ed conditions that prevailed by 1913, the old sentiment against a central bank was strong enough that only by contriving the distinctive structure of the Federal Reserve System--not a single "central bank," but a system of twelve regional reserve banks--were supporters of central banking able to make their proposal politically acceptable.
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 to examine the attitudes toward and assumptions regarding money and banking.
The Federal Reserve Act was, as already noted, not the first attempt to provide the United States with a central bank. , by Alexander Hamilton, in the earliest years after the consolidation of federal government under the Constitution. On two occasions, central banks were established and put into operation, as the First and Second Banks of the United States. Both of these early attempts to establish a central bank met with fierce political hostility from the outset, however, and both banks were abolished when their initial charters came up for renewal. The First Bank of the United States, founded by Alexander Hamilton in 1791, was abolished after renewal of its twenty-year charter was defeated by a single vote in each chamber of Congress in 1811. Financial chaos erupted almost immediately, after a five-year hiatus the Second Bank of the United States was chartered in 1816. At that time the influence of the eastern mer...