as usurpers, welcome in finance only provisionally and on condition that they behave with particular discretion. Even though Untermyer undeniably was a slippery character, Laughlin was also being counseled by the industry (in his case, by the leading bankers in Chicago), and he, too, believed in a central reserve. Perhaps more to the point, the threat from Untermyer got the process moving, for it spurred the desultory Willis, as well as Glass, into action. During the fall campaign Willis and Glass had not even been in contact. And while Willis, as he put it, had “been working on various phases of the banking question,” he had not done any writing or drafting. Now, Glass and Willis got busy.
In mid-November, Glass hosted Laughlin at the Raleigh Hotel, his Washington domicile, and asked Laughlin to sketch out a bill as an aid to Willis’s drafting. According to Laughlin, Glass made not a single suggestion with regard to “particular provisions.” His only concern was that the draft not “antagonize” the Democratic platform. Glass, in fact, had a copy of the platform in his pocket, underscoring his fidelity to party doctrine. Laughlin mildly suggested that they might be able to go a bit beyond what the platform permitted, to which Glass made no reply. The two agreed the issue could only be resolved by Wilson.
Glass, in fact, was still laboring to understand the principles of banking. He and Willis freely sought advice—although, as the scholar Robert Craig West pointed out, they were churlish when it came to sharing credit. The congressman was a deliberate pupil, but once he formed an opinion he fought for it tenaciously. Perhaps because he was unsure of his footing, he clung to his beliefs obstinately.
Glass tended to view the world conspiratorially, suspecting people with contrary views of being motivated by nefarious interests. As Glass admitted of himself, he was “too prone to be suspicious.” This hurt him in his efforts to cultivate support among the banking industry. Glass knew he needed the industry’s support, but he refused to take bankers into his confidence. Most bankers, therefore, heard only rumors of what Glass and Willis were up to. “Mr. Glass,” recounted a frustrated Warburg, “allowed little or nothing to become public.”
Stymied in his efforts to cultivate Glass, Warburg made his influence felt through the circle around the president-elect. Colonel House, Wilson’s intimate friend, was eager to hear Warburg’s views, and Warburg skillfully lobbied House of the virtues of central banking. Morgenthau, another Wilson adviser, asked Warburg to prepare a plan that would bridge the gap between the Democratic platform and “sound banking” principles. Wilson also read an article by Victor Morawetz, the railroad lawyer who advocated a network of regional banks. Through these channels. Wilson, upon his return, would be exposed to Wall Street’s ideas, and they generally reaffirmed his own convictions. Although the president-elect had no firm agenda, broadly speaking he was more favorable to some form of centralization, and less hostile to Wall Street, than Bryan and the Democratic rank and file.
Glass got his first inkling of the gulf between House Democrats (who were mostly faithful to Bryan) and the embryonic White House when he was introduced to Colonel House at a Washington dinner. Wilson’s mysterious friend pulled Glass off to the side and, speaking in private, advanced the merits of a central reserve. Glass instantly objected that the party platform “precluded” his committee from proposing such a remedy. House cuttingly replied, “I fear, Mr. Glass, you attach too much importance to party platforms.” While this exchange surely unnerved Glass, the encounter boosted his standing, because House recognized that the determined Glass could be a useful partner. He wrote to Wilson, “I think the quicker you see him the better it will be. You will find him ready to cooperate with you to the fullest extent.”*
• • •
IN DECEMBER, Untermyer turned the Money Trust spotlight on the captains of Wall Street. The Pujo hearings (though named for the chairman, they were dominated by Untermyer) did not bear directly on reform legislation. Nonetheless, by exposing an unsavory collaboration among Wall Street bankers, they helped to shape a political climate in which banking reform, of one sort or another, was seen as inevitable. In a series of highly charged cross-examinations, Untermyer sought to show that bank credit and corporate underwritings were in the grip of a small, collusive group of Wall Street bankers, at whose center was the seventy-five-year-old J. P. Morgan. Untermyer’s style was prosecutorial and contentious. He elicited the answers he sought by posing barbed—often sarcastic—questions that witnesses found difficult to evade. He refused to allow witness counsels to intervene.
Morgan himself was the marquee witness. He remained America’s most celebrated financier, even though he spent half his time in Europe while Harry Davison managed his bank. Morgan regarded public testimony as highly distasteful—a spectacle unbecoming to a private banker. Compelled to testify, Morgan left for Washington “by special train with half a dozen of the most distinguished counsel in New York, several of his partners, and various women relatives”—so Vanderlip reported. “The papers tell how he had twenty rooms at the Willard, and generally moved as a crowned potentate would.”
On the stand, Morgan uttered a line that history would remember. Untermyer asked if the disbursal of credit wasn’t primarily based on the borrower’s assets. Morgan said: “No, sir; the first thing is character.” This was an endearing description of nineteenth-century banking. The trouble was (as later witnesses would demonstrate), it was no longer true. More relevant to the twentieth-century question of monopoly, Untermyer got Morgan to admit that he saw nothing wrong with rival bankers collaborating with one another. Gentlemen did not compete, or not too savagely.
UNTERMYER: You are an advocate of combination and cooperation, as against competition, are you not?
MORGAN: Yes; cooperation I should favor.
UNTERMYER: Combination as against competition?
MORGAN: I do not object to competition, either. I like a little competition.
Untermyer deliberately zeroed in on railroads, the dominant industry of the era and one that Morgan had helped reshape through numerous mergers and securities offerings. The rails were lucrative Wall Street clients, and Untermyer tartly asked whether railroads that did business exclusively with Morgan’s wouldn’t be better served by a process of competitive underwriting. Implausibly, Morgan denied that they would. In the same vein, Untermyer charged that the bank maintained a too cozy relationship with its putative banking rivals, including George Baker’s First National Bank. Morgan admitted that he and Baker had been close friends and associates “for a great many years . . . since 1873, at least.” And if the First National wanted in on a Morgan deal? Morgan responded candidly, “I always offered them anything I had.”
To the public, Morgan came off as trustworthy but a figure from a bygone world. Vanderlip ruefully observed that his performance had at times been “blundering.” It seemed to confirm that Morgan could no longer be counted on for the sort of heroics he exhibited during the 1907 Panic, and that some new type of guardian was needed. The hearings, which were to continue into 1913, received extensive newspaper coverage and made a deep impression on the public.
Perhaps not coincidentally, reform proposals blossomed. In December, Laughlin delivered three successive drafts to Willis. In essence, Laughlin proposed that monetary policy be run by district associations, similar to the regional branches in the Aldrich Plan, and coordinated by a central board composed of a mix of bankers and presidential appointees. Warburg also dashed off a fourteen-page prescription, which he conveyed to Morgenthau and ultimately to Wilson. This latest Warburg model sported a central bank in Washington with twenty branches. Each of these plans featured a degree of federalization; the controversy revolved around the extent of control wielded by the center. It was this debate that unsettled Glass. Even though he probably did not see the Warburg plan right away, he was well aware of the bankerly pressure for centralization. Glass also met with Piatt Andrew, who made a renewed pitch for the Aldrich bill. In addition, Glass complained, he was “deluged with letters from people who have currency schemes.”
Glass’s every instinct was to try to control this process. He stymied Untermyer’s attempts to poach on his turf, and by year end he had won assurance that he would succeed Pujo as committee chairman.* Glass also decided to stage hearings early in the coming year. He may have hoped to draw attention from the still ongoing Untermyer hearings, but Glass’s primary purpose was to solidify the public’s negative opinion of the Aldrich Plan and of central banks in general. Glass and Willis spent many hours reviewing lists of potential witnesses—screening out, when possible, adherents of a central bank. Palpably trying to stack the deck, Willis advised that they invite E. D. Hulbert, vice president of the Merchants Loan and Trust Company of Chicago, noting: “Mr. Hulbert is a very sharp critic of the Aldrich plan and has taken an extremely destructive point of view with regard to it.” Glass also began to pull away from Laughlin. The professor, who had worked so closely with Willis, had clearly hoped to join the inner circle of the drafting party—he even asked whether his name could be included on the legislation! Glass put off seeing him. The sensitive Laughlin reacted with shock and self-pity (“I was considerably taken aback,” he wrote to Willis).
The only audience Glass wanted was with Wilson. He wrote again on December 14, apologizing for adding to Wilson’s “burdens” and humbly seeking an appointment for Willis and himself. Two days later, after an Atlantic voyage of forty hours, the president-elect, looking becomingly tanned, docked in New York. Newspapers reported that Wilson cheerfully signed autographs for fellow passengers. Back in Princeton, his most pressing chore was assembling a cabinet. He also tackled legislative priorities, including banking reform, which remained a horse with rival jockeys. Barely home a day, Wilson placed his bet. He invited the congressman from Lynchburg, and his assistant, to the statehouse.