to agree with his definition of these notes , and asked him to name a single financial writer of the metropolitan press of his own town , to whom he might confidently appeal to justify his absurd charge .
Even before the Fed opened its doors , though , these twin pillars began to collapse . The assassination of Archduke Franz Ferdinand sparked the powder keg of European war in August of 1914 . And with it , the gold standard ceased to exist .
What of the real bills doctrine ? In time , central bankers and others came to see its intellectual futility . The very fungibility of money made policing the boundary between “ real ” bills and speculative transactions difficult . The Fed soon abandoned it .
The road away from gold standards and gold exchange systems didn ’ t formally end until 1973 , but the legislative creation in 1913 had already lost its intellectual apparatus within months and years . Putting too much weight on the Fed ’ s legislative founding misses the history as it unfolded .
There ’ s a second essential example . If the energy on the functional Federal Reserve at the 1913 founding was spent thinking through gold and bills of trade , the structural question was on the federalist system described above . Woodrow Wilson , like his intellectual idol James Madison , was a constitutional experimenter . He saw in the Federal Reserve System something that no one else had requested : the chance to allocate power according to a logic of checks and balances . Much of the story of the 1913 Act is about how those checks and balances came together , how the Republican-preferred “ National Reserve Association ” became the Democratic “ Federal Reserve System .”
But there ’ s a problem . That 1913 structure no longer exists . The Roosevelt administration and the quiescent 74th Congress abolished it in 1935 . In that congressional session , FDR pushed through what was called then and since “ the second New Deal ,” a legislative burst late in FDR ’ s first term that included at once the passage of the Social Security Act , the National Labor Relations Act and the Public Utility Holding Company Act , among others .
One of the less-debated pieces of legislation at the time was the Banking Act of 1935 , a legislative redesign of the Federal Reserve Act almost from the ground up .
The 1913 Act created a Federal Reserve Board of uncertain authority ; the 1935 Act abolished that structure and created the modern “ Board of Governors of the Federal Reserve System ,” giving it unquestioned formal authority over the Federal Reserve Banks with respect to banking supervision and regulation . ( Even today , when insiders and outsiders refer to the Federal Reserve Board , they indulge in a
Marriner Eccles , a millionaire from Utah , refused appointment to lead the Federal Reserve Board without getting a chance to rebuild the system from the ground up .
bit of widely accepted but still erroneous historical revisionism .)
The Act also recreated the Federal Open Market Committee ( FOMC ), the powerful committee in charge of using seigniorage to manipulate the availability of credit throughout the economy . It did so to significantly curtail the influence of the Reserve Banks . It is not an exaggeration to say that the Bank Act of 1935 changed the Federal Reserve Act so profoundly such that the original legislation is better thought of as the Fed ’ s Articles of Confederation , not its Constitution .
The Banking Act thus put an end to the experiment with decentralized central banking that is the centerpiece of the debates over the 1913 legislation . But in the Second New Deal , reforming the Fed wasn ’ t even a major legislative priority . It happened instead because a millionaire Utahan named Marriner Eccles refused appointment to lead the Federal Reserve Board without getting a chance to rebuild
Thomas D . McAvoy / The LIFE Picture Collection the system from the ground up . It may be the only time in history that a piece of legislation revamping a federal bureaucracy was essentially an employment contract .
The death of the gold standard and the real bills doctrine on the one hand , and the passage of the Banking Act of 1935 on the other , are but two example of these refounding moments . They happened again and again and again , throughout the Fed ’ s history , and they continue to occur today .
The Fed in 2016 is already dramatically different than the Fed in 2007 , in ways that attention to a piece of 1913 legislation simply cannot detect . But in most writers ’ visions of institutional history , the Fed needs an origin story just like any superhero . In the beginning , there was a moment of intense change . What happened thereafter may be where the action is , but it ’ s not where we ’ ll learn about the accumulation of power . For the Federal Reserve , this vision of institutional history is simply an imprecise and misleading historical methodology .
The better metaphor may well be from evolutionary biology . Institutions aren ’ t founded once and then left to change on a simple trajectory . Theirs is a punctuated equilibrium , with change happening quickly and then not at all , founded and re-founded and re-founded again . When we dig deep into the debates around the creation of the Federal Reserve System , we don ’ t actually learn much about the Federal Reserve System . Those debates in 1913 aren ’ t about the founding of the Federal Reserve System . They are a history of the writing of the Federal Reserve Act of 1913 and shouldn ’ t be given much more privilege in telling us the history of the institution than the other founding moments .
Peter Conti-Brown is an assistant professor at The Wharton School of the University of Pennsylvania . A financial historian and a legal scholar , Conti-Brown studies the institutional development of central banking . He is currently writing a comprehensive history of the Federal Reserve , forthcoming from the Harvard University Press . This essay is adapted from his book The Power and Independence of the Federal Reserve ( Princeton University Press 2016 ) and “ The Federal Reserve ’ s Big Bang and the Challenge of Institutional History ,” The New Rambler Review , October 10 , 2016 .
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