A Brief History of the Federal Reserve
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For the Historian on the move
With a rise in populism and a President who considers himself a modern day Andrew Jackson, perhaps now is a good time to reeducate ourselves on the Federal Reserve. After all, Andrew Jackson was the man who singlehandedly forced the collapse of America’s second attempt at a centralized bank.
The Revolutionary War ended in 1783 and it wasn’t until December 1913 that the Fed Reserve Act passed under President Wilson. During that 130 year period, there were two attempts at centralizing the bank, both failed when the government failed to renew their charters. During this time there was a general fear of a centralized bank. After successfully gaining their independence from the British Empire, the vast majority of Americans feared any semblance of a strong centralized government; it seemed like a slippery slope back to tyranny.
The first attempt of a central bank, the First Bank of the United States, located in Philadelphia had a twenty year charter starting in 1791. Though popular among Federalists, their strong opposition successfully blocked renewal of the charter. The second failure is a part of President Andrew Jackson’s legacy. Jackson considered any aid to banking as a direct attack to his populist position and vetoed the charter.
Without a centralized bank, regional and state banks created their own notes. There was little to no uniformity.
After the crash of 1893 and 1907 the need to centralize banking entered the forefront of political debate. The unregulated market created competing monopolies, which could game the economy. In 1907 a failed attempt to take over the copper market triggered a panic. In three weeks markets shrunk 40%. Without a centralized bank, the regional and state run lenders had a liquidity problem. Reserves ran dry and banks had to rely on men like J.P. Morgan to keep the economy afloat.
This led some of the harshest critics, like Nelson Aldrich, into advocates for a centralized bank. In 1910 the famous secret meeting on Jekyll Island took place. Nelson Aldrich came out of the meeting with a bill to create a central banking system.
Though this bill was rejected, it did influence the successful Owen-Glass Bill (Federal Reserve Act). The Act was signed and put into law by Woodrow Wilson in 1913, and that is the pocket-sized history of the Federal Reserve.
References for this article:
America’s Bank by Roger Lowenstein
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