Federal Reserve Act is Called “Socialistic and Unconstitutional Measure”

Posted on December 1, 2010


Socialistic, Unconstitutional Measure, Says ex-Senator, but Real Bryan Doctrine
October 16, 1913

Government note issue and a central Government banking board, as proposed by the Owen-Glass bill were denounced as revolutionary, Socialistic and unconstitutional by ex-Senator Nelson W. Aldrich of Rhode Island at the annual dinner of the Academy of Political Science at the Hotel Astor last night.

The bill, he said, was “an endeavor to secure, by partisan legislation, the triumph of the doctrines and principles which have received the repeated condemnation of the American people at the polls.

“If the bill should be enacted into law,” he said, “Mr. Bryan will have achieved the purpose for which he has been contending for a decade.”

Referring to the pressure upon Congress to enact the bill in order to redeem the platform promises of the Democratic Party, Senator Aldrich traced back the attitude of the Democracy on the question of paper money and declared that it was in 1896, when Mr. Bryan was nominated for President, that the party first gave its adherence to doctrines of greenback, populist and farmers’ alliance.

“The theory that the United States should issue currency in the form of its promises to pay is a populistic doctrine,” said Senator Aldrich.  “This greenback doctrine has never received the approval of the American people at the polls and there is every reason to suppose that it would to-day meet with their positive condemnation if the question could be submitted to a vote in a national election.

“It is not too much to say that the proposals in the bill come to the country as an absolute surprise.  There had been no suggestion that an attempt was to be made to revive the greenback heresy or to adopt in legislation the rejected theories of the populist party.  The Democratic candidate for the Presidency was silent upon the subject during the last campaign and he has not so far as I am aware, up to this time, publicly expressed his approval of Mr. Bryan’s ideas with reference to the issue.  The large majority of the American people who favor sound money believed that the question of further greenback issues was settled permanently by the elections of 1896 and the following years.


“It would be difficult to find in history an occasion where a political dogma which had never found a permanent place in the tenets of the dominant party, and which had been rejected by unanimous verdict of the civilized world could be successfully injected into a great legislative measure as a price for the support of a fraction.

“The incorporation of the provisions for Government note issues in the Administrative bill is certainly a great personal triumph for Mr. Bryan, but it is, at the same time, an emphatic condemnation of the thories of government and the economic teachings of every great Democratic leader from Andrew Jackson and Thomas H. Benton to Samuel J. Tilden and Grover Cleveland.  It is undoubtedly true that the support of Mr. Bryan and his followers was necessary to secure any legislation upon this subject, but it is unfortunate that to secure this support it seemed to be necessary to sacrifice the cherished principles and traditions of a great party.”

Senator Aldrich said the proposals with reference to note issues were radical and at variance with all the accepted canons of economic law, that in all commercial nations note issues were made through banks created by the Government, under conditions fixed by the Government.  He found no substantial limitation on the amount of notes that might be issued under the Owen-Glass bill except in the reserve requirements.  The notes would become a permanent addition to the currency, as there would be no inducement to retire them.

Provision for redemption of the notes, he said, was unsatisfactory, as in times of trouble the Treasury might be obliged to assume the entire burden, while it would be without funds, having deposited them in the Federal reserve banks.  The provision that the notes might be redeemed otherwise than in gold was unsound.


“We now have a proposition,” he said, “to issue an unknown amount of United States notes without any Government reserves of any kind.”

By the establishment of the Federal Reserve Board, he said, Congress would create a Government central bank, which would be a bank of issue and a bank of discount.  Its powers would be greater than those of any central bank in existence, and some of them, upon principles heretofore declared by the courts, would be pronounced unconstitutional.

“It might be able,” he said, “to control elections and insure the success of a political party, but in times of stress it would have no power to preserve public or private credit.  It would have no status in the commercial world, and its standing at home would be fixed by its importance as a political machine rather than as a force in financial circles.”

It was unfair, he said, to impose conditions on the national banks which would be likely to drive them to State charters and “the serious disarrangement of credits, the contraction of circulating medium, and the destruction of confidence that would certainly arise from a transfer of any considerable amount of the banking business of the country from the national to the State system and would end in a financial panic such as we have never seen in any country.”

Senator Aldrich said it was impossible to predict the effect which the radical reduction in the amount and change in the custody of the reserves of national banks would have on business.

“It is certain,” he said, “that the effect at first will be to create confusion and uncertainty, and that the readjustment of credits and the withdrawals of deposits will lead to credit contraction.  Just what amount of credit expansion will take place later depends upon whether the national banks accept the legal limit of cash reserves fixed by the bills as a basis for their future credit operations.”

Senator Aldrich quoted from the writings of Woodrow Wilson to show that he was apparently opposed to the Bryan doctrines before he became President, and added:

“No large part of the American people had any idea that the election of 1912 involved a reopening on the part of Mr. Bryan and his friends of the controversies of the past.  The party in power has no accredited mission to reverse repeated judgments at the polls and to fly in the face of the concurrent judgment of the people of every commercial nation, based on universal experience.”

“The bill will not bring the millennium,” [Prof. Joseph French Johnson of New York University] said, “nor will it paint Wall Street white.  One cannot be positive with regard to the workings of a hypothetical banking system.  Nevertheless, I see no escape from the conclusion that the Glass-Owen bill, if it becomes law, will soon bring this country into a period of dangerous credit expansion that will cause a panic and the collapse of our banking system.”

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The New York Times
October 16, 1913