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America's Bank: The Epic Struggle to Create the Federal Reserve
A tour de force of historical reportage, America’s Bank illuminates the tumultuous era and remarkable personalities that spurred the unlikely birth of America’s modern central bank, the Federal Reserve. Today, the Fed is the bedrock of the financial landscape, yet the fight to create it was so protracted and divisive that it seems a small miracle that it was ever established.
For nearly a century, America, alone among developed nations, refused to consider any central or organizing agency in its financial system. Americans’ mistrust of big government and of big banks—a legacy of the country’s Jeffersonian, small-government traditions—was so widespread that modernizing reform was deemed impossible. Each bank was left to stand on its own, with no central reserve or lender of last resort. The real-world consequences of this chaotic and provincial system were frequent financial panics, bank runs, money shortages, and depressions. By the first decade of the twentieth century, it had become plain that the outmoded banking system was ill equipped to finance America’s burgeoning industry. But political will for reform was lacking. It took an economic meltdown, a high-level tour of Europe, and—improbably—a conspiratorial effort by vilified captains of Wall Street to overcome popular resistance. Finally, in 1913, Congress conceived a federalist and quintessentially American solution to the conflict that had divided bankers, farmers, populists, and ordinary Americans, and enacted the landmark Federal Reserve Act.
Roger Lowenstein—acclaimed financial journalist and bestselling author of When Genius Failed and The End of Wall Street—tells the drama-laden story of how America created the Federal Reserve, thereby taking its first steps onto the world stage as a global financial power. America’s Bank showcases Lowenstein at his very finest: illuminating complex financial and political issues with striking clarity, infusing the debates of our past with all the gripping immediacy of today, and painting unforgettable portraits of Gilded Age bankers, presidents, and politicians.
Lowenstein focuses on the four men at the heart of the struggle to create the Federal Reserve. These were Paul Warburg, a refined, German-born financier, recently relocated to New York, who was horrified by the primitive condition of America’s finances; Rhode Island’s Nelson W. Aldrich, the reigning power broker in the U.S. Senate and an archetypal Gilded Age legislator; Carter Glass, the ambitious, if then little-known, Virginia congressman who chaired the House Banking Committee at a crucial moment of political transition; and President Woodrow Wilson, the academician-turned-progressive-politician who forced Glass to reconcile his deep-seated differences with bankers and accept the principle (anathema to southern Democrats) of federal control. Weaving together a raucous era in American politics with a storied financial crisis and intrigue at the highest levels of Washington and Wall Street, Lowenstein brings the beginnings of one of the country’s most crucial institutions to vivid and unforgettable life. Readers of this gripping historical narrative will wonder whether they’re reading about one hundred years ago or the still-seething conflicts that mark our discussions of banking and politics today.
For nearly a century, America, alone among developed nations, refused to consider any central or organizing agency in its financial system. Americans’ mistrust of big government and of big banks—a legacy of the country’s Jeffersonian, small-government traditions—was so widespread that modernizing reform was deemed impossible. Each bank was left to stand on its own, with no central reserve or lender of last resort. The real-world consequences of this chaotic and provincial system were frequent financial panics, bank runs, money shortages, and depressions. By the first decade of the twentieth century, it had become plain that the outmoded banking system was ill equipped to finance America’s burgeoning industry. But political will for reform was lacking. It took an economic meltdown, a high-level tour of Europe, and—improbably—a conspiratorial effort by vilified captains of Wall Street to overcome popular resistance. Finally, in 1913, Congress conceived a federalist and quintessentially American solution to the conflict that had divided bankers, farmers, populists, and ordinary Americans, and enacted the landmark Federal Reserve Act.
Roger Lowenstein—acclaimed financial journalist and bestselling author of When Genius Failed and The End of Wall Street—tells the drama-laden story of how America created the Federal Reserve, thereby taking its first steps onto the world stage as a global financial power. America’s Bank showcases Lowenstein at his very finest: illuminating complex financial and political issues with striking clarity, infusing the debates of our past with all the gripping immediacy of today, and painting unforgettable portraits of Gilded Age bankers, presidents, and politicians.
Lowenstein focuses on the four men at the heart of the struggle to create the Federal Reserve. These were Paul Warburg, a refined, German-born financier, recently relocated to New York, who was horrified by the primitive condition of America’s finances; Rhode Island’s Nelson W. Aldrich, the reigning power broker in the U.S. Senate and an archetypal Gilded Age legislator; Carter Glass, the ambitious, if then little-known, Virginia congressman who chaired the House Banking Committee at a crucial moment of political transition; and President Woodrow Wilson, the academician-turned-progressive-politician who forced Glass to reconcile his deep-seated differences with bankers and accept the principle (anathema to southern Democrats) of federal control. Weaving together a raucous era in American politics with a storied financial crisis and intrigue at the highest levels of Washington and Wall Street, Lowenstein brings the beginnings of one of the country’s most crucial institutions to vivid and unforgettable life. Readers of this gripping historical narrative will wonder whether they’re reading about one hundred years ago or the still-seething conflicts that mark our discussions of banking and politics today.
368 pages, Hardcover
First published September 22, 2015
About the author
Roger Lowenstein
24 books441 followersRoger Lowenstein is an American financial journalist and writer. He graduated from Cornell University and reported for The Wall Street Journal for more than a decade, including two years writing its Heard on the Street column, 1989 to 1991. Born in 1954, he is the son of Helen and Louis Lowenstein of Larchmont, New York. Lowenstein is married to Judith Slovin.
He is also a director of Sequoia Fund. In 2016, he joined the board of trustees of Lesley University. His father, the late Louis Lowenstein, was an attorney and Columbia University law professor who wrote books and articles critical of the American financial industry.
Roger Lowenstein's latest book, Ways and Means: Lincoln and His Cabinet and the Financing of the Civil War, was released on March 8, 2022, and won the 2022 Harold Holzer Lincoln Forum Book Prize.
He is also a director of Sequoia Fund. In 2016, he joined the board of trustees of Lesley University. His father, the late Louis Lowenstein, was an attorney and Columbia University law professor who wrote books and articles critical of the American financial industry.
Roger Lowenstein's latest book, Ways and Means: Lincoln and His Cabinet and the Financing of the Civil War, was released on March 8, 2022, and won the 2022 Harold Holzer Lincoln Forum Book Prize.
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Displaying 1 - 30 of 139 reviews
February 11, 2018
I am sorry if my review turns into a summary of this book I just love to talk about it.
So I gave this book a second read because I was struggling to remember some of its main points and am so happy to refamiliarize myself with the material. It builds a strong argument by starting with what America was like before it centralized its bank. The Revolutionary War ended in 1783 and it wasn't until December 1913 that the Fed Reserve Act passed under President Wilson. During that 130 year period, there were two attempts at centralizing the bank, both failed when the government failed to renew their charters. The second failure coming from President Andrew Jackson, who considered banking regulations beneficial for the American elite, which directly countered his populist movement.
After the crash of 1893 and 1907 the need to centralize banking entered the forefront of political debate. The unregulated market created competing monopolies, which could game the economy. In 1907 a failed attempt to take over the copper monopoly triggered a panic. Banks ran out of reserves when everyone tried to cash out at the same time and country had a financial collapse.
This led some of the harshest critics, like Nelson Aldrich into advocates for a centralized bank. He failed to pass his own bill, but a couple years later the Fed Reserve act (Owen-Glass Bill) borrowed heavily from Aldrich.
Not to make this review political, but I feel like this is an important read given the political climate today. Populism can have dangerous consequences and can lead to undisciplined decisions. Though it has its faults, the federal reserve is beneficial to the American economy.
So I gave this book a second read because I was struggling to remember some of its main points and am so happy to refamiliarize myself with the material. It builds a strong argument by starting with what America was like before it centralized its bank. The Revolutionary War ended in 1783 and it wasn't until December 1913 that the Fed Reserve Act passed under President Wilson. During that 130 year period, there were two attempts at centralizing the bank, both failed when the government failed to renew their charters. The second failure coming from President Andrew Jackson, who considered banking regulations beneficial for the American elite, which directly countered his populist movement.
After the crash of 1893 and 1907 the need to centralize banking entered the forefront of political debate. The unregulated market created competing monopolies, which could game the economy. In 1907 a failed attempt to take over the copper monopoly triggered a panic. Banks ran out of reserves when everyone tried to cash out at the same time and country had a financial collapse.
This led some of the harshest critics, like Nelson Aldrich into advocates for a centralized bank. He failed to pass his own bill, but a couple years later the Fed Reserve act (Owen-Glass Bill) borrowed heavily from Aldrich.
Not to make this review political, but I feel like this is an important read given the political climate today. Populism can have dangerous consequences and can lead to undisciplined decisions. Though it has its faults, the federal reserve is beneficial to the American economy.
July 31, 2016
I really was expecting this to be more exciting. It was so dry I finished it four hours ago and I'm still chugging ice water.
I will say, though: thank goodness our politicians got together and decided having a central bank was necessary and were able to overcome the typical American resistance to anything federal or centralized or (LOOK AWAY) partly run by the government. Just imagine if we had only created a central bank the same year we came up with Obamacare.
It's really quite remarkable that the central bank and the income tax happened in the same year, 1913.
September 8, 2021
America's Bank
The Epic Struggle to Create the Federal Reserve
Roger Lowenstein
2015
355 pp.
ISBN 9781594205491
Dewey 332.110973
A super-readable account of New York bankers' 1903-1913 success in hiding their authorship, manipulating public opinion, and political maneuvering, to create the Fed. p. 31. There's much less attempt to explain effects of the various policy options being debated.
The author is a /fan/ of letting private bankers own the U.S. central bank, create fiat money, and keep part of it for their trouble. Lowenstein is a Wall Street Journal reporter: his mindset is Wall Street. The tone is, New York bankers were trying to make necessary improvements [that would also give them more money and power] but were impeded by Progressives. p. 139. On the 1894 Pullman strikes, he says only, "violent strikes … rioting … sabotage." No mention of Pullman's imposition of starvation wages, and high rents in the company town. p.21. On rail freight rates he says only they were "allegedly" unfair as of 1908. p. 78. No mention of ruinous freight rates from farms to Chicago, with only one rail line nearby; the same railroad offering /lower/ rates all the way from San Francisco to Chicago, not having a monopoly terminus-to-terminus.
In the Panic of 1893, 360 banks failed: all but 17 were west or south of Pennsylvania. p. 19. 40% of Virginia farmers lost their farms. p. 21. President Cleveland begged J.P. Morgan to buy U.S. bonds, to bail out the government. Morgan turned a profit by selling them to other bankers. p. 20. Morgan likewise profited from his deals bailing out banks in the even-worse Panic of 1907. p 71.
Wholesale prices had declined from an index of 127 after the Civil War in 1865, to 100 in 1873, to 71 in 1896, back to 100 in 1912 and 1913. pp. 246, 330.
In pro-worker to pro-business order, 1912 presidential candidates, p. 169:
Socialist Eugene V. Debs, popular 0.9 million, electoral 0
Progressive Theodore Roosevelt, popular 4.1 million, electoral 88
Democrat Woodrow Wilson, popular 6.3 million, electoral 435
Republican William Howard Taft, popular 3.5 million, electoral 8
https://en.wikipedia.org/wiki/1912_Un...
The Fed was up and running in 1914 with its twelve Reserve Banks: New York, Boston, Philadelphia, Richmond, Atlanta, Cleveland, Chicago, St. Louis, Kansas City, Minneapolis, Dallas, and San Francisco. p. 260.
The law's vagueness on the respective powers of the Federal Reserve Board and the Reserve Banks, left the Fed ineffective in dealing with the Great Depression. p. 264.
The book answers questions such as:
https://www.goodreads.com/trivia/work...
For more of the backstory, the aftermath of the 1893 panic, see /Origins of the Federal Reserve System: Money, Class, and Corporate Capitalism, 1890-1913/, James Livingston: (Livingston is much less laudatory of Wall Street bankers than Lowenstein is) https://www.goodreads.com/review/show...
21st century: /Finance Capitalism and Its Discontents/
by Michael Hudson: https://www.goodreads.com/book/show/1...
An excellent labor history is /There Is Power in a Union: The Epic Story of Labor in America/, Philip Dray: https://www.goodreads.com/book/show/8...
1890s-1930s: /The Lords of Creation: The History of America's 1 Percent/, https://www.goodreads.com/book/show/2...
Labor in the 1800s: /A History of Trade Unionism in the United States/
by Selig Perlman: https://www.goodreads.com/book/show/2...
Criticism of Wall Street: /Other People's Money and How the Bankers Use It/, Louis Brandeis, 1914. (Lowenstein p. 193)
The view from the bleachers: /Direct Struggle Against Capital: A Peter Kropotkin Anthology/, by Pyotr Kropotkin: https://www.goodreads.com/book/show/1...
more books https://www.goodreads.com/review/list...
The Epic Struggle to Create the Federal Reserve
Roger Lowenstein
2015
355 pp.
ISBN 9781594205491
Dewey 332.110973
A super-readable account of New York bankers' 1903-1913 success in hiding their authorship, manipulating public opinion, and political maneuvering, to create the Fed. p. 31. There's much less attempt to explain effects of the various policy options being debated.
The author is a /fan/ of letting private bankers own the U.S. central bank, create fiat money, and keep part of it for their trouble. Lowenstein is a Wall Street Journal reporter: his mindset is Wall Street. The tone is, New York bankers were trying to make necessary improvements [that would also give them more money and power] but were impeded by Progressives. p. 139. On the 1894 Pullman strikes, he says only, "violent strikes … rioting … sabotage." No mention of Pullman's imposition of starvation wages, and high rents in the company town. p.21. On rail freight rates he says only they were "allegedly" unfair as of 1908. p. 78. No mention of ruinous freight rates from farms to Chicago, with only one rail line nearby; the same railroad offering /lower/ rates all the way from San Francisco to Chicago, not having a monopoly terminus-to-terminus.
In the Panic of 1893, 360 banks failed: all but 17 were west or south of Pennsylvania. p. 19. 40% of Virginia farmers lost their farms. p. 21. President Cleveland begged J.P. Morgan to buy U.S. bonds, to bail out the government. Morgan turned a profit by selling them to other bankers. p. 20. Morgan likewise profited from his deals bailing out banks in the even-worse Panic of 1907. p 71.
Wholesale prices had declined from an index of 127 after the Civil War in 1865, to 100 in 1873, to 71 in 1896, back to 100 in 1912 and 1913. pp. 246, 330.
In pro-worker to pro-business order, 1912 presidential candidates, p. 169:
Socialist Eugene V. Debs, popular 0.9 million, electoral 0
Progressive Theodore Roosevelt, popular 4.1 million, electoral 88
Democrat Woodrow Wilson, popular 6.3 million, electoral 435
Republican William Howard Taft, popular 3.5 million, electoral 8
https://en.wikipedia.org/wiki/1912_Un...
The Fed was up and running in 1914 with its twelve Reserve Banks: New York, Boston, Philadelphia, Richmond, Atlanta, Cleveland, Chicago, St. Louis, Kansas City, Minneapolis, Dallas, and San Francisco. p. 260.
The law's vagueness on the respective powers of the Federal Reserve Board and the Reserve Banks, left the Fed ineffective in dealing with the Great Depression. p. 264.
The book answers questions such as:
https://www.goodreads.com/trivia/work...
For more of the backstory, the aftermath of the 1893 panic, see /Origins of the Federal Reserve System: Money, Class, and Corporate Capitalism, 1890-1913/, James Livingston: (Livingston is much less laudatory of Wall Street bankers than Lowenstein is) https://www.goodreads.com/review/show...
21st century: /Finance Capitalism and Its Discontents/
by Michael Hudson: https://www.goodreads.com/book/show/1...
An excellent labor history is /There Is Power in a Union: The Epic Story of Labor in America/, Philip Dray: https://www.goodreads.com/book/show/8...
1890s-1930s: /The Lords of Creation: The History of America's 1 Percent/, https://www.goodreads.com/book/show/2...
Labor in the 1800s: /A History of Trade Unionism in the United States/
by Selig Perlman: https://www.goodreads.com/book/show/2...
Criticism of Wall Street: /Other People's Money and How the Bankers Use It/, Louis Brandeis, 1914. (Lowenstein p. 193)
The view from the bleachers: /Direct Struggle Against Capital: A Peter Kropotkin Anthology/, by Pyotr Kropotkin: https://www.goodreads.com/book/show/1...
more books https://www.goodreads.com/review/list...
November 2, 2015
I heard Lowenstein on the New York Times book review podcast and it sounded interesting. I had just finished “Courage to Act” by Ben S. Bernanke and this book seem to fit right into the topic.
The book starts in 1787 and follows the topic of the need for a Federal Bank. Alexander Hamilton fought for a central bank but many opposed a strong federal government. Lowenstein goes into detail about President Wilson and his fight for the Federal Reserve and how they passed the “Federal Reserve Act of 1913.”
This is a story of politics, disagreements, decisions, including crises that culminated in the Federal Reserve Act. Lowenstein’s account of the financial crises before the establishment of the Fed powerfully demonstrates that it is imperative for the Federal Reserve System to maintain its effectiveness and independence from politics. The author gives us striking portraits of key figures well known and unknown, involved in the creation of the central bank.
The book is well written and well researched. The author writes in an engaging manner that makes dry material interesting. There are currently a number of reforms being proposed in Congress that would undermine the effectiveness and independence of the Federal Reserve. This is a must read book to fully understand the history and all the issues involved, so one can understand the critical nature of the proposed changes to the Federal Reserve Act. Robertson Dean did a good job narrating the book. The book was not too long at nine and half hours.
The book starts in 1787 and follows the topic of the need for a Federal Bank. Alexander Hamilton fought for a central bank but many opposed a strong federal government. Lowenstein goes into detail about President Wilson and his fight for the Federal Reserve and how they passed the “Federal Reserve Act of 1913.”
This is a story of politics, disagreements, decisions, including crises that culminated in the Federal Reserve Act. Lowenstein’s account of the financial crises before the establishment of the Fed powerfully demonstrates that it is imperative for the Federal Reserve System to maintain its effectiveness and independence from politics. The author gives us striking portraits of key figures well known and unknown, involved in the creation of the central bank.
The book is well written and well researched. The author writes in an engaging manner that makes dry material interesting. There are currently a number of reforms being proposed in Congress that would undermine the effectiveness and independence of the Federal Reserve. This is a must read book to fully understand the history and all the issues involved, so one can understand the critical nature of the proposed changes to the Federal Reserve Act. Robertson Dean did a good job narrating the book. The book was not too long at nine and half hours.
December 11, 2015
As a former business major who leans toward the sales and marketing side I was on edge as to whether I really wanted to read a comprehensive historical analysis of the Federal Reserve, an arena that often receives low grades.
Throughout the 18th and 19th Century American civilization managed finances without a Federal Reserve System. As America grew and travel expanded gold and silver certificates along with other notes became a popular addition to currency. The constant strain on private and commercial banks lacking insurance created a lingering fear of “runs” and potential banking collapses. The panic of 1907 escalated the crisis. The book details the individuals who were instrumental in creating the Federal Reserve during President Woodrow Wilson 1st term shortly before the onset of World War I. Although the institution was hailed by many, opponents considered the new central bank to be another expansion of big government.
I view the Federal Reserve that sets America’s monetary policy as serving an integral part of our governmental system through a marriage of “for better or for worse”.
Throughout the 18th and 19th Century American civilization managed finances without a Federal Reserve System. As America grew and travel expanded gold and silver certificates along with other notes became a popular addition to currency. The constant strain on private and commercial banks lacking insurance created a lingering fear of “runs” and potential banking collapses. The panic of 1907 escalated the crisis. The book details the individuals who were instrumental in creating the Federal Reserve during President Woodrow Wilson 1st term shortly before the onset of World War I. Although the institution was hailed by many, opponents considered the new central bank to be another expansion of big government.
I view the Federal Reserve that sets America’s monetary policy as serving an integral part of our governmental system through a marriage of “for better or for worse”.
December 16, 2015
This book has some flaws--it's very in the weeds of it all and too little analysis for my taste. However, it's one of the best central bank histories out there and fills a big void in banking history. Hopefully, accounts like this will put to rest the conspiracy theorists, cranks, and gold standard folks out there. The book also redeems Wilson in my view. A flawed president (mostly because he was a white supremacist), he's ultimately responsible for bringing together the divergent views on the fed. It's amazing how central this debate was in US policy and how little attention Federal reserve governance seems to get today. Thanks to Lowenstein and others, hopefully this is changing.
August 31, 2022
For anyone who evinces the slightest interest in economics, has an ongoing curiosity about economics and its relationship to everyday affairs, or, like me, studied economics in college, AMERICA'S BANK: The Epic Struggle to Create the Federal Reserve is the book for you. It offers the reader a first-rate comprehensive history of how the Federal Reserve came to be in 1913. Furthermore, it provides some invaluable insights into the how the Panic of 1907 (which, prior to the Great Depression, was the most serious economic downtown the U.S. faced up to that time) acted as a spur to those individuals in government and the banking industry who supported the establishment of a central banking system as a way of buttressing a growing, modern, national economy.
This is far from being a cut and dry historical narrative. AMERICA'S BANK is also awash in drama, bringing back into vivid focus, the various personalities in government and banking circles who played significant roles in "the epic struggle to create the Federal Reserve."
This is far from being a cut and dry historical narrative. AMERICA'S BANK is also awash in drama, bringing back into vivid focus, the various personalities in government and banking circles who played significant roles in "the epic struggle to create the Federal Reserve."
September 17, 2018
The story of the creation of the Federal Reserve has been told many times, not least by its creators. As the author notes, eight different people who had a hand in its drafting wrote memoirs about it, and others filled out interviews and articles with their memories. As often as not, these memoirs attacked and defamed the other creators as mere publicity-seekers with little input into the real draft of the final act. Later, others wrote academic histories of the struggle, assigning blame and praise as they felt deserved. Clearly, all of these people understood that the creation of the Fed was a crucial moment in American history that required understanding, but before now there has never been a single, popular book about this moment. This one fits the bill nicely. It's well written, if a little circuitous, and gives the reader a sense of the stakes involved.
It helps that there are some good characters here. There's Frank Vanderlip, the Illinois farm boy and former reporter, who worked in the Treasury before becoming head of the nation's largest bank, National City. Vanderlip then used this position to push for more centralized power and more banker control. There's Paul Warburg, the scion of a wealthy German Jewish family, who first came to New York in 1902 and was shocked at the backwards financial conditions and incipient panics that dominated American banking life. He decided to stay and become a citizen so he could help fix the problem. Warburg worked closest with Senator Nelson Aldrich of Rhode Island, who had no problem feathering his own nest, with U.S. Steel stock provided by supporters or a street railway monopoly granted him in his home state, but in his last years created the first plan for a new centralized bank for the United States. There is also Carter Glass, the racist Virginia chair of the House Banking Committee, who tried to learn about banking in his free time and ended up playing perhaps the single biggest roll in drafting the final bill.
These players all fought over seemingly picayune issues, such as how many "Reserve Banks" there should be (Warburg and Aldrich wanted one, or at most four, Glass wanted up to 20), whether banks should be allowed to branch abroad, how much reserves banks should keep, whether entrance in the new system should be mandatory or not, whether state banks could join, how much dividends banks would get on their stock in the new Reserve Banks, etc. Such minutiae may seem irrelevant, but each question meant millions won and lost for certain groups, and shaped the fate of our monetary and banking system down to today.
On the whole, the author is a clear booster for the Fed, but he shows the many different paths it could have taken. Although I don't agree with all of it, I'm glad someone out there wrote a book that almost any American can use to understand an essential moment in our history.
It helps that there are some good characters here. There's Frank Vanderlip, the Illinois farm boy and former reporter, who worked in the Treasury before becoming head of the nation's largest bank, National City. Vanderlip then used this position to push for more centralized power and more banker control. There's Paul Warburg, the scion of a wealthy German Jewish family, who first came to New York in 1902 and was shocked at the backwards financial conditions and incipient panics that dominated American banking life. He decided to stay and become a citizen so he could help fix the problem. Warburg worked closest with Senator Nelson Aldrich of Rhode Island, who had no problem feathering his own nest, with U.S. Steel stock provided by supporters or a street railway monopoly granted him in his home state, but in his last years created the first plan for a new centralized bank for the United States. There is also Carter Glass, the racist Virginia chair of the House Banking Committee, who tried to learn about banking in his free time and ended up playing perhaps the single biggest roll in drafting the final bill.
These players all fought over seemingly picayune issues, such as how many "Reserve Banks" there should be (Warburg and Aldrich wanted one, or at most four, Glass wanted up to 20), whether banks should be allowed to branch abroad, how much reserves banks should keep, whether entrance in the new system should be mandatory or not, whether state banks could join, how much dividends banks would get on their stock in the new Reserve Banks, etc. Such minutiae may seem irrelevant, but each question meant millions won and lost for certain groups, and shaped the fate of our monetary and banking system down to today.
On the whole, the author is a clear booster for the Fed, but he shows the many different paths it could have taken. Although I don't agree with all of it, I'm glad someone out there wrote a book that almost any American can use to understand an essential moment in our history.
December 26, 2020
A couple of years ago I would have never predicted that I might spend my Christmas break reading a history of establishing the Federal Reserve, but that’s exactly what I did. More than that, I have actually enjoyed this book.
Roger Lowenstein described the historical and economic conditions that led to passing the Federal Reserve Act in 1913. The American legislators and bankers were afraid of European-style centralisation, and of a European style central bank. This opposition could be traced back to Andrew Jackson and his hostility to the National Bank. It took an outsider, Paul Warburg, to forcefully push for a reform of American financial system. His knowledge of European central banking and the recent crisis of 1907 prepared the ground. The early draft, the Aldrich Plan, took the reformers to a secluded Jekyl Island (later renamed Jekyll Island), the ever since feeder for conspiracy theorists. The first draft did not succeed, due to, among other things, opposition to its spiritual father - Nelson Aldrich. The book follows the characters involved in shaping the Fed, including Carter Glass, and at the earlier stage - J.P. Morgan. The idea of a central bank, even though modified to fit the American requirements, eventually gathered enough supporters, including Woodrow Wilson to be made into a law. This act was one of the three major reforms of the US financial system, along with the creation of the Securities and Exchanges Commission and the Glass-Steagall Act.
Roger Lowenstein described the historical and economic conditions that led to passing the Federal Reserve Act in 1913. The American legislators and bankers were afraid of European-style centralisation, and of a European style central bank. This opposition could be traced back to Andrew Jackson and his hostility to the National Bank. It took an outsider, Paul Warburg, to forcefully push for a reform of American financial system. His knowledge of European central banking and the recent crisis of 1907 prepared the ground. The early draft, the Aldrich Plan, took the reformers to a secluded Jekyl Island (later renamed Jekyll Island), the ever since feeder for conspiracy theorists. The first draft did not succeed, due to, among other things, opposition to its spiritual father - Nelson Aldrich. The book follows the characters involved in shaping the Fed, including Carter Glass, and at the earlier stage - J.P. Morgan. The idea of a central bank, even though modified to fit the American requirements, eventually gathered enough supporters, including Woodrow Wilson to be made into a law. This act was one of the three major reforms of the US financial system, along with the creation of the Securities and Exchanges Commission and the Glass-Steagall Act.
January 28, 2016
Too many competing ideologies, too many currencies, fear of federal control etc. etc. Finally Federal Reserve was created after a failed version of national bank.
I hardly remember more than a few names from this book, but it was quite informative and helped me understand a little bit about different political forces in the United States. As someone said 'There is no limit to how much you can accomplish if you don't care who gets the credit', this effort has been a result of many leaders' work and foresight, though few people fought for the credit in the aftermath.
I hardly remember more than a few names from this book, but it was quite informative and helped me understand a little bit about different political forces in the United States. As someone said 'There is no limit to how much you can accomplish if you don't care who gets the credit', this effort has been a result of many leaders' work and foresight, though few people fought for the credit in the aftermath.
September 22, 2016
Many people have strong opinions about the Federal Reserve, despite not having a clear idea of what it is, what it does, how it's structured, or who's in charge. However, even if that describes you, don't feel so bad, because ignorance has been practically a second father to the Fed since the beginning. America's allergy to central banking has endured from the founding, through multiple painful financial crises and recessions, and even through to the relatively peaceful and prosperous present. As Lowenstein ably demonstrates through his description of the Federal Reserve Act's drafting, debate, and passage, the Federal Reserve's complex structure and arcane operations are less a product of smoke-filled rooms than the unavoidably complicated nature of high finance, as well as the often-terrible political compromises necessary to shepherd such a controversial piece of legislation through the drama of the Progressive Era. Since the "End the Fed" movement is still with us, as it most likely will be for some time, it's worth reading on why the Fed exists, what problems its creators were trying to solve, and how it ended up quite the way it did.
Nowadays, central banks are a given in the international financial landscape - less a feature than the foundation. Yet despite the best efforts of Alexander Hamilton and many other government officials during the early years, the US did not get a truly permanent central bank until just before World War I. Despite otherwise rapid economic growth, in comparison to European nations the US had an unusually fragile monetary system that was vulnerable to frequent panics and recessions. Individual banks issued their own notes, which made taking out loans and redeeming debts across state lines difficult. Rural banks in particular had asset flows that tracked the harvests, which could leave their reserves critically low if too many farmers needed to withdraw at once. Local banks had to rely on public perception of their stability and trustworthiness, which meant often that they went bust very suddenly, completely wiping out deposits. Many banks had deep ties to corruption-intense industries like railroads that were subject to intense, unstable bursts of speculation. And, since nothing travels faster than bad news, nationwide financial contagions could spread in a flash but take years to recover from. Yet public mistrust of centralized government, which was even shared by Presidents such as Andrew Jackson, meant that America more or less muddled through recession after recession, relying on the private sector to clean up its own messes.
The low point was the Panic of 1907, a particularly harsh but certainly not the only bank crisis/recession around the turn of the 20th century. Borne of a misbegotten attempt to corner the market on copper, the collapse of the instigator's firm led to a wave of bank closures. In normal conditions in a fractional reserve system, it isn't an issue when banks owe each other large sums of money, since only a small percentage of deposits will ever be withdrawn at a time. But when credit becomes scarce, each bank tries to call in its debts from all the others, and with a sufficiently leveraged system where the total amount of loans outstanding can be greater than the total amount of reserves, everyone goes bankrupt. In most European countries at the time, the central bank would step in and, in the words of Economist editor Walter Bagehot, "lend freely, at a penalty rate, against good collateral", but in the US, Wall Street was forced to rely on the person of JP Morgan to coordinate relief as the banking crisis became particularly pronounced. Thanks to his personal reputation and his powers of persuasion, Morgan was able to calm the markets and arrange for some measure of stability, but it was clear that this state of affairs couldn't continue. The United States needed a central bank, and so Senator Nelson Aldrich and banker Paul Warburg began their efforts to design one.
For conspiracy theorists, this is where the story really begins. There are plenty of books out there with titles like "The Creature From Jekyll Island" that imply that the creation of the Federal Reserve was some kind of sinister plot foisted on an unwary public to debauch the currency/tighten the grip of Wall Street/empower a tyrannical federal government/extend the tentacles of international banks/destroy freedom/etc. However, as Lowenstein shows, the eventual passage of the Federal Reserve Act in 1913 was only one step, though the crucial one, in the long struggle to give the United States a modern banking system with the powers of crisis-prevention that we now take for granted. Many of the peculiarities of the Federal Reserve that intrigue people - its quasi-public/private structure, its dispersion into regional banks, its insulation from direct public accountability, its somewhat circuitous control over the money supply, the fact that dollar bills say "Federal Reserve Note" instead of "U.S. Government note" - are less the product of deliberate conspiracies than the many rounds of bitter negotiations and painful compromises it took to get a bill through Congress during an unusually turbulent period in American governance.
The Progressive Era's expansion on the powers of the federal government is under-appreciated today, maybe because the similar expansions in the Civil War/Reconstruction and the New Deal are easier to explain to high schoolers. It's easy to see why the federal government would assume new responsibilities when during a civil war or economic calamity, less easy when the catalyst is monetary and administrative structural reform. However, you can't understand the Federal Reserve without understanding something about where its progenitors were coming from. Senators like Nelson Aldrich (patrician Rhode Islander, a pawn of Big Sugar), Carter Glass (conservative Virginian, of later Glass-Steagall fame), and Latham Owen (populist Oklahoman) had their own motives for pursuing reform, but in trying to draft a passable bill, each had to face some tough political questions:
- Ordinary people might not like a government bank because it's the government, unless they're farmers, who will love it, but banks will hate it because it's competition - what should its powers be?
- Conservatives want Federal Reserve directors appointed by bankers, but Progressives want them appointed by the President - what's the best way to balance independence with accountability?
- Many people hate the idea of a single central bank, but splitting it into several regional banks (as many as 20 in some drafts) could be dangerous in a crisis, and that still leaves no direct involvement by states themselves - how should it be structured?
- Notes issued by the federal government directly and backed by "full faith and credit" would involve the least corporate control, but notes issued by the Federal Reserve and backed by member banks reserves would quiet inflation worries - what legal status should money issued by this bank have?
- The original plan was outlined by Senator Aldrich, a backer of the hated tariff and a notorious tool of the sugar trust in his home state, as well as Paul Warburg, a foreign banker - can the people trust anything about it?
- And what would the creation of a central bank imply about other important issues of the day, such as the gold standard vs free coinage of silver, or about high tariffs?
Unfortunately, all of these touchy questions were debated in an unusually turbulent political environment. The election of 1912 featured a three-way race between incumbent Republican William Howard Taft, Democrat Woodrow Wilson, and Progressive Theodore Roosevelt, whose friendship with Taft was ended by Roosevelt's disappointment at his conservativism. The election exposed the limitations of the two-party system to accommodate all of the different disputes at play: the ideological battle of conservatism vs populism vs progressivism, the economic struggle of bankers vs farmers vs merchants, and the regional arguments of Northeast vs South vs West. And in many ways, the victorious Democrats might have been the last party you'd expect to lead a successful banking reform initiative, not only because their base of support in the South was hostile, but also because notorious anti-banker and perennial candidate William Jennings Bryan became Secretary of State in the Wilson administration. Yet Wilson, whose background as a Princeton professor included political science and public administration, was convinced that America needed a legitimate central bank.
While the later part of the book can seem tedious unless you're interested in the minutiae of historical lobbying efforts, Lowenstein highlights Wilson's direct involvement as a major factor in getting the bill passed. It's a fascinating counter-example to many other instances of successful reform, such as Barack Obama's more hands-off approach to the Affordable Care Act, but is more in line with other historical examples such as LBJ and the Great Society legislation. While some of Wilson's other initiatives such as the League of Nations failed despite him ruining his health over it, his shepherding of the bill in this instance made the difference. The legislative horse-trading also makes you appreciate the fine line between pandering to special interests and speaking up for forgotten voices - there's no logical reason for the Fed's 12 branches as opposed to 11 or 13, but sometimes you have to buy some votes, and the true alternative to a flawed bill isn't a better bill, but no bill at all. The Federal Reserve's mandate would be enlarged and expanded by successive bills, but the foundation was finally set.
The Federal Reserve has not always done a great job, as even its staunchest supporters would recognize. Whether you buy Milton Friedman's theory in A Monetary History of the United States that the severity of Great Depression was the Fed's fault or not, it's indisputable that its twin missions of price stability and full employment have been heavy burdens, and its responsibilities have only increased over time. Many people would like to get rid of it entirely, and technology has produced possible alternatives like bitcoins that seem worthy of exploration. Certainly there's a debate to be had over the proper method of ensuring accountability for individuals who wield such dangerous power. However, you can dislike how something is run without wanting to blow it up entirely, and contemporary accounts like Neil Irwin's The Alchemists suggest that for all its flaws, the Fed is about the best institution you could expect, given its history, its mission, and the political and social constraints that it operates under. Seeing the messy story of its origin, recounted by Lowenstein with his typical skill and diligence, reminds us that the American political system is designed to produce compromise, not perfection. Ultimately we get the Federal Reserve we deserve.
Nowadays, central banks are a given in the international financial landscape - less a feature than the foundation. Yet despite the best efforts of Alexander Hamilton and many other government officials during the early years, the US did not get a truly permanent central bank until just before World War I. Despite otherwise rapid economic growth, in comparison to European nations the US had an unusually fragile monetary system that was vulnerable to frequent panics and recessions. Individual banks issued their own notes, which made taking out loans and redeeming debts across state lines difficult. Rural banks in particular had asset flows that tracked the harvests, which could leave their reserves critically low if too many farmers needed to withdraw at once. Local banks had to rely on public perception of their stability and trustworthiness, which meant often that they went bust very suddenly, completely wiping out deposits. Many banks had deep ties to corruption-intense industries like railroads that were subject to intense, unstable bursts of speculation. And, since nothing travels faster than bad news, nationwide financial contagions could spread in a flash but take years to recover from. Yet public mistrust of centralized government, which was even shared by Presidents such as Andrew Jackson, meant that America more or less muddled through recession after recession, relying on the private sector to clean up its own messes.
The low point was the Panic of 1907, a particularly harsh but certainly not the only bank crisis/recession around the turn of the 20th century. Borne of a misbegotten attempt to corner the market on copper, the collapse of the instigator's firm led to a wave of bank closures. In normal conditions in a fractional reserve system, it isn't an issue when banks owe each other large sums of money, since only a small percentage of deposits will ever be withdrawn at a time. But when credit becomes scarce, each bank tries to call in its debts from all the others, and with a sufficiently leveraged system where the total amount of loans outstanding can be greater than the total amount of reserves, everyone goes bankrupt. In most European countries at the time, the central bank would step in and, in the words of Economist editor Walter Bagehot, "lend freely, at a penalty rate, against good collateral", but in the US, Wall Street was forced to rely on the person of JP Morgan to coordinate relief as the banking crisis became particularly pronounced. Thanks to his personal reputation and his powers of persuasion, Morgan was able to calm the markets and arrange for some measure of stability, but it was clear that this state of affairs couldn't continue. The United States needed a central bank, and so Senator Nelson Aldrich and banker Paul Warburg began their efforts to design one.
For conspiracy theorists, this is where the story really begins. There are plenty of books out there with titles like "The Creature From Jekyll Island" that imply that the creation of the Federal Reserve was some kind of sinister plot foisted on an unwary public to debauch the currency/tighten the grip of Wall Street/empower a tyrannical federal government/extend the tentacles of international banks/destroy freedom/etc. However, as Lowenstein shows, the eventual passage of the Federal Reserve Act in 1913 was only one step, though the crucial one, in the long struggle to give the United States a modern banking system with the powers of crisis-prevention that we now take for granted. Many of the peculiarities of the Federal Reserve that intrigue people - its quasi-public/private structure, its dispersion into regional banks, its insulation from direct public accountability, its somewhat circuitous control over the money supply, the fact that dollar bills say "Federal Reserve Note" instead of "U.S. Government note" - are less the product of deliberate conspiracies than the many rounds of bitter negotiations and painful compromises it took to get a bill through Congress during an unusually turbulent period in American governance.
The Progressive Era's expansion on the powers of the federal government is under-appreciated today, maybe because the similar expansions in the Civil War/Reconstruction and the New Deal are easier to explain to high schoolers. It's easy to see why the federal government would assume new responsibilities when during a civil war or economic calamity, less easy when the catalyst is monetary and administrative structural reform. However, you can't understand the Federal Reserve without understanding something about where its progenitors were coming from. Senators like Nelson Aldrich (patrician Rhode Islander, a pawn of Big Sugar), Carter Glass (conservative Virginian, of later Glass-Steagall fame), and Latham Owen (populist Oklahoman) had their own motives for pursuing reform, but in trying to draft a passable bill, each had to face some tough political questions:
- Ordinary people might not like a government bank because it's the government, unless they're farmers, who will love it, but banks will hate it because it's competition - what should its powers be?
- Conservatives want Federal Reserve directors appointed by bankers, but Progressives want them appointed by the President - what's the best way to balance independence with accountability?
- Many people hate the idea of a single central bank, but splitting it into several regional banks (as many as 20 in some drafts) could be dangerous in a crisis, and that still leaves no direct involvement by states themselves - how should it be structured?
- Notes issued by the federal government directly and backed by "full faith and credit" would involve the least corporate control, but notes issued by the Federal Reserve and backed by member banks reserves would quiet inflation worries - what legal status should money issued by this bank have?
- The original plan was outlined by Senator Aldrich, a backer of the hated tariff and a notorious tool of the sugar trust in his home state, as well as Paul Warburg, a foreign banker - can the people trust anything about it?
- And what would the creation of a central bank imply about other important issues of the day, such as the gold standard vs free coinage of silver, or about high tariffs?
Unfortunately, all of these touchy questions were debated in an unusually turbulent political environment. The election of 1912 featured a three-way race between incumbent Republican William Howard Taft, Democrat Woodrow Wilson, and Progressive Theodore Roosevelt, whose friendship with Taft was ended by Roosevelt's disappointment at his conservativism. The election exposed the limitations of the two-party system to accommodate all of the different disputes at play: the ideological battle of conservatism vs populism vs progressivism, the economic struggle of bankers vs farmers vs merchants, and the regional arguments of Northeast vs South vs West. And in many ways, the victorious Democrats might have been the last party you'd expect to lead a successful banking reform initiative, not only because their base of support in the South was hostile, but also because notorious anti-banker and perennial candidate William Jennings Bryan became Secretary of State in the Wilson administration. Yet Wilson, whose background as a Princeton professor included political science and public administration, was convinced that America needed a legitimate central bank.
While the later part of the book can seem tedious unless you're interested in the minutiae of historical lobbying efforts, Lowenstein highlights Wilson's direct involvement as a major factor in getting the bill passed. It's a fascinating counter-example to many other instances of successful reform, such as Barack Obama's more hands-off approach to the Affordable Care Act, but is more in line with other historical examples such as LBJ and the Great Society legislation. While some of Wilson's other initiatives such as the League of Nations failed despite him ruining his health over it, his shepherding of the bill in this instance made the difference. The legislative horse-trading also makes you appreciate the fine line between pandering to special interests and speaking up for forgotten voices - there's no logical reason for the Fed's 12 branches as opposed to 11 or 13, but sometimes you have to buy some votes, and the true alternative to a flawed bill isn't a better bill, but no bill at all. The Federal Reserve's mandate would be enlarged and expanded by successive bills, but the foundation was finally set.
The Federal Reserve has not always done a great job, as even its staunchest supporters would recognize. Whether you buy Milton Friedman's theory in A Monetary History of the United States that the severity of Great Depression was the Fed's fault or not, it's indisputable that its twin missions of price stability and full employment have been heavy burdens, and its responsibilities have only increased over time. Many people would like to get rid of it entirely, and technology has produced possible alternatives like bitcoins that seem worthy of exploration. Certainly there's a debate to be had over the proper method of ensuring accountability for individuals who wield such dangerous power. However, you can dislike how something is run without wanting to blow it up entirely, and contemporary accounts like Neil Irwin's The Alchemists suggest that for all its flaws, the Fed is about the best institution you could expect, given its history, its mission, and the political and social constraints that it operates under. Seeing the messy story of its origin, recounted by Lowenstein with his typical skill and diligence, reminds us that the American political system is designed to produce compromise, not perfection. Ultimately we get the Federal Reserve we deserve.
May 31, 2023
The creation of the Federal Reserve was an "Epic Struggle", a very epic and confusing political struggle. This book mostly follows that struggle after a brief history of banking (and lack thereof) and politics surrounding banking in the US. In following the political struggle, the tugging and pulling from various interest groups, it is a valuable book and worth the read. A note of caution here though: the nature of the beast makes this a difficult read at times, as it is plowing through political processes and compromises without much flair. But there are many colossal figures from banking and politics covered, and until I read this I did not fully understand or appreciate their influences (nuanced in some cases and not in others) on the Federal Reserve's creation: Morgan, Warburg, Wilson, Roosevelt, Taft, and Jennings Bryan.
It's 3 stars for me because it is told from the point of view of someone very favorable to the Federal Reserve, and it shows too much. My views on banking are not what the author calls "demagogic", for example, inspired blindly by "The ghost of Andrew Jackson". I actually find myself admiring a lot about Hamilton and his bank plan, and I don't have the banking mindset of the dedicated libertarian that endlessly types "End the Fed" into the Twitter machine. So I can handle some pro Federal Reserve bias, but the bias here leads to omissions of explaining alternatives which could add clarity and errors/omissions in telling history. To the author, The Federal Reserve was a "worthy necessity". Many times the author refers to the draft bills as containing the laissez-faire view, which is impossible given the nature of the bills, but makes sense for it to be explained as such given his view of the Federal Reserve being a necessity. Perhaps there was not a prominent, real laissez-faire view at the time, but more explanation of the current market workings or even theoretical banking alternatives could have been helpful to understanding the debate of certain measures. There was not much explanation at all of prominent bankers who disapproved entirely, just mentions that some did (I assume there was at least some enlightened or non-conspiratorial, vehement dissent). When telling history, the author skips over the Second Bank's role in the Panic of 1819 in favor of explaining the panic resulting after the abolition of the Second Bank. The history and explanations of why the Federal reserve is needed does not come with many warnings outside of inflation, the great depression occurred before federal insurance (which presumably could have solved runs?), and 2008 is basically explained as a deficiency of the Federal Reserve structure not centrally regulated enough by law (he doesn't blame the founders of the bank here). These events in history (and more) and the role of federal programs/federal banking played in them have plenty of scholarly literature on both sides (pro/con), this book just doesn't touch on any cons of the programs and goes to the point where it pretends there aren't any.
Maybe the above is too harsh, but 3 stars for me means it is worth the read... just be aware of the bias.
It's 3 stars for me because it is told from the point of view of someone very favorable to the Federal Reserve, and it shows too much. My views on banking are not what the author calls "demagogic", for example, inspired blindly by "The ghost of Andrew Jackson". I actually find myself admiring a lot about Hamilton and his bank plan, and I don't have the banking mindset of the dedicated libertarian that endlessly types "End the Fed" into the Twitter machine. So I can handle some pro Federal Reserve bias, but the bias here leads to omissions of explaining alternatives which could add clarity and errors/omissions in telling history. To the author, The Federal Reserve was a "worthy necessity". Many times the author refers to the draft bills as containing the laissez-faire view, which is impossible given the nature of the bills, but makes sense for it to be explained as such given his view of the Federal Reserve being a necessity. Perhaps there was not a prominent, real laissez-faire view at the time, but more explanation of the current market workings or even theoretical banking alternatives could have been helpful to understanding the debate of certain measures. There was not much explanation at all of prominent bankers who disapproved entirely, just mentions that some did (I assume there was at least some enlightened or non-conspiratorial, vehement dissent). When telling history, the author skips over the Second Bank's role in the Panic of 1819 in favor of explaining the panic resulting after the abolition of the Second Bank. The history and explanations of why the Federal reserve is needed does not come with many warnings outside of inflation, the great depression occurred before federal insurance (which presumably could have solved runs?), and 2008 is basically explained as a deficiency of the Federal Reserve structure not centrally regulated enough by law (he doesn't blame the founders of the bank here). These events in history (and more) and the role of federal programs/federal banking played in them have plenty of scholarly literature on both sides (pro/con), this book just doesn't touch on any cons of the programs and goes to the point where it pretends there aren't any.
Maybe the above is too harsh, but 3 stars for me means it is worth the read... just be aware of the bias.
January 6, 2023
The federal reserve has long been a hotbed of conspiracy theories. While this book won’t end those many of the adherents would do well to read it to dispel most of their notions.
If there is no other takeaway it is that the final bill leading to the creation of the Fed was the culmination of a debate which took place across three administrations, amongst countless people, and where supporters and opponents shifted positions and sides of the debate many times over. Not just that, but the federal reserve is only a small part of an ongoing conversation about the role of the government in finance which had been ongoing since before the country was founded and continues today.
The book starts with a summary of the number of frequent, and often devastating, financial crises, recessions, and depressions the American economy went through from the founding through the early 1900s. It traces the attempts to understand why they occurred, which include a lesson on the variety of currencies and credit that existed throughout the country which led to booms and busts. Senators and associates even set sail to Europe to interrogate central bankers on how their financial systems work.
The fated Jekyll Island trip does appear to be among the varied genesis ideas which lead to the underlying language of the final bill; however, the rationale for the secrecy (terrible in hindsight) appears to be underscored by the viciousness of the political debate at the time and a need to attempt to write something which might bring together disparate ideas. Alongside a healthy dose of self-importance.
Overall, the bill leading to the federal reserve was like all large congressional bills- a mishmash of ideas, ego, and poor writing. But the result of the compromise set up the system which evolved into what we have today. Very few, and likely none of the ‘Jekyll conspirators’, would recognize the role of the regulatory agency we have today, much less the federal reserve as it existed even a decade after passage. That is the real Achilles heel of conspiracy charges, they never account for the grinding evolution of compromise and shifting progress but instead want a simple and tight explanation, something utterly lacking in the founding of “America’s Bank” or most of history.
If there is no other takeaway it is that the final bill leading to the creation of the Fed was the culmination of a debate which took place across three administrations, amongst countless people, and where supporters and opponents shifted positions and sides of the debate many times over. Not just that, but the federal reserve is only a small part of an ongoing conversation about the role of the government in finance which had been ongoing since before the country was founded and continues today.
The book starts with a summary of the number of frequent, and often devastating, financial crises, recessions, and depressions the American economy went through from the founding through the early 1900s. It traces the attempts to understand why they occurred, which include a lesson on the variety of currencies and credit that existed throughout the country which led to booms and busts. Senators and associates even set sail to Europe to interrogate central bankers on how their financial systems work.
The fated Jekyll Island trip does appear to be among the varied genesis ideas which lead to the underlying language of the final bill; however, the rationale for the secrecy (terrible in hindsight) appears to be underscored by the viciousness of the political debate at the time and a need to attempt to write something which might bring together disparate ideas. Alongside a healthy dose of self-importance.
Overall, the bill leading to the federal reserve was like all large congressional bills- a mishmash of ideas, ego, and poor writing. But the result of the compromise set up the system which evolved into what we have today. Very few, and likely none of the ‘Jekyll conspirators’, would recognize the role of the regulatory agency we have today, much less the federal reserve as it existed even a decade after passage. That is the real Achilles heel of conspiracy charges, they never account for the grinding evolution of compromise and shifting progress but instead want a simple and tight explanation, something utterly lacking in the founding of “America’s Bank” or most of history.
March 10, 2018
As someone critical of the unforeseen consequences of Fed interventions and its monetary policies, Lowenstein does offer a good historical background to the reasoning and original intent behind the 1913 Federal Reserve Act. While the story of the political struggle traced through the key figures can be riveting, I do find it unsettling the author's dismissive attitude towards any arguments against the Fed.
The need for a central bank was simply unquestioned. The free banking era was portrayed as outdated, inefficient and deficient to the growing financial needs of the nation, and public concerns and distrust over a powerfully centralized banking institution merely overblown. It's easy to overlook the fact that U.S. experienced the fastest economic growth in the 19th century and became the world's dominant industrial nation without persistent government interventions. There were panic and economic cycles, but they tend to be short-lived, often followed by a quick economic recovery (unlike the Great Depression and the financial crisis of 2008, despite all the monetary and fiscal stimulus).
While the Fed was initially established as a lender-of-last-resort, its role had steadily expanded as the country moved away from the gold standard, so had its balance sheet. In the aftermath of the latest financial crisis and in amidst of an increasing public outcry over the large private banks being "too big to fail", shouldn't we at least take some precaution over the central banks' unlimited power in suppressing interest rates (some in the negative territory these days) that fueled the excessive leverage and risk-taking to begin with?
The need for a central bank was simply unquestioned. The free banking era was portrayed as outdated, inefficient and deficient to the growing financial needs of the nation, and public concerns and distrust over a powerfully centralized banking institution merely overblown. It's easy to overlook the fact that U.S. experienced the fastest economic growth in the 19th century and became the world's dominant industrial nation without persistent government interventions. There were panic and economic cycles, but they tend to be short-lived, often followed by a quick economic recovery (unlike the Great Depression and the financial crisis of 2008, despite all the monetary and fiscal stimulus).
While the Fed was initially established as a lender-of-last-resort, its role had steadily expanded as the country moved away from the gold standard, so had its balance sheet. In the aftermath of the latest financial crisis and in amidst of an increasing public outcry over the large private banks being "too big to fail", shouldn't we at least take some precaution over the central banks' unlimited power in suppressing interest rates (some in the negative territory these days) that fueled the excessive leverage and risk-taking to begin with?
September 23, 2019
Roger Lowenstein weaves a tale of the ghost of Andrew Jackson and the men who made the Federal Reserve. Contra the modern libertarian complaints of progressive Woodrow Wilson forcing a monstrosity of big government onto America, the creation of the Federal Reserve was much more nuanced. Lowenstein walks through the issues of fiat currency, the gold standard, currency reserves and legal tender, reserve discounting, deposit insurance, the Chicago vs. New York banking rivalry, central bank vs. regional banks, and banker board vs. presidential appointment. Of course, with such a sprawling issue set the politicians involved were a wide cast constantly shifting ideas and allegiances. Lowenstein shows how different the past was--and how similar the concerns about a central bank were then to the complaints about the Federal Reserve today. In Lowenstein's tale Wilson comes across as a moderate navigating a middle course between progressive firebrands Teddy Roosevelt and William Jennings Bryan (in odd and unusual alliance) and the bankers' interests represented by Senator Nelson Aldrich. No matter your opinion of the Federal Reserve today, the description of the status quo ante is mind-boggling, with over 7,000 forms of currency circulating in the United States.
May 14, 2019
This is an interesting and easy read. While I was hoping for more explanations of how our monetary system works, the narrative was true to the book’s title. There is a lot of detail about the who, what, where, and when of negotiations leading to the Federal Reserve Act. Although tedious at times, it is a classic example of the dichotomy of our Constitutional system: any positive but radical change has a tortuous path to enactment. And this is as it should be for our founding fathers understood from history how sudden passions of the majority can be tyranny of the minority.
December 19, 2020
Few quotes are more famous in the history of liberalism than Adam Smith's "people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public". In some ways the Federal Reserve, whose origin story is described in this book, proved an exception to this rule. American presidents James Madison and Andrew Jackson had twice allowed central banks to sunset, worried about the concentration of too much wealth in the hands of the central government. It took the intervention of Paul Warburg, a German immigrant and scion of a famous banking family, to push for something like the European model of a central bank which would provide a stable source of capital in liquidity crunches like the Panic of 1907, as well as the fortuitous political alignment of Woodrow Wilson's first term. As told by Lowenstein - a veteran Wall Street Journal reporter - this was basically a benign conspiracy by financiers to modernise and stabilise America's financial plumbing, against the ghost of Andrew Jackson. (Of whom Warburg quoted approvingly in his private diary "to my thinking, the country had greater cause to mourn on the day of his birth than on that of his decease".) And although he doesn't deal much with modern events, outside of occasional comparisons to the 2008 financial crisis, Lowenstein does connect the resistance around the founding of the Fed to still-popular conspiracy theories. When searching YouTube for "Federal Reserve" the first result is a video called "Century of Enslavement", followed up by "What You're Not Supposed to Know About America's Founding", (the latter produced by the John Birch Society).
Lowenstein's book looks only at the founding of the Fed, against Progressive opposition best represented by Theodore Roosevelt (who split with his erstwhile friend Taft to run as a third-party Progressive [or "Bull Moose"] Party), and William Jennings Bryant (the populist most famous for his "cross of gold" speech supporting bimetallism). The result of the three-way split in the 1912 election was a resounding victory for the moderate Democrat Woodrow Wilson, who appointed Bryant as his Secretary of State. Wilson (then and since the only US president to hold a PhD) had a Democratic Senate and was able to push through the bill, after much editing and debating. Also instrumental was Carter Glass, who as creator of the Federal Reserve Act, the Securities Exchange Act creating the SEC, and the Glass-Steagall Act may well be the most influential single financial regulator of all time.
Overall I'd recommend this book mainly to connoisseurs of American financial history (for whom this is a mere canapé next to Milton Friedman and Anna Schwartz's A Monetary History of the United States 1867-1960. But it can shed light on America's complex (and sometimes self-defeating) political system.
Two odd quotes I liked: "It is a truism of capitalism that if money is injected into the system, no matter the intent, some of it will end up benefiting well-connected financiers."
(of Wilson) "Indeed, he once mused that had he been alive in 1776, rather than see the nation split into thirteen ragtag fiefdoms, he might have been a Tory."
Lowenstein's book looks only at the founding of the Fed, against Progressive opposition best represented by Theodore Roosevelt (who split with his erstwhile friend Taft to run as a third-party Progressive [or "Bull Moose"] Party), and William Jennings Bryant (the populist most famous for his "cross of gold" speech supporting bimetallism). The result of the three-way split in the 1912 election was a resounding victory for the moderate Democrat Woodrow Wilson, who appointed Bryant as his Secretary of State. Wilson (then and since the only US president to hold a PhD) had a Democratic Senate and was able to push through the bill, after much editing and debating. Also instrumental was Carter Glass, who as creator of the Federal Reserve Act, the Securities Exchange Act creating the SEC, and the Glass-Steagall Act may well be the most influential single financial regulator of all time.
Overall I'd recommend this book mainly to connoisseurs of American financial history (for whom this is a mere canapé next to Milton Friedman and Anna Schwartz's A Monetary History of the United States 1867-1960. But it can shed light on America's complex (and sometimes self-defeating) political system.
Two odd quotes I liked: "It is a truism of capitalism that if money is injected into the system, no matter the intent, some of it will end up benefiting well-connected financiers."
(of Wilson) "Indeed, he once mused that had he been alive in 1776, rather than see the nation split into thirteen ragtag fiefdoms, he might have been a Tory."
August 25, 2022
Solid and well researched book that gives a good look into the various factions that created a perfect storm enabling a durable central bank framework for the U.S. The author is overly generous to his subjects at times, excusing behavior and political positions. But overall a very helpful and deep dive using contemporary accounts to illustrate the personalities and context that resulted in the Fed's unique system.
April 3, 2019
A short interesting look at the creation of the federal reserve, probably closer to 3.5 than 4.
The battles within the divided republican and Democratic parties to bring about a central bank, brief background on the need for and comparison with Europe, but mostly a look at the historical stewardship of the legislation.
The battles within the divided republican and Democratic parties to bring about a central bank, brief background on the need for and comparison with Europe, but mostly a look at the historical stewardship of the legislation.
September 7, 2015
With all the current chatter about banks and bank bail-outs, Roger Lowenstein's AMERICA'S BANK is a timely read.
The book is not for everyone, diving into the deep end of the financial pool as it does, but for those who wonder how America's banking system got to where it is today, the book is highly informative. Mr. Lowenstein presents the decade-long political struggle to re-introduce a federal bank, something that Europeans take for granted but one that was lacking in America for most of its existence.
On the heels of yet another financial panic in 1907, a regular occurrence in a nation that was adamantly anti-centralism, several influential bankers and politicians came together to battle against that attitude. The author does a fine job of showing how big egos collided as financiers wrangled with America's elected representatives to bring about a central bank to organize monetary policy in the European mold. The story is intriguing, although perhaps too inclined to look to our modern era as the backdrop for the Edwardian period prior to the First World War.
In general, I found the book fascinating, with its explanation of how disparate lines of thought were brought together for disparate reasons, with all the give and take expected of legislative combat. The drive to win credit after the successful introduction of the Federal banking system is not forgotten in the epilogue, and caps off a tale of ambition and a burning desire for acclaim that saw the many authors of the bill all proclaiming themselves the sole winner who had to vanquish his foes.
I am left with one question, however, that Mr. Lowenstein does not address. With so much of the anti-central bank animus ascribed to President Andrew Jackson, why, then, is it Alexander Hamilton's image that's suggested to be removed from the currency to make room for a woman?
Disclaimer: Penguin provided a free copy of the book through the First to Read programme, so there you go.
The book is not for everyone, diving into the deep end of the financial pool as it does, but for those who wonder how America's banking system got to where it is today, the book is highly informative. Mr. Lowenstein presents the decade-long political struggle to re-introduce a federal bank, something that Europeans take for granted but one that was lacking in America for most of its existence.
On the heels of yet another financial panic in 1907, a regular occurrence in a nation that was adamantly anti-centralism, several influential bankers and politicians came together to battle against that attitude. The author does a fine job of showing how big egos collided as financiers wrangled with America's elected representatives to bring about a central bank to organize monetary policy in the European mold. The story is intriguing, although perhaps too inclined to look to our modern era as the backdrop for the Edwardian period prior to the First World War.
In general, I found the book fascinating, with its explanation of how disparate lines of thought were brought together for disparate reasons, with all the give and take expected of legislative combat. The drive to win credit after the successful introduction of the Federal banking system is not forgotten in the epilogue, and caps off a tale of ambition and a burning desire for acclaim that saw the many authors of the bill all proclaiming themselves the sole winner who had to vanquish his foes.
I am left with one question, however, that Mr. Lowenstein does not address. With so much of the anti-central bank animus ascribed to President Andrew Jackson, why, then, is it Alexander Hamilton's image that's suggested to be removed from the currency to make room for a woman?
Disclaimer: Penguin provided a free copy of the book through the First to Read programme, so there you go.
December 15, 2018
What could be drier than a book about the creation of the Federal Reserve, right? Well, Lowenstein is up to the challenge. The creation of the Fed was not, however, a straight forward legislative process due to the legacy of the various incarnations of the Bank of United States and the presidency of Andrew Jackson so his task is made decidedly easier. One of the founders of the Fed, German-born banker Paul Warburg was so alienated by Jackson's legacy that he wrote in his dairy this quote from New York Mayor Philip Hone about the president's death:
"The universal American nation is in mourning. Stripes, black...darken the columns of the newspapers....Now, to my thinking, the country had greater cause to mourn on the day of his birth than that of his decease".
Warburg along with political spider master and Rhode Island's U.S. Senator Nelson Aldrich, the senator's personal secretary Arthur Shelton, Henry P. Davison, former J.P. Morgan protege, the future CitiBank's president Frank Vanderlip, and Assistant Secretary of the Treasury Piatt Andrew literally disguised themselves and headed out to "remote Jekyl Island" in 1910 to secretly create the basic outlines of the Federal Reserve System. Utilizing his background as a reporter, Lowenstein crafts a riveting tale of the before, during, and after of the Jekyl Conference. He divides the story in to two parts: The Road to Jekyl Island and The Legislative Arena plus an introduction concerning the history of banking in America and the role of Southern racist and Virginia Congressman Carter Glass in birthing the Fed.
The book is both history and biographies of the principal characters from bankers and demagogues to legislators and presidents. It is an important analysis of American politics and the origins of one of the world's most important institutions. Fortunately, Roger's tales are far more interesting than Alan Greenspan Fed statements...
"The universal American nation is in mourning. Stripes, black...darken the columns of the newspapers....Now, to my thinking, the country had greater cause to mourn on the day of his birth than that of his decease".
Warburg along with political spider master and Rhode Island's U.S. Senator Nelson Aldrich, the senator's personal secretary Arthur Shelton, Henry P. Davison, former J.P. Morgan protege, the future CitiBank's president Frank Vanderlip, and Assistant Secretary of the Treasury Piatt Andrew literally disguised themselves and headed out to "remote Jekyl Island" in 1910 to secretly create the basic outlines of the Federal Reserve System. Utilizing his background as a reporter, Lowenstein crafts a riveting tale of the before, during, and after of the Jekyl Conference. He divides the story in to two parts: The Road to Jekyl Island and The Legislative Arena plus an introduction concerning the history of banking in America and the role of Southern racist and Virginia Congressman Carter Glass in birthing the Fed.
The book is both history and biographies of the principal characters from bankers and demagogues to legislators and presidents. It is an important analysis of American politics and the origins of one of the world's most important institutions. Fortunately, Roger's tales are far more interesting than Alan Greenspan Fed statements...
November 23, 2020
I really, really enjoyed this book! This is my second book that I read by Roger Lowenstein and I want more. I am hoping he is currently working on something new.
If you haven't guessed, this book deals with the history leading up to the creation of the Federal Reserve and the Federal Reserve Act. It goes back into our history as a nation and outlines why people were (and still are) distrustful of centralized authority. While I won't share my views as they don't add anything to this review, it gave me a lot to think about.
I really recommend this to anyone. It is just an interesting piece of both financial and American history. It's an easy read. You don't have to be a Yale graduate or have a background at Goldman Sachs to understand it. Lowenstein does a great job communicating complex issues for a mainstream audience. It's also rather short so you won't be reading this five months later.
Do yourself a favor and pick this up. You won't be disappointed.
If you haven't guessed, this book deals with the history leading up to the creation of the Federal Reserve and the Federal Reserve Act. It goes back into our history as a nation and outlines why people were (and still are) distrustful of centralized authority. While I won't share my views as they don't add anything to this review, it gave me a lot to think about.
I really recommend this to anyone. It is just an interesting piece of both financial and American history. It's an easy read. You don't have to be a Yale graduate or have a background at Goldman Sachs to understand it. Lowenstein does a great job communicating complex issues for a mainstream audience. It's also rather short so you won't be reading this five months later.
Do yourself a favor and pick this up. You won't be disappointed.
October 23, 2015
You think our banking system is complex and ridiculous now. A little over 100 years ago, the United States did not have a central bank helping to stabilize and structure our banking system. Crazy! Banks issued their own notes based on their own capital and an odd system of deposits with larger banks to work as some sort of reserve system. If you took your money on a trip, it could devalue as you made your way across the state. And the fall harvest pretty much guaranteed an annual run on the banks similar to what we see in It's A Wonderful Life.
Despite this unsettling situation, it took 11 years of debate to reach an agreement establishing what is now called the Federal Reserve. Of course, bankers wanted certain conditions, politicians wanted certain conditions, and random special interest groups that most people wouldn't think should be involved had to insert their wants and desires. The drive to reach consensus was so forceful that one man, Paul Warburg, an immigrant from Germany, became a naturalized citizen so that he had more clout when advocating for the modernization of the US banking system.
Detailed research and excellent writing are able to bring this huge topic into a deep but manageable presentation.
I received a preview copy from NetGalley in exchange for an honest review.
Despite this unsettling situation, it took 11 years of debate to reach an agreement establishing what is now called the Federal Reserve. Of course, bankers wanted certain conditions, politicians wanted certain conditions, and random special interest groups that most people wouldn't think should be involved had to insert their wants and desires. The drive to reach consensus was so forceful that one man, Paul Warburg, an immigrant from Germany, became a naturalized citizen so that he had more clout when advocating for the modernization of the US banking system.
Detailed research and excellent writing are able to bring this huge topic into a deep but manageable presentation.
I received a preview copy from NetGalley in exchange for an honest review.
August 14, 2023
The concept of the book is undoubtedly interesting - tracing the origins of the ideas for a reform of the American banking sector in the first decade of the 20th century, through the various proposals until the final enactment of the Federal Reserve Act of 1913. But so much of its beauty gets lost in its detailed retelling of the conflicts between the individual actors in the story (congressmen, bankers, senators and flunkies around them) and rather unclear descriptions of the individual plans, proposals and bills. Lowenstein does not question the need for reform of the American banking sector throughout the book, nor does he provide too much analysis about its current structure and decisions (although noting here and there about problems or challenges that were faced by later leaderships).
The book is divided into two parts - first one traces the justifications for banking reform (including a rather messy retelling of the Panics of 1901 and 1907) with the origins of the reform movement, up until the famous 'conspiracy' at Jekyll Island (where the proposal for the Aldrich Plan was drafted). The book's argument is that the arrival of Paul Warburg into the United States broadly marked the establishment of the intellectual movement that tried to modernise the US banking system, in line with the more developed European standards, as he was willing to labour to bring together the intellectual and academic side together with the discontent of the business. The problem with this aspect of the book is, however, that the description of what that standard was (i.e. what made the central banks of France, England or Germany in pre-war times so much better than the US system) is spread through numerous points of the book and never fully explained - and even the descriptions of the workings of the proposed monetary systems are quite rough and not too easy to understand.
Sure, a reader gets a lot about the "Spirit of Jackson" and the fear of centralisation in American finance and the Democratic Party. But again, little is said of why this is so - Jackson's animosity towards banking and subsequently the Second Bank of the United States is said to come from one bad deal in his youth. William Jennings Bryan is presented as a committed populist, later turning very pragmatic during the Wilson Administration. In all of this, it is not clear, why were so many people that would disagree on some of the key topics, like the backing of the currency by a specie, control of the banking system (bankers vs public/government) or forms of assets used for the exchange of money notes (where politicians from agrarian states advocated for the use of agricultural storage receipts and mortgages for bank notes - bankers insisted on using only commercial paper), could all agree on one thing - that they did not want a central bank.
The second part of the book concerns the legislative process and this part is at the same time exciting as it is boring. Reading parts about the legislative manoeuvres in 1912 and 1913 within the Democratic caucus, the Senate Banking Committee and especially President Wilson's intense involvement in it feels almost Caro-esque (southern Democrats seem to be skilled parliamentarians), but there are just so many bills, changes and proposals, that it is genuinely hard to keep track of them. The final passing of the act (in joint conference report form) comes rather unclimatically and while the epilogue explains some of the Fed's history in the 1920s, the final version of the bill is not explained well enough.
Lowenstein's central hero within the story is undoubtedly Paul Warburg and it is understandable why so. His drive and ideas are the only uniting string throughout the whole story and as a Fed board member in its first decade as well as one of the first historians, the Federal Reserve system is undoubtedly his brainchild to a large extent. Other "good guys" in the story are undoubtedly Carter Glass and Robert Owen, the final co-sponsors of the final Federal Reserve Act, but also Nelson Aldrich, a senator from Rhode Island, who led the fact-finding Senate Committee, which brought into the US discourse about finance some of the key ideas of European central banking. The more negatively presented figures are people like Colonel House (a confidant of Wilson's) or Congressman Robert Henry (Texas 11th) - an agricultural populist opposed to reform, who stalled the movement.
An interesting aspect of the book is that what Fed is now most well-known for, or seen as most powerful through - the setting of the discount rate - was at most a tangential concern for the legislators at the time of its establishment. Even the mechanisms of its functioning, the open market operations, were not thought to be a key power for the management of the financial sector, but rather the creation of the federal notes through discounting and terms under which it was able to do so. That is I guess an useful insight of the book as a whole - that reforms require intellectual and political leadership and compromise, but also that they often do not solve the problems people might have when considering them.
Overall, the book looks at an interesting topic of the organisation of the central banking and financial sector as a whole in the rapidly developing United States and provides a good overview and synthesises a lot of scholarship. I really do love Lowenstein's focus on the Fed, because I believe it is so overlooked in today's analysis of the financial sector and history, and this book does a great job of explaining the origin of some of the key aspects of today's system - a privately-owned reserve banking with government-led Federal Board and governance, that is today rarely questioned without conspirational thinking. In that respect, it is well worth the read.
The book is divided into two parts - first one traces the justifications for banking reform (including a rather messy retelling of the Panics of 1901 and 1907) with the origins of the reform movement, up until the famous 'conspiracy' at Jekyll Island (where the proposal for the Aldrich Plan was drafted). The book's argument is that the arrival of Paul Warburg into the United States broadly marked the establishment of the intellectual movement that tried to modernise the US banking system, in line with the more developed European standards, as he was willing to labour to bring together the intellectual and academic side together with the discontent of the business. The problem with this aspect of the book is, however, that the description of what that standard was (i.e. what made the central banks of France, England or Germany in pre-war times so much better than the US system) is spread through numerous points of the book and never fully explained - and even the descriptions of the workings of the proposed monetary systems are quite rough and not too easy to understand.
Sure, a reader gets a lot about the "Spirit of Jackson" and the fear of centralisation in American finance and the Democratic Party. But again, little is said of why this is so - Jackson's animosity towards banking and subsequently the Second Bank of the United States is said to come from one bad deal in his youth. William Jennings Bryan is presented as a committed populist, later turning very pragmatic during the Wilson Administration. In all of this, it is not clear, why were so many people that would disagree on some of the key topics, like the backing of the currency by a specie, control of the banking system (bankers vs public/government) or forms of assets used for the exchange of money notes (where politicians from agrarian states advocated for the use of agricultural storage receipts and mortgages for bank notes - bankers insisted on using only commercial paper), could all agree on one thing - that they did not want a central bank.
The second part of the book concerns the legislative process and this part is at the same time exciting as it is boring. Reading parts about the legislative manoeuvres in 1912 and 1913 within the Democratic caucus, the Senate Banking Committee and especially President Wilson's intense involvement in it feels almost Caro-esque (southern Democrats seem to be skilled parliamentarians), but there are just so many bills, changes and proposals, that it is genuinely hard to keep track of them. The final passing of the act (in joint conference report form) comes rather unclimatically and while the epilogue explains some of the Fed's history in the 1920s, the final version of the bill is not explained well enough.
Lowenstein's central hero within the story is undoubtedly Paul Warburg and it is understandable why so. His drive and ideas are the only uniting string throughout the whole story and as a Fed board member in its first decade as well as one of the first historians, the Federal Reserve system is undoubtedly his brainchild to a large extent. Other "good guys" in the story are undoubtedly Carter Glass and Robert Owen, the final co-sponsors of the final Federal Reserve Act, but also Nelson Aldrich, a senator from Rhode Island, who led the fact-finding Senate Committee, which brought into the US discourse about finance some of the key ideas of European central banking. The more negatively presented figures are people like Colonel House (a confidant of Wilson's) or Congressman Robert Henry (Texas 11th) - an agricultural populist opposed to reform, who stalled the movement.
An interesting aspect of the book is that what Fed is now most well-known for, or seen as most powerful through - the setting of the discount rate - was at most a tangential concern for the legislators at the time of its establishment. Even the mechanisms of its functioning, the open market operations, were not thought to be a key power for the management of the financial sector, but rather the creation of the federal notes through discounting and terms under which it was able to do so. That is I guess an useful insight of the book as a whole - that reforms require intellectual and political leadership and compromise, but also that they often do not solve the problems people might have when considering them.
Overall, the book looks at an interesting topic of the organisation of the central banking and financial sector as a whole in the rapidly developing United States and provides a good overview and synthesises a lot of scholarship. I really do love Lowenstein's focus on the Fed, because I believe it is so overlooked in today's analysis of the financial sector and history, and this book does a great job of explaining the origin of some of the key aspects of today's system - a privately-owned reserve banking with government-led Federal Board and governance, that is today rarely questioned without conspirational thinking. In that respect, it is well worth the read.
November 23, 2016
A wonderful narrative history tracing the origins of the creation of the Federal Reserve to the Panic of 1907 and emphasizing the key roles played by Senator Nelson Aldrich and the banker Paul Warburg in creating the concept and William Jennings Bryan, Woodrow Wilson, and Representative Carter Glass in pushing the legislation through Congress. The Federal Reserve System was a progressive reform with conservative roots---and perhaps because of that rather effective.
May 12, 2018
Painstakingly detailed account of the political theater behind the development of the bank, but little explanation of the actual structure and importance of the myriad proposals. Invaluable supplement on the political history to someone already well versed in the economic history.
June 6, 2021
The second half gets bogged down in the minutia of congressional negotiations, but the author does a fine job outlining the competing factions around the creation of the Fed.
November 11, 2018
I recently finished the book of "American's Bank" by Roger Lowenstein. This book describes the history of how the federal reserve system was built. Since US federal reserve has such a huge impact on the world's economy, this book could help us understand how the world's financial system evolved.
Before the birth of the Federal Reserve, there were two trials of building a central bank in the US. However, neither of them lasted very long because of American people's aversion to centralized control. In contrast, the financial system in the European continent was more centrally-coordinated from the beginning. For example, the Bank of England had been the lender of last resort for the UK for a few centuries.
There was a severe final crisis in 1907, which was mitigated thanks to J.P. Morgan's personal efforts. However, the financial crisis highlighted the need of an institution to coordinate financial efforts in America.
The initial plan for Federal Reserve was initialized by Republican senator Aldrich. Aldrich is an elitist senator and has a close tie with prominent business leaders at the time. After several trips to Europe, he got very interested in the Financial System in the European continent.
Another important person for the creation of the Federal reserve is Paul Warburg, which was a recent immigrant from Germany. He is a strong advocate of a central bank and not soon after he landed the new continent he started to give speeches about the necessity of a central bank in the US. Aldrich, Warburg and a few other key persons had a discussion in Jekly island and created the initial proposal of an act to create a central bank in the US.
Unfortunately, the politics changed quickly. Early 20th century was a transitional period in which progressivism was becoming the mainstream of American politics. Democrats took the chance to attack big corporations and Wall streets. In 1912, Democrats swept the election and Woodrow Wilson became the president. Aldrich was soon out of the center of power and his plan was denounced by Democrats. Although on the surface, Democrats didn't like what Aldrich's plan. They soon started to work on a banking reform plan that borrowed many designs from Aldrich's plan. The end result was very similar to Aldrich's plan. Wilson pushed the federal reserve act as one of his first agendas in the office and act was passed in 1913. The federal reserve system was soon established in the following years.
It took more than 6 years from the conceive of the idea to the establishment of the federal system. This seems to be a slow process. However, considering that the act has such a huge impact on the world even after 100 years after it was passed, the caution was well justified.
In addition to learning the history of the US financial system, this book is also a good tutorial about US political system and its effect on public policy. The democratic process may be slow, which could be demonstrated by the fact that there was no central bank in most of the 19th century despite the strong need. However, it could make sure that the passed policy is really what society needs. Even if Aldrich and the Republican lost power in 1912, Democrats took the torches of establishing the federal reserve because this was necessary for the welfare of American people. In all senses, the federal reserve is an American bank established for American people.
Before the birth of the Federal Reserve, there were two trials of building a central bank in the US. However, neither of them lasted very long because of American people's aversion to centralized control. In contrast, the financial system in the European continent was more centrally-coordinated from the beginning. For example, the Bank of England had been the lender of last resort for the UK for a few centuries.
There was a severe final crisis in 1907, which was mitigated thanks to J.P. Morgan's personal efforts. However, the financial crisis highlighted the need of an institution to coordinate financial efforts in America.
The initial plan for Federal Reserve was initialized by Republican senator Aldrich. Aldrich is an elitist senator and has a close tie with prominent business leaders at the time. After several trips to Europe, he got very interested in the Financial System in the European continent.
Another important person for the creation of the Federal reserve is Paul Warburg, which was a recent immigrant from Germany. He is a strong advocate of a central bank and not soon after he landed the new continent he started to give speeches about the necessity of a central bank in the US. Aldrich, Warburg and a few other key persons had a discussion in Jekly island and created the initial proposal of an act to create a central bank in the US.
Unfortunately, the politics changed quickly. Early 20th century was a transitional period in which progressivism was becoming the mainstream of American politics. Democrats took the chance to attack big corporations and Wall streets. In 1912, Democrats swept the election and Woodrow Wilson became the president. Aldrich was soon out of the center of power and his plan was denounced by Democrats. Although on the surface, Democrats didn't like what Aldrich's plan. They soon started to work on a banking reform plan that borrowed many designs from Aldrich's plan. The end result was very similar to Aldrich's plan. Wilson pushed the federal reserve act as one of his first agendas in the office and act was passed in 1913. The federal reserve system was soon established in the following years.
It took more than 6 years from the conceive of the idea to the establishment of the federal system. This seems to be a slow process. However, considering that the act has such a huge impact on the world even after 100 years after it was passed, the caution was well justified.
In addition to learning the history of the US financial system, this book is also a good tutorial about US political system and its effect on public policy. The democratic process may be slow, which could be demonstrated by the fact that there was no central bank in most of the 19th century despite the strong need. However, it could make sure that the passed policy is really what society needs. Even if Aldrich and the Republican lost power in 1912, Democrats took the torches of establishing the federal reserve because this was necessary for the welfare of American people. In all senses, the federal reserve is an American bank established for American people.
October 11, 2021
Lowenstein takes a traditional, top-down approach to the history of the founding of the Federal Reserve, focusing on government and industry leaders’ roles in envisioning and negotiating the new U.S. national financial system. His primary sources include letters, notes, and diaries belonging to those men, as well as contemporary newspaper articles. As Wyatt Wells writes in his Winter 2016 review (Business History Review, vol. 90, no. 4, pp. 796-798), this book is “a political rather than a financial history” (798). I note, for instance, that we learn many of the specifics of the ultimate law through footnotes. Nor is the story that Lowenstein tells, engaging as it is, anything particularly new. As Wells indicates, Lowenstein resists “the many conspiracy theorists” (797) and instead “focuses on a story familiar to students of the Fed” (796).
America’s Bank picks up the story of a national banking system in the U.S. where Jessica Lepler left off in The Many Panics of 1837 (Cambridge UP, 2013). Seventy years have passed, but the “ghost of Andrew Jackson” so determinedly haunted then-Rep. Carter Glass (Lowenstein 179) and the rest of the country, despite repeated subsequent financial panics, that its creators had to do all they could to deny the centrality of our central banking system to bring it into existence at all. How does a country deeply fearful and mistrustful of consolidated power come to support such a thing? The election of Woodrow Wilson, a Southern Democrat like Jackson, to the U.S. Presidency, backed by Democratic majorities in both houses of Congress and combined with the ascendancy of Progressivism, were, Lowenstein suggests, fertile conditions for such fruit. I would argue that the involvement of conservative Republican Sen. Nelson Aldrich in the origination of the idea of the Fed helped facilitate the ultimate consensus too. Further, Lowenstein shows that all concerned parties, from bankers big and small to politicians to farmers, recognized the need for prompt change after the 1907 panic. He also demonstrates, again and again, that Pres. Wilson masterfully shepherded the notion to fruition from the first days after his 1912 election to the final passage of the Glass-Owen Act in 1914.
I appreciated learning more about our, at this point, only college professor-turned-President, as well as what Lowenstein posits were crucial shifts in relative alignment of the Democratic and Republican parties, as persists today. And I was left with the distinct impression that many of our lasting institutions may have come about in just such a haphazard manner, perhaps a bit muddled by compromises and concessions, but achieving some of the necessary progress all the same. Reviewers noted a similar “subtext dictated by current events,” as Wells writes (797). Lowenstein repeatedly emphasizes the tensions “between centralism and local autonomy, between the public and Wall Street, and between a permissive money-printing machine and a counting-house prudence,” as Richard Ernsberger Jr. points out also persist today (American History, 1 Feb 2016, p. 70). This history felt much less remote to me than that which I read before it.
America’s Bank picks up the story of a national banking system in the U.S. where Jessica Lepler left off in The Many Panics of 1837 (Cambridge UP, 2013). Seventy years have passed, but the “ghost of Andrew Jackson” so determinedly haunted then-Rep. Carter Glass (Lowenstein 179) and the rest of the country, despite repeated subsequent financial panics, that its creators had to do all they could to deny the centrality of our central banking system to bring it into existence at all. How does a country deeply fearful and mistrustful of consolidated power come to support such a thing? The election of Woodrow Wilson, a Southern Democrat like Jackson, to the U.S. Presidency, backed by Democratic majorities in both houses of Congress and combined with the ascendancy of Progressivism, were, Lowenstein suggests, fertile conditions for such fruit. I would argue that the involvement of conservative Republican Sen. Nelson Aldrich in the origination of the idea of the Fed helped facilitate the ultimate consensus too. Further, Lowenstein shows that all concerned parties, from bankers big and small to politicians to farmers, recognized the need for prompt change after the 1907 panic. He also demonstrates, again and again, that Pres. Wilson masterfully shepherded the notion to fruition from the first days after his 1912 election to the final passage of the Glass-Owen Act in 1914.
I appreciated learning more about our, at this point, only college professor-turned-President, as well as what Lowenstein posits were crucial shifts in relative alignment of the Democratic and Republican parties, as persists today. And I was left with the distinct impression that many of our lasting institutions may have come about in just such a haphazard manner, perhaps a bit muddled by compromises and concessions, but achieving some of the necessary progress all the same. Reviewers noted a similar “subtext dictated by current events,” as Wells writes (797). Lowenstein repeatedly emphasizes the tensions “between centralism and local autonomy, between the public and Wall Street, and between a permissive money-printing machine and a counting-house prudence,” as Richard Ernsberger Jr. points out also persist today (American History, 1 Feb 2016, p. 70). This history felt much less remote to me than that which I read before it.
January 18, 2023
In 2018, my wife and I visited the Toyota museum in Nagoya, Japan, which traces the history of Toyota from a humble textile weaver all the way through to its present day footprint being a leading automobile manufacturer. The nicest thing I can say about the museum is that it is extremely comprehensive. If you want to know all the information about how the sausage is made, including admiring individual metal stamping machines dating back decades, plus extensive exhibits on every single aspect of automobile manufacturing, this museum is for you. But for the rest of us that just want the highlights, such meticulous detail -- and bless their hearts for collecting it all -- is overwhelming.
And so it goes for America's Bank: The Epic Struggle to Create the Federal Reserve. Unfortunately (or maybe fortunately, if you are an economics wonk), Lowenstein's extremely well-researched book is all the detail you could ever want to know about the creation of a key federal institution over a century ago. And frankly, that is too much detail for most of us. I had picked up the book hoping that at least the characters who were involved in the creation of the Fed might be somewhat interesting, but I ought to have foreseen that I was going to be sorely mistaken. Obviously, a bunch of white guys who spent years nerding out about banking policy weren't going to be the most fun to read about, and so many of the details about the epic fights over this or that fine point of governance are perhaps best left to be forgotten in the sands of time, unless you currently work in the field of monetary policy or at the US Treasury.
The TL;DR of the book for the mass market, in three points:
* No, the Fed was not created out of a secretive conspiracy or cabal.
* Its unique form of a federation of regional reserve banks hearkens back to Americans' wariness of centralized control of anything.
* Nothing would have gotten passed had it not been for Woodrow Wilson badgering, pleading, and cajoling the various interests both within and without Congress to finally pass a bill chartering the Federal Reserve System.
One opinion on the last point. Without prejudice to the fact that Wilson might have been a racist (and honestly, if you measure the Democratic Party in those days against the standards of today, which representative or senator wasn't?), it's unfortunate that, in the name of social justice, we're running around removing Wilson's name from schools, buildings, and the like. Wilson accomplished a lot for America, creating the Fed included, and it's sad he doesn't get the recognition he deserves. It's possible for someone to be racist *and* to have done other good works in his life, and I think we cancel someone like Wilson at our peril.
And so it goes for America's Bank: The Epic Struggle to Create the Federal Reserve. Unfortunately (or maybe fortunately, if you are an economics wonk), Lowenstein's extremely well-researched book is all the detail you could ever want to know about the creation of a key federal institution over a century ago. And frankly, that is too much detail for most of us. I had picked up the book hoping that at least the characters who were involved in the creation of the Fed might be somewhat interesting, but I ought to have foreseen that I was going to be sorely mistaken. Obviously, a bunch of white guys who spent years nerding out about banking policy weren't going to be the most fun to read about, and so many of the details about the epic fights over this or that fine point of governance are perhaps best left to be forgotten in the sands of time, unless you currently work in the field of monetary policy or at the US Treasury.
The TL;DR of the book for the mass market, in three points:
* No, the Fed was not created out of a secretive conspiracy or cabal.
* Its unique form of a federation of regional reserve banks hearkens back to Americans' wariness of centralized control of anything.
* Nothing would have gotten passed had it not been for Woodrow Wilson badgering, pleading, and cajoling the various interests both within and without Congress to finally pass a bill chartering the Federal Reserve System.
One opinion on the last point. Without prejudice to the fact that Wilson might have been a racist (and honestly, if you measure the Democratic Party in those days against the standards of today, which representative or senator wasn't?), it's unfortunate that, in the name of social justice, we're running around removing Wilson's name from schools, buildings, and the like. Wilson accomplished a lot for America, creating the Fed included, and it's sad he doesn't get the recognition he deserves. It's possible for someone to be racist *and* to have done other good works in his life, and I think we cancel someone like Wilson at our peril.
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