Larry Summers's Not-So-Illustrious Predecessor

Thomas D. Jones, one of the first nominees to the Fed -- in 1912 -- also withdrew.

A Democratic president has reluctantly bowed to pressure and accepted the withdrawal of his preferred nominee to the Federal Reserve -- a man whom he pointedly described as "my personal choice." Despite his close connections to the president and his longstanding loyalty, the presumptive appointee couldn't overcome his poor standing with the liberal wing of the Democratic Party and fell on his sword rather than force the president to spend political capital on a losing confirmation fight.

Larry Summers? Nope. That would be Thomas D. Jones, who was nominated to serve on the Fed board by President Woodrow Wilson in the late spring of 1914. Jones was part of a slate of nominees: The Fed, created the previous year, had yet to begin operation, and it fell to Wilson to furnish the first board with what one magazine described as the "seven wise men of finance." Jones was a lawyer and a director of International Harvester, one of the largest corporations in the U.S. at the time.

But Jones's nomination had less to do with his qualifications than it did the immense gratitude the president felt toward Jones for helping him out in his moment of crisis. In this case, it wasn't a financial crisis like the one that President Barack Obama endured with Summers by his side, but Wilson's controversial presidency at Princeton University from 1902 to 1910.

Jones, a university trustee, had supported Wilson's radical overhaul of Princeton's curriculum, designed to turn it into a modern, meritocratic research university. Wilson's moves -- especially his campaign against elitist "eating clubs" -- provoked a huge backlash, but Jones backed Wilson on the board. "He stood by me with wonderful address and courage," recalled Wilson in 1914. (According to one person, Jones also contributed about $30,000 to Wilson's campaign in 1912 -- the equivalent of almost $1 million today.)

But Wilson couldn't repay the favor any more than Obama could repay Summers for his loyal service. In nominating Jones, Wilson seemed to signal a retreat from his campaign promises to put an end to the trusts and industrial combinations that dominated the U.S. economy at the time. In Wilson's era, combines such as Standard Oil and International Harvester were hated by many of the rank-and-file in the Democratic Party no less passionately than liberals hate big banks today. "Those who create monopolies," warned a Democratic senator, "war against us, the Democratic Party."

When Jones went before the Senate Banking Committee, he found himself mired in a confirmation battle no less nasty than the one Summers would have faced. It didn't help that International Harvest was under investigation for violations of the Sherman Antitrust Act and Jones was named as an individual defendant in the case. Worse, Wilson foolishly -- and falsely -- told the Senate that Jones was a secret reformer who had been brought in to cure International Harvester of its monopolistic practices. When the truth came out, Democrats from farm states and a loose coalition of liberals assailed Jones and the economic forces he represented.

"The Harvester Trust has been robbing the people of the country scandalously," declared New Jersey's Democratic senator. "I won't stand for this kind of robbery, and I won't stand for anybody connected with it."

But it was Senator James Reed, a Missouri Democrat, who landed the body blows. Labeling the nominee a "criminal," Reed compared Jones's decision to join International Harvester to "a man who volunteers to serve on board a pirate ship with an already established criminal history." Becoming a board member of the company, Reed howled, "may be worse than one who enlisted with the original crew...He sees the black flag at the masthead; he steps upon decks slippery with the blood of the slaughtered. A gentleman of that kind knows what he is doing."

As the Democratic Party began to split over the issue, Jones unexpectedly withdrew his nomination, citing concerns that he had become an "embarrassment" to the administration. Though some in the press billed the debacle as a major defeat for Wilson, others took the long view, observing that "a victory for the President at the cost of a party split" would have been too injurious. Jones, the Washington Post argued, "saved the administration from a grave political mistake."

The same is true today, even as many pundits are labeling Summers's decision to withdraw from consideration for the top Fed job a monumental "defeat" for the Obama administration. Hardly. There are other qualified candidates less likely to cost the president political capital, and once he's done finding a replacement for Ben Bernanke, Obama can turn to more important things. Wilson certainly did: A few months after sacrificing Jones for fear a nomination fight might imperil a "great program of corrective and constructive legislation," Wilson secured passage of the monumental Clayton Anti-Trust Act, the most far-reaching legislation of its kind.

There's no evidence Obama has anything comparable up his sleeve, but it's up to him to make sure that Summers's sacrifice wasn't in vain.

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