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Abraham Lincoln and the Federal Reserve System: A Forgotten Connection
There are people who say that Abraham Lincoln opposed central banking. The opposite is true.
Lincoln ran for the legislature in 1832 as a supporter of Henry Clay and what Clay called the American system: high tariffs, federal money to build public works projects, and a central bank.
Clay was the main supporter in Congress of the Second Bank of the United States. The Bank had been chartered by the federal government in 1816. The charter was good for twenty years. It would expire in 1836. Clay tried to get the Bank re-chartered early, in 1832. Congress sided with Clay, but President Jackson vetoed the bill. Clay did not have enough votes to override the veto.
Clay vowed to defeat Jackson that fall. He got the nomination of the National Republicans, who had lost in 1828 with John Quincey Adams on the ticket. Jackson had won in 1828. Clay made the Bank the major political issue of the 1932 election. Jackson was overwhelmingly re-elected, defeating Clay.
Lincoln also lost.
Clay in 1833 helped form the Whig Party. Lincoln was elected to Congress as a Whig in 1846 for one term.
There were two traditions in the United States in 1832: the Jeffersonian and the Hamiltonian. In the election of 1832, the two traditions clashed self-consciously. Until Lincoln's inauguration in 1861, the Jeffersonian tradition was dominant in the United States. After that, only Grover Cleveland was self-consciously Jeffersonian.
This serves as background to the little-known story of the man whose ideas led to the Federal Reserve System, an immigrant named Paul Warburg. He was from a distinguished banking family in Germany. He married the daughter of the founder of Kuhn-Loeb, and he became a major figure in that investment bank, beginning in 1902, the year he arrived in the United States.
He favored the creation of a central bank along the lines of national European central banks. He began promoting this in 1902. He publicly promoted it in early 1907, just before the banking panic. He wrote "Defects and Needs of Our Banking System," New York Times, January 6, 1907. The timing made him a key figure in the six-year debate debate over the creation of a central bank.
His great opportunity came in 1910. It was made available to him by the Republican Senator from Rhode Island, Nelson Aldrich, widely known as John D. Rockefeller's Senator. (His grandson was named after him: Nelson Aldrich Rockefeller.) Following the Panic of 1907, Aldrich had been named the chairman of the Congressionally established National Monetary Commission. He led a team to Europe to study European national banks. That made him a convert. He used his influence in 1910 in the National Monetary Commission to promote the idea. In 1910, he invited Warburg to attend a secret meeting on Jekyll Island in Georgia in November, where half a dozen men hammered out the basics of the Federal Reserve Act. They represented both Rockefeller and J. P. Morgan. Warburg was the brains of the group.
In January 1911, Warburg had an article published in the Proceedings of the Academy of Political Science in the City of New York, Vol. 1, No. 2. The title: "A United Reserve Bank of the United States." It was part of a symposium: "The Reform of the Currency." In the final three paragraphs, pages 340-42, Warburg wrote this.
There is no good reason why the existing banks should oppose it. Wherever a central bank has been established the vested interests at first tried to prevent its creation. They saw only the danger of a change in business conditions which, though bad in general, had been profitable to them. They recognized only later that by the change they were enabled to transact their business in safety and that therefore they could do a much larger business. There is not one of these countries, in which opposition ran high against a central bank, where today a move to do away with the central-bank system would meet with the slightest support. Neither the socialist nor the capitalist would dispense with it; it has become one of the fundamental parts of the economic life of modern nations, like the telegraph or the railroad.
Would it be repugnant to the so-called American spirit? Is it an un-American institution? Our opinion is that it is a slur and a slander upon the American people to say that they are morally or politically so utterly unfit that they cannot afford to adopt a system for which Russia, Japan, the Balkan States, and some of our South American sister republics, have proved adequately prepared and which even China is seriously thinking of establishing in the near future. We believe that the people will wake up to the humiliation of present conditions and that they will demand in no uncertain voice a thorough modernization of our system. We are inclined to think that ignorance about what a central bank would really mean has been more responsible for the popular antagonism to such a system than has the ghost of Andrew Jackson. Good American citizens, who lived two generations nearer than we do to the dissolution of the last Bank of the United States, and were more familiar with its history than are the people of today, did not consider it an un-American institution. In this respect Abraham Lincoln's first political speech, which he delivered at New Salem in 1832, may be of interest. He said:
"Friends and Fellow-Citizens:
"I am plain Abe Lincoln. I have consented to become a candidate for the legislature. My political principles are like the old woman's dance-short and sweet. I believe in a United States Bank; I believe in a protective tariff; I believe in a system of internal improvements, and I am against human slavery. If on that platform you can give me your suffrages, I shall be much obliged. If not, no harm done, and I remain respectfully yours, ABE LINCOLN."
It is seventy-seven years ago that this simple man from the woods, with his never-failing instinct, laid down this remarkable program, of which only one single part, "a United States Bank", remains to be carried out. Let us hope that it will be the pride of our generation to have achieved this step in the onward march of the United States.
Aldrich's version of the bill did not pass, but the Democrats' version, almost identical, passed in late December, 1913, just before the Christmas break. Wilson signed it into law that same day. The third plank of Lincoln's 1832 platform was finally the law of the land.