The Federal Reserve holds the distinction of being second only to the IRS as the most hated and feared institution in the U.S. government.
Indeed, it isn’t too much to say that the whole idea of a central bank is deeply un-American – such that, for the last 77 of the Republic’s first 124 years, we didn’t have one. Moreover, as the peerless Roger Lowenstein avers in his landmark 2015 book America’s Bank, if the Federal Reserve Act came before the Congress in today’s bitterly ideological climate, it might very well not pass.
The issue of a central bank is essential to the history of our country. The first was a creature of the active-government Federalist Hamilton. The second was chartered against his will by Madison in 1816, only because of the inflation and government fiscal woes that followed the War of 1812. Twenty years on, the bank-hating Jackson succeeded in killing it outright.
And there matters stood for three quarters of a century of monetary and financial chaos. The closest thing to a central bank the country ever had during that time was a man: Pierpont Morgan. Born the year after Jackson’s veto, he died the year the Fed came into existence, and in the interim saved the country from insolvency not once but twice.
It was the second time – after the Panic of 1907 – that America began reluctantly to wake up to the need for some central banking authority: if nothing else, as a lender of last resort. Mr. Lowenstein’s story begins there, with Senator Nelson Aldrich and the émigré European banker Paul Warburg groping, almost in secret, toward a solution.
The politics of the creation (with characters such as William Jennings Bryan and Senator Carter Glass arrayed against) become, in Lowenstein’s telling, as internecine as they are intense; it is finally a new president-elect, Woodrow Wilson, who ultimately cuts the Gordian knot.
Roger Lowenstein is the best writer (qua writer) about financial history that we have. And if you couldn’t make time for this whole book, at least take it out of the library and read the 14-page epilogue, which is as lucid and wonderfully written an essay as any you’ve ever read on any financial subject.
That said, America’s Bank: The Epic Struggle to Create the Federal Reserve is the definitive account for the general reader. It demands to be read by the informed financial advisor.
© 2018 Nick Murray. All rights reserved. Nick reviews current books, articles and research findings for advisors in his monthly newsletter, Nick Murray Interactive. His most recent book is Around the Year with Nick Murray: Daily Readings for Financial Advisors, now available in hardcover and as a password-protected eBook.