Financial History Issue 117 (Spring 2016) | Page 39
BY MICHAEL A. MARTORELLI
BOOK REVIEW
America’s Bank: The Epic Struggle
to Create The Federal Reserve
By Roger Lowenstein
Penguin Press, 2015
335 pages, $29.95
Even readers familiar with the origins
of the America’s third central bank will
benefit from Roger Lowenstein’s America’s Bank: The Epic Struggle to Create The
Federal Reserve System. They will especially appreciate his decision to devote
equal time to the financial crises that
convinced reformers of the need for some
kind of central bank, and the legislative
maneuvering that finally led to passage of
the Federal Reserve Act.
Lowenstein first tells how financial panics in the late 19th and early 20th centuries prompted would-be reformers to
push for changes in the way the nation’s
fragmented and unorganized
banking system allocated
credit and managed (or didn’t
manage) the supply of money.
After the election of 1896, a
group of academics, bankers
and industrialists (operating as the Indianapolis Monetary Commission) proposed
a set of reforms that would
allow the supply of money and
credit to expand and contract
to reflect economic conditions.
But political and economic
leaders in Washington and on
Wall Street were not ready to
support such reforms, which
included an expanded role for
the federal government in regulating the financial system. In
1902, Secretary of the Treasury
Lyman Gage called explicitly
for a government central bank,
thus formally and publicly
repudiating President Andrew
Jackson’s famous veto of such
an institution in 1835.
Another financial panic in
1907 once again revealed the major fault
lines that existed in the nation’s banking
and monetary system. Senator Nelson
Aldrich, Chairman of the Senate Finance
Committee, pushed for the establishment
of a National Monetary Commission to
recommend specific reforms. The author
details the nature of that committee’s
investigative efforts during the following two years. Its final report, published
in early 1911, called for the creation of
a National Reserve Association of the
United States.
Lowenstein then shows how the wrangling over the elements of this Aldrich
Plan was only the prelude to the more
meaningful debate that emerged as Congress attempted to transform it into a
law. The American Bankers Association,
the National Citizens’ (i.e. Businessmens’)
League for the Promotion of a Sound
Banking System and presidential candidates William Jennings Bryan, Howard
Taft, Theodore Roosevelt and Woodrow
Wilson all weighed in with suggestions
for changes.
The Democratic Party’s consolidation
of political power following the elections
of 1912 was not accompanied by the emergence of a consensus regarding some key
elements of a potential banking reform
plan. For example, forces inside and outside of government continued to argue
over the ownership and powers of geographically dispersed Reserve Banks, as
well as the need for, the makeup and the
authority of a “capstone” central bank.
President Wilson tackled other economic problems before turning his full
attention to banking reform. By June 1913,
he had made his ultimate views on many
questions clear enough to permit Congressman Carter Glass and Senator Robert
Owen to introduce companion bills that
had the President’s full support. After a
brief period of reconc