The Early Fed, 1914-1928, The Morgan Years
In their joining together to draft, and then to lobby for, the new Federal Reserve system, the House of Morgan was clearly very much the senior partner in the enterprise.
The secret meeting of a handful of top bankers at the Jekyll Island Club in November 1910,
One that framed the prototype for the Federal Reserve Act was held at a resort facility
provided by J.P. Morgan himself.
The Federal Reserve, in its first two decades, contained two loci of power.
The main one was the head, then called the governor, of the Federal Reserve Bank of New
York.
Of lesser importance was the Federal Reserve Board in Washington.
The governor of the New York Fed, from the beginning until his death in 1928, was Benjamin
Morgan Strong, who had spent his entire working life in the Morgan Ambit.
He was a vice president of the Bankers Trust Company, established by the Morgans to engage
in the new and lucrative trust business.
And his best friends in the world were his mentor and neighbor, the powerful Morgan partner
Henry P. Davison, as well as two other Morgan partners, Dwight Morrow and Thomas W. Lamont.
So highly trusted was Strong in the Morgan circle that he was brought in to be the personal
The Morgans were not nearly as dominant in the then lesser institution of the Federal
Reserve Board in Washington.
On the original board, there were seven members, of whom two, the Secretary of the Treasury
and the Comptroller of the Currency, were ex officio.
The Morgan block on the original board was led by Secretary of the Treasury William Gibbs
Micadou, son-in-law of President Wilson, whose Hudson and Manhattan Railroad Company in New
York had been bailed out personally by J.P. Morgan, who then proceeded to staff the officers
and board of Hudson in Manhattan with his closest business associates.
From that point on, McAdoo was surrounded by a Morgan ambiance.
Comptroller of the currency was John Skelton Williams, a protege of McAdoo's who had also
been a director of the Hudson and Manhattan Railroad.
Another board member was McAdoo protege Charles S. Hamlin, who came to the board from the
post of Assistant Secretary of the Treasury.
In addition to being a wealthy Boston lawyer, from a Boston financial group long affiliated
Associated with the Morgan interests, Hamlin had married into the wealthy Pruan family
of Albany, which had been associated with the Morgan-dominated New York Central Railroad.
If these three were solid Morgan men, the other four reserve board members were not
nearly as reliable.
Paul M. Warburg was partner and brother-in-law of Jacob Schiff of the investment banking
house of Coonleb.
Frederick A. Delano, uncle of Franklin D. Roosevelt, was president of the Rockefeller-controlled
Wabash Railway. William P.G. Harding was an Alabama banker whose father-in-law's iron
manufacturing company had prominent Morgan as well as rival Rockefeller men on its board.
And Adolph C. Miller was an academic economist at Berkeley who had married into the wealthy
Morgan-connected Sprague family of Chicago. Thus, of the seven members of the original
board, three were Morgan men, but of whom two were ex officio. One was Kuhn Leb, one
One Rockefeller, one an independent banker with both Morgan and Rockefeller connections,
and one was an economist with vague family ties to the Morgans.
Hardly complete Morgan control of the board.
But the Morgans not only had by far the most powerful Federal Reserve banker, Benjamin
Strong, in their corner, they also had the Republican administrations of the 1920s.
Although there were various groups around President Warren G.
Harvey Harding, as an Ohio Republican, he was closest to the Rockefellers, and his secretary
of state, Charles Evans Hughes, was a mentor of John D. Rockefeller Jr.'s New York Bible
class, a leading Standard Oil attorney, and a trustee of the Rockefeller Foundation.
Harding's sudden death in August 1923, however, unexpectedly elevated Vice President Calvin
Coolidge to the presidency.
Coolidge had been misleadingly described as a colorless, small-town Massachusetts attorney.
Actually, the new president was a member of a prominent Boston financial family who were
board members of leading Boston banks.
One T. Jefferson Coolidge became prominent in the Morgan-affiliated United Fruit Company
of Boston.
Throughout his political career, moreover, Calvin Coolidge had two important mentors,
both neglected by historians.
One was Massachusetts Republican Party Chairman W. Murray Crane, who served as a director
of three powerful Morgan-dominated institutions, the New Haven and Hartford Railroad, the Guarantee
Trust Company of New York, and AT&T, on which he was also a member of the board's executive
committee.
The other was Amherst classmate and prominent Morgan partner, Dwight Morrow.
Morrow began to agitate for Coolidge for president as early as 1919 and continued his pressure
At the Chicago Republican Convention of 1920, Dwight Morrow and fellow Morgan partner Thomas
Cochran lobbied strenuously for Coolidge at Chicago.
Cochran, who was not an Amherst graduate, did not have the Amherst excuse for working for Coolidge,
and so he kept in the background.
Cochran and Morrow were happy, as prominent Morgan men, to confine their work to the background
and to push forward as the frontman for Coolidge, the large,
Doddy Boston merchant, Frank Stearns, who did have the virtue of being an Amherst graduate.
Secretary of the Treasury throughout all three Republican administrations of the 1920s was the
powerful multi-millionaire tycoon, Andrew Mellon, head of the Mellon Interests, whose empire spread
from the Mellon National Bank of Pittsburgh to encompass Golf Oil, Copper's Company and Aluminum
Corporation of America. Mellon was generally allied to the Morgan Interests. Furthermore,
When Charles Evans Hughes returned to private law practice in the spring of 1925, Coolidge offered
his crucial State Department post to long-time Wall Street attorney and former Secretary of State
and of War Elihu Root, who might be called the veteran head of the quote, Morgan Barr.
At one critical time in Morgan's affairs, Root had served as Morgan's personal attorney.
After Root refused the State Department post, Coolidge was forced to settle for a lesser Morgan
Undersecretary to Kellogg was Joseph C. Grew, who had family connections with the Morgans.
J.P. Morgan Jr. had married a Grew, while, in 1927, two highly-placed Morgan men were
asked to take over relations with troubled Mexico and Nicaragua.
The year 1924 indeed saw the House of Morgan at the pinnacle of political power in the
United States.
And Calvin Coolidge, friend and protege of Morgan partner Dwight Morrow, was deeply admired
by JP, quote, Jack Morgan Jr.
Jack Morgan saw the president, perhaps uniquely, as a rare blend of deep thinker and moralist.
Morgan wrote a friend, quote, I have never seen any president who gives me just the feeling
of confidence in the country and its institutions, and the working out of our problems that Mr.
Coolidge does, end quote.
On the other hand, the House of Morgan faced the happy dilemma in the 1924 presidential
election that the Democratic candidate was none other than John W. Davis, senior partner
of the Wall Street firm of Davis, Polk and Wardwell, and chief attorney for J.P. Morgan
& Company.
Davis, a protege of the legendary Morgan partner Henry Davison, was also a personal friend
and a backgammon and cribbage partner of Jack Morgan's.
It was an embarrassment of riches.
Whoever won the 1924 election, the Morgans could not lose, although they decided to opt
for Coolidge.
However, 1928 saw inevitable changes in Morgan domination of monetary policy.
Benjamin Strong, sickly all year, died in October and was replaced by George L. Harrison,
his handpicked successor.
While Harrison was a devoted quote, Morgan loyalist, he did not quite carry the clout
of Benjamin Strong.
The Coolidge administration, too, was coming to an end.
The Morgans, again facing an embarrassment of riches, were torn three ways.
Their prime goal was to induce their beloved president to break precedent and run for a
third term.
Not being able to persuade Coolidge, the Morgans next turned to Vice President Charles G. Dawes,
who had been connected with various Morgan railroads in Chicago.
When Dawes dropped out of the race, the Morgans turned at last to Herbert Clark Hoover, who
had been a powerful Secretary of Commerce during the two Republican administrations of the 1920s.
While Hoover had not been as intimately connected with the Morgans as had Calvin Coolidge, he
had long been close to the Morgan interests.
Particularly influential over Hoover during his administration were two unofficial but
of Powerful Advisors, both Morgan partners, Thomas W. Lamont and Dwight Morrow, whom Hoover
consulted regularly three times a week.
Herbert Hoover's cabinet was also loaded with Morgan people.
As Secretary of State, Hoover chose the longtime Morgan lawyer and disciple and partner of
Elihu Root, Henry L. Stimson.
Andrew Mellon continued as Treasury Secretary and his undersecretary, who was to replace
In 1931, and was close to Hoover, was Ogden L. Mills, a former congressman and New York corporate lawyer whose father, Ogden L. Mills Sr., had been a leader of such Morgan railroads as New York Central.
Hoover's secretary of the Navy was Charles Francis Adams III from the famous Boston Brahmin family, long associated with the Morgans.
This particular Adams' daughter had been fortunate enough to marry Jack Morgan.
Benjamin Strong's monetary policy throughout his reign was essentially a Morgan policy.
The Morgans, through their subsidiary Morgan-Grenfell in London, had long been intimately associated
with the British government and with the Bank of England.
Before World War I, the House of Morgan had been named a fiscal agent of the British Treasury
and of the Bank of England.
After the war began, the Morgans became the sole purchaser of all goods and supplies for
The Morgan's played a substantial role in bringing the United States into the war on
Britain's side and, as head of the Fed, Benjamin Strong obligingly doubled the money
supply to finance America's role in the war effort.
After the end of the war, Strong's monetary policy was deliberately guided by the prime
The time objective of helping Great Britain establish and impose upon Europe a new and
disastrous gold exchange standard.
The idea was to restore, quote, England, which really meant the Morgan's English associates
and allies, to her old position of financial dominance by helping her establish a phony
gold standard.
Ostensibly, this was a return to the pre-war, quote, classical gold standard, but the return
in the spring of 1925, was at the pre-war par, a rate that hopelessly overvalued the
pound sterling, which Britain had inflated and appreciated during the fiat money era
after 1914.
Britain insisted on returning to gold at an overvalued par, a policy guaranteed to hobble
British exports, and yet was determined to indulge in continued cheap money and inflation
instead of contracting its money supply to make the pre-war par viable.
To help Britain get away with this peculiar and contradictory policy, the United States
helped to pretend that the post-1925 standard in Europe, this gold bullion pound standard,
was really a genuine gold coin standard.
The United States inflated its money and credit in order to prevent inflationary Britain from
losing gold to the United States, a loss which would endanger the new, Jerry-built, quote,
gold standard structure.
The result, however, was eventual collapse of money and credit in the US and abroad and
a worldwide depression.
Benjamin Strong was the Morgan's architect of a disastrous policy of inflationary boom
that led, inevitably, to bust.