Editing Federal Reserve (section)

==== 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>