The Alchemists: Three Central Bankers and a World on Fire by Neil Irwin Read Free Book Online Page A

powerful banker J. P. Morgan and some of his friends, a refuge on the Atlantic where they could get away from the cold New York winter. Their host—the man in the silk top hat—was Nelson Aldrich, one of the most powerful senators of the day, a lawmaker who lorded over financial matters in the burgeoning nation.
    For nine days, working all day and into the night, the six men debated how to reform the banking and monetary systems of the United States, trying to find a way to make this nation just finding its footing on the global stage less subject to the kinds of financial collapses that had seemingly been conquered in Western Europe. Secrecy was paramount. “Discovery,” wrote one attendee later, “simply must not happen, or else all our time and effort would have been wasted. If it were to be exposed publicly that our particular group had got together and written a banking bill, that bill would have no chance whatever of passage by Congress.”
    For decades afterward, the most powerful men in American finance referred to each other as part of the First Name Club. Paul, Harry, Frank, and the others were part of a small group that, in those nine days, invented the Federal Reserve System. Their task was more than administrative. After all, some of the same motivations that had driven the American Revolution—distrust of central authority, of big money, of out-of-touch elites—had ensured that the United States wouldn’t have a successful central bank for the first 130 years of its history.
    The men at Jekyll Island weren’t just trying to solve an economic problem—they were trying to solve a political problem as old as their republic.
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    T he U.S. financial system needed remaking. The United States had a long but less than illustrious history with central banking. When the republic was formed, the states were burdened with debts they had racked up to finance the revolution; fighting off British control hadn’t come cheap. Alexander Hamilton, the first treasury secretary, believed a national bank would stabilize the government’s shaky credit and support a stronger economy—and was an absolute necessity to exercise the new republic’s constitutional powers. The century-old Bank of England had shown the usefulness of a central authority to guide national finances. It could issue debt on behalf of the government and thus ensure that the nation could always fund itself. It could issue paper money so a single currency could be used wherever the national flag flew. And it could guide the use of the nation’s savings, making sure they funded investment instead of sitting around as gold in a vault, waiting for a rainy day.
    But Hamilton’s proposal faced opposition, particularly in the agricultural South, where lawmakers believed a central bank would primarily benefit the mercantile North, with its large commercial centers of Boston, New York, and Philadelphia. “ What was it drove our forefathers to this country ?” asked James “Left Eye” Jackson, a fiery little congressman from Georgia with a proclivity for getting into duels. “Was it not the ecclesiastical corporations and perpetual monopolies of England and Scotland? Shall we suffer the same evils to exist in this country? . . . What is the general welfare? Is it the welfare of Philadelphia, New York and Boston?” Some founding fathers, including Thomas Jefferson and James Madison, believed that the bank was unconstitutional.
    Hamilton won the battle after persuading President George Washington that although the Constitution didn’t explicitly permit the creation of a national bank by the federal government, it also didn’t explicitly prohibit it. Washington signed Hamilton’s bank bill into law in February 1791. By the end of the year, the Bank of the United States was open for business in Philadelphia. By 1805, it had an additional seven branches along the East Coast and in New Orleans. But by the time the bank’s charter