The Jekyll Island duck hunt that created the Federal Reserve
In October of 1907 several banking firms, starting with the Knickerbocker Trust Company of New York, collapsed as depositors withdrew funds for fear of unwise investments and misuse of money. Lines of people waited in front of the Knickerbocker to close their accounts. Days later, the Trust Company of America had droves of depositors removing their money. Then, shortly thereafter, a run took place at the Lincoln Trust Company. Across the country apprehension that the panic would continue to spread occurred. In the fall of 1907 the United States was in a recession, it’s banking system lacked a lender of last resort mechanism, and an intricate network of directorships, loans, and collateral bonded the fate of many financial institutions together.
Several banking leaders including Jekyll Island Club members George F. Baker, president of the First National Bank, and James Stillman, president of National City Bank, met with financier J. Pierpont Morgan and began examining the assets of the troubled institutions. A decision was made to offer loans to any of the banks that were solvent. The secretary of the treasury George B. Cortelyou was eager to divert the situation and offered the New York bankers use of government funds to help prevent an economic disaster. President Theodore Roosevelt, while the panic of 1907 transpired, was on a hunting trip in Louisiana.
Ron Chernow in his book The Death of the Banker offers this account of the 1907 Panic, “In the following days, acting like a one-man Federal Reserve system, [J. Pierpont] Morgan decided which firms would fail and which survive. Through a non stop flurry of meetings, he organized rescues of banks and trust companies, averted a shutdown of the New York Stock Exchange, and engineered a financial bailout of New York City.” In the end, the panic was blocked and several young bankers including Henry P. Davison and Benjamin Strong Jr. were recognized for their work organizing personnel and determining the liquidity of the banks involved in the crises. In 1908 J. Pierpont Morgan asked Henry P. Davison to become a partner in his firm J. P. Morgan & Co. and in 1914 Benjamin Strong Jr. was selected to be the first president of the Federal Reserve Bank of New York.
Soon after the 1907 panic, Congress formed the National Monetary Commission to review banking policies in the United States. The committee, chaired by Senator Nelson W. Aldrich of Rhode Island, toured Europe and collected data on the various banking methods being incorporated. Using this information as a base, in November of 1910 Senator Aldrich invited several bankers and economic scholars to attend a conference on Jekyll Island. While meeting under the ruse of a duck-shooting excursion, the financial experts were in reality hunting for a way to restructure America’s banking system and eliminate the possibility of future economic panics.
The 1910 “duck hunt” on Jekyll Island included Senator Nelson Aldrich, his personal secretary Arthur Shelton, former Harvard University professor of economics Dr. A. Piatt Andrew, J.P. Morgan & Co. partner Henry P. Davison, National City Bank president Frank A. Vanderlip and Kuhn, Loeb, and Co. partner Paul M. Warburg. From the start the group proceeded covertly. They began by shunning the use of their last names and met quietly at Aldrich’s private railway car in New Jersey. In 1916, B. C. Forbes discussed the Jekyll conference in his book Men Who Are Making America and illuminates, “To this day these financiers are Frank and Harry and Paul [and Piatt] to one another and the late Senator remained ‘Nelson’ to them until his death. Later [, following the Jekyll conference,] Benjamin Strong, Jr., was called into frequent consultation and he joined the ‘First-Name Club’ as ‘Ben.'” This book as well as a magazine article by Forbes is the only public mention to the conference until around 1930, when Paul Warburg’s book The Federal Reserve System: Its Origin and Growth and Nathaniel Wright Stephenson’s book Nelson W. Aldrich: A Leader in American Politics were published.
Nathaniel Stephenson, in the Notes section of his biography on Senator Aldrich, suggests that B.C. Forbes learned of the Jekyll conference from an incident taking place at the Brunswick train depot. Stephenson writes, “In the station at Brunswick, Ga., where they ostentatiously talked of sport, the station master gave them a start. ‘Gentleman,’ said he, ‘this is all very pretty, but I must tell you we know who you are and the reporters are waiting outside.’ But Mr. Davison was not flustered. ‘Come out, old man,’ said he, ‘I will tell you a story.’ They went out together. When Mr. Davison returned he was smiling. ‘That’s all right,’ said he, ‘they won’t give us away.’ The rest is silence. The reporters disappeared and the secret of the strange journey was not divulged. No one asked him how he managed it and he did not volunteer the information.” From the Brunswick train station the men boarded a boat and traveled on to Jekyll Island.
The Jekyll Island conference offered a secluded location to discuss banking ideas and enabled the development of a plan that eventually became the Federal Reserve Banking System. The Federal Reserve System is the name given to the twelve central banks regulating America’s banking industry and it insures that depositors will not lose their money in the event of funds mismanagement from an accredited bank. Paul Warburg in his book The Federal Reserve System: Its Origin and Growth explains the reason for secrecy behind the meeting. He states, “It is well to remember that the period during which these discussions took place was the time of the struggle of the financial Titans- the period of big combinations [of businesses], with bitter fights for control. All over the country there was a deep feeling of fear and suspicion with regard to Wall Street’s power and ambitions.”
Obtaining permission from J. Pierpont Morgan to use the facilities of the Jekyll Island Club, the conference attendees most likely resided in the clubhouse for about ten days. The meeting required long days and late nights of contemplation and reflection. European banking practices were assessed and numerous conversations held regarding the best way to craft a non-partisan banking reform bill. Paul Warburg in the book Henry P. Davison: The Record of a Useful Life recalls, “After we had completed the sketch of the bill, and before setting down to its definitive formulation, it was decided that we had earned ‘a day off’ which was to be devoted to duck shooting.” The Jekyll Island Club was originally formed in 1886 as a hunting preserve and in the 1910s was well stocked with animals such as pheasants and wild hogs. Several ponds on the island attracted numerous game birds and wild ducks.
William Barton McCash and June Hall McCash in the book The Jekyll Island Club: Southern Haven for America’s Millionaires offers this narrative of the Jekyll conference. They mention, “How long the surreptitious meeting lasted is uncertain, although the group spent Thanksgiving on the island, where they dined on ‘wild turkey with oyster stuffing.’ They worked throughout the day and night, taking only sporadic time out to explore Jekyl and enjoy its delights. Aldrich and Davison were both so taken with…[Jekyll Island]… that they joined the club in 1912.”
For years members of the Jekyll Island Club would recount the story of the secret meeting and by the 1930s the narrative was considered a club tradition. The conference’s solution to America’s banking problems called for the creation of a central bank. Although Congress did not pass the reform bill submitted by Senator Aldrich, it did approve a similar proposal in 1913 called the Federal Reserve Act. The Federal Reserve System of today mirrors in essence the plan developed on Jekyll Island in 1910.
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