[...]... at the Dikes 19 On Monday the market opened weak, but there appeared little strain, and call money- funds borrowed to buy shares, repayable on demanddropped to the low for the year-3 per cent The apathy of the market was indicated by the low volume of transactions-some 38 1/2 million shares since the first of the year compared with over 60 million for the same period of the previous year This was the. .. Roosevelt penned his Century article The first of these was the income tax; the other was the Federal Reserve Act Our concern here is with the latter, and for that purpose a thumbnail sketch of the monetary system as conceived by the founding fathers and as developed through the first one hundred and twenty years of our history is necessary The word money, derived from the Latin moneta, and its equivalents... with the current Spanish milled dollar, which then formed the bulk of the circulation However, as the silver was undervalued at this rate, U S dollars began to disappear into the melting pot, and the government was compelled to suspend the coinage of dollars in 1805 At the same time a corresponding effort to regulate the value of the gold dollar also failed under the realities of the market place The. .. j j 1 The Quality of the Times T the money system the dominant public issue and brought the Federal Reserve System into being was the Panic of 1907 It occurred during the second term of Theodore Roosevelt It is known as the "rich man's panic." It was essentially a credit crisis It may have been sparked by Roosevelt's attacks on big business (his "trust-busting") which unsettled confidence and the security... of good public relations Beginning with the The Quality of the Times 7 Illinois Central he had acquired strategic stockholdings in a number of systems with potentials for interconnection and expansion During the financial crisis of 1893 he had gained control of the vast Union Pacific system The road was in a shambles of neglect-"twin streaks of rust" it was called-with great stretches of worn, sun-warped,... Harriman The year 1905 may be said to mark both the high tide in the Harriman affairs and in those of Wall Street, and from then on the drift was toward decay· and demoralization The Harriman fortunes and the tenor of the securities markets were moving in harmony The market took its tone from the "Harriman rails." When they moved up the market improved; when they fell the market declined In 1906, the Union... regard to the monetary system Nevertheless, explicit provisions of the Constitution have never been modified, and despite the subsequent withdrawal of all gold and silver intrinsic coin from circulation, and the cessation of mintage, the dollar is still defined by statute in terms of a weight of precious metal The Constitution gave Congress the power to coin money and "to regulate the value thereof." Actually,... in the public eye as a cold-blooded manipulator of high finance, and as the "Colossus of Roads," Stuyvesant Fish appeared as the genteel, strait-laced aristocrat, the image of financial conservatism Certainly Stuyvesant Fish had no need to seek the bubble reputation His own was of the highest When, for instance, the affairs of the Mutual Insurance Company came under question in 1905 on charges of loose... In the case of paper the power of the state to obtain acceptance of its fiat is bolstered by a system of sophistries that deceive the most astute We shall observe the subtleties of argument in the debates over monetary reform leading to the Federal Reserve System Almost from the first, monetary discussion, and with it monetary policy, became clouded by a confusion of terminology among money, specie,... exchanged for interest-bearing bonds In addition to the greenbacks, as a further means of war finance Congress in 1863 authorized a national bank system by which federally chartered banks could issue circulating notes redeemable in coin against the deposit of U S Treasury bonds to the equivalent of 90 per cent of the value of the notes The notes were declared to "circulate the same as money" but had limited . was even then anathema on these shores-it de- clared that he would in effect bring a Marxian redistribution of wealth in a "simpler and easier way." "He leaves," the editorial went on to say, " ;the mines, the factories, the railroads, the banks-all the instruments of production and exchange- in the hands of their individual owners, but of the profits of their opera- tions he takes whatever share the people at any given time may choose to appropriate to the common use. The people are going to say, We care not who owns and milks the cow, so long as we get our fill of the milk and cream. Marx left. I43 20. The Gushing Fountain I5I PART III Debacle of an Idea 2 1. The Crumbling of the Dikes I57 Vlll CONTENTS 22. The New Thermopylae I63 23. The Keynesian Influence I7 0 24. The Not So New New Deal I79 25. The New Deal and the Federal Reserve I85 26 CONTENTS Preface lX PART I The Roots of Reform 1. The Quality of the Times 3 2. The First Shock Wave IO 3. The Lapping at the Dikes I6 4. The Rich Man's Panic 22 5. A Measure of Expediency 3 I 6. The Aldrich-Vreeland