Paul Warburg Deserves High Honor for U.S. Currency Reform Through Federal Reserve Idea, Economist S

Opinion of Professor Seligman and Others Disputed by Senator Carter Glass in Articles on History of Act

If Americans were in the habit of conferring titles of distinction on creative thinkers, Paul M. Warburg would have been accorded this honor for his work in the introduction of the Currency Reform in the United States which culminated in the Federal Reserve System.

This statement was made by Professor Edwin R. A. Seligman of Columbia University in a letter to the editor of the “New York Evening Post,” in rebuttal to the opinions expressed by Senator Carter Glass in a series of articles in the “Post” on the history of the Federal Reserve Act. In these articles, Senator Glass took exception to the statements made in the “Intimate Papers of Col. House,” by Professor Seymour to the effect that Col. House was responsible for the Act. Senator Glass, who was the chairman of the Currency Committee, in his articles took exception to this statement of Senator Seymour, claiming the authorship for himself. He also touched on the part of Mr. Warburg in this matter.

Professor Seligman writes in his letter to the editor:

“In the sixteenth article on the Federal Reserve act by the Hon. Carter Glass, published in the ‘Evening Post’ on January 28, he brings me into the discussion in such a manner as to call for a reply.

“The honorable gentleman is in error in ascribing to me the statement that ‘Mr. Warburg wrote the Federal Reserve act.’ I have never made such a statement. What I have asserted and what I continue to assert is that Mr. Warburg is the father of the Federal Reserve system and in that sense the creator of the Federal Reserve act.

“From the early eighties, when the subject was first seriously broached, up to 1907, the entire discussion of currency reform concerned itself with the endeavor to remedy the defects in our banking system by methods designed to secure elasticity in the note issue. Although scholars like Professor Dunbar had called attention to the fact that bank credit operates through the agency of discounts, as well as of notes, this aspect of the problem was soon overlooked and had no repercussion what ever in the political field. It was Mr. Warburg who began, after the crisis of 1907, to call attention to the pivotal point in the situation, that of a general reserve which might convert our chaos of unrelated institutions into a unified system. This idea, which, as he recalled to our minds, was the secret of all the successful European systems, had hitherto entirely escaped attention in this country. Mr. Warburg preached the doctrine in and out of season and finally compelled conviction.

“Senator Aldrich was for many years the head of the committee charged with the duty of framing financial legislation. It was he who created the Aldrich commission and sponsored the Aldrich bill. Shortly before his death I was privileged to attend a private dinner of some seventy-five gentlemen at which he gave a history of the bill. Confessing that, although he had been chairman of the committee for years, he had never really grasped the complicated issues, he pointed to Mr. Warburg and added: ‘There is the man who has taught me the truth, and who has enabled me to see the fallacy underlying all of our preceding legislation on currency reform.

“The fundamental feature of the Federal Reserve act consists, as the title of the law itself indicates, in the reserve provision and the creation of a note issue resting on commercial assets but tied up with this reserve. It is this which distinguishes the present law from the old national bank act. All else is of secondary importance. This basic idea was taken from the Aldrich bill. The changes that were made by the party in power were no doubt politically necessary. But the consensus of expert opinion today is that, from the economic point of view, the Aldrich bill was superior to its successor. However that may be, the fact remains that the changes did not affect the fundamental basis of the law–the creation of a central reserve as a unifying factor in the banking structure. For this one man, and one man only is responsible Paul M. Warburg.

“It is true that the honorable gentleman supervised the drafting of the bill and piloted it through Congress, but does that suffice for a claim to the real authorship?

“We speak of the English law of 1844 as Peel’s Bank act because Peel carried it through Parliament. But every tyro knows that the real author, as Peel himself acknowledged, was Samuel Jones Loyd, soon thereafter raised to the peerage as Lord Overstone. What Overstone was in England, Warburg has been in this country. were we in the habit of conferring titles of distinction on our creative thinkers he would long ago have been accorded this honor. As it is, he is secure of his position in the estimate of all well-informed students of fiscal science,” Professor Seligman concludes.

In direct contradiction to this is the opinion expressed by Senator Glass. Writing in the “Evening Post” of January 28 on the part of Mr. Warburg in the work for the Federal Reserve Act, Senator Glass stated:

“While the Senate conference was deliberating, and even after it had presented a perfected bill to the Senate, various influential bankers, who had taken an exceptional interest in the Reserve Bank problem, came to Washington in hope and expectation of being able to affect the situation as they might desire. Although the bill had long ago passed out of the jurisdiction of the House, some of these bankers insisted on discussing their proposals with me and several of my committee associates.

“Mr. Paul M. Warburg, the accomplished New York banker to whom several references have been made in this chronicle, was notably among these. Mr. Warburg exhibited a sort of religious zeal for the ideas he entertained on the subject of banking and currency reform. Moreover, he presented them with a force of reasoning and an ingenuity of expression that were not exceeded by his earnestness.

“My recollection is confirmed by my letter files when I say he mailed every one of his proposed amendments to the House bill as he sent them to the Senate Committee besides keeping me apprised of his talks on the Senate side. Mr. Warburg succeeded in impressing his views on the Senate Committee and got some of them incorporated in the amended bill. He had a provision in serted authorizing the use of Federal reserve notes in the reserves of member banks; also a provision for universal domestic acceptances; he got the reserve requirements changed so as to increase the loaning capacity of the regional banks, and vainly sought to embody a ‘piping’ scheme, whereby we should have three reserve centers with a regional bank at cach.

“While I had, as I still have, a high regard for Mr. Warburg’s genius, and like him immensely, I frankly disagreed with these things done at his insistence; and the House conferees had them expunged from the bill in conference. Mr. Warburg also suggested, and successfully argued against Sir George Paish, the English economist whom Senators seemed to be consulting, the incorporation of the one-year gold note feature in the bond-refunding provision of the act. This was allowed to remain.

“These conferences and this correspondence with the able international hanker afforded a species of mental calisthenics, which improved our capacity to deal with the problem and from which all of us derived genuine enjoyment. But for Professor Seligman and some others to be repeatedly asserting that Mr. Warburg wrote the Federal Reserve act is not only to infringe the copyright of Professor Seymour and Colonel House, but is to exhibit an amusing ignorance of the thing they themselves assume to talk about.”

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