Wednesday, April 25, 2012

Power Grab: The Aldrich Plan for a Federal Reserve

 Above: "The Octopus." Frontispiece of Alfred Owen Crozier's book U.S. Money vs. Corporation Currency: "Aldrich Plan" (Cincinnati, OH: The Magnet Co., 1912).

On 9 January 1912, a Report of the National Monetary Commission headed by Rhode Island Sen. Nelson W. Aldrich presented to the Senate Finance Committee of the U.S. Congress a bill to create a  "National Reserve Act" -- a plan popularly known as "The Aldrich Plan."

Wikipedia: "It provided for one great central bank, the National Reserve Association, with a capital of at least $100 million and with 15 branches in various sections. The branches were to be controlled by the member banks on a basis of their capitalization. The National Reserve Association would issue [paper] currency, based on gold and commercial paper, that would be the liability of the bank and not of the government. It would also carry a portion of member banks’ reserves, determine discount reserves, buy and sell on the open market, and hold the deposits of the federal government. The branches and businessmen of each of the 15 districts would elect thirty out of the 39 members of the board of directors of the National Reserve Association.

"Aldrich fought for a private monopoly with little government influence, but conceded that the government should be represented on the Board of Directors."

Put into plain English, this was the bill proposing that Congress create a Federal Reserve System -- a system that would require every single small-town bank in America to park their reserves with a small and secretive group of bankers from Wall Street who would then "look after" the reserves for the federal government.

Oh, by the way, the same group of Wall Street bankers would have the exclusive right to print paper currency for the United States government, and this bill would also require every single citizen of the United States to pay a personal income tax.

Did we mention that the paper currency or "Federal Reserve Notes" would actually be I.O.U.s or loans, on which the federal government would owe interest to the bankers?

Hmmm.  There was a lot to think about in the Aldrich Plan.

After thinking about it for a while, a lot of people (including some pretty rich people, like banker John Jacob Astor IV of New York) decided they didn't much like the sound of the Aldrich Plan.  For some reason, something just didn't sound right.

In fact the Aldrich Plan was so controversial that it was splitting the Republican Party right down the middle during an election year. Many Republicans were backing Morgan, Aldrich and their "Money Trust."  But just as many liberal Republicans thought that this was a classic case of a "bad" monopoly that would hurt small banks, hurt consumers and hurt the country's economy in general.

These "progressive" Republicans wanted to kill this plan for a banking trust, and they planned to vote for Theodore Roosevelt, a Republican trust buster who had initiated 44 anti-trust lawsuits during his eight years in the White House. In 1902 Roosevelt had busted J.P. Morgan's railroad trust, the Northern Securities Corporation, wide open.

Taft was a trust buster too.  In fact, during his four years in the White House, from 1908 to 1912, Taft had brought 90 lawsuits against big business under the Sherman Anti-Trust act.  But Taft did not distinguish between "good monopolies" and "bad monopolies" and he was taking a legal stick to any business that looked big.

Taft had also riled the liberal and "progressive" Republicans of his party by backing the Payne-Aldrich Act -- a racket that enforced high tariffs for the benefit of Aldrich and his cronies but hurt everyone else.

Among the Republican millionaires on board the RMS Titanic, several were friends and business partners of J.P. Morgan, but they were sick of Aldrich and they had decided to kill the Aldrich Plan. They were on board Morgan's ship, but they were not on board with Morgan's political plans.

In fact, when they got to New York, they were planning to attend the upcoming Republican primaries and to do something about it.  They were going to vote Taft and Aldrich down, effectively killing Morgan's plans for a Federal Reserve.

John Jacob Astor was an especially big headache for Morgan.  Morgan's group had invested more than $28 million in the Astor Trust, an important New York bank, but Astor was now talking about back-stabbing Morgan and the circle of Wall Street bankers who wanted to be the leaders of the new "National Reserve Association."

How could this problem be fixed?


Keko, Don, "The Taft-Roosevelt Rift: Taft the Trust Buster"
"Ship Building 1903 - 1911 - Taft, William H."  Gobal

Wikipedia "History of the Federal Reserve System"
Wikipdia "History of Central Banking in the United States"
Wikipedia "1907 - 1913: Creation of the Federal Reserve System"
Wikipedia "Panic of 1907"
Wikipedia "Nelson W. Aldrich"
Wikipedia "Money Trust"
Wilkipdia "Pujo Committee"

Note: The 1913 Pujo Committee Report identified over $22 billion in resources and capitalization controlled through 341 directorships held in 112 corporations by members of the empire headed by J.P. Morgan.