The year 1929 ended with a bang – or rather, a terrifying crash – on Wall Street, leaving a lingering sense of unease despite official reassurances. As we move into 1930, the narrative of America’s economic landscape becomes even more complex, revealing not a swift rebound, but a deepening struggle marked by audacious financial maneuvers, internal power battles, and a growing tide of distress that defied the best efforts of central bankers. It’s a period where the truth often lay hidden beneath layers of policy and powerful interests, and as a historian, my commitment is to uncover that truth, reflecting the granular detail and critical perspective found in our sources.
The Fed’s Shifting Currents: From Cheap Money to Austerity
As 1930 dawned, the Federal Reserve, particularly the influential New York Federal Reserve Bank under Governor George L. Harrison, initiated a substantial “cheap money” program. The New York Fed orchestrated a rapid series of interest rate cuts, bringing its discount rate down from 4.5% in early 1930 to 2% by the year’s end. This was coupled with the purchase of $218 million in government securities, a move intended to inject liquidity and increase member bank reserves by over $100 million.
The rationale behind these actions was multifaceted, stemming from pre-crash policies. The Fed’s inflationist stance in the 1920s was partly driven by a desire to aid Great Britain, whose treasury was strained by socialist programs. By lowering U.S. interest rates and devaluing the dollar, the aim was to encourage investors to move their money to England, where rates and values were higher. This strategy, initiated years earlier by Benjamin Strong of the New York Fed (a figure deeply connected to the House of Morgan and its English ties), had already been criticized for fostering speculation and ultimately making the 1929 crash “inevitable”. Strong’s handpicked successor, George Harrison, continued this “easy money” program, even overriding objections from Federal Reserve Board Governor Roy Young. Harrison’s commitment was clear, as he declared, “I am ready to provide all the reserve funds that may be needed” to prevent stock market liquidation.
However, the Federal Reserve’s policy in 1930 was far from a consistent path of easy credit. In a significant “blunder” in mid-1930, the Federal Reserve Board in Washington “ended the liberal provision of credit and shrank the money supply”. This shift was, in part, an attempt to curb the New York Fed’s independent “backdoor diplomacy with European ministries”. Treasury Secretary Andrew Mellon, a key Republican figure of the era, also advocated for higher interest rates, believing they were necessary to halt the outflow of gold to Europe. Many at the Fed, reflecting an adherence to orthodox economic thinking, viewed austerity as a “bitter but necessary medicine,” arguing that cheap money couldn’t correct the “consequences of such an economic debauch”. This internal discord within the Federal Reserve system, a persistent issue since its inception, played a critical role in the unfolding financial drama.
The Titanic Clash: Rockefeller vs. Morgan for Banking Supremacy
While the Fed grappled with monetary policy, a monumental power struggle was unfolding in the private banking sector. In March 1930, a “crucial event” occurred at Chase National Bank, a New York institution that, prior to this period, had seen its CEO, Albert H. Wiggin, as a “Morgan man”. However, Chase was also “known as the Rockefeller bank” due to the significant stake held by Standard Oil interests.
Following the 1929 crash, the Rockefeller-controlled Equitable Trust Company found itself in a vulnerable position. Its new head, Winthrop W. Aldrich, a brother-in-law of John D. Rockefeller, Jr. and destined to be a key Rockefeller figure in banking, “engineered a merger into Chase” in March 1930, making Chase National Bank “the world’s largest bank”. This strategic move ignited a “titanic three-year struggle” for control of Chase between the Rockefeller and Morgan forces, who had previously dominated the bank’s top leadership.
Aldrich swiftly mobilized Rockefeller forces to become president of the merged entity, a move fiercely but unsuccessfully resisted by Morgan partner Thomas W. Lamont. Although Aldrich initially remained subordinate to Wiggin and Charles McCain (a Wiggin ally and chairman of the board), his presence marked the beginning of an internal campaign to oust them and consolidate Rockefeller control. Aldrich’s efforts were supported by key board members allied with Rockefeller interests, including Thomas M. Debavoy, a close council to John D. Rockefeller Jr., and Vincent Astor, a friend and cousin of Franklin Roosevelt. This struggle at Chase National Bank was a microcosm of the broader financial and political rivalry that characterized American politics from the turn of the century, pitting the Morgan group against the Rockefeller-Harriman-Kuhn, Loeb alliance.
The Unyielding Tide of Bank Failures
Despite the Federal Reserve’s early efforts to expand bank reserves and maintain cheap money, and regardless of the internal power shifts within the banking giants, the year 1930 was relentlessly marked by an escalating wave of bank failures. The increase in bank reserves from the Fed’s purchases of government securities was “offset by bank failures in the latter part of the year and by enforced contraction on the part of the shaky banks remaining in business”. As a result, the total money supply “remained constant throughout 1930”, failing to provide the much-needed economic stimulus.
The scale of these failures was alarming. From a rate of 60 bank failures per month in early 1930, the number “snowballed to 254 in November and 344 in December of 1930,” culminating in “over a thousand bank failures for the year”. A particularly significant event was the failure of the Bank of United States on December 11, 1930. As New York City was hit by this wave of closures, this large bank, with 450,000 depositors, locked up the savings of hundreds of thousands of people, threatening “more general ruin”. This stark reality underscored the inherent instability of a banking system that was “always unsound and incapable of paying more than a fraction of its liabilities on demand”.
Critics swiftly emerged to dissect the unfolding crisis. Professor H. Parker Willis, a persistent voice against the Fed’s “inflationism and credit expansion,” argued that the Fed’s “easy money policy” was paradoxically contributing to the bank failures. He maintained that this policy prevented banks from liquidating their “unsound loans and assets,” trapping the economy in “frozen, wasteful malinvestments”. Willis contended that a true recovery could only come from allowing these “unsound credit positions” to liquidate. Similarly, Albert Wiggin, the Morgan-aligned CEO of Chase National Bank (before his eventual ouster by Aldrich), echoed these sentiments, denouncing Hoover’s policy of propping up wage rates and prices with “inflationary cheap money,” and asserting that the depression was “prolonged and not alleviated by delay in making necessary readjustments”.
Amidst this turmoil, international financial collaborations continued, albeit with mixed results. Montagu Norman, head of the Bank of England, continued his efforts to establish a more formal “central bankers bank,” pushing for the creation of the Bank for International Settlements (BIS) in 1930. Although the U.S. Congress formally forbade the Fed from joining, the New York Fed and its Morgan allies worked closely with the BIS, treating it as if it were the American central bank, providing capital and loans. However, these international maneuvers could not stem the tide of European bank failures, which would accelerate in 1931, further highlighting the interconnected fragility of the global financial system.
As 1930 drew to a close, it was clear that the optimistic pronouncements of the previous year had been ill-founded. The efforts to stimulate the economy through cheap money had been undermined by a relentless wave of bank failures, rooted in underlying malinvestments and a deeply unsound financial structure. The year served as a grim testament to the fact that simply “making credit available” was not enough when the foundations of the economy were fundamentally unsound, and powerful interests continued their quiet, yet profound, battles for financial control.