William McAdoo and the American Economy
There are several
people who influenced the economy in America between 1900 and 1929. One notable
person who influenced the economy during the early 1900 was William Gibbs
McAdoo. McAdoo spent most of his youth in the southern United States. As a
young adult he moved to New York where he undertook the enormous work of constructing
tunnels under the Hudson River. The purpose of the project was to create
railroads that would run and connect the cities of New Jersey with the shopping
districts of Manhattan. The success of the project helped McAdoo make a name for
himself. McAdoo supported Woodrow Wilson during his 1912 presidential campaign.
After Wilson became president, he appointed McAdoo as his Secretary of the Treasury.[1]
In an unusual act,
McAdoo married President Wilson’s daughter. It was the first time in recent
history the chief executive had someone in his cabinet that was the husband of
his daughter. Some thought this would cause McAdoo to lose his position as Secretary
of the Treasury. However, others argued that In-laws tend to not get along. Ergo,
the in-law relationship would not interfere with the roles their offices were
appointed. Unlike some of his predecessors, McAdoo would only have meetings in
the afternoons. He felt that his morning was solely for matters pertaining
entirely to the government’s treasury business. This displeased some Congressmen.
However, it was finally accepted that one could speak to someone in the
afternoon, just as easily as one could in the morning.[2] There were multiple historical
events that occurred during McAdoo’s time in office. Notably, The Great War and
the Crash of 1914 impacted McAdoo’s policies and actions. The Great War
threatened America with financial disaster.
Henry Lee
Higginson was an investment banker in Boston. Three weeks after the outbreak of
The Great War, Higginson saw an opportunity to change the world market. Higginson
wrote a letter to President Wilson in which he explained that England was the
exchange location for the world. This phenomenon exists due to England living
up to each engagement. Furthermore, their power grew business. If the president
was willing, then the United States could live up to its debts and take first
place on the global markets.[4] After receipt of the letter,
Wilson forwarded to letter to McAdoo. Wilson asked McAdoo to look over
Higginson’s correspondence and determine if the proposition was feasible.[5]
McAdoo had already
begun a plan to defend American financial security and honor prior to receiving
Higginson’s letter from the president. McAdoo worked tirelessly from July to November
of 1914 to change the course of American financial history. McAdoo seized the
opportunity during the panic and outbreak of war. He maintained the United
States’ commitment to the gold standard while the rest of the countries around abandoned
it due to the war. This caused a boost to the American dollar’s credibility. Furthermore,
it challenged England as the financial capital of the world. McAdoo recognized
that the absence of a central bank hampered America’s defenses during the
financial crisis. He tried to get the Federal Reserve System up and running to combat
the financial danger. However, he was blocked from an early opening of the
Federal Reserve Banks.[6]
This set the state
for McAdoo’s improvisational skills. He rushed tons of gold to treasury offices
throughout the country. This allowed investors to redeem dollars in the
precious medal. McAdoo also rescued New York City from the brink of bankruptcy
through the too big to fail doctrine. McAdoo shut down the New York Stock
Exchange for four months to hamper British sales of American securities. This
prevented England from draining American gold without dollar proceeds from
sales of American stocks and bonds. McAdoo also flooded the country with paper
currency to prevent a repeat of the bank runs that occurred during the Panic of
1907. McAdoo understood that the gold drain could be reversed if American exports
of agricultural goods could offset the sales of American securities. In August
1914 McAdoo met with businessmen at the Treasury to orchestrate sufficient
ships to transport cotton and grain crops to the European markets. This meeting
created the Bureau of War Risk Insurance, which worked to support the dollar’s
redemption in the foreign exchange market. As the end of 1914 grew close, the
flood of emergency currency receded, and the New York Stock Exchange reopened.[7]
November 11, 1914, the American dollar’s discount disappeared
on world markets, marks the turning point in America’s battle for international
financial leadership. By January 1915 the New York capital replaced London as
the money lender to the world. Canada, China, and Argentina, all traditional
British clients, visited Wall Street to raise capital. When America entered the
Great War in 1917 foreign governments issued more than $2.5 billion of
dollar-denominated securities in New York. It would take another decade to
complete the full transfer of financial power. However, McAdoo started the
tectonic shift in monetary supremacy.[8] William Gibbs McAdoo work greatly
influenced America’s economy and set the state for the America to become that
financial leader it is today.
Bibliography
Clark, Edward B.
"Introducing Bill McAdoo." The Turners Falls Reporter,
December 8, 1915.
[3] William L. Silber. When Washington Shut down Wall Street: The Great
Financial Crisis of 1914 and the Origins of America's Monetary Supremacy. (Princeton:
Princeton University Press, 2007). 1-12
[4] Higginson, Henry, L. Letter from Higginson to Wilson. Papers of William G. McAdoo, Library of Congress, August 20, 1914
[5] Wilson,
Woodrow. Note from Wilson to McAdoo. Papers of William G. McAdoo,
Library of Congress, August 22, 1914.
[6] William
L. Silber. When Washington Shut down Wall Street: 10-13
[7]
Ibid. 11-14
[8] Ibid. 10-15
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