Paul Warburg

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.

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.

On October 1, 1895, Warburg was married in New York City to Nina J. Loeb, daughter of Solomon Loeb, a founder of the New York investment firm of Kuhn, Loeb & Co. The Warburgs were the parents of a son, James Paul Warburg, and a daughter, Bettina Warburg Grimson.

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 was elected a director of Wells Fargo & Company in February 1910. He resigned in September 1914 following his appointment to the Federal Reserve Board, and Jacob Schiff was elected to his seat on the Wells Fargo board.

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."

Shortly thereafter, the New York Times published Warburg's "Defects and Needs of our Banking System". Concerning its financial system, he argued, "The United States is in fact at about the same point that had been reached by Europe at the time of the Medicis, and by Asia, in all likelihood, at the time of Hammurabi." 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 died at his home in New York City on January 24, 1932, and was buried in Sleepy Hollow Cemetery in Sleepy Hollow, New York. At the time of his death, he was chairman of the Manhattan Company and a director of the Bank of Manhattan Trust Company, Farmers Loan and Trust Company of New York, First National Bank of Boston, Baltimore & Ohio Railroad, Union Pacific Railroad, Los Angeles & Salt Lake Railroad, Western Union Telegraph Company, American I.G. Chemical Company, Agfa Ansco Corporation, and Warburg & Company of Amsterdam.

The cartoon character, Oliver "Daddy" Warbucks in the Little Orphan Annie series, was purportedly inspired by Warburg's life and times. The Paul M. Warburg chair in Economics at Harvard University was named in his honor.

His son, James Warburg (1896–1969) was a financial adviser to Franklin D. Roosevelt in the first years of his presidency, and according to his memoirs, FDR's son, James, lived in a cottage house located on uncle Felix Warburg's New York country estate.