Illustrated Weekly Newspaper

The Oldest Illustrated Weekly Newspaper in the United States, established December 15, 1855.
Edited by John A. Sleicher
Thursday, October 19, 1916.

Men Who are making America

who wrote the Aldrich Currency report, the basis of our new banking system, here told for the first time --- Paul M. Warburg's career.

by Bertie Charles Forbes.

Picture a party of the nation's greatest bankers stealing out of New York on a private railroad car under cover of darkness, stealthily hieing hundreds of miles South, embarking on a mysterious launch, sneaking on to an island deserted by all but a few servants, living there a full week under such rigid secrecy that the name of not one of them was once mentioned lest the servitors learn their indentity and diclose to the world this strangest, most secret eposide in the history of American finance.

I am not romancing.  I am giving to the world, for the first time, the real story of how the famous Aldrich currency report, the foundation of our new currency system, was written.

Paul M. Warburg is popularly supposed to have been the author and writer of the Aldrich measure.  He wasn't.

The truth is strange as fiction.  It calls up visions of pirates, of shipwrecked mariners cast upon uninhabited islands, of ancient warriors entrenched in a castle surrounded by a moat, of ghost-like comings and goings.

Let's to the facts.

With great pomp and ceremony the Aldrich Commission, headed by Senator Nelson W. Aldrich and composed of a galaxy of American notables, had been received in the spring of 1908 by the crowned heads and the financial centers of Europe.  The commission toured triumphantly and not uselessly.  The members and their advisers assiduously gathered banking information wherever they went and employed the ablest experts to compile data.  The whole country looked forward to the issuance of the Aldrich Commission report as a financial and political event of momentous importance.  All eyes were centered upon the powerful Rhode Island senator who, it was well understood, was to make this report an everlasting monument of his memory.

Senator Aldrich, as a matter of cold truth, was not attempting to evolve order out of the chaotic mountains of material from an army of expert writers and investigators in Europe and at home.

Instead, he issued a very, very confidential invitation to Henry P. Davison of J.P. Morgan & Co., Frank A. Vanderlip, president of the National City Bank and an ex-assistant Secretary of the Treasury;  Paul M. Warburg, of Kuhn, Loeb & Co., and Piatt Andrew, Assistant Secretary of the Treasury, to accompany him on an undisclosed trip.  Mr. Davison had accompanied the commission to Europe as an adviser;  Mr. Vanderlip was a recognized authority on banking and currency fundamentals;  Mr. Warburg had written most learnedly on the subject and Mr. Andrew had done a great deal of work for the commission.

A mysterious expedition

The utmost secrecy was enjoined upon all.  The public must not glean a hint of what was to be done.  Senator Aldrich notified each one to go quietly into a private car which the railroad had received orders to draw up at an unfrequented platform.  Drawn blinds balked any peering eyes that might be around.  Off the party set.  New York's ubiquitous reporters had been foiled.  So far so good.  After bowling along the railroad hour after hour, into Southern country, the order was given to prepare to disembark.

Stepping from the car when the station had been well cleared of travelers, the members of the expedition embarked in a small boat.  Silence reigned, for the boatsmen must not find out how distinguished were their passengers.

In due time they drew up at another deserted pier.  They were at Jekyll Island, off Georgia.  The island was entirely unpeopled, save for half-a-dozen servants.

"The servants must under no circumstances learn who we are," cautioned Senator Aldrich.

"What can we do to fool them," asked another member of the group.  The problem was discussed.

"I have it," cried one.  "Let's all call each other by our first names.  Don't ever let us mention our last names."

It was so agreed.

The dignified, veteran Senator Aldrich, king of Rhode Island and a power second to none in the United States Senate, became just "Nelson;"  Henry P. Davison, everywhere recognized among the ablest international bankers America has ever produced, forthwith became "Harry;"  the president of the nation's largest bank became "Frank;"  and the quiet, scholarly member of the powerful international banking firm of Kuhn, Loeb & Co. became "Paul."

Nelson had meanwhile confided to Harry, Frank, Paul and Piatt that he was to keep them locked up on Jekyll Island, cut off from the rest of the world, until they had evolved and compiled a scientific currency system for the United States, a system that would embody all that was best in Europe, yet so modeled that it could serve a country measuring thousands where European countries measure only hundreds of miles.

After a general discussion it was decided to draw up certain broad principles on which all could agree.  Everyone of the group voted for a central bank as being the ideal cornerstone for any national banking system.  One by one other features were brought forward and carefully pondered.  Day after day for more than a week these giant intellects wrestled with their colossal problem.  They worked not five or eight hours a day, but all day and late into the night.  All were in deadly earnest.  Each one contributed the best that was in him.  The actual dictation of the measure was done largely by Frank and occasionally by Paul.

As quietly as they had landed, the authors of the historic Aldrich report disappeared from Jekyll Island and slipped into New York undetected.

The keenest talent among New York's financial reporters had worn much shoe-leather trying to discover where Messrs. Davison, Vanderlip and Warburg had gone, as these financiers had been in the habit of seeing reporters frequently.  They found every avenue of information sealed.  All questions fired at the sojourners on their return were also parried.  And the matter has remained a mystery until this day.

History now Revealed

When Congress assembled, the aged Senator Aldrich was ill, and he summoned his trusted friends, Harry, Frank and Paul, to Washington.  Together they wrote the message that accompanied the report to the Senate.

To this day these financiers are Frank and Harry and Paul to one another and the late Senator remained "Nelson" to them until his death.  Later Benjamin Strong, Jr. was called into frequent consultation and he joined the "First-Name Club," as "Ben."

This authentic page of American history is much too picturesque and fascinating, as well as important, to be left blank.

I want to add explicitly that this information did not come from Mr. Warburg, who, indeed, will doubtless be astonished to read it here, as also will the other members of the historic party.  Some of the details may not be stated with exactitude, but the main outline of the strange story can be accepted as correct beyond question.

Paul Moritz Warburg more than any other man had made banking reform possible in this country.  Trained scientifically in European national and international banking, our anachronistic currency system shocked him.

"The United States is at about the same point that had been reached by Europe at the time of the Medicis.  We have been shown bricks of the time of Hammurabi, the Babylonian monarch, evidencing the sale of a crop and similar transactions, and I am inclined to believe that it was as easy to transfer the ownership of these bricks from one person to another as it is to-day for an American bank to realize upon its discounted paper, if indeed it was not easier."

Thus witheringly he wrote in 1907.  But he did more than kick: he applied his whole talents to bringing about a cure -- perhaps a somewhat un-American procedure !

It cost him an effort to enter the fray.  Naturally shy, averse to appearing in public or in the public prints, unable then to speak idiomatic English with perfect freedom and without an accent, an alien not naturalized, he shrank from coming forward.  He had to be pushed to the front by friends who realized the value, the practicability and the timelessness of his proposed reforms.  Only the consciousness that the country was sitting precariously on a monetary volcano and direly needed to be aroused to its danger impelled him to cast aside all personal considerations and do what he considered an uncongenial but imperative public duty.

Beginning the Campaign

He opened fire in January, 1907, with an elaborate article on "Defects and Needs of Our Banking System," followed with a blast, "A Plan for a Modified Central Bank," several months later, and he never ceased to raise his voice and ply his pen until currency legislation was engraved on our statue books.  He was and is a Central Bank advocate: yet as early as 1910, realizing the political difficulties, he evolved a plan for "A United Reserve Bank of the United States," the underlying principles of which are embodied in the law now in force.  The centralization of reserves under properly balanced authority and the rediscounting of an improved type of commercial paper so as to transform immobile promissory notes into bills of exchange ---[transmutation of a no value promise into a full value bill] were the two cardinal reforms he constantly emphasized -- and succeeded in having written into the Owen-Glass law.

The system finally adopted is the Aldrich bill ostensibly radically amended, but in reality and in practice not so greatly altered.  We have not a central bank in name, but we have one in all but name.  And I hear that the Republicans, when they have the power, will at least reduce the number of Reserve Banks from 12 to nearer the four stoutly championed by Mr. Warburg before he became a member of the Federal reserve Board.

---[as Mr. Forbes presently tells us, Paul Warburg was advised and urged by professor Seligman !!! to commit his act upon the United States.  Professor Edwin Robert Anderson Seligman (1861-1939), teacher of economics, was the son of Joseph Seligman (1819-1880) who, along with August Belmont, advised Abraham Lincoln and Portland Chase what sort of banking system to establish in 1863.  In 1913 Warburg is merely adjusting this banking act, inspired by the Frankfurt circle of friends.
To legalize and codify the banks's already existing community-of-interest associations
Forbes may actually believe that he is revealing something new, but the fact is that in 1862 Representative Hooper openly told the House what the plan and this new banking system was:--
"Thus are secured all the benefits of the old United States Bank without many of those objectionable features which aroused opposition. .... It will be as if the Bank of the United States had been divided into many parts, and each part endowed with the life, motion, and similitude of the whole, revolving in its own orbit, managed by its own board of directors, attending to the business interests of its own locality;  and yet to the bills of each will be given as wide a circulation and as fixed a value as were ever given to those of the Bank of the United States in its palmiest days. ....."
which supports the conclusion that Warburg and Seligman are simply building upon and modifying the system their predecessors had established 50 years earlier

It is no disparagement to other American bankers to say that Mr. Warburg is acknowledged to be the first authority in the land on national and international banking principles.

The depth of his sincerity and of his zeal for currency reform can be partly gauged by the fact that he gave up an income of at least $500,000 a year to accept a salary of $12,000 a year.

What sort of a man is this Paul M. Warburg who cheerfully made such a financial sacrifice ?  How did he gain his unparalleled reputation as a banking authority ?  What is his history ?

The story differs from that of the typical self made American of humble birth, early hardships and struggles and final triumph.

Paul Moritz Warburg did not have the spur of necessity to prod him forward: he was born rich, but he determined to overcome that handicap.  For centuries Warburgs have figured prominently in German commerce, particularly in Hamburg.  Their entrance into the banking field dates from the time George Washington was President of the United States.  Mr. Warburg's great-grandfather then founded the banking house of Warburg & Warburg in Hamburg, and Warburgs have conducted it ever since, no outsiders being eligible for membership.  None was ever needed;  for the Warburg fathers saw to it that the Warburg sons were trained to maintain and expand the business.

Paul's drilling was Germanically thorough.  On graduating from the gymnasium at 18 --he was born in 1868-- he was put to work with an exporting firm.  His taste ran to study rather than barter.  His duties included sticking price labels on bundles of stocking, clothing and other merchandise, keeping tab of goods handles on the docks and other activities more menial than mental.

The high-born, sensitive, scholarly youth did not flinch.  It was a tradition of the Warburg family that it did not breed idle dilettantes.  He would not break that tradition.

Two years of this sternly practical commercial experience qualified him to enter the family banking house to learn the ABC of the financing of the merchandise he had handled and seen handled on the polyglotic docks.  Next he was sent to England to learn how things were done in the world's financial hub.  For two years he worked in one of those banking and discount firms which abound in London as nowhere else, firms whose activities have for more than a century made Britain the world's international banker.  His London experience was rounded out by a few months in a stock-broker's office, a position which did not appeal strongly to the banker-in-the-making, for he had no taste for stock speculation.

France was his next training ground.  Here he widened his knowledge of practical banking.  Back to Hamburg he next went to finish his banking education.  To round it off he was dispatched, in 1893, on a trip around the world, when, after visiting India, China and Japan, he "took in" the United States.  Here he met a young lady who captured his affections, an incident that was destined later to change the whole course of his career.

Into the Banking World

On returning to Hamburg he was considered fit to become a member of the firm.  This was not astonishing, seeing that he gathered first-hand experience in the two leading financial centers of the world, had travelled extensively and observantly, had studied his profession from every angle and was deeply impressed with the value of the services rendered to the world by bankers engaged in financing domestic and international trade.  Two years later he returned and married Nina J. Loeb, daughter of the late Solomon Loeb, of Kuhn, Loeb & Co.  Yearly visits to the United States were followed, in 1902, by his admission to his father-in-law's international banking firm, a step induced by the illness of his wife's parents and their desire to have their daughter near them.

He had not been in New York a month when Wall Street indulged in one of its frequent displays of monetary fireworks.  Call money --that is, loans made from one day to another-- skyrocketed above 20 per cent.  He was dumbfounded.  Such things did not occur under the banking systems of England, France and Germany.  Why should they occur here, upsetting everything ?

He at once sat down and wrote an article explaining the basic causes of the trouble.  Then he promptly locked the article away !  "I did not want to be one of those who try to educate the country after they have been here a few weeks," was the reason he gave for tucking away the article, an explanation characteristic of the man.

The article lay unused for four years.  During this time Mr. Warburg was carving for himself a place in American finance.  His firm was then backing Harriman in railroad developments that caused the country to gasp, so bold, daring and original were the strokes that followed one another.  The Pennsylvania Railroad, also one of Kuhn-Loeb's clients, was spending many millions in defying nature and nullifying geography by burrowing into Manhattan Island.  Other powerful railroad systems had to be supplied with funds.  And industrial enterprises likewise demanded attention and millions.

Mr. Warburg learned the game and played it with the best of them.  But he was still the student, the scholar, the investigator of banking principles rather than a "Wall Street banker" with one eye on his desk and the other on the stock-ticker tape.  Bluntly, he hated speculation.  His conception of a banker was a man of unquestioned integrity and reputation whose chief mission was to enable the wheels of commerce to revolve by supplying a sufficiency of funds and credit.

---["supplying credit" a give-away, a Freudian slip .... credit either exists or it does not, it cannot be "supplied";  what Forbes means by supplying credit is supplying bank-book entries and bank notes based on the credibility of the bank]

When clouds which culminated in the 1907 panic began to gather, clear-sighted authorities turned their attention anew to banking reform.  Mr. Warburg was one of a party of bankers and economists who gathered at the home of Professor Edwin Seligman of Columbia University and discussed the ominous outlooks.  Mr. Warburg enunciated his theories.  They captured the intellectuals.

Professor Seligman urged Mr. Warburg to publish his views.  Mr. Warburg demurred.  Professor Seligman persisted and won.

Wilson's best choice

It was natural that Senator Aldrich should have enlisted the aid of this erudite banker whose workings were based on first-hand knowledge and practical experience, who knew every European banking system and who had time and opportunity to learn the special requirements of this vast democratic country.  It was natural, too, that the Democrats, when their turn came to prepare currency legislation, should have turned to Warburg for guidance.  They found him big enough and not too bigoted to modify his proposals in accordance with actualities instead of fatuously insisting upon the attainment of the ideal at one leap.

"The best appointment of his whole administration," President Wilson's selection of Mr. Warburg as a member of the Federal Reserve Board had been called.

In the eyes of certain Washington politicians all "Wall Street Bankers" look alike.  They are a monstrous, ravenous, soul-less lot, ever seeking whom they may devour, perpetually scheming how to keep their fists tightly clinched on the throat of the people.  Mr. Warburg's name was received by these gentlemen with scorn and rage.  They would put him through his paces before they refused to confirm his nomination !  They would show up the whole "Money Trust" gang !

Mr. Warburg was incensed.  He had consented to give up his profitable partnership in one of the greatest international houses in America, he had reconciled himself to sacrificing all his New York friendships, he had resolved to resign from every railroad, industrial, financial, even philanthropic office he held solely because of the hope that his example might stimulate others to accept public service and the profound conviction that the occasion demanded patriotism of a high order.

For his voluntary immolation he was being bombarded with outbursts of suspicion and condemnation.

At one stage Mr. Warburg would have given a million dollars could he have unwritten his letter of acceptance to President Wilson.  Finally, he consented to appear before his inquisitors on the condition that "the affairs of my partners, who are not here as nominees," would not be taken "as a basis for discussion."

For two days he submitted to being pelted with questions, many of them insulting.  Here is an example.

"You intend to go on this board, if you are confirmed, to represent what ?" asked a Senator.

"To represent the country and the future of the country," Mr. Warburg replied with calm dignity.

Even his quondam bitterest opponents have now come to realize tat Mr. Warburg is in truth striving to represent the country and its future, not any evil-motived Wall Street clique.

---[some reality:-- Statement of William Berry before the Senate Committee hearings on the proposed federal reserve bill]

Mr. Warburg would rather solve a knotty banking problem for the benefit of the country than make a million dollars.  He has given up money-making entirely, having resigned from all directorships and partnerships both here and abroad.

His home is one of the most artistically furnished in Washington.  He still maintains his old home at White Plains, where he spends many weeks and most of the summer with his wife and children.

Like his brother, Felix Warburg, also a partner in Kuhn, Loeb & Co., he has done a great deal of charitable and philanthropic work, especially among those of his own race.  In this he has the energetic co-operation of Mrs. Warburg.

If other brainy Americans could be induced to give up money-making and dedicate themselves to public service, the United States would be a cleaner, better-governed, less-agitated Republic.