Global Governance in the Twenty First Century. Appendix C by Michael L. Chadwick

Author:Michael L. Chadwick [Chadwick, Michael L.]
Language: eng
Format: epub
Publisher: Global Affairs Publishing Company
Published: 2007-05-31T21:00:00+00:00

The Influence of Paul Warburg

By

Robert Craig West

Paul Warburg was the single most powerful force in shaping the direction of American banking reform. Warburg himself claimed no originality, but through his writings, speeches, and counsel to those engaged in reform, he left an imprint greater than anyone else's. His influence has been denied by some who were unwilling to admit Warburg's importance for personal reasons but there were those who recognized his contribution. The economist E. R. A. Seligman was among those most lavish in praise. He maintained that Warburg changed the scope of banking reform and compared him to Samuel Jones Loyd, Lord Overstone, in his effects on banking law.2

In 1902, Warburg came to the United States to join Kuhn, Loeb and Company, one of the most respected and powerful banking houses in New York. Warburg's training and experience were gained in the family banking house in Hamburg, M. M. Warburg and Company, and his views had been shaped by his experience with European financial systems. Like most European bankers, Warburg viewed the American financial structure with a critical eye. Almost at once he began to suggest reform, an attitude which many American bankers no doubt found presumptuous. One New York banker's response to Warburg's suggestions probably demonstrated the typical view of the existing financial system; James Stillman, powerful head of the National City Bank, was remembered by Warburg as believing that American banking methods represented an improvement upon the European system. According to Warburg, Stillman changed his view during the panic of 1907.3

Warburg's banking skills rapidly elevated him to a respected position in the New York banking community. Warburg continued to propose bank reform, often writing for leading journals and newspapers. In an article which first appeared in The New York Times Annual Financial Review early in 1907,4 he lucidly described the defects in American practice and outlined remedies to help prevent panics such as the one shortly to occur.

Warburg strongly advocated the development of an American discount market and the European-style, two-name commercial paper necessary for the operation of such a market. For a banker of Warburg's background it was only a short step from a commercial bill market to a central bank. Warburg seems to have recognized very early that a full-fledged, European-style central bank was an impossibility in the United States. He realized that politics, not economic conditions, in the United States precluded the passage of any act which created a central bank. He always took care to indicate in his proposals the differences between what he proposed and a real central bank. His first reform proposal demonstrated this. Published at the very height of the 1907 panic, his essay was entitled "A Plan for a Modified Central Bank." This plan laid the groundwork for his later banking reform attempts and also gave the various asset currency plans a critical view. Warburg pointed out that the existing decentralization of reserves and the proposed decentralization of the note issue would make it unlikely that stability could be ensured.

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