The Past Speaks

Matt Yglesias, who is one of the best economic commentators around right now, has published some interesting thoughts on how we could get some meaningful financial reform laws passed. His argument: let’s play off one finance company or faction of Wall Street against all the others.  This approach is inspired by economist Alex Tabarrok’s interpretation of the famous Glass-Steagall Act, which was passed during the Great Depression: Tabarrok argues that this law, which separated investment from commercial banking, was actually designed to advance the interests of the Rockefellers at the expense of Jack Morgan.   Tabarrok presented this argument in a 1998 article that Yglesias recently discovered online (see here).

To quote Tabarrok:

“More than anyone else, Winthrop Aldrich, representative of the Rockefeller banking interests, was responsible for the separation of commercial and investment banking. With the help of other well-connected anti-Morgan bankers like W. Averell Harriman, Aldrich drove the separation of commercial and investment banking through Congress. Although separation raised the costs of banking to the Rockefeller group, separation hurt the House of Morgan disproportionately and gave the Rockefeller group a decisive advantage in their battle with the Morgans.”

Yglesias’s blog post will doubtless interest everyone who wants to bring back Glass-Steagall.

I’m currently writing a review of a new book on the social history of J.P. Morgan’s company.  The author looks at the social connections of the Morgan partners to see how they influenced how the bank operated. The book is generally very good and also says some interesting things about the relationship between the Rockefellers and the house of Morgan in earlier period, but the author doesn’t really investigate whether there is much archival evidence to support the line of speculation advanced in Tabarrok’s paper. Perhaps this is something some other historian might do.