Does an economy, a nation, a society, an empire, not need proper guardians of the private interest? Does it not need shrewd and responsible stewards of the public purse? Ask any great financier these questions and the answer will be, ‘yes, of course’ – usually said quietly, with the hint of a smile.
Whoever writes the history of any nation’s elite must study these financiers. One of the first instructions financiers give, however, is to avoid unwanted publicity. For that reason, many of them are not very well known. Some are almost totally unknown to posterity, except within a small circle.
One such person was Russell Leffingwell, one of the most influential American banker-servants of the middle twentieth century. Presidents from Woodrow Wilson to Dwight Eisenhower sometimes ignored his advice, but always listened to it. And what advice it was: remarkably shrewd, independent, prescient, witty, thoughtful, iconoclastic, humorous, and, at the same time, conventional, conservative, and almost always sensible.
The financier – part puppeteer, part sage, part guttersnipe – is one of the more defined stock characters of public life. The stereotype dates to the money changers in the temple, then to the Medici and other early banking dynasties. They went on to wield a special influence in the modern era as private financial networks, and the banks that underwrote them, acquired a global status.
For his part, Leffingwell did not attract much attention or controversy. He is the only one of a trio of legendary Morgan partners – the other two members being Dwight Morrow and Thomas Lamont – to lack a biography or memoir. He was a supporter of the Democratic Party. He was an outlier amongst his ilk. Yet he had one or two operational gifts, foresight and discretion being the most apparent. He is said to be the only partner of the House of Morgan to predict the Great Crash in 1929.
As his name suggests, Leffingwell came from colonial stock. His paternal family settled their land in Connecticut in the mid-seventeenth century. His mother was a Cornell from New York. He was born in New York City, grew up in the Hudson Valley, and settled on Long Island. He remained in this corner of the country for the rest of his life.
He entered banking from the law and government service, with a bit of help. His neighbour had been Woodrow Wilson’s son-in-law, William McAdoo, who also happened to be the secretary of the Treasury. Upon the suggestion of Leffingwell’s colleague, Paul Cravath, McAdoo persuaded Leffingwell to abandon plans for military service and instead hired him to manage financing the First World War. From there Leffingwell migrated back to Wall Street, eventually to the House of Morgan, where he spent the rest of his career as a partner, and as chairman from 1948 to 1950. He also chaired the Carnegie Corporation of New York, and, from 1946 to 1953, the Council on Foreign Relations, which he had helped establish. He was a member of the Century, Chevy Chase, Down Town, Knickerbocker, Metropolitan (DC), New York Yacht, Pilgrims, Piping Rock, Seawanhaka Corinthian Yacht, University, and Yale Clubs.
If that biographical résumé reads familiar, it should not be surprising. It’s more or less identical to that of most members of the mid-twentieth century ‘eastern establishment’ that dominated along the Boston-Washington axis, with satellites in San Francisco, Chicago, London, and elsewhere. The men and women who were part of it were a dime a dozen and so, logic would suggest, was their influence, which also was considerable.
The term ‘eastern establishment’ wasn’t used much until the post-war decades, and its contemporary meaning dates to the Second World War, when rich, powerful men and their wives set aside private pursuits to serve their country, as Leffingwell had done during the First World War. The Boston-Washington axis directed a southerly movement: scientists, lawyers, and other intellects joined a contingent of Wall Street bankers and headed to the nation’s capital to do their patriotic duty, in as well as out of public office. Many of them remained in one form or another until the 1970s, occupying roles not only in government but in its many appendages: lobby groups, professional associations, and research organisations.
American public life – or ‘the public sector’ – has identified with the Enlightenment-era axiom that the sum of private interests, no matter how solipsistic or selfish, can constitute a viable public interest through checks, balances, and other cumulative benefits. Greed is good, the interests tame the passions, the business of America is business, and so on.
Leffingwell did not denounce that axiom nor aim to diminish it. As the journalist Dorothy Thompson once wrote to Thomas Lamont: ‘…I didn’t in the least mean to imply that Mr. Leffingwell represented vested interests. On the contrary, I think Mr. Leffingwell represents disinterested intelligence. At any rate, I find that I agree with almost everything I hear of or by Mr. Leffingwell, which, I suppose, is the common definition of intelligence in others.’
Yet in Leffingwell’s case the common distinctions between public and private are too binary. Many of them – such as ‘Wall Street versus Main Street’ – conflate distinction with separation in the minds of many people. In coming to believe that the two are different places, with different interests, one tends to believe not only that one ought to have a certain power over the other but that, at the same time, Leffingwell’s two worlds existed in separate realms of loyalty. In a legal-institutional culture such as America’s, which emphasises to so great an extent the role of adversarial relations and the ‘freedom’ to accumulate, that mistake is easily made.
Leffingwell was an old-fashioned banker already ahead of his time. Apart from some notable exceptions, the founders of the American republic and their progeny kept a nominal distance from the stereotypically European world of high finance. The nation’s independent finances may have been necessary for its survival, as even Thomas Jefferson came to realise, but political necessity kept financial dealings at arm’s length, except when they became a handy scapegoat around election time. The idea of Wall Street as existing apart from the rest of the country’s politics lasted – or culminated, some would say – until the early part of the twentieth century, and to some extent persists.
What made Leffingwell’s generation of financiers distinct was their having arrived in office just after the Populist and Progressive movements had done their damage to Wall Street’s reputation, and, at the same time, after Wall Street had begun its remarkable rise to world power. Their relationships crossed borders as their minds and interests extended to areas beyond banking: the arts, and of course, politics. They were what we now call ‘generalists’: applying their wisdom and intelligence to many areas of private and public life, not to mention most areas of banking and finance. They thought and acted deeply, and widely, and cultivated this kind of versatility, and did so for the most part without falling into the superficial weeds.
It is not surprising then that this generation of Wall Street men, like later Davos men and women, applied to themselves a thick patina of altruism. If the business of America really was business, then the purveyors of capital had a particular responsibility to be the stewards of economic and social order. Historians have applied many titles to this group: ‘financial missionaries;’ ‘financial diplomats;’ ‘monetary priesthood.’ Leffingwell himself sometimes used such ecclesiastical language.
Leffingwell’s particular sermon was on the gold standard. He preached it throughout his life. For him, sound credit and a sound currency backed by the gold standard were the anchors of civilisation. If he was the wise man’s wise man, he was also the gold bug’s gold bug. It was his belief that the American and British central banks had lowered interest rates excessively, fuelling a credit boom which led him to predict the crash in 1929. He had been consistent in warning against such loose policies. During the First World War, despite overseeing the issuing of Liberty Bonds, he pressed for higher taxes and smaller government loans.
He could be rather defensive on the subject:
‘Gold never has been and never will be a cure-all. Gold never has been able and never will be able to settle a continuously adverse balance of trade and payments or adverse budgetary balance. Gold never has been and never will be able to make order out of disorder, to make peace out of war. Gold is not magic. Gold is an admirable compensating mechanism for maintaining seasonal equilibrium among currencies which are already in essential equilibrium. Gold is a thermostat which will maintain the temperature of a room at 68 degrees in zero weather provided we keep the windows shut and the furnace fire going; but with the fire out and the windows open, or in midsummer, the thermostat is useless. Gold will not take the place of political and economic peace.’
Thus could Leffingwell endorse (and, in fact, conspire with the columnist Walter Lippmann in prompting) Franklin Roosevelt’s decision to abandon the gold standard in 1933. He got on well with Roosevelt, whom he had got to know back in the Wilson administration (Roosevelt had also, briefly, begun his career as a Wall Street lawyer). The two corresponded and consulted often, and Leffingwell acceded to Roosevelt’s need to be seen apart from Wall Street. The two occasionally disagreed, and for his part Roosevelt did not hesitate to depict Leffingwell’s advice as less public-spirited than it was probably meant to be. But taking the country off the gold standard turned out to be sound advice.
Leffingwell never came round to endorsing managed currencies or Keynesianism. He carried on a polite correspondence with Keynes but there was not much overlap in thinking between them. However, Leffingwell’s intellectual contribution was not as an advocate or adversary of ‘isms but as a habitual doubter whose methods and judgement were refined by long experience with bonds and loans. He was doubtful about Anglo-American policy coordination and the heavy US role in reconstructing European economies in the 1920s; doubtful about the Dawes Plan of 1924; doubtful about much of the New Deal; doubtful about the path Wall Street had taken toward greater ‘professionalisation’ – that is, specialisation and fragmentation; and doubtful about the capacity of his fellow guardians to uphold, defend, and nurture civic standards.
He was a doubter but not a naysayer. ‘There is an old saying’, Leffingwell once recalled about his fellow Yale man, known as ‘Mr Republican,’ ‘that Bob Taft is always right until he has made up his mind.’ Leffingwell had misgivings over the creation of the Bretton Woods institutions but put his trust in them, or rather the World Bank, once it was in the safe hands of another fellow banker and ‘wise man,’ Jack McCloy. He backed the Marshall Plan and convinced a fellow banker-sceptic, Bob Lovett (soon to take office as the number two man in the State Department), to get on board with inviting the Soviet Union to participate before exploiting its refusal. He backed the decision to limit war aims in Korea. When he deemed a policy sensible, Leffingwell backed it.
It is true that Leffingwell is mostly forgotten. He was neither lionised nor demonised, and so he never became prominent in the usual American way. He performed the role of a guardian, but America has no guardians in a Platonic or any other real sense.
Whatever wisdom Leffingwell shared with politicians came in the tone of a supplicant. Politicians – which is to say, the fickle, parochial people who rule – don’t always respond well to whispering in the ear. Their world is loud, repetitive, immediate, and transitory.
Leffingwell mastered the method of the thermostat instead. The setting of the temperature happened elsewhere – in boardrooms, salons, clubhouses, and dining rooms. It was set not with pearls of wisdom imparted in ears, or by secret handshakes, but through simple, open comradeship and mentorship. Comrades and mentees were meant to fill in the details themselves, and to turn back occasionally, reliably, and charitably, to comrades and mentors like Leffingwell for quiet, earnest approval. Thus operated the powerful, effective, self-confident, and short-lived elite of the American century.