election of 1896 was a great national referendum on the gold standard.
The Democratic Party had been captured, at its 1896 convention,
by the Populist, ultra-inflationist, anti-gold forces, headed
by William Jennings Bryan. The older Democrats, who had been fiercely
devoted to hard money and the gold standard, either stayed home
on election day or voted, for the first time in their lives, for
the hated Republicans. The Republicans had long been the party
of prohibition and of greenback inflation and opposition to gold.
But since the early 1890s, the Rockefeller forces, dominant in
their home state of Ohio and nationally in the Republican Party,
had decided to quietly ditch prohibition as a political embarrassment
and as a grave deterrent to obtaining votes from the increasingly
powerful bloc of German-American voters.
In the summer
of 1896, anticipating the defeat of the gold forces at the Democratic
convention, the Morgans, previously dominant in the Democratic Party,
approached the McKinley–Mark Hanna–Rockefeller forces through their
rising young satrap, Congressman Henry Cabot Lodge of Massachusetts.
Lodge offered the Rockefeller forces a deal: The Morgans would support
McKinley for president and neither sit home nor back a third, Gold
Democrat party, provided that McKinley pledged himself to a gold
standard. The deal was struck, and many previously hard-money Democrats
shifted to the Republicans. The nature of the American political
party system was now drastically changed: previously a tightly fought
struggle between hard-money, free-trade, laissez-faire Democrats
on the one hand, and protectionist, inflationist, and statist Republicans
on the other, with the Democrats slowly but surely gaining ascendancy
by the early 1890s, was now a party system that would be dominated
by the Republicans until the depression election of 1932.
were strongly opposed to Bryanism, which was not only Populist and
inflationist, but also anti–Wall Street bank; the Bryanites, much
like Populists of the present day, preferred congressional, greenback
inflationism to the more subtle, and more privileged, big-bank-controlled
variety. The Morgans, in contrast, favored a gold standard. But,
once gold was secured by the McKinley victory of 1896, they wanted
to press on to use the gold standard as a hard-money camouflage
behind which they could change the system into one less nakedly
inflationist than populism but far more effectively controlled by
the big-banker elites. In the long run, a controlled Morgan-Rockefeller
gold standard was far more pernicious to the cause of genuine hard
money than a candid free-silver or greenback Bryanism.
As soon as
McKinley was safely elected, the Morgan-Rockefeller forces began
to organize a “reform” movement to cure the “inelasticity” of money
in the existing gold standard and to move slowly toward the establishment
of a central bank. To do so, they decided to use the techniques
they had successfully employed in establishing a pro-gold standard
movement during 1895 and 1896. The crucial point was to avoid the
public suspicion of Wall Street and banker control by acquiring
the patina of a broad-based grassroots movement. To do so, the movement
was deliberately focused in the Middle West, the heartland of America,
and organizations developed that included not only bankers, but
also businessmen, economists, and other academics, who supplied
respectability, persuasiveness, and technical expertise to the reform
the reform drive began just after the 1896 elections in authentic
Midwest country. Hugh Henry Hanna, president of the Atlas Engine
Works of Indianapolis, who had learned organizing tactics during
the year with the progold standard Union for Sound Money, sent a
memorandum, in November, to the Indianapolis Board of Trade, urging
a grassroots Midwestern state like Indiana to take the lead in currency
the reformers moved fast. Answering the call of the Indianapolis
Board of Trade, delegates from boards of trade from 12 Midwestern
cities met in Indianapolis on December 1, 1896. The conference called
for a large monetary convention of businessmen, which accordingly
met in Indianapolis on January 12, 1897. Representatives from 26
states and the District of Columbia were present. The monetary-reform
movement was now officially under way. The influential Yale Review
commended the convention for averting the danger of arousing popular
hostility to bankers. It reported that “the conference was a gathering
of businessmen in general rather than bankers in particular.”
may have been businessmen, but they were certainly not very grassrootsy.
Presiding at the Indianapolis Monetary Convention of 1897 was C.
Stuart Patterson, dean of the University of Pennsylvania Law School
and a member of the finance committee of the powerful, Morgan-oriented
Pennsylvania Railroad. The day after the convention opened, Hugh
Hanna was named chairman of an executive committee which he would
appoint. The committee was empowered to act for the convention after
it adjourned. The executive committee consisted of the following
influential corporate and financial leaders:
John J. Mitchell
of Chicago, president of the Illinois Trust and Savings Bank, and
a director of the Chicago and Alton Railroad; the Pittsburgh, Fort
Wayne and Chicago Railroad; and the Pullman Company. Mitchell was
named treasurer of the executive committee.
editor and publisher of the Chicago Times-Herald and the
Chicago Ocean Herald, trustee of the Chicago Art Institute,
and a friend and adviser of Rockefeller’s main man in politics,
President William McKinley.
Harrison, provost of the University of Pennsylvania, who had made
a fortune as a sugar refiner in partnership with the powerful Havemeyer
(“Sugar Trust”) interests.
Orr, New York City banker in the Morgan ambit, who was a director
of the Morgan-run Erie and Chicago, Rock Island, and Pacific Railroads;
of the National Bank of Commerce; and of the influential publishing
house, Harper Brothers. Orr was also a partner in the country’s
largest grain-merchandising firm and a director of several life
Edwin O. Stanard,
St. Louis grain merchant, former governor of Missouri, and former
vice president of the National Board of Trade and Transportation.
owner of the Nashville Banner, commissioner of the cartelist
Southern Railway and Steamship Association, and former vice president
of the Louisville, New Albany, and Chicago Railroad.
influential attorney from Louisville and a future governor of Kentucky.
But the two
most interesting and powerful executive committee members of the
Indianapolis Monetary Convention were Henry C. Payne and George
Foster Peabody. Henry Payne was a Republican Party leader from Milwaukee
and president of the Morgan-dominated Wisconsin Telephone Company,
long associated with the railroad-oriented Spooner-Sawyer Republican
machine in Wisconsin politics. Payne was also heavily involved in
Milwaukee utility and banking interests, in particular as a longtime
director of the North American Company, a large public-utility-holding
company headed by New York City financier Charles W. Wetmore.
So close was
North American to the Morgan interests that its board included two
top Morgan financiers. One was Edmund C. Converse, president of
Morgan-run Liberty National Bank of New York City, and soon-to-be
founding president of Morgan’s Bankers Trust Company. The other
was Robert Bacon, a partner in J.P. Morgan and Company, and one
of Theodore Roosevelt’s closest friends, whom Roosevelt would make
assistant secretary of state. Furthermore, when Theodore Roosevelt
became president as the result of the assassination of William McKinley,
he replaced Rockefeller’s top political operative, Mark Hanna of
Ohio, with Henry C. Payne as postmaster general of the United States.
Payne, a leading Morgan lieutenant, was reportedly appointed to
what was then the major political post in the Cabinet, specifically
to break Hanna’s hold over the national Republican Party. It seems
clear that replacing Hanna with Payne was part of the savage assault
that Theodore Roosevelt would soon launch against Standard Oil as
part of the open warfare about to break out between the Rockefeller-Harriman–Kuhn,
Loeb camp and the Morgan camp.
Even more powerful
in the Morgan ambit was the secretary of the Indianapolis Monetary
Convention’s executive committee, George Foster Peabody. The entire
Peabody family of Boston Brahmins had long been personally and financially
closely associated with the Morgans. A member of the Peabody clan
had even served as best man at J.P. Morgan’s wedding in 1865. George
Peabody had long ago established an international banking firm of
which J.P. Morgan’s father, Junius, had been one of the senior partners.
George Foster Peabody was an eminent New York investment banker
with extensive holdings in Mexico, who was to help reorganize General
Electric for the Morgans, and was later offered the job of secretary
of the Treasury during the Wilson administration. He would function
throughout that administration as a “statesman without portfolio.”
Let the masses
be hoodwinked into regarding the Indianapolis Monetary Convention
as a spontaneous grassroots outpouring of small Midwestern businessmen.
To the cognoscenti, any organization featuring Henry Payne,
Alexander Orr, and especially George Foster Peabody meant but one
thing: J.P. Morgan.
Monetary Convention quickly resolved to urge President McKinley
to (1) continue the gold standard, and (2) create a new system of
“elastic” bank credit. To that end, the convention urged the president
to appoint a new monetary commission to prepare legislation for
a new revised monetary system. McKinley was very much in favor of
the proposal, signaling Rockefeller agreement, and on July 24 he
sent a message to Congress urging the creation of a special monetary
commission. The bill for a national monetary commission passed the
House of Representatives but died in the Senate.
but intrepid, the executive committee, failing a presidentially
appointed commission, decided in August 1897 to go ahead and select
its own. The leading role in appointing this commission was played
by George Foster Peabody, who served as liaison between the Indianapolis
members and the New York financial community. To select the commission
members, Peabody arranged for the executive committee to meet in
the Saratoga Springs summer home of his investment-banking partner,
Spencer Trask. By September, the executive committee had selected
the members of the Indianapolis Monetary Commission.
of the new Indianapolis Monetary Commission were as follows:
former Senator George F. Edmunds, Republican of Vermont, attorney,
and former director of several railroads.
C. Stuart Patterson,
dean of University of Pennsylvania Law School, and a top official
of the Morgan-controlled Pennsylvania Railroad.
Fairchild, a leading New York banker, president of the New York
Security and Trust Company, former partner in the Boston Brahmin
investment-banking firm of Lee, Higginson and Company, and executive
and director of two major railroads. Fairchild, a leader in New
York state politics, had been secretary of the Treasury in the first
Cleveland administration. In addition, Fairchild’s father, Sidney
T. Fairchild, had been a leading attorney for the Morgan controlled
New York Central Railroad.
Fish, scion of two longtime aristocratic New York families, was
a partner of the Morgan-dominated New York investment bank of Morton,
Bliss and Company, and then president of Illinois Central Railroad
and a trustee of Mutual Life. Fish’s father had been a senator,
governor, and secretary of state.
Louis A. Garnett
was a leading San Francisco businessman.
Thomas G. Bush
of Alabama was a director of the Mobile and Birmingham Railroad.
was a leading cotton manufacturer from North Carolina.
Dean was a merchant from St. Paul, Minnesota, and a director of
the St. Paul–based transcontinental Great Northern Railroad,
owned by James J. Hill, ally with Morgan in the titanic struggle
over the Northern Pacific Railroad with Harriman, Rockefeller, and
of St. Louis was an attorney for the Missouri Pacific Railroad.
Robert S. Taylor
was an Indiana patent attorney for the Morgan-controlled General
most important working member of the commission was James Laurence
Laughlin, head professor of political economy at the new Rockefeller-founded
University of Chicago and editor of its prestigious Journal of
Political Economy. It was Laughlin who supervised the operations
of the commission’s staff and the writing of the reports. Indeed,
the two staff assistants to the commission who wrote reports were
both students of Laughlin’s at Chicago: former student L. Carroll
Root, and his current graduate student Henry Parker Willis.
sum of $50,000 was raised throughout the nation’s banking and corporate
community to finance the work of the Indianapolis Monetary Commission.
New York City’s large quota was raised by Morgan bankers Peabody
and Orr, and heavy contributions to fill the quota came promptly
from mining magnate William E. Dodge; cotton and coffee trader Henry
Hentz, a director of the Mechanics National Bank; and J.P. Morgan
With the money
in hand, the executive committee rented office space in Washington,
DC, in mid-September, and set the staff to sending out and collating
the replies to a detailed monetary questionnaire, sent to several
hundred selected experts. The monetary commission sat from late
September into December 1897, sifting through the replies to the
questionnaire collated by Root and Willis. The purpose of the questionnaire
was to mobilize a broad base of support for the commission’s recommendations,
which they could claim represented hundreds of expert views. Second,
the questionnaire served as an important public-relations device,
making the commission and its work highly visible to the public,
to the business community throughout the country, and to members
of Congress. Furthermore, through this device, the commission could
be seen as speaking for the business community throughout the country.
To this end,
the original idea was to publish the Indianapolis Monetary Commission’s
preliminary report, adopted in mid-December, as well as the questionnaire
replies in a companion volume. Plans for the questionnaire volume
fell through, although it was later published as part of a series
of publications on political economy and public law by the University
the slight setback, the executive committee developed new methods
of molding public opinion using the questionnaire replies as an
organizing tool. In November, Hugh Hanna hired as his Washington
assistant financial journalist Charles A. Conant, whose task was
to propagandize and organize public opinion for the recommendations
of the commission. The campaign to beat the drums for the forthcoming
commission report was launched when Conant published an article
in the December 1 issue of Sound Currency magazine, taking
an advanced line on the report, and bolstering the conclusions not
only with his own knowledge of monetary and banking history, but
also with frequent statements from the as-yet-unpublished replies
to the staff questionnaire.
Over the next
several months, Conant worked closely with Jules Guthridge, the
general secretary of the commission; they first induced newspapers
throughout the country to print abstracts of the questionnaire replies.
As Guthridge wrote some commission members, he thereby stimulated
“public curiosity” about the forthcoming report, and he boasted
that by “careful manipulation” he was able to get the preliminary
report “printed in whole or in part – principally in part –
in nearly 7,500 newspapers, large and small.” In the meanwhile,
Guthridge and Conant orchestrated letters of support from prominent
men across the country, when the preliminary report was published
on January 3, 1898. As soon as the report was published, Guthridge
and Conant made these letters available to the daily newspapers.
Quickly, the two built up a distribution system to spread the gospel
of the report, organizing nearly 100,000 correspondents “dedicated
to the enactment of the commission’s plan for banking and currency
The prime and
immediate emphasis of the preliminary report of the Indianapolis
Monetary Commission was to complete the promise of the McKinley
victory by codifying and enacting what was already in place de facto:
a single gold standard, with silver reduced to the status of subsidiary
token currency. Completing the victory over Bryanism and free silver,
however, was just a mopping-up operation; more important in the
long run was the call raised by the report for banking reform to
allow greater elasticity. Bank credit could then be increased in
recessions and whenever seasonal pressure for redemption by agricultural
country banks forced the large central reserve banks to contract
their loans. The actual measures called for by the commission were
of marginal importance. (More important was that the question of
banking reform had been raised at all.)
having been aroused by the preliminary report, the executive committee
decided to organize a second and final meeting of the Indianapolis
Monetary Convention, which duly met at Indianapolis on January 25,
1898. The second convention was a far grander affair than the first,
bringing together 496 delegates from 31 states. Furthermore, the
gathering was a cross-section of America’s top corporate leaders.
While the state of Indiana naturally had the largest delegation,
of 85 representatives of boards of trade and chambers of commerce,
New York sent 74 delegates, including many from the Board of Trade
and Transportation, the Merchants’ Association, and the Chamber
of Commerce in New York City.
leaders attended as Cleveland iron manufacturer Alfred A. Pope,
president of the National Malleable Castings Company; Virgil P.
Cline, legal counsel to Rockefeller’s Standard Oil Company of Ohio;
and C.A. Pillsbury of Minneapolis–St. Paul, organizer of the world’s
largest flour mills. From Chicago came such business notables as
Marshall Field and Albert A. Sprague, a director of the Chicago
Telephone Company, subsidiary of the Morgan-controlled telephone
monopoly, American Telephone and Telegraph Company. Not to be overlooked
was delegate Franklin MacVeagh, a wholesale grocer from Chicago,
and an uncle of a senior partner in the Wall Street law firm of
Bangs, Stetson, Tracy and MacVeagh, counsel to J.P. Morgan and Company.
MacVeagh, who was later to become secretary of the Treasury in the
Taft administration, was wholly in the Morgan ambit. His father-in-law,
Henry F. Eames, was the founder of the Commercial National Bank
of Chicago, and his brother Wayne was soon to become a trustee of
the Morgan-dominated Mutual Life Insurance Company.
of the second convention, as former Secretary of the Treasury Charles
S. Fairchild candidly explained in his address to the gathering,
was to mobilize the nation’s leading businessmen into a mighty and
influential reform movement. As he put it, “If men of business give
serious attention and study to these subjects, they will substantially
agree upon legislation, and thus agreeing, their influence will
be prevailing.” He concluded, “My word to you is, pull all together.”
Presiding officer of the convention, Iowa Governor Leslie M. Shaw,
was, however, a bit disingenuous when he told the gathering, “You
represent today not the banks, for there are few bankers on this
floor. You represent the business industries and the financial interests
of the country.”
plenty of bankers there, too.
Shaw himself, later to be secretary of the Treasury under Theodore
Roosevelt, was a small-town banker in Iowa, and president of the
Bank of Denison who continued as bank president throughout his term
as convention governor. More important in Shaw’s outlook and career
was the fact that he was a longtime close friend and loyal supporter
of the Des Moines Regency, the Iowa Republican machine headed by
the powerful Senator William Boyd Allison. Allison, who was to obtain
the Treasury post for his friend, was in turn tied closely to Charles
E. Perkins, a close Morgan ally, president of the Chicago, Burlington
and Quincy Railroad, and kinsman of the powerful Forbes financial
group of Boston, long tied in with the Morgan interests.
as delegates to the second convention were several eminent economists,
each of whom, however, came not as academic observers but as representatives
of elements of the business community. Professor Jeremiah W. Jenks
of Cornell, a proponent of trust cartelization by government and
soon to become a friend and adviser of Theodore Roosevelt as governor,
came as delegate from the Ithaca Business Men’s Association. Frank
W. Taussig of Harvard University represented the Cambridge Merchants’
Association. Yale’s Arthur Twining Hadley, soon to be the president
of Yale, represented the New Haven Chamber of Commerce, and Frank
M. Taylor of the University of Michigan came as representative of
the Ann Arbor Business Men’s Association. Each of these men held
powerful posts in the organized economics profession, Jenkins, Taussig,
and Taylor serving on the currency committee of the American Economic
Association. Hadley, a leading railroad economist, also served on
the boards of directors of Morgan’s New York, New Haven and Hartford
and Atchison, Topeka and Santa Fe Railroads.
and Taylor were monetary theorists who, while committed to a gold
standard, urged reform that would make the money supply more elastic.
Taussig called for an expansion of national-bank notes, which would
inflate in response to the “needs of business.” As Taussig
put it, the currency would then “grow without trammels as the needs
of the community spontaneously call for increase.” Taylor, too,
as one historian puts it, wanted the gold standard to be modified
by “a conscious control of the movement of money” by government
“in order to maintain the stability of the credit system.” Taylor
justified governmental suspensions of specie payment to “protect
the gold reserve.”
26, the convention delegates duly endorsed the preliminary report
with virtual unanimity, after which Professor J. Laurence Laughlin
was assigned the task of drawing up a more elaborate final report,
which was published and distributed a few months later. Laughlin’s
– and the convention’s – final report not only came out
in favor of a broadened asset base for a greatly increased amount
of national bank notes, but also called explicitly for a central
bank that would enjoy a monopoly of the issue of bank notes.
delegates took the gospel of banking reform to the length and breadth
of the corporate and financial communities. In April 1898, for example,
A. Barton Hepburn, president of the Chase National Bank of New York
– at that time a flagship commercial bank for the Morgan interests
– and a man who would play a large role in the drive to establish
a central bank, invited Indianapolis Monetary Commissioner Robert
S. Taylor to address the New York State Bankers Association on the
currency question, since “bankers, like other people, need instruction
upon this subject.” All the monetary commissioners, especially Taylor,
were active during the first half of 1898 in exhorting groups of
businessmen throughout the nation for monetary reform.
in Washington, the lobbying team of Hanna and Conant was extremely
active. A bill embodying the suggestions of the monetary commission
was introduced by Indiana Congressman Jesse Overstreet in January,
and was reported out by the House Banking and Currency Committee
in May. In the meantime, Conant met almost continuously with the
banking committee members. At each stage of the legislative process,
Hanna sent letters to the convention delegates and to the public,
urging a letter-writing campaign in support of the bill.
In this agitation,
McKinley Secretary of the Treasury Lyman J. Gage worked closely
with Hanna and his staff. Gage sponsored similar bills, and several
bills along the same lines were introduced in the House in 1898
and 1899. Gage, a friend of several of the monetary commissioners,
was one of the top leaders of the Rockefeller interests in the banking
field. His appointment as Treasury secretary had been gained for
him by Ohio’s Mark Hanna, political mastermind and financial backer
of President McKinley, and old friend, high-school classmate, and
business associate of John D. Rockefeller, Sr. Before his appointment
to the cabinet, Gage was president of the powerful First National
Bank of Chicago, one of the major commercial banks in the Rockefeller
his term in office, Gage tried to operate the Treasury as a central
bank, pumping in money during recessions by purchasing government
bonds on the open market, and depositing large funds with pet commercial
banks. In 1900, Gage called vainly for the establishment of regional
his last annual report as secretary of the Treasury in 1901, Lyman
Gage let the cat completely out of the bag, calling outright for
a government central bank. Without such a central bank, he declared
in alarm, “individual banks stand isolated and apart, separated
units, with no tie of mutuality between them.” Unless a central
bank established such ties, Gage warned, the panic of 1893 would
When he left office early the next year, Lyman Gage took up his
post as president of the Rockefeller-controlled US Trust Company
in New York City.
For the memorandum, see James Livingston, Origins of the Federal
Reserve System: Money, Class, and Corporate Capitalism, 1890–1913
(Ithaca, N.Y.: Cornell University Press, 1986), pp. 104–05.
Yale Review 5 (1897): 343–45, quoted in ibid., p.
See Philip H. Burch, Jr., Elites in American History, vol.
2, The Civil War to the New Deal (New York:Holmes and Meier,
1981), p. 189, n. 55.
Ibid., pp. 231, 233. See also Louise Ware, George Foster Peabody>
(Athens: University of Georgia Press, 1951), pp. 161–67.
See Kolko, Triumph, pp. 147–48.
See Livingston, Origins, pp. 106–07.
See Livingston, Origins, pp. 107–08.
Ibid., pp. 109–10.
Ibid., pp. 113–15.
See Rothbard, “Federal Reserve,” pp. 95–96.
On Hadley, Jenks, and especially Conant, see Carl P. Parrini and
Martin J. Sklar, “New Thinking about the Market, 1896–1904:
Some American Economists on Investment and the Theory of Surplus
Capital,” Journal of Economic History 43 (September 1983):
559–78. The authors point out that Conant’s and Hadley’s
major works of 1896 were both published by G.P. Putnam’s Sons
of New York. President of Putnam’s was George Haven Putnam, a
leader in the new banking-reform movement. Ibid., p. 561, n. 2.
Frank W. Taussig, “What Should Congress Do About Money?” Review
of Reviews (August 1893): 151, quoted in Joseph Dorfman, The
Economic Mind in American Civilization (New York: Viking Press,
1949), 3, p. xxxvii. See also ibid., p. 269.
Ibid., pp. 392–93.
The final report, including its recommendations for a central
bank, was hailed by F.M. Taylor, in his “The Final Report of the
Indianapolis Monetary Commission,” Journal of Political Economy
6 (June 1898): 293–322. Taylor also exulted that the convention
had been “one of the most notable movements of our time –
the first thoroughly organized movement of the business classes
in the whole country directed to the bringing about of a radical
change in national legislation.” Ibid., p. 322.
Livingston, Origins, p. 153.
Rothbard, “Federal Reserve,” pp. 94–95.
published as “The Origins of the Federal Reserve System,” Quarterly
Journal of Economics 2, no. 3 (Fall 1999): pp. 3–51, this article
has been republished by the Mises Institute in The
Origins of the Federal Reserve, as chapter 3, “The Beginnings
of the ‘Reform’ Movement: The Indianapolis Monetary Convention”
N. Rothbard (1926–1995) was dean of the Austrian
School, founder of modern libertarianism, and chief academic
officer of the Mises Institute.
He was also editor — with Lew Rockwell — of The
Rothbard-Rockwell Report, and appointed Lew as his
literary executor. See