A brief biography of the man who shaped the Federal Reserve Act.
Published December 1, 1997 | December 1997 issue
Born to brawl
Perhaps the most telling comment about Carter Glass came from President Franklin Roosevelt, who called Glass an "Unreconstructed Rebel." Roosevelt meant exactly what the capital "R" on Rebel implies. As the Senate's last surviving member born in the antebellum South, Glass unapologetically fought to retain a society in which property-owning, white males sat at the top of the pyramid. In that regard, he was a man of his times.
Carter Glass was born just as the year 1858 began, into a newspaper family that did not back away from a fight. Robert Henry Glass, Carter's father, owned the Lynchburg Daily Republican, the dominant Democratic newspaper in southwestern Virginia. In the summer of 1860, while Robert was away on business, his associate editor, George Hardwicke, killed a rival newspaperman who accused Glass of using his position as postmaster of Lynchburg to prevent the delivery of his competitor's papers. The elder Glass himself almost got into a duel, but his wife swore out warrants on both parties, and the matter was settled with canes rather than pistols. These lessons were not lost on Carter Glass, a scrapper in his youth who, as the eventual publisher of his own newspaper, almost came to a duel with a cross-town rival.
During Reconstruction, there were few opportunities for the younger Glass to receive much formal education. At the age of 13, he was taken out of school and apprenticed as a printer with his father. From that point on, he learned on his own, reading Plato, Edmund Burke and Shakespeare, and his love of such intellectual pursuits never waned. Later, when he owned his own papers, he published articles about the true identity of Shakespeare, the meaning of the biblical stories as history and other such topics.
Carter worked six years for his father, then moved with him to Petersburg, Va., to work on The Petersburg News. When the reporting job young Glass wanted did not materialize, he took a job as a clerk in the auditor's office of the Atlantic, Mississippi and Ohio Railroad back in Lynchburg. Robert accepted one of his son's political editorials, and soon after, 22-year-old Carter was offered a job as reporter on the Lynchburg News. Within a few years, he became the paper's editor and also served as clerk for the city of Lynchburg. With what looked to be a bright future, at the age of 28, Glass married his landlord's daughter, a school teacher from Lynchburg, and they eventually had four children.
In 1888, with the help of some friends, he bought the Lynchburg News, and two years later, he purchased the Daily Republican, once owned by his father. In the meantime, the elder Glass returned to Lynchburg and took over the editorship of The Advance, becoming Carter's rival. During a family feud, Robert stormed over to his son's offices and asked him where he had come up with the nonsense printed in the News. Carter pointed to a clipping his father had written earlier and said, "In my boyish pride of my father, I used to keep a scrapbook."
Eventually, he bought the paper his father was editing and became the only publisher in town. Well respected both inside and outside his community, he used his influence to champion politicians who ran against what he felt were Democratic politicians promoting bad fiscal policy. Two important events occurred in 1896: his father died, and Carter went as a delegate to the Democratic National Convention. There he heard William Jennings Bryan speak for free silver in his famous speech: "Thou shalt not press down upon the brow of labor this crown of thorns. Thou shalt not crucify mankind upon a cross of gold!" Glass would later repudiate Bryan's philosophy, but the adventure hooked him on politics.
As a politician, he was never in doubt
In 1899, Glass was elected to the Virginia Senate. Two years later, as
a delegate to the State Constitutional Convention, Glass became instrumental
in pushing through the convention a proposal to proclaim a new state constitution
outright without submitting it to anyone, thus disenfranchising those
who had gained the right to vote under the 14th and 15th amendments. Almost
four decades later, when President Franklin Roosevelt wanted to abolish
poll taxes throughout the South, Glass defended the plank he himself had
put into the Virginia Constitution and stated that "the President displays
a very superficial knowledge of the subject."
Even as he worked to disenfranchise certain segments of society, he had a soft spot in his heart for individual blacks. In the midst of the fight over the Federal Reserve Bill, Glass made a special trip home to Lynchburg to appear at the manslaughter trial of his black servant. He took the witness stand, "swore that William was the best Negro that ever lived in the United States" and pleaded to keep him from imprisonment. When William was fined $200, Congressman Glass reached into his pocket, pulled out a roll of bills, paid the fine, then rushed back to Washington, D.C.
In 1902, at the age of 44, Glass was elected to the U.S. House of Representatives. To those who did not know him, he appeared sickly and frail. The 5-foot-4-inch Glass had dropped to 100 pounds and walked around on tiptoes to avoid jarring his sensitive stomach. This malady was not uncommon for Glass. Four years earlier, doctors warned him that his irregular eating habits and intense working habits had almost ruined his digestion, as well as caused a number of other bothersome ills. "Rest," his doctor ordered; but it was a futile request.
His colleagues in the House soon learned that this little man was not to be taken lightly. Within two years, he was appointed to the Committee on Banking and Currency and threw himself into the study of finance just as heartily as he had earlier delved into questions about Shakespeare when he was a newspaper editor.
Shaping a central bank
The Banking Panic of 1907 put the Banking and Currency committee in the spotlight, and Glass found himself chairman when his friend Woodrow Wilson was elected president. Initial efforts at resolving the problems raised by the 1907 panic, though, were met with frustration. Essentially, legislators were concerned about two issues: a banking system that was prone to panics (1907's event was not rare), and a currency that was not responsive to changes in demand. On the makeup of a reserve system to address those problems, there was disagreement over the control of such an institution: Should private banks have control over the eventual Federal Reserve System, or should their input be confined to decentralized banks within the system?
Carter Glasswho favored decentralized powerwas particularly adamant on this question, and his role in developing the legislation is an example of how his Jeffersonian ideas of democracy, along with his tenacious spirit, helped shape one of the country's most important pieces of financial legislation. After working tirelessly on the subject for five years, the election of 1912 brought an opening: not only did it usher Wilson into the White House, but it also gave Glass' party control of both the House and Senate.
Glass wasted no time. He began drafting legislation with Wilson before the newly elected president even took office, and by December of the following year, the Federal Reserve Act was passed and signed into law. Glass was thrilled: "The thing which had been vainly discussed and intermittently attempted for 20 years had finally been accomplished!"
Essentially, in constructing the Federal Reserve Act with Wilson, Glass had repackaged the previous Republican administration's proposal, the economist Milton Friedman would later write, making it even more conservative. Instead of a centralized bank under private banker control, Glass, of course, wanted decentralized banks under private control. (The claim that the Federal Reserve Act was a modified form of the Aldrich plan was also made in Glass' day, and it was a notion he detested. In a 1922 speech before the Senate, Glass called the idea "a total misunderstanding," and said "no greater misconception was ever projected in this Senate Chamber ...") It was Wilson who suggested an altruistic board of governors appointed by the executive branch. Even though he may not have entirely liked that idea, Glass and his sharp tongue helped guarantee the bill's passage.
During the coming European war, Glass supported Wilson and the struggle for a lasting peace. At the end of 1919, he was named Wilson's Secretary of the Treasury, the first cabinet officer from Virginia since the elder Glass' commander, John Floyd, was Secretary of War in Buchanan's administration. As such, Glass favored rebuilding Europe, including the defeated Germany, and pushed for American financial assistance. Although as head of the Treasury, Glass was in charge of enforcing prohibition laws, his greatest domestic concern had to do with the vast amount of borrowing for stock market speculation. Glass wanted the banks voluntarily to restrict their lending for stock purchases and warned about the consequences if nothing was done.
Exactly one year after he took over at the Treasury, the popular Glass was appointed to the Senate in 1920 to succeed Thomas S. Martin of Virginia, who died in late 1919. Glass would remain a Virginia senator until his death.
When Glass' predictions about the economy came true in 1929, he first went to work defending his original Federal Reserve legislation, then proceeded in 1931 to write a banking reform bill to provide the Federal Reserve Board with greater control over speculative credit. Thus began an important period wherein Glass and the rest of the nation, reeling from a series of financial panics and rampant bank closures, reconsidered what type of financial system was best for the country.
Briefly, some of the laws enacted:
- Glass-Steagall Act of 1932: The piece of legislation that keeps Glass' name in the news today, largely because of its provisions that separated commercial and investment banking; current reformers hope to mend that split. The Act also permitted the use of U.S. government securities as collateral for Federal Reserve notes.
- Banking Act of 1933: Established the Federal Deposit Insurance Corp.set the insurance level at $2,500 per depositor; placed control of open market operations under the Federal Reserve.
- Reconstruction Finance Corp. (1933): Permitted Federal Reserve to issue loans directly to businesses.
- Securities and Exchange Act: Provided for minimum margins on purchases of securities on credit.
- Banking Act of 1935: Created the Federal Open Market Committee; Federal Reserve Board becomes the Board of Governors, with terms set at 14 years; Secretary of the Treasury and Comptroller of the Currency were removed from the Board.
Glass was not always on the winning side of these new laws, including in his opposition to federal deposit insurance. As Friedman and Anna Schwartz tell it in their Monetary History of the United States: "[Glass] had opposed a similar provision at the time of the passage of the original Federal Reserve Act. Glass believed that the solution was reform of the practices of commercial banks and introduced several bills to that end. None received the support of the administration or of the Reserve System, and none was passed."
In 1932, the political party he had been a member of for many years began to head down a path Glass did not care to take. Although he was said to like Franklin Roosevelt personally, he could not bring himself to trust anyone who sought public office with Roosevelt's vigor. Glass had also locked horns with Roosevelt when the latter was assistant secretary of the Navy and wanted to keep the Coast Guard under the Navy's jurisdiction after the end of World War I. Glass, as the head of Treasury, insisted it return to Treasury's control and won the point. Despite his misgivings, Glass got out of his sickbed to defend Roosevelt against Hoover's attacks. Roosevelt, in turn, offered Glass the Treasury. In poor health, Glass turned down the office, but he also knew that he and Roosevelt did not agree on fundamental economic issues. Glass tried to keep their disagreements private, but in a very short time, the Roosevelt administration would give him fits. The New Deal came along and took his mind off everything else, according to a flattering biography, even his prized Jersey cows at his home at Montview Farm, Va.
Although in public Glass continued to support the Roosevelt administration, he openly fought some Roosevelt initiatives and worked tirelessly to fight against what he considered unconstitutional interference by the federal government in private affairs. But the fact that the New Deal carried all but two states in 1936 did not surprise Glass: "It is well nigh impossible to beat a five billion dollar campaign fund," he quipped.
For the first time in years he did not participate in the construction of the party platform in 1936, and he spent the next four years working for a balanced budget and states' rights, usually behind the scenes. In 1937, however, he went on the radio to attack the White House's attempt to pack the Supreme Court. Glass won the battle. In 1940, as he had done four years earlier, he fought against the nomination of Roosevelt, but gave his support when the Democrat was nominated for a third term.
Having been a widower for the previous three years, Glass remarried in 1940 at the age of 82. Although Glass' character had been "carved out of unblemished granite," according to Harry Byrd, the junior senator from his home state, the man himself had begun to allow the illnesses which had plagued him for most of his life to slow him down. For all intents and purposes, the father of the Federal Reserve System retired from public life within two years.
Finally, at the age of 88, Glass died of congestive heart failure in his apartment at the Mayflower Hotel in Washington, D.C. Out of respect for the senator from Virginia, the Senate suspended business and adjourned for the day.
"A link with the Old South is broken in the passing of your distinguished husband," President Truman wrote to the second Mrs. Glass. "To the end he glorified in the title of 'Unreconstructed Rebel.'"