3? sn 
 
GIFT OF 
 
 \ 
 
WHO SHALL CONTROL 
 
 OUR FINANCIAL 
 
 DESTINY? 
 
 THREE POSSIBILITIES: 
 
 Government Ownership 
 
 Government Control 
 
 Banking Control 
 
 ADDRESS DELIVERED BEFORE THE 
 
 FINANCE FORUM OF NEW YORK CITY 
 
 ON DECEMBER 18, 1912 
 
 BY 
 
 JOHN HARSEN RHOADES 
 
 OF 
 
 RHOADES & COMPANY, Bankers, 45 Wall Street, 
 New York, and Chairman of the Committee on Edu- 
 cation of the New York State Bankers' Association 
 
Who Shall Control Our Financial 
 Destiny? 
 
 About two years ago the date is immaterial I was dis- 
 cussing banking and currency reform with a leading Wall 
 Street banker. If I mentioned his name, you would recognize 
 him at once as a man of influence and ability. I said to him, 
 "Why doesn't your firm take more interest in banking and cur- 
 rency reform? If we are to have real reform, you know as 
 well as I that it is the big able man who must put his shoulder 
 to the wheel." He replied, "Are you aware that a partner in 
 our firm has given many hours of his valuable time to licking 
 the Aldrich plan into practical shape?" I was surprised at his 
 words, for at that time two years ago I had no idea that 
 such was the case, and said, "If what you tell me is so, why has 
 he so effectively concealed the fact?" His answer was signifi- 
 cant, even typical of the times: "Why, man alive, don't you 
 know that if the country were aware that a partner in this firm 
 was even interested in the Aldrich plan, that plan would be 
 doomed?" 
 
 Now I believe that in estimating the people's verdict my 
 friend was mistaken. Every man no matter what his own status 
 may be, demands from others the truth. He was reading into 
 the minds of the people a suspicion which could not exist unless 
 fostered by secrecy. It is secrecy that breeds the germs of 
 suspicion, and it is suspicion that undermines our reasoning 
 powers and makes us see things which do not exist. I believe 
 that if a partner of that influential house had gone to the 
 bankers' convention at Los Angeles, had struck out from 
 the shoulder, and said to those men assembled from all parts 
 of the Union "Gentlemen, I am from Wall Street. I am 
 sincerely interested in banking reform, and have given much 
 thought to the subject. I am here to help and to be helped. 
 Do you care to hear me or do you not?" Gentlemen of the 
 Finance Forum, I believe if that question had been put at 
 that time by a man I have in mind, banking reform would no 
 longer be a dream but a reality. 
 
 I do not wish to be misinterpreted. It is not for me to 
 dictate to any man a course of procedure. I merely tell the 
 story to impress upon you the misunderstandings which must 
 be overcome before banking reform is an accomplished fact. 
 
 257209 
 
Now, I went to Los Angeles. I saw able bankers from Chicago, 
 able bankers from St. Louis, New Orleans, Cleveland, able 
 bankers from all parts of the country. I heard them speak. I 
 saw them mingle with the crowd. But I neither saw nor heard 
 the shrewdest of them all, the bigger men of Wall Street. 
 
 Real banking reform will be a vision until the brainy 
 banker of the East and the brainy banker of the West co- 
 operate; nay, until the men of the North, East, South and 
 West confer with one another, learn one another's views and 
 trust one another's motives. I wish to impress upon those who 
 hear me, and upon those who do me the courtesy to read what 
 I have to say, that I am a Wall Street man. I wish them to 
 understand who I am and where I come from, I want them 
 to do me the honor to believe that my motives are disinterested. 
 I want them to know that when I ask for the brainy man of 
 Wall Street to join us in this great reform, it is because we 
 need him. Wall Street is not so filthy as some would think. 
 Selfish men are there, yes, and everywhere, cold, calculating, 
 hard-headed money makers, if you will, but not necessarily 
 thieves at all. 
 
 Let me tell you another story : Just previous to the panic 
 of 1907 my firm, a borrower of money from a large trust com- 
 pany, was informed that the rate on the loan had been raised 
 to 50 per cent. The collateral consisted of gilt edged bonds, 
 and the loan had been standing for some time. Knowing one of 
 its officers as a matter of fact a personal friend, I called 
 upon him, and among other things said: "Is not my credit 
 sufficiently good to warrant a lower rate than 50 per cent.? 
 You are a lender of money with a service to perform. Do you 
 think it just to bleed me?" He replied, "I agree that such 
 rates seem extortionate; but we are not facing a theory but a 
 condition, and it is the duty of an officer of this company to its 
 stockholders to take advantage of every opening that presents 
 itself." Now, gentlemen, from his standpoint he was not dis- 
 honest, nor was he doing wrong. He was merely taking ad- 
 vantage of his opportunities. The fault lies where? Not with 
 him, but with his conception of his duty to his stockholders 
 versus service to the public and with a banking system that in- 
 vited him to do as he did. I do not blame him, but you do. 
 But are you not equally culpable in maintaining a financial 
 system which furnishes him with these opportunities? 
 
 It was not until the panic of 1893 that we American people 
 as a whole began to appreciate the weaknesses in our financial 
 structure. We then gave thought to the subject, but we ac- 
 
 2 
 
complished little until after the crisis of 1907. Since that date 
 so much progress has been made that there has now been 
 presented to the American people a well rounded plan of 
 monetary reform, commonly known as the Aldrich plan, which 
 calls for the establishment of a National Reserve or central 
 reservoir for the bank reserves of the country. The completed 
 scheme, however, bears little of the ear-marks of Senator Aid- 
 rich's work. I shall, nevertheless, at the outset call the scheme 
 the Aldrich plan, if for no other reason than to show my re- 
 spect for the man who fathered it. If there be those who can, I 
 for one cannot be so small and narrow as to reject his or any 
 other man's plan because the personality of the author may 
 not be to my or someone else's liking. 
 
 Gentlemen, where are we at? There should be peace in 
 the financial world, not distrust and bitterness. It is asserted 
 that we need and must have the suffering and the lesson of 
 another panic a mean and cruel thought. It's claimed that 
 we cannot have the National Reserve because Mr. Aldrich's 
 name is attached. It's said that we cannot have it if it be 
 known that a Wall Street man has had a hand in preparing it. 
 Such thoughts are childish and unworthy of men. What dif- 
 ference does it make who the author may be? What difference 
 does it make whether he be black or white, tall or short, suave 
 or blunt, sincere or insincere if the plan he proposes commends 
 itself to our good sense? Put on your thinking caps, my 
 friends, and think. It's the meat on the platter that must be 
 digested, not the man who prepared it; it's the thought in 
 an argument that must be considered, not the man who ad- 
 vanced it. 
 
 I have spoken thus warmly because I wish you to see things 
 as they are, not as some would paint them. Sometimes it 
 seems as if the nation were honeycombed with mean, suspicious 
 thoughts. A man can scarcely rise to speak before another 
 charge a false and ugly motive. He who tries to end an evil 
 should be helped, not handicapped by base and mean insinua- 
 tions. We should think and think fairly not jump to our 
 conclusions. 
 
 The Aldrich plan, as revised, was endorsed by our Ameri- 
 can bankers at their convention at New Orleans subsequent to 
 its approval by many state organizations. It would seem, how- 
 ever, that for one reason or another the scheme has not met 
 with popular approval, yet it contains much of merit. It would 
 be a grave misfortune if, after the sacrifice of so much time 
 and thought, we should feel compelled to discard it as a whole. 
 
I am one of those bankers who are positive that in centralized 
 power lies the true solution of our financial difficulties, I care 
 not whether it be the Aldrich plan or any other plan ; but when 
 I say centralized power I mean centralized power, no chicken- 
 hearted compromise. Therefore I am the more unwilling to 
 throw the plan aside. My purpose this evening is to suggest 
 an amendment, with the earnest desire that interest in the pro- 
 ject be revived and the more conspicuous flaws eliminated. 
 
 I ask that you take with me the preliminary step of divid- 
 ing the plan into two sections. That section which deals with 
 the functions and operative processes of the National Reserve 
 we shall not discuss. For that matter it is impossible in ad- 
 vance to lay out a hard and fast working formula; but the 
 second section, constituting the basis of this address, and deal- 
 ing with the method of election of the various boards, seriously 
 invites the attention of the American people. It is a subject 
 upon which we must train the available intellect of the country, 
 for it is one which concerns not alone the bankers but the 
 people as a whole. Upon it every American citizen has the 
 right to speak, and to expect our national schoolmaster, the 
 newspaper, to assist him in forming an honest opinion, and if 
 he speak the truth to spread that truth among the people. 
 Because the exponent of a plan is unknown or unpopular, 
 should not mean that his argument is unworthy of your con- 
 sideration. I repeat my metaphor. It is the meat in an argu- 
 ment that must be digested, not the man who prepared it. 
 
 As you know, under the Aldrich plan, in order to secure 
 centralized control of the bank reserves of the country, there 
 are to be scattered throughout the nation clusters of local 
 associations of banks. These clusters are to be corded to- 
 gether, as it were, and tied to their nearest branch. The 
 branches, about fifteen in number, are then to be gathered up 
 and roped to the main association, that is, the National Re- 
 serve, at Washington. The amendment I offer would not dis- 
 turb the method of electing the directors of the local associa- 
 tions and branches. In order to refresh your memory I will 
 briefly describe this method, taking a local association for ex- 
 ample. In each local association the number of directors is to 
 be determined by the by-laws of the local association, but the 
 method of election is to be uniform throughout the country. 
 There will be two classes of votes used in the election of the 
 board. The first is the solid vote of individual banks as units, 
 designated the unit vote. The second is the vote by banks as 
 proportionate owners of stock in the National Reserve Associa- 
 
tion, designated the share ownership vote. Three-fifths of the 
 directors of the local associations are elected by the individual 
 bank vote and two-fifths by the share ownership vote. The 
 purpose of this division is to place the control with the in- 
 dividual banks of each locality, irrespective of their size and 
 wealth. 
 
 The number of directors of each branch will conform to 
 the number of local associations which compose the branch, but 
 the method of election is similar to that described above, the 
 result being that the control will be wisely kept so far as pos- 
 sible in the hands of the individual banks, regardless of their 
 size and wealth. 
 
 We are now ready to consider the election of the board of 
 governors of the National Reserve or Bank of Banks at Wash- 
 ington. 
 
 Under the Aldrich plan the method of election of this 
 board, to all intents and purposes, is identical with that of the 
 election of the directors of the local associations and branches. 
 Now, gentlemen, I should like your keen attention, for just 
 here I break away from the Aldrich plan. And with all due 
 respect to the Senator and with every intention to do him jus- 
 tice, we must admit that through the process of elimination 
 and amendment the plan has become something so different 
 from that contemplated by Senator Aldrich that regardless of 
 our politics we shall call it, as we hope it will be called in 
 history, the Monetary Plan of the American people enacted 
 into law by the sixty-third Congress. 
 
 I propose that this main body, in whose hands we Ameri- 
 can people must place the financial destiny of our nation, shall 
 not be elected by the bankers nor by any special interest, but 
 shall be singled out for that great honor and service by the 
 President of the United States. My purpose is to adopt the 
 method of procedure of the appointment of the Justices of the 
 Supreme Court, who, as we know, are appointed for life by the 
 President, subject to confirmation by the Senate. I would 
 make one qualification, that the President shall appoint one- 
 half of the board from the eastern section of the country, and 
 one-half from the western, the zones to be divided by a line run- 
 ning north and south through the centre of population, which 
 line of demarkation tends to move further and further west 
 as the country develops. 
 
 I propose that this board the Court of Finance shall 
 be reduced from the unwieldy number of forty-five, as recom- 
 
mended under the Monetary Plan, to fourteen. Of this num- 
 ber six shall be practical bankers, one of whom shall be ap- 
 pointed to act as Governor General, six shall be appointed from 
 the industrial, commercial, farming and other interests, and 
 two shall be academic students of banking. There shall also 
 be as ex-officio members, the Secretary of the Treasury, the 
 Secretary of Commerce and Labor and the Comptroller of the 
 Currency, making seventeen in all. With the exception of the 
 ex-officio members, these men shall devote themselves for life, 
 to the exclusion of all other interests, through the work of the 
 National Reserve, to the service of the nation. 
 
 It would be outside my province to suggest the proper 
 compensation for the members of the Court, my idea being that 
 compensation should come from the Government and be com- 
 mensurate with services rendered. Inasmuch as members of the 
 Court cannot be stockholders in the National Reserve as only 
 banks are eligible I propose a scheme somewhat similar to 
 that in vogue in Germany, whereby there shall be a stock- 
 holders' committee of five, with whom the Court shall consult 
 from time to time. 
 
 It has been suggested that the appointing power be placed 
 in the hands of the President, the Comptroller of the Currency, 
 the Secretary of the Treasury, and the Secretary of Commerce 
 and Labor jointly. This method would mean divided re- 
 spiomsibility, the thing of all things I wish to avoid. It is 
 through the grave responsibility that we place upon the shoul- 
 ders of one man a responsibility so enormous that he is bound 
 to invest with it the man he appoints that I hope to secure the 
 service desired. The ablest financier of this generation, J. P. 
 Morgan, appointed for life a governor of the National Re- 
 serve by the President of the United States, subject to con- 
 firmation by the Senate, is a very different man from J. P. 
 Morgan elected to that post by the bankers. 
 
 Let us now consider what objections will be raised. I 
 presume you have many to offer. I will mention two. First 
 and foremost, it will be said that in giving this power to the 
 President we are bringing politics into banking. Upon this 
 point I have but one thing to say. If, to guard our constitu- 
 tional interests, we can trust the members of the Supreme Court 
 of law to appointment by the President, subject to confirma- 
 tion by the Senate, why can we not, to protect our financial 
 interests, entrust to him, with the same safeguard, the appoint- 
 ment of the members of the Court of Finance? 
 
 6 
 
A second objection may be this: How are we to persuade 
 our busy business men to serve? 
 
 If lawyers can be found unselfish enough, disinterested 
 enough, to sacrifice their desire for wealth to the service of 
 their country, is it possible we have no such bankers? I can- 
 not, will not believe it. Give them the opportunity, and they 
 will covet the privilege. 
 
 Now, there is a side to this question other than that of 
 patriotism. It is that of self-preservation. And in the last 
 analysis, what is patriotism but self-preservation? Not long 
 ago a man said to me: "Mr. Rhoades, if you gave the same 
 amount of time to your business that you have given to bank- 
 ing reform, you would be a richer and more influential man." 
 What was my answer? "My dear sir, I have not forgotten the 
 panic of 1907, and I shall do everything that lies within my 
 power to prevent another I'm a banker, that's my duty. But 
 I suffered in that panic, and don't you forget it mentally, yes, 
 financially. Disturbances are certain to occur, but I draw the 
 line at the cataclysms of the past. Of what use is it to me to 
 make money for five, ten, fifteen years, and then through no 
 fault of mine lose it over night? Of what use is it to a man to 
 pile up money all his life, and die, and have his children suffer ?" 
 I wish I could make our busy money-makers see that side of 
 the picture. I wish I had the eloquence to impress upon them 
 the danger that confronts them. I am not preaching patriot- 
 ism now, but self-interest and preservation. I know such men 
 are shrewd enough to sniff a panic from afar and run to cover 
 before lit breaks, but not one of them has nerve enough to 
 care to see another. 
 
 We hear much to-day of the Money Trust and of control 
 in the hands of the few. Control is, has been, and always will 
 be in the hands of a few. That it exists was demonstrated in the 
 panic of 1907, when, with due credit to the clearing houses 
 and to the Government, the financial interests of the country 
 bowed down to the will of one man. And let us thank our 
 lucky stars that in such an emergency we had that man. This 
 nation little appreciates the anxious days of 1907. It little 
 knows what that man said and did and how he saved the 
 country from financial conflagration, which, starting in New 
 York and fueled by thoughtless hands, would have spread 
 from ocean to ocean. But I believe that such enormous power, 
 power great enough to stop a panic, power great enough to 
 bring one on, should be in the hands of men who have no private 
 
interests to promote, but solely one duty to perform that 
 of service to the people. 
 
 The Court of Finance, which I propose, is the supreme 
 tribunal to whom the American people must entrust the finan- 
 cial destiny of their nation. These are the men who must 
 be above suspicion. It is they who will set the standard of 
 membership in the National Reserve, with authority to accept 
 or reject an application. It is they who will have the power 
 to expel. It is they who will control the discount rate raise it 
 to check speculation in the East raise it to check speculation 
 in the West raise it when the financial seas are disturbed 
 lower it when the seas are calm. The question before us is 
 not whether the financial destiny of the nation shall be in the 
 hands of a few, but who shall be the few, and how they shall 
 be made, so far as lies within our power, subservient to the will 
 of all. 
 
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 UNIVERSITY OF 6ALTFORN1 
 
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Who shall control o ir 
 
 financial 
 
 destiny? 
 
 257209 
 
 VC 23969 
 
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