Editing Federal Reserve (section)

=== Central banking in the United States, 1791–1913 ===
{{Main|History of central banking in the United States}}

The first attempt at a national currency was during the [[American Revolutionary War]]. In 1775, the Continental Congress, as well as the states, began issuing paper currency, calling the bills "[[Early American currency|Continentals]]".<ref>{{Cite web |title=Timeline of U.S. Currency History |url=https://uscurrency.gov/history-american-currency |archive-url=https://web.archive.org/web/20161004114334/https://uscurrency.gov/history-american-currency |archive-date=October 4, 2016 |access-date=June 8, 2016 |publisher=U.S. Currency Education Program}}</ref> The Continentals were backed only by future tax revenue, and were used to help finance the Revolutionary War. Overprinting, as well as British counterfeiting, caused the value of the Continental to diminish quickly. This experience with paper money led the United States to strip the power to issue Bills of Credit (paper money) from a draft of the new Constitution on August 16, 1787,<ref>{{Cite web |title="Mr. Govr. MORRIS moved to strike out "and emit bills on the credit of the U. States" – If the United States had credit such bills would be unnecessary: if they had not, unjust & useless. ... On the motion for striking out N. H. ay. Mas. ay. Ct ay. N. J. no. Pa. ay. Del. ay. Md. no. Va. ay. N. C. ay. S. C. ay. Geo. ay." |url=http://avalon.law.yale.edu/18th_century/debates_816.asp |access-date=April 30, 2012 |publisher=Avalon.law.yale.edu}}</ref> as well as banning such issuance by the various states, and limiting the states' ability to make anything but gold or silver coin legal tender on August 28.<ref>US Constitution Article 1, Section 10. "no state shall ..emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts;"</ref>

In 1791, the government granted the [[First Bank of the United States]] a charter to operate as the U.S. central bank until 1811.<ref name="A Brief History of Our Nation's Paper Money">{{Cite web |last=Flamme |first=Karen |title=1995 Annual Report: A Brief History of Our Nation's Paper Money |url=http://www.frbsf.org/publications/federalreserve/annual/1995/history.html |archive-url=https://web.archive.org/web/20100227093922/http://www.frbsf.org/publications/federalreserve/annual/1995/history.html |archive-date=February 27, 2010 |access-date=August 26, 2010 |publisher=Federal Reserve Bank of San Francisco}}</ref> The First Bank of the United States came to an end under [[President Madison]] when Congress refused to renew its charter. The [[Second Bank of the United States]] was established in 1816, and lost its authority to be the central bank of the U.S. twenty years later under [[President Jackson]] when its charter expired. Both banks were based upon the Bank of England.<ref>{{Cite book |url=https://books.google.com/books?id=EkUTaZofJYEC |title=British Parliamentary reports on international finance: the Cunliffe Committee and the Macmillan Committee reports |publisher=Ayer Publishing |year=1978 |isbn=978-0-405-11212-6 |quote=description of the founding of Bank of England: 'Its foundation in 1694 arose out the difficulties of the Government of the day in securing subscriptions to State loans. Its primary purpose was to raise and lend money to the State and in consideration of this service it received under its Charter and various Act of Parliament, certain privileges of issuing bank notes. The corporation commenced, with an assured life of twelve years after which the Government had the right to annul its Charter on giving one year's notice. Subsequent extensions of this period coincided generally with the grant of additional loans to the State'}}</ref> Ultimately, a third national bank, known as the Federal Reserve, was established in 1913 and still exists to this day.

==== First Central Bank, 1791 and Second Central Bank, 1816 ====
The first U.S. institution with central banking responsibilities was the [[First Bank of the United States]], chartered by Congress and signed into law by President [[George Washington]] on February 25, 1791, at the urging of [[Alexander Hamilton]]. This was done despite strong opposition from [[Thomas Jefferson]] and [[James Madison]], among numerous others. The charter was for twenty years and expired in 1811 under President Madison, when Congress refused to renew it.<ref name="boshistory">{{Cite web |last=Johnson |first=Roger |date=December 1999 |title=Historical Beginnings... The Federal Reserve |url=http://www.bos.frb.org/about/pubs/begin.pdf |access-date=July 23, 2010 |publisher=Federal Reserve Bank of Boston |page=8 |archive-date=December 25, 2010 |archive-url=https://web.archive.org/web/20101225064903/http://www.bos.frb.org/about/pubs/begin.pdf |url-status=dead }}</ref>

In 1816, however, Madison revived it in the form of the [[Second Bank of the United States]]. Years later, early renewal of the bank's charter became the primary issue in the reelection of President [[Andrew Jackson]]. After Jackson, who was opposed to the central bank, was reelected, he pulled the government's funds out of the bank. Jackson was the only President to completely pay off the national debt<ref>{{Cite news |last=Gordon |first=John Steele |date=February 19, 2009 |title=A Short History of the National Debt |work=[[The Wall Street Journal]] |url=https://www.wsj.com/articles/SB123491373049303821 }}</ref> but his efforts to close the bank contributed to the [[Panic of 1837]]. The bank's charter was not renewed in 1836, and it would fully dissolve after several years as a private corporation.
From 1837 to 1862, in the [[Free Banking Era]] there was no formal central bank.
From 1846 to 1921, an [[Independent Treasury System]] ruled.
From 1863 to 1913, a system of national banks was instituted by the 1863 [[National Banking Act]] during which a series of bank panics, in [[Panic of 1873|1873]], [[Panic of 1893|1893]], and [[Panic of 1907|1907]] occurred.<ref name="FDS-H-04">{{Cite web |title=Panic of 1907: J.P. Morgan Saves the Day |url=http://www.u-s-history.com/pages/h952.html |access-date=December 6, 2014 |publisher=US-history.com}}</ref><ref name="FDS-H-05">{{Cite web |title=Born of a Panic: Forming the Fed System |url=http://minneapolisfed.org/publications_papers/pub_display.cfm?id=3816 |access-date=December 6, 2014 |publisher=The Federal Reserve Bank of Minneapolis}}</ref><ref name="FDS-H-06">{{Cite web |last=Abigail Tucker |date=October 29, 2008 |title=The Financial Panic of 1907: Running from History |url=http://www.smithsonianmag.com/history/the-financial-panic-of-1907-running-from-history-82176328 |access-date=December 6, 2014 |website=Smithsonian Magazine}}</ref>

==== Creation of Third Central Bank, 1907–1913 ====
{{Main|History of the Federal Reserve System}}

The main motivation for the third central banking system came from the [[Panic of 1907]], which caused a renewed desire among legislators, economists, and bankers for an overhaul of the monetary system.<ref name="FDS-H-04"/><ref name="FDS-H-05"/><ref name="FDS-H-06"/><ref name="herrickpanic">{{Cite journal |last=Herrick |first=Myron |date=March 1908 |title=The Panic of 1907 and Some of Its Lessons |url=https://zenodo.org/record/1448652 |journal=Annals of the American Academy of Political and Social Science |volume=31 |issue=2 |pages=8–25 |doi=10.1177/000271620803100203 |jstor=1010701 |s2cid=144195201 |issn = 0002-7162}}</ref> During the last quarter of the 19th century and the beginning of the 20th century, the United States economy went through a series of [[financial panics]].<ref name="EFlaherty"/> According to many economists, the previous national banking system had two main weaknesses: an [[inelastic]] currency and a lack of liquidity.<ref name="EFlaherty">{{Cite web |last=Flaherty |first=Edward |date=June 16, 1997 |title=A Brief History of Central Banking in the United States |url=http://odur.let.rug.nl/~usa/E/usbank/bank00.htm |archive-url=https://web.archive.org/web/20120728104703/http://odur.let.rug.nl/~usa/E/usbank/bank00.htm |archive-date=July 28, 2012 |access-date=November 17, 2007 |publisher=University of Groningen |location=Netherlands}}</ref> In 1908, Congress enacted the [[Aldrich–Vreeland Act]], which provided for an emergency currency and established the [[National Monetary Commission]] to study banking and currency reform.<ref name="mnwarburg">{{Cite web |last=Whithouse |first=Michael |date=May 1989 |title=Paul Warburg's Crusade to Establish a Central Bank in the United States |url=https://www.minneapolisfed.org/pubs/region/89-05/reg895d.cfm |archive-url=https://web.archive.org/web/20080516102112/http://minneapolisfed.org/pubs/region/89-05/reg895d.cfm |archive-date=May 16, 2008 |access-date=August 29, 2011 |publisher=The Federal Reserve Bank of Minneapolis}}</ref> The National Monetary Commission returned with recommendations which were repeatedly rejected by Congress. A revision crafted during a secret meeting on [[Jekyll Island]] by Senator Aldrich and representatives of the nation's top finance and industrial groups later became the basis of the [[Federal Reserve Act]].<ref>{{Cite web |title=For years members of the Jekyll Island Club would recount the story of the secret meeting and by the 1930s the narrative was considered a club tradition |url=http://www.jekyllislandhistory.com/federalreserve.shtml |archive-url=https://web.archive.org/web/20120611221413/http://www.jekyllislandhistory.com/federalreserve.shtml |archive-date=June 11, 2012 |access-date=April 30, 2012 |publisher=Jekyllislandhistory.com}}; {{Cite web |title=Papers of Frank A.Vanderlip "I wish I could sit down with you and half a dozen others in the sort of conference that created the Federal Reserve Act" |url=http://fraser.stlouisfed.org/chfrs/record.php?id=5653 |access-date=April 30, 2012 |format=PDF}}</ref>

===== Federal Reserve Act, 1913 =====
{{Main|Federal Reserve Act}}

[[File:Fed Reserve.JPG|thumb|upright=1.35|Newspaper clipping, December 24, 1913]]
The head of the bipartisan National Monetary Commission was financial expert and Senate [[Republican Party (United States)|Republican]] leader [[Nelson Aldrich]]. Aldrich set up two commissions – one to study the American monetary system in depth and the other, headed by Aldrich himself, to study the European central banking systems and report on them.<ref name="mnwarburg"/>

In early November 1910, Aldrich met with five well known members of the New York banking community to devise a central banking bill. [[Paul Warburg]], an attendee of the meeting and longtime advocate of central banking in the U.S., later wrote that Aldrich was "bewildered at all that he had absorbed abroad and he was faced with the difficult task of writing a highly technical bill while being harassed by the daily grind of his parliamentary duties".<ref name="Warburg document">{{Cite web |title=Paul Warburg's Crusade to Establish a Central Bank in the United States |url=https://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=3815 |publisher=The Federal Reserve Bank of Minneapolis}}</ref> After ten days of deliberation, the bill, which would later be referred to as the "Aldrich Plan", was agreed upon. It had several key components, including a central bank with a Washington-based headquarters and fifteen branches located throughout the U.S. in geographically strategic locations, and a uniform elastic currency based on gold and commercial paper. Aldrich believed a central banking system with no political involvement was best, but was convinced by Warburg that a plan with no public control was not politically feasible.<ref name="Warburg document"/> The compromise involved representation of the public sector on the board of directors.<ref name="ecresearch">{{Cite web |title=America's Unknown Enemy: Beyond Conspiracy |url=https://www.aier.org/wp-content/uploads/2013/11/EEB198405-REVISED1993.pdf |archive-url=https://web.archive.org/web/20220110165519/https://www.aier.org/wp-content/uploads/2013/11/EEB198405-REVISED1993.pdf |archive-date=January 10, 2022 |publisher=American Institute of Economic Research}}</ref>

Aldrich's bill met much opposition from politicians. Critics charged Aldrich of being biased due to his close ties to wealthy bankers such as [[J. P. Morgan]] and [[John D. Rockefeller Jr.]], Aldrich's son-in-law. Most Republicans favored the Aldrich Plan,<ref name="ecresearch"/> but it lacked enough support in Congress to pass because rural and western states viewed it as favoring the "eastern establishment".<ref name="mnglass">{{Cite web |date=August 1988 |title=Born of a panic: Forming the Federal Reserve System |url=https://www.minneapolisfed.org/pubs/region/88-08/reg888a.cfm |archive-url=https://web.archive.org/web/20080516102508/http://minneapolisfed.org/pubs/region/88-08/reg888a.cfm |archive-date=May 16, 2008 |publisher=The Federal Reserve Bank of Minneapolis }}</ref><ref>{{Cite web |title=Born of a Panic: Forming the Fed System &#124; Federal Reserve Bank of Minneapolis |url=https://www.minneapolisfed.org:443/article/1988/born-of-a-panic-forming-the-fed-system |website=www.minneapolisfed.org}}</ref> In contrast, progressive Democrats favored a reserve system owned and operated by the government; they believed that public ownership of the central bank would end Wall Street's control of the American currency supply.<ref name="ecresearch"/> Conservative Democrats fought for a privately owned, yet decentralized, reserve system, which would still be free of Wall Street's control.<ref name="ecresearch"/>

The original Aldrich Plan was dealt a fatal blow in 1912, when Democrats won the White House and Congress.<ref name="Warburg document"/> Nonetheless, President [[Woodrow Wilson]] believed that the Aldrich plan would suffice with a few modifications. The plan became the basis for the Federal Reserve Act, which was proposed by Senator [[Robert L. Owen|Robert Owen]] in May 1913. The primary difference between the two bills was the transfer of control of the board of directors (called the Federal Open Market Committee in the Federal Reserve Act) to the government.<ref name="mnglass"/><ref name="boshistory"/> The bill passed Congress on December 23, 1913,<ref>{{Cite web |date=December 22, 1913 |title=Congressional Record – House |url=https://www.scribd.com/doc/17411624/Congressional-Record-Dec-22-1913-pg1465 |access-date=August 29, 2011 |publisher=Scribd.com |page=1465}}; {{Cite web |date=December 23, 1913 |title=Congressional Record – Senate |url=https://www.scribd.com/doc/17234309/Congressional-Record-Dec-23-1913 |access-date=August 29, 2011 |publisher=Scribd.com |page=1468}}</ref> on a mostly partisan basis, with most Democrats voting "yea" and most Republicans voting "nay".<ref name="boshistory"/>

The House voted on December 22, 1913, with 298 voting yes to 60 voting no. The Senate voted 43–25 on December 23, 1913.<ref>{{Cite web |title=The Federal Reserve Act of 1913 – A Legislative History |url=http://www.llsdc.org/FRA-LH |access-date=April 30, 2012 |publisher=Llsdc.org}}</ref> President [[Woodrow Wilson]] signed the bill later that day.<ref>{{Cite news |date=December 24, 1913 |title=Affixes His Signature at 6:02&nbsp;pm, Using Four Gold Pens. |work=[[The New York Times]] |url=https://timesmachine.nytimes.com/timesmachine/1913/12/24/100414417.pdf |access-date=April 30, 2012}}</ref>