Nelson W. Aldrich was a U.S. senator who chaired the National Monetary Commission that spent years collecting material about monetary systems. He met with others at Jekyll Island to draft a plan that the commission approved and released in a report in January 1912. This was the Aldrich Plan. It called for a National Reserve Association, which was a banking cartel (called a trust in the cartoon).
Aldrich had a daughter, Abby Greene Aldrich, who had married John D. Rockefeller, Jr. in 1901, and Aldrich was known as a Rockefeller man in the Senate. Aldrich also had a son Winthrop who chaired the Chase National Bank (1930-1953) and his son was Nelson Aldrich Rockefeller, the governor of New York (1959-1973) and vice-president (1974-1977) under Gerald Ford.
Control of Congress changed, Aldrich went out of office, and this plan died. But in mid-1913, a new plan was floated that took some elements of the Aldrich plan. In August, the Glass bill was introduced and that became the Federal Reserve Act when signed in December, 1913 by Wilson.
It’s extremely interesting to compare the Aldrich plan to the Federal Reserve Act because there are very marked differences, but that’s the work of an article or even a short book. Aldrich even published a long article criticizing the Federal Reserve Act on important counts.
The Aldrich plan is highly objectionable in its own right. It baldly and boldly organizes every bank and trust company in the country into a private cartel called the National Reserve Association. It would surely be unconstitutional. The nation’s currency would have become the currency of this cartel, controlled by the cartel, and disconnected from government, although the bill called for the government to use the NRA as its sole banker. The plan had quite a few measures to hold back inflation of the currency, but had a brief section on open market operations that seems to open the door but I haven’t fully deciphered the legal language yet. This plan made membership voluntary, but the stick that induced national banks to join was that their currency would be held constant and phased out.
The Federal Reserve Act, among other things, made the cartel into a private-public organization, made the currency an obligation of the government, loosened up all the measures to restrict currency growth, and made clear the open market power. This act required national banks to join.
Bringing the government into the Federal Reserve was a palliative measure that appeased the critics of trusts, who were the populist-minded people. Somewhere I have a quote of William Jennings Bryan praising the Federal Reserve as a victory of the people. In those days, it seems that populists and progressives viewed government as standing for the people, as opposed to the business trusts.
But clearly both the Aldrich plan and the Federal Reserve were opposed to the unnamed alternative, which is a free market in money, and that’s the constitutional alternative as well.
The problem with the politics of money at that time was that the country had abandoned constitutional money for so long that all the alternatives being considered were both unconstitutional and anti-free market. One result is confusion in the debates, because the free market alternative is either buried or else mixed in piecewise with other alternatives. A clear choice is obscured.
This shows up in Aldrich’s criticisms of the Federal Reserve Act. He makes sound criticisms but his plan is just as bad for somewhat the same and somewhat different reasons.
Here’s my take on the constitutional system:
The constitutional monetary system of the government is a hard money or metallic money system as opposed to a system of government-issued paper. It is a free market system in which the government does not control the money supply, but opens the mint to private coinage. It does not preclude competing money systems created by the free market.
In this system, the federal government has several specific roles. One is to mint coins of a known weight of metal. Another is to regulate the value of other coins, including foreign coins, so as to be of proportionate worth based on their metal content as compared to the standard constitutional dollar, which is a silver standard coin as the money-unit or unit of account. The system envisages gold and silver coins as media of exchange and such coins, properly regulated, being the sole legal tender.
The constitution outlaws the emission of bills of credit (paper money) by both state governments and the federal government. Only gold and silver coin may be made legal tender. Congress may not levy forced loans.
11:40 am on August 29, 2012
