Jekyll Island and the Design of the Federal Reserve

In November 1910, a private railway car carrying seven men departed from the Hoboken, New Jersey terminal of the Southern Railway, headed for Brunswick, Georgia, and from there by boat to Jekyll Island -- a private club retreat owned by a consortium of the wealthiest families in America. The men traveled under assumed names. They carried no luggage with identifying monograms. The purpose of the journey, and the identities of its participants, were not to be disclosed.

The seven were: Senator Nelson Aldrich of Rhode Island, the Senate's most powerful Republican and chairman of the National Monetary Commission; Frank Vanderlip, president of National City Bank (the largest American bank, controlled by Rockefeller interests); Henry Davison, senior partner of J.P. Morgan; Charles Norton, president of First National Bank of New York; Benjamin Strong, a Morgan associate who would become the first governor of the Federal Reserve Bank of New York; Paul Warburg, a partner at Kuhn, Loeb & Co. and the group's primary banking theorist, trained in the German central banking tradition; and A. Piatt Andrew, Assistant Secretary of the Treasury and technical secretary to the National Monetary Commission.

They remained on Jekyll Island for approximately ten days, drafting what Aldrich would present publicly as the Aldrich Plan -- a proposal for a National Reserve Association modeled loosely on European central banks. The meeting's existence was not publicly acknowledged for more than two decades. In 1935, Vanderlip described the episode in the Saturday Evening Post: "I was as furtive as any conspirator. Discovery, we knew, simply must not happen, or else all our time and effort would be wasted. If it were to be exposed publicly that our particular group had gotten together and written a banking bill, that bill would have no chance whatever of passage by Congress."

I was as furtive as any conspirator. Discovery, we knew, simply must not happen, or else all our time and effort would be wasted. If it were to be exposed publicly that our particular group had gotten together and written a banking bill, that bill would have no chance whatever of passage by Congress.Frank Vanderlip, Saturday Evening Post, February 9, 1935

The Aldrich Plan, as presented publicly, was rejected by Congress -- partly because Aldrich's close association with Wall Street made it politically toxic, and partly because Democrats, who took control of Congress after the 1910 midterms, were ideologically opposed to any plan bearing his name. The Federal Reserve Act of 1913, which eventually created the institution, was drafted by Democratic representatives Carter Glass and Robert Owen, with substantial technical assistance from Paul Warburg -- who had been the primary architect of the Jekyll Island plan.

The two versions differed in their governance structures -- the Federal Reserve Act created a Federal Reserve Board in Washington with greater public representation than the Aldrich Plan's privately controlled Association -- but shared the fundamental design principles worked out at Jekyll Island: a central bank with lender-of-last-resort capacity, fractional reserve banking, and a decentralized structure of regional banks designed to neutralize political opposition from outside financial centers. The Federal Reserve that exists today is recognizably the institution those seven men designed in secret in November 1910.