The Mystery of Banking

laissez-faire
and hard money. For statists
and inflationists under William Jennings Bryan captured the
Democratic Party at its 1896 presidential convention. With the
disappearance of the Democratic Party as the libertarian party in
American life, both parties soon fell under the statist, progressive
spell. A new era was under way, with virtually no one left to
oppose the juggernaut.
14
The growing consensus among the bankers was to transform
the American banking system by establishing a central bank. That
bank would have an absolute monopoly of note issue and reserve
requirements and would then insure a multilayered pyramiding
232
The Mystery of Banking
14
In addition to Kolko, 
Triumph of Conservatism
, see James Weinstein,
The Corporate Ideal in The Liberal State, 1900–1918
(Boston: Beacon Press,
1968). On the new collectivist intellectuals, see James Gilbert, 
Designing the
Industrial State: The Intellectual Pursuit of Collectivism in America,
1880–1940 
(Chicago: Quadrangle Books, 1972); and Frank Tariello, Jr.,
The Reconstruction of American Political Ideology, 1865–1917
(Char-
lottesville: University Press of Virginia, 1981). On the transformation of the
American party system with the Bryan takeover in 1896, see Paul Kleppner,
The Cross of Culture: A Social Analysis of Midwestern Politics, 1850–1900
(New York: The Free Press, 1970), and idem., “From Ethnoreligious Con-
flict to Social Harmony: Coalitional and Party Transformations in the
1890s,” in S. Lipset, ed.,
Emerging Coalitions in American Politics
(San
Francisco: Institute for Contemporary Studies, 1978), pp. 41–59.
Chapter Fifteen.qxp 8/4/2008 11:38 AM Page 232

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on top of its notes. The Central Bank could bail out banks in trou-
ble and inflate the currency in a smooth, controlled, and uniform
manner throughout the nation. 
Banking reform along these lines was considered as early as
the beginning of the 1890s, and particularly favorable was the
American Bankers Association and especially the larger banks. In
1900, President McKinley’s Secretary of the Treasury, Lyman J.
Gage, suggested the creation of a central bank. Gage was formerly
president of the American Bankers Association, and also former
president of the First National Bank of Chicago, an organization
close to the then-Rockefeller-controlled National City Bank of
New York. In 1908, a special committee of the New York Cham-
ber of Commerce, which included Frank A. Vanderlip, president
of the National City Bank, called for a new central bank “similar
to the Bank of Germany.” Similar recommendations were made
the same year by a commission of big bankers set up by the Amer-
ican Bankers Association, and headed by A. Barton Hepburn,
chairman of the board of the then-Morgan-controlled Chase
National Bank.
15
The Panic of 1907 galvanized the bankers into accelerating
proposals for a new banking system. With intellectuals and politi-
cians now sympathetic to a newly centralized statism, there was
virtually no opposition to adopting the European system of cen-
tral banking. The various shifts in plans and proposals reflected a
jockeying for power among political and financial groups, even-
tually resolved in the Federal Reserve Act of 1913, which the Wil-
son administration pushed through Congress by a large majority. 
Amid all the maneuvering for power, perhaps the most inter-
esting event was a secret summit meeting at Jekyll Island, Geor-
gia in December 1910, at which top representatives of the pro-
central banking forces met to hammer out an agreement on the
essential features of the new plan. The conferees consisted of Sen-
ator Nelson W. Aldrich (R., R.I.), a Rockefeller kinsman who had