The Banking Interests Behind the New Deal

In 2014 Nomi Prins wrote this piece in Fortune about the bankers behind the New Deal.  The New Deal was a banking revolution. The social aspects, cherished by the Democratic Party, were window dressing. Franklin Roosevelt had been a Wall Street fund manager, and he gave the American monetary system to Wall Street. That was the main point of the New Deal. 

Prins's story leads to Winthrop Aldrich, uncle of Nelson Aldrich Rockefeller and David Rockefeller.

Aldrich's father, Senator Nelson W. Aldrich, was the architect of the Federal Reserve Bank.

Incidentally, Bush's great grandfather, Samuel P. Bush, had served on the first board of the Cleveland Federal Reserve Bank. Samuel had been the president of Frank Rockefeller, John D. Rockefeller's brother's, company, Buckeye Steel.

FDR's great great grandfather, Isaac Roosevelt, had been Alexander Hamilton's partner in founding the Bank of New York, now part of Mellon. There's documentation, including a court case, that a bank for which Prescott Bush, Bush's grandfather, served on the board had helped fund Hitler.

Franklin Delano Roosevelt's uncle, Frederic A. Delano, was a Hong Kong-based railroad tycoon who served as the first vice chairman of the Federal Reserve Bank in Washington in 1914.

FDR represented the open control of America by elite financial interests that his cousin, Theodore Roosevelt, had put into play. Wilson signed the Federal Reserve Act, but Wilson would not have been elected if TR had not run as a third party candidate. The funder of his party, the Progressive or Bull Moose Party, was George Perkins, a close assistant to JP Morgan and former president of International Harvester.

Frank Vanderlip, who was present at the famous Fed-planning session at Jeckyll Island in 1910, was also a personal friend of Woodrow Wilson because of their work on shaping the modern American university system. Wilson, who had met JP Morgan because Morgan was a donor to Princeton, dropped Vanderlip as a friend and associate at the point at which Wilson entered the 1912 race. Vanderlip talks about that in his letters. No one knows the reason for sure, but it seems obvious.

Thoughts on the Mugwumps

I just sent the following email to a colleague who was talking about the Mugwumps. The Mugwumps were a group of elite Republicans who switched sides and voted for Grover Cleveland in 1884.  The name derives from a bastardization of a Native American word for chief, but the above cartoon suggests a different interpretation.

I don't consider them moderates. They switched party because of strong political belief, specifically in rational government. They were laissez faire Republicans, and many had been abolitionists. There was nothing moderate about them even though they switched sides.

The confusion many people have about today's two extremist parties leads to the mistaken impression that if you don't favor either party you are in between.  The crank TV newscaster Bill O'Reilly makes a similar claim.  He is moderate because he splits the opinions of the two big parties.  

The two parties are close, and they are both extreme in their support for big government. By historical standards, today's America occupies the extreme Whig end of the spectrum, and that's true of both parties. Only an extremist can call two parties that both advocated lending as much as $29 trillion to Wall Street to be moderate.  Today's America is an extremist, authoritarian state. There is no Aristotelian mean here.

This is the email to my colleague:

A classic in the study of the Gilded Age is Edward Wiebe, The Search for Order http://www.amazon.com/Search-Order-1877-1920-Robert-Wiebe/dp/0809001047/ref=sr_1_1?ie=UTF8&qid=1427393497&sr=8-1&keywords=wiebe .

The first book I read on the Mugwumps was Nancy Cohen’s Reconstruction of American Liberalism 1865-1914, which is an intellectual history that gives a good overview. You can piece together a libertarian perspective from it.  See http://www.amazon.com/Reconstruction-American-Liberalism-1865-1914/dp/0807853542/ref=sr_1_1?ie=UTF8&qid=1427393591&sr=8-1&keywords=nancy+cohen+progressivism .

The third book I recommend is a little different. It is Burton Bledstein’s Culture of Professionalism: The Middle Class and the Development of Higher Education in America. http://www.amazon.com/culture-professionalism-development-education-America/dp/0393055744/ref=sr_1_3?ie=UTF8&qid=1427393672&sr=8-3&keywords=bledstein . It traces the creation of professionalism in a host of fields.  Professionalism was intimately connected to the Mugwumps’ interest in civil service reform. The impetus for rationalization led directly to Progressivism. Once the commitment to organized professions took hold, it was a small step to building legal standards and regulations for the professions.  That, in turn, was linked to the development of universities. Hence, big government, the organized professions, and universities have always been linked.

The institution of the modern university in 1876 via the founding of Johns Hopkins came near the heart of the Mugwump era, which was in 1884, during the election of Grover Cleveland.  I don’t think historians have a clear understanding of why the Mugwumps opposed James Blaine and turned against their own Republican Party to support Cleveland.  [My colleague] may be right that there was a laissez faire impetus, but showing that would require a new, or at least clearer,  historical treatment of it.  Among the interesting Mugwump figures (see Cohen) were EL Godkin, David Ames Wells, and William Graham Sumner.

I also don’t believe that historians have a clear understanding of the role of the greenbacks in stimulating the expansion of industry in the Civil War era and what the economic effects were on bondholders, so the post-1873 gold deflation, which harmed other asset holders (likely Western and Southern farmers as well as stockholders) and generated Populism and Bryan (and which Friedman calls “the crime of 1873” in an article that was published in the Journal of Economic History), may have been a reaction to the post-Civil War inflation. Godkin writes about his anger at the effects of inflation on redistributing wealth to Jay Gould and others. 

One question that no one has asked is whether there was a relationship between Wall Street and Bryan or the Populists.  Mark Hanna, a high school friend of John D. Rockefeller,  was, of course, McKinley’s close adviser. On the other hand, it may be that the election of McKinley (as propped by Wall Street) was not really opposition to silver, but rather it may have been preemptive and done in the hope for the central bank that was recommended fourteen years later, in 1910, by the same Rockefeller (with Morgan and Kuhn Loeb) interests.  It is unlikely that there is much public information on something like this.

In any case the 1896 election had an opposite dynamic from what today’s pro-inflation banking community offers, and I suspect that something is not being said about who the Populists were and, more importantly, who their opponents were.  Was a central bank being quietly considered by ‘96? 

The same is true of the conflict within the Democratic Party between Bryan and the Bourbon Democrats,* of whom Cleveland was the chief representative. Wilson had been a Bourbon Democrat, and I think that he voted for a third party, the Gold Democrats, in 1896.  His connection to Morgan is mentioned in my paper on colleges, and I suspect that his signing of the Federal Reserve Act came from his relationship with Morgan.  An interesting point in the biography of Frank Vanderlip is that Wilson dropped him as a friend, and Wilson would have nothing to do with Vanderlip once Wilson was elected. Wilson did not want to seem to be linked to bankers.  I wonder who thought up that plan of action.  Wilson went from voting for gold in 1896 to refusing to have to do with bankers so he could propose the Federal Reserve Bank.  As a result of secrecy, it may be hard to get data. But was the opposition of the banking community to silver a strategic one?
  

*Wikipedia: Bourbon Democrat was a term used in the United States from 1876 to 1904 to refer to a conservative or classical liberal member of the Democratic Party, especially one who supported Charles O'Conor in 1872, Samuel J. Tilden in 1876, President Grover Cleveland in 1884–1888/1892–1896 and Alton B. Parker in 1904. After 1904, the Bourbons faded away. Woodrow Wilson, who had been a Bourbon, made a deal in 1912 with the leading opponent of the Bourbons, William Jennings Bryan; Bryan endorsed Wilson for the Democratic nomination, and Wilson named Bryan Secretary of State. The term "Bourbon" was mostly used disparagingly, by critics complaining of old-fashioned viewpoints.

FA Hayek on How Obama's War on Income Inequality Will Nazify America

I'm rereading The Road to Serfdom.  Accessibly written, Hayek lays out many of his most important ideas. According to Bruce Caldwell's introduction to the Definitive Edition, the book has sold 300,000 copies, which is rare for a book written for an academic audience. Hayek comments on income inequality, an issue that the Democrats and their media have adopted this year.  

I do not understand this obsession because the greatest gains to the poor have occurred in countries whose laws are objective, that is, that follow the rule of law and that permit entrepreneurs to innovate.  Such innovation results in increasing real wages, but it allows even greater gains to the entrepreneurs. The result is that in free market economies the poor become better off because of income inequality; the greater the entrepreneurial success, the greater the gains to the poor.

I wonder if the  aim of the advocates of income redistribution is really to enhance state control, further reduce freedom,  and improve the position of the inept rich, crony capitalists, at the expense of the poor.  College professors do well when the inept rich do well because crony capitalism typically benefits universities.   Show me a proposal for regulation, and I will show you a Rockefeller, Ochs-Sulzberger, Bundy, or Bush angling for the fruits of government violence.  I will also show you a clique of academics cheering on the redistributive policy and the inadvertent gains to the inept rich in the interest of additional government subsidies to universities.

In order to effect wealth equality, government must violently compel its victims to give up their wealth to benefit the state's beneficiaries.  Government violence results in declining national wealth, as failed socialist economies such as North Korea's, France's, India's, and the United States' show.  As Winston Churchill put it, "The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries."  Of course, the effect of government violence is never really equality.  Government cronies inevitably do well as the families of Kim Il-sung, George W. Bush, Barack Obama, and John D. Rockefeller illustrate.

Capitalism benefits the poor the most. Life expectancy in early modern Britain was between 25 and 40 years old, and in revolutionary America it was about 35. The gains in life expectancy came about because of improvements in sanitation and public health, and secondarily because of the invention of drugs. Market capitalism made both possible.  For example, the wealth needed to construct sanitary housing did not exist in the precapitalist economy.  The capitalist increases in the real hourly wage that continued in the US until the expansion of government spending in the 1960s, when the US transitioned from a capitalist to a socialist state, meant that the poor working person could improve his lot through saving.  Today, many working Americans cannot save because of the high costs of home ownership, commodities, and taxation, all due to government and Federal Reserve policy.

In The Road to Serfdom Hayek discusses how, in the absence of public resistance,  socialism leads to totalitarianism. The requirements of central planning, economic regulation, and wealth redistribution directly contradict the requirements of the rule of law and democracy.  Wealth redistribution is inherently coercive.  The advocacy of income equality is the advocacy of violence.

With respect to government programs to enforce wealth equality, Hayek draws parallels to Nazis (p. 117):

A necessary and only apparently paradoxical result...is that formal equality before the law is in conflict with, and in fact incompatible with, any activity of the government deliberately aiming at material or substantive equality of different people, and that any policy aiming directly at a substantive ideal of distribution justice must lead to the destruction of the Rule of Law. To produce the same result for different people, it is necessary to treat them differently.  To give different people the same objective opportunities  is not to give them the same subjective chance.  It cannot be denied that the Rule of Law produces economic inequality--all that can be claimed for it is that this inequality is not designed to affect particular people in a particular way.  It is very significant and characteristic that socialists (and Nazis) have always protested against "merely" formal justice, that they have always objected to a law which had no views on how well off particular people ought to be, and that they have always demanded a "socialization of the law," attacked the independence of judges, and at the same time given their support to all such movements as the Freirechtsschule which undermined the Rule of Law.

Hayek, who came from Austria, adds this footnote:

It is therefore not altogether false, when the legal theorist of National Socialism, Carl Schmitt, opposes to the liberal Rechstaat (i.e., the Rule of Law), the National Socialist ideal of the gerechte Staat) ("the just state")--only that the sort of justice which is opposed to formal justice necessarily implies discrimination between persons. [Editor Bruce Caldwell adds the following: German jurist Carl Schmitt (1888-1985) was a critic of liberal parliamentarianism and defender of the authoritarian state. In the 1930s he attempted to reconcile his views with those of the Nazis, offering legal justifications of their takeover of the government and defending the Nuremberg Laws that excluded Jews from public and social life. Though he lost favor with the Nazis by 1936, outside of Germany he was often viewed as the legal theorist of National Socialism.  Hayek also refers to the Freirechtsschule, which is the German term for "legal realism," a doctrine that holds that instinct rather than rule-following is the actual basis of judicial interpretation of the law."--Ed.]