Chairman of the Fed: William McChesney Martin Jr., and the Creation of the Modern American Financial System by Robert P. Bremner

Chairman of the Fed: William McChesney Martin Jr., and the Creation of the Modern American Financial System by Robert P. Bremner

I

A Family of Substance: The Early Years
Money, that seductive but treacherous commodity, has been woven into
the history of the Martin family for three generations. It weighed heavily in the
thoughts of Thomas L. Martin on 22 November 1894, as he stood at the back
of a small crowd that had gathered for a public auction ordered by the Fayette
National Bank of Lexington, Kentucky. The assets to be auctioned had once
belonged to the McChesney & Martin Grain Company, of which Tom Martin
had been a co-owner. For twenty years, McChesney & Martin had purchased
the grain harvested by Kentucky farmers and stored it for sale to flour mills
throughout the Midwest. Sadly, longevity and honest trading had proven no
guarantors of permanence. Lexington remembers little about the unfortunate
Thomas L. Martin, the grandfather of William McChesney Martin Jr., except
that he was emotionally and financially broken by the bankruptcy of his
business.
The failure of McChesney & Martin was the result of a national financial
panic, an event that struck Americans all too regularly in the second half of the
nineteenth century. Between 1893 and 1913, the American economy was
mired in recession 55 percent of the time, and financial panics like that of 1893
were often the cause.∞ Years later, Thomas Martin’s eldest son, William Mc-

Chesney Martin Sr., referred to the problem: ‘‘Our financial system—and it is
as important to the nation as the nervous system to the body—has been found

to be unacceptably weak.’’ The panic of 1893 that doomed McChesney &
Martin was caused in part by a bumper harvest and unusually large borrowing
by grain-storage companies like McChesney & Martin. The huge crop put an
enormous strain on the American financial system. Agriculture was the largest
single element of the U.S. economy, employing nearly 30 percent of the work-

force. To finance the harvest, banks in Lexington would normally turn to
banks in Chicago and New York for temporary loans. In 1893, the demand for
credit was so large that the great banks of continental Europe were asked to
support their American counterparts.
Like many financial panics, the panic of 1893 was caused by rumors. Stories
of financial problems at U.S. railroads and banks caused bankers across Eu-

rope to trim their lending commitments to the United States. With frightening
speed, the European bankers began to reduce their U.S. loans, and within
weeks McChesney & Martin’s banker was asking for repayment of a portion
of its loan. Thomas Martin tried to make a hurried sale of some of the com-

pany’s inventoried grain, only to learn that grain companies across the Mid-

west were also selling, and grain prices were collapsing. Even liquidating all of
the inventory at prevailing prices would not have enabled McChesney &
Martin to pay off its debts. The company was ruined. The final episode in
McChesney & Martin’s existence was the sad little gathering around the auc-

tioneer’s platform in front of the company’s building on the corner of Broad-

way and Water streets on that gray day in Lexington.
Thomas Martin’s entrepreneurial fire was extinguished by the bankruptcy.
For the remainder of his career, he worked as a bookkeeper for a trade associa-

tion, and the family’s financial circumstances never recovered. Thomas’s
change of fortune convinced two of Thomas and Hettie’s children, William
McChesney Martin Sr. and his younger brother, Louis, to seek greener pas-

tures away from Lexington. William McChesney Martin Sr. was born in 1874,
and after graduation from secondary school was accepted at Washington &
Lee College, a school steeped in tradition and patriotism. The college traced its
history through George Washington, who rescued it from financial troubles,
and General Robert E. Lee, who served as its president after the Civil War. It
was here, deep in the historic Shenandoah Valley of Virginia, that the notion of
public service entered the Martin family consciousness.
After graduation from college in 1895, Martin decided to seek his future in
the bustling city of St. Louis. He became secretary to his favorite uncle, Wil-

liam Samuel McChesney, a leader in the burgeoning railroad industry in St.
Louis. After two years, Martin decided there was ‘‘no future in machinery’’ for
him and began attending the Washington University School of Law at night.
In 1900, with his new law degree in hand, Martin encountered one of the men

Chairman of the Fed: William McChesney Martin Jr., and the Creation of the Modern American Financial System by Robert P. Bremner