ed within three years of the adoption of the Constitution, but it was never popular and was allowed to lapse at first opportunity, as was its successor. The Federal Reserve System, the third effort in the United States to provide the functions of a central bank, came into being only with the Federal Reserve Act of 1913, when a variety of economic and political forces converged to encourage the foundation of a central bank. Perhaps more important, the Federal Reserve could come into being only after a number of other political and cultural forces, which had previously resisted with success the introduction of central banking, were weakened to the point where they could no longer prevent its enactment.
In the following pages, we will examine the formation of the Federal Reserve System; the debate surrounding its creation, the manner in which its organization was shaped to answer potential objections, and the assumptions that the framers of the Federal Reserve Act and the first governors of the Fed had regarding its role and its powers. In the course of this discussion, we will seek to place the establishment of the Federal Reserve System into historical context. We will have cause to look backward, to the previous history of abortive efforts to introduce central banking to the United States, and forward to the character of the Federal Reserve as it has evolved in the eight decades of its existence.
Our primary goal, however, is not to survey the entire history of American central banking, but to inquire into the critical transitional process that in 1913 converted the United States from a nation without a central banking system into a nation with one. Why, in 1913, did the political and economic forces that favored a central bank finally win out over those that opposed one? What compromises were they forced to accept? What role did they expect the Federal Reserve to play? What roles did they fail to anticipate?
T...