McAdoo was born near Marietta, Georgia, to author Mary Faith Floyd McAdoo and attorney William Gibbs McAdoo. His uncle, John D. McAdoo, was a Civil War general and justice on the Texas Supreme Court. McAdoo attended rural schools until his family moved to Knoxville, Tennessee in 1877, when his father became a professor at the University of Tennessee.
He graduated from University of Tennessee. He was appointed deputy clerk of the United States District Court for the Eastern District of Tennessee in 1882. He married his first wife, Sarah Houston Fleming, on November 18, 1885. They had seven children: Harriet, Francis, Julia, Nona, William, Robert, and Sarah.
He was admitted to the bar in Tennessee in 1885 and set up a practice in Chattanooga, Tennessee. In 1889, he lost most of his money trying to electrify the Knoxville Street Railroad system.In 1892 he moved to New York City, where he met Francis R. Pemberton, son of the Confederate General John Pemberton. They formed a firm, Pemberton and McAdoo, to sell investment securities.
At the turn of the century, McAdoo took on the leadership of a project to build a railway tunnel under the Hudson River to connect Manhattan with New Jersey. A tunnel had been partly constructed during the 1880s by Dewitt Clinton Haskin. With McAdoo as President of the Hudson and Manhattan Railroad Company, two passenger tubes were completed and opened in 1908. The popular McAdoo told the press that his motto was "Let the Public be Pleased." The tunnels are now operated as part of the Port Authority Trans-Hudson (PATH) system.
His first wife died in February, 1912. That year, he served as vice chairman of the Democratic National Committee.
McAdoo was lured away from business after meeting Woodrow Wilson in 1910. He worked for the Wilson presidential campaign in 1912. Once President, Wilson asked McAdoo to serve as Secretary of the Treasury from 1913 to 1918.
He married Wilson's daughter Eleanor Randolph Wilson at the White House on May 7, 1914. They had two daughters, Ellen Wilson McAdoo (1915-1946) and Mary Faith McAdoo (1920-1987). Ellen married twice, had a son by each marriage, and eventually committed suicide. Her parents adopted her eldest son after her death, and he took their surname. Mary Faith married three times but had no children.
McAdoo offered to resign when he married the President’s daughter but Wilson urged him to complete his work of turning the Federal Reserve System into an operational central bank. The legislation establishing the System had been passed by Congress in December 1913.
As head of the Department of the Treasury McAdoo confronted a major financial crisis on the eve and at the outbreak of World War I, July - August 1914. During the last week of July, 1914, British and French investors began to liquidate their American securities' holdings (which were denominated in U.S. currency); and convert them into gold holdings as was the practice, when the international monetary system was based upon the "Gold" standard. The Europeans then proposed to repatriate their gold holdings back to their treasuries in Europe. If they had done this, not only would they have collected the foreign exhcange reserves needed to buy supplies for the war (without borrowing the cash to do so, or having to sell bonds to raise cash from the Americans); they would have caused an immediate depression in American financial markets, and a general depression in the American economy as a whole. They would then have been able to offer to buy American goods and raw materials (for their war effort) at greatly depressed prices; which the Americans would have had to accept, in order to re-start the economy from a deliberately (albeit inadvertently) engineered depression.
McAdoo's actions at the time were both bold and courageous. The United States in 1914 was a still a net debtor nation (i.e., its net balance sheet was heavily negative). The nations of Europe and their financial institutions held far more in debt of the United States; of each of the states of the Union; and of American private institutions of all kinds, than the United States held in the debt of Europe's nations and institutions in all forms, both public and private.
McAdoo kept the U.S. on the Gold Standard. He ordered the closing of the New York Stock Exchange for an unprecedented four months to prevent Europeans from selling American securities and exchanging the proceeds for dollars, ad then gold.
The wisdom and historical impact of this action can not be overemphasized. McAdoo’s bold stroke as a first consequence averted an immediate panic and collapse of the American financial and stock markets. But also, it laid the groundwork for an historic and decisive shift in the global balance of economic power, from Europe, to the United States; a shift which occurred exactly at that time, and remains to this day. More to this, McAdoo's actions saved both the American economy and those same allies from economic defeat in the early stages of the war.
The western allies (France, Britain and their global empires) greatly under estimated their material and financial needs for the war. They wrongly predicted the war to be short, and their planning for the material and financial needs to sustain their efforts were orders of magnitude smaller than they quickly came to be. If, by their actions they had at the outset of the war, damaged American financial markets, and started a depression in the American economy; America would not have been available in 1915 and beyond, to take over the financial and material production requirements needed to sustain the western allied war effort from 1915, to the end of the war.
The historic opportunity seized by the American financial system was the retirement (liquidation) in a five year period (1915 – 1919) of the entire historical net external (i.e., the net external asset holdings held by US interests minus net total US debts held by foreigners) debt of the United States.
The western European allied nations had no access to their holdings of US financial assets at the outset of the war because of McAdoo’s actions. As a result they quickly exhausted all of their net foreign exchange holdings (those that were on-hand and in their possession before McAdoo closed the markets), currency, and gold reserves. They then had no choice but to issue sovereign bonded indebtedness (IOUs) to pay for the war materials they were buying on the domestic American and international markets.
The intact and undamaged American financial system and its markets easily managed the flow and operation of this financing and ensured that US industry swiftly built up to the necessary tempo needed to meet the allied war needs. The American financial system also managed the liquidation of allied holdings of US assets thereby moving the United States to a net creditor position internationally and with Europe; from the net debtor position we were in 1914.
In order to prevent a replay of the bank suspensions that plagued America during the Panic of 1907, he invoked the emergency currency provisions of the 1908 Aldrich Vreeland Act. William Silber credits his actions for having turned America into a world financial power, in his book When Washington Shut Down Wall Street.
After the United States entered World War I in April 1917, the United States Railroad Administration was formed to run America’s transportation system during the war. McAdoo was appointed Director General of Railroads, a position he held until November 1918 when the armistice was declared, ending World War I.
After leaving the Wilson Cabinet, he focused on his law firm, which included serving as general counsel for the founders of United Artists. He ran twice for the Democratic nomination for President, losing to James M. Cox in 1920, and to John W. Davis in 1924, even though in both years he led on the first ballot. He served as Senator for California from 1933–1938. He was defeated for renomination to the Senate in 1938 by Sheridan H. Downey. McAdoo and Eleanor were divorced in 1934. Two months after the decree was finalized in July 1935, the 71-year old married 26-year-old nurse Doris Isabel Cross.
McAdoo was a "Dry" with respect to Prohibition and was the favored candidate of the Ku Klux Klan in 1924 when the other front-runner appeared to be the Catholic Al Smith of New York. McAdoo took a payment of $25,000 from oil executive Edward Doheny in connection with the Teapot Dome scandal, but returned it once he discovered Doheny's links with Secretary of the Interior Albert Bacon Fall.
The town of McAdoo, Texas was named after him.