The Bankers' Bank: Does the Federal Reserve Govern the Banking System-Or Vice Versa?

By Konczal, Mike | The American Prospect, Spring 2016 | Go to article overview

The Bankers' Bank: Does the Federal Reserve Govern the Banking System-Or Vice Versa?


Konczal, Mike, The American Prospect


The periods after the destructive financial crises of the past century have traditionally been periods of reform; as a response, more democratic control was brought over money. Yet no such fundamental change has occurred in the wake of the financial crisis of 2008. This lack of movement has led to confusion and reaction, and academics are now trying to tease out the history and politics of how change happened before, and how it might happen again.

There were cries for changes in the aftermath of the devastating 1907 financial crisis. However, the path from an idea of reform to the Federal Reserve Act of 1913 is a complicated one, now told in Roger Lowenstein's America's Bank: The Epic Struggle to Create the Federal Reserve. Even that new system could not prevent the Great Depression. What was needed was a full assault on the gold standard and a complete reworking of what money meant. This swift and successful campaign is outlined in historian Eric Rauchway's The Money Makers: How Roosevelt and Keynes Ended the Depression, Defeated Fascism, and Secured a Prosperous Peace.

We don't face a depression, but instead a Great Recession, one where the deep political dynamics of the Federal Reserve play a central role. These forces are examined in Fed Power: How Finance Wins, by political scientists Lawrence R. Jacobs and Desmond King. The recent chaos has put the Federal Reserve and monetary policy under a public spotlight in a way it hasn't seen in decades. The debates over the bailouts, engineered by the Fed, dominated the beginning of Barack Obama's presidency, and debates over whether the Fed has learned anything, or is even capable of providing sustained prosperity and full employment, dominate the end.

This moment, one where conservative presidential candidates can run for office on bringing back the gold standard, is dangerous. Yet the long arc of history is encouraging for liberals, and the challenges now are an opportunity. At each earlier step, money and banking came under greater democratic control. Money itself used to be scarce, until the state made it elastic and able to respond to the economy. The "barbarous relic" of the gold standard, in John Maynard Keynes's famous phrase, was destroyed. Continuing this arc is essential for prosperity in the 21st century.

Banking was contentious from the founding of our country. President Andrew Jackson's successful war against the Second Bank of the United States during the 1830s made establishing any type of central bank a political nonstarter for nearly a century. While trying to move the Federal Reserve Act that he sponsored through the Senate, southern Democrat Carter Glass would later write in his memoir, "the ghost of Andrew Jackson stalked before my face in the daytime and haunted my couch for nights."

BY THE SECOND HALF of the 19th century, as Roger Lowenstein writes in America's Bank, "the United States was an industrializing nation with a banking system stuck in frontier times." Thousands of banks, each with their own currencies and reserves, compounded the problems. The central problem was that "the system suffered a serious deficit: it consistently failed to generate enough money." The price of money rose rapidly in the late 19th century because money was scarce, leading to crippling deflation. America was going to need a central bank going forward.

The crisis of 1907 was the breaking point. A group of bankers, economists, and a few politicians gathered informally at first, working to build a consensus plan that they could try to pass. This group finally met at Jekyll Island in 1910, led by Senator Nelson Aldrich. The meeting, which has become the focus of conspiracy theorists ever since, created the Aldrich Plan, designed to create a central bank, controlled by private finance, that could pool deposits and fight off panics.

This plan immediately walked into the buzz saw of the 1912 presidential election and subsequent Woodrow Wilson administration. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

The Bankers' Bank: Does the Federal Reserve Govern the Banking System-Or Vice Versa?
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.