Benjamin Strong

More strikingly perhaps than in any other country, the manner in which a great political experiment works out in the United States depends on the men to whom its administration is committed. The Federal Reserve, when it came into being fourteen years ago, was one of those momentous experiments. Its immense facilities might conceivably, in rash or inexperienced hands, have made it an engine of disastrous credit inflation. In the hands of narrow-minded and timid men, its restrictive powers might have throttled the country’s normal development. Those dangers were not lessened by the fact that the new financial organism entered the field full-grown at the moment when the United States and the world at large were suddenly confronted with a strain on credit utterly unprecedented for magnitude and violence. What the financial story of America would have been between 1914 and 1918 if the country had been left to the crude and imperfect banking system of 1907 and 1893, it is even now impossible to guess. But the very fact that the portentous war-time requisitions were met by immediate and immensely great expansion of Reserve Bank facilities threw obscurity over the system’s probable destiny when war ended and the machinery of credit had to adjust itself to the vastly lessened requirements of peace.

Recognition of the great place occupied by Benjamin Strong in that new financial era, of the powerful influence exerted by him in shaping the system’s policies, is certain to increase as time goes on. Economists predicted complete state bankruptcy in Europe, the piling up of all the world’s gold in the United States, then such inflation of credit in America as should utterly demoralize our own industrial organism. American markets were in a wildly speculative mood, clamoring for the use of Reserve Bank credit to support a fantastic structure of fictitious prices. At the outset, it had been imagined that the shaping of the system’s policies would be the task of the governing board at Washington, in which Strong had no official voice; and the board’s opinion of 1919 was divided. But the New York Reserve Bank held the key to the financial situation and Strong was governor of the New York Bank. Except for his indomitable resolution, his bold and unhesitating policy, 1920 might have been another 1907. The fight with credit inflation was even then only momentarily arrested; a few years more, and the inflationists were again hammering furiously at the door of the Federal Reserve. But Strong, who in 1919, in the face of angry protest from speculative Wall Street, had come personally into the open with a warning against diversion of Reserve bank credit into speculation, led in the application of similar restraint to the Wall Street craze of 1925. The system’s protective measures against the explosion of speculation in the spring of 1928 were initiated at New York.

Of all his official achievement, Strong’s co-operation with the great foreign central banks for restoration of gold payments in the outside world was peculiarly his own. He did not rest his efforts in that vital matter on good advice and long-range promise of assistance. He established a program, previously unimagined, of frequent and personal conference between himself and the responsible chiefs of European state banks. These conferences were so intimate that the Deputy-governor of the Bank of France or the President of the German Reichsbank could sit as visitor in a directors’ meeting of the New York Reserve Bank, and that the Governor of the New York Bank and the Governor of the Bank of England could call one another by their Christian names across the dinner-table. Within three years, this union of international energy and international resource had lifted the whole of Europe from the Serbonian bog of depreciated money. It was an episode absolutely new in the world’s economic history. There were times, indeed, when the arrival at New York of the governors of the British, French and German central banks gave reminder of the famous visit of European statesmen and soldiers to Washington in 1917, for conference with the American administration on mutual policies for conducting the European war. On both occasions the conference foreshadowed memorable victory, and the victory of peace was hardly less renowned than that of war. It was achieved over forces which were wrecking public credit, reducing currencies to worthlessness, threatening economic and political disintegration. The new financial Europe of 1929 is the sequel to the one story of international co-operation as the new political Europe of 1919 and 1923 was the sequel to the other, and the new order in international high finance was the personal achievement of Strong.

Those who came in contact with him in his period of achievement matched impressions with a vigorous intellect tempered with quiet humor; quickly responsive to every new phase of a confused situation, clear in judgment of all its ramifications, fearless in the outlining of policies to meet it, extremely tactful in the urging of them, but absolutely unshaken when the right path to pursue had been selected.

Alexander Dana Noyes
1929 Century Association Yearbook