Paul Moritz Warburg

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Paul Moritz Warburg

The German-American banker and banking theorist Paul Moritz Warburg (1868-1932), as spokesman for the large bankers of America, favored a highly centralized banking system. In much modified form, this became the Federal Reserve System.

Born in Hamburg to an aristocratic Jewish family of rabbis and merchants who had engaged in banking and commerce in Europe for nearly 300 years, Paul Warburg was educated in a realgymnasium and served an apprenticeship in a Hamburg mercantile house. Completing his commercial education in London and Paris banking houses, he went around the world in 1893 to learn international finance. While in the United States, he married the daughter of one of the partners in the large New York investment banking firm of Kuhn Loeb and Company. On his return to Germany he was admitted as a partner in the family banking firm in Hamburg.

In 1902 Warburg accepted a partnership in Kuhn Loeb and established residence in New York; he became a naturalized American citizen in 1911. During this time banking reform was a constant concern, particularly after the Panic of 1907 wiped out many American banks and brokerage houses, in part because of the inability of the national banking system to funnel credit to areas where it was needed. In a series of noted speeches and essays Warburg proposed establishing a large united reserve bank which would be owned by the nation's banks, would mobilize reserves, emit a flexible banknote currency, and be directed by the banking community immune from political interference. The plan, heartily endorsed by Nelson Aldrich, chairman of a Senate committee considering proposals for banking reform, became, with modifications, central to the committee's report to the Senate in 1911.

Progressives of both parties denounced this proposal, suggesting that it would create a money trust which would control the nation's credit. Instead, a regional reserve system was worked out, and it reached its final form in the Federal Reserve Act of 1913. Though critical of this approach, Warburg cheerfully endorsed the final solution as better than no system at all, and because of his stature in the banking community President Wilson appointed him to the Federal Reserve Board.

Warburg then served on the Advisory Council of the Federal Reserve Board until 1926, contributing greatly to the smooth implementation of the Federal Reserve System. He foresaw the coming of the crash of 1929. A man of broad culture, he devoted much of his time during his latter years to cultural and civic activities.

Further Reading

Warburg's account of his participation in banking reform and his voluminous essays on the subject are contained in his The Federal Reserve System: Its Origin and Growth (2 vols., 1930). There is no biography of Warburg. Sketches of uneven quality can be found in B. C. Forbes, Men Who Are Making America (1917; 6th ed. 1922); Harry Simonhoff, Saga of American Jewry, 1865-1914 (1959); and Tina Levitan, Jews in American Life (1969). J. Laurence Laughlin treats Warburg rather critically in The Federal Reserve Act (1933). Warburg's position regarding the Federal Reserve Act is briefly described in Henry Parker Willis, The Federal Reserve System (1923). □