Paul Moritz Warburg (August 10, 1868 – January 24, 1932) was a German-born American investment banker who served as the second vice chairman of the Federal Reserve from 1916 to 1918. Prior to his term as vice chairman, Warburg served as one of the original members of the Federal Reserve Board, taking office in 1914. He was an early advocate for the establishment of the U.S. central banking system.
Early life
Warburg was born in Hamburg, Germany, to the Warburg family, a German Jewish banking dynasty with origins in Venice. His parents were Moritz and Charlotte Esther (Oppenheim) Warburg. After graduating from the Realgymnasium in Hamburg in 1886, he entered the employ of Simon Hauer, a Hamburg importer and exporter, to learn the fundamentals of business practice. He similarly worked for Samuel Montagu & Co., bankers, in London in 1889–1890, and the Banque Russe pour le Commerce Etranger in Paris in 1890–1891.
In 1891, Warburg entered the office of the family banking firm of M. M. Warburg & Co., which had been founded in 1798 by his great-grandfather. He interrupted work there to undertake a world tour during the winter of 1891–1892. Warburg was admitted to a partnership in the family firm in 1895.
Career
thumb|Paul Moritz Warburg, Addresses and essays, 1930
Although a major factor in German finance, after frequent business trips to New York Warburg settled there in 1902 as a partner in Kuhn, Loeb & Co., where the influential Jacob Schiff was senior partner. Paul's brother, Felix, was married to Schiff's daughter and both brothers would be involved with Kuhn, Loeb over the years, making partner after marrying into the firms family members. Warburg remained a partner in the family firm in Hamburg, but he became a naturalized American citizen in 1911. He was a member of Temple Emanu-El in New York City.
Warburg became known as a persuasive advocate of central banking in America. Many of his contemporaries regarded him as the chief driving force behind the establishment of America's central bank. Russell Leffingwell, who served variously as the Assistant Secretary of the Treasury, head of the Council on Foreign Relations, and chairman of J.P. Morgan, credited Warburg with doing "yeoman's service in preaching the doctrines and practices of modern [central] European banking" while all other "friends of sound money" were so occupied with battling against the free silver movement that they gave scant thought to the need for currency reform. Harold Kellock of The Century Magazine, characterized Warburg as "the mildest-mannered man that ever personally conducted a revolution." This shy and sensitive man, Kellock continued, "imposed his idea on a nation of a hundred million people."
Upon arriving in New York in 1902, Warburg drafted a critique of the American banking system, which he thought was insufficiently centralized. Self-conscious of his imperfect English and his status as a newcomer, he left his paper to sit in his desk for four years. He overcame his reticence in 1906 after attending a dinner party hosted by Professor Edwin Seligman of Columbia University. Seligman, an advocate of central banking, was impressed with Warburg's extensive knowledge of the financial system and reportedly told him that "It's your duty to get your ideas before the country." The chief reason for this lagging state of development was the lack of a central institution that could rediscount bank promissory notes to facilitate the exchange of promises of future payment for cash. A central bank constructed along the lines of the Reichsbank could fulfill this role, according to Warburg, and thus make it easier for the excess reserves of one bank to be used to bolster the insufficient reserves of another.
Warburg's ideas gained a wider hearing after the panic of 1907 engulfed the country's financial system, and he subsequently published two more articles elaborating and defending his plans, "A Plan for a Modified Central Bank" and "A United Reserve Bank of the United States". At the same time, he appeared at conferences hosted by Columbia University, the American Economic Society, and the Academy of Political Science.
By 1908, Warburg had gained enough recognition that Nelson Aldrich, the Republican senator from Rhode Island, consulted him for advice on currency reform. The National Monetary Commission, which Aldrich chaired, subsequently interviewed Warburg on multiple occasions. This bill was close enough to the outline that he adumbrated in his three articles that Harold Kellock could write, "Five years from the time Mr. Warburg had begun his single-handed crusade, his ideas were placed before Congress in the form of the Aldrich Bill." Murray Rothbard, William Greider, and Griffin Despite some minor quibbles, Warburg himself largely celebrated the Owen–Glass Bill in the North American Review. It was "a source of great satisfaction", he wrote, that both the Democratic and Republican parties had come to embrace the type of plan for which reformers like him had been campaigning.
In 1919, he founded and became first chairman of the American Acceptance Council. He organized and became the first chairman of the International Acceptance Bank of New York in 1921. International Acceptance was acquired by the Bank of the Manhattan Company in 1929, with Warburg becoming chairman of the combined organization.
He became a director of the Council on Foreign Relations at its founding in 1921, remaining on the board until his death. From 1921 to 1926 Warburg was a member of the advisory council of Federal Reserve Board, serving as president of the advisory council in 1924–26. He was also a trustee of the Institute of Economics, founded in 1922; when it was merged into the Brookings Institution in 1927, he became a trustee of the latter, serving until his death.