Skeletons from the Fed’s Closet

Secret meetings, conspiracy, and intrigue at a place called Jekyll Island.

One would hardly associate what sounds like a plot base for a murder mystery period piece with a book about the beginnings of our Federal Reserve. All of this and juicier content permeates author Roger Lowenstein’s book America’s Bank: The Epic Struggle to Create the Federal Reserve. We learned about this great read from Lowenstein’s recent interview: How a secret meeting on Jekyll Island let to the Fed, broadcast on the NPR’s Marketplace, hosted by Kai Ryssdal.

Though still in the process of reading the book, we are struck at how exciting it is – especially a book about the Fed. Propelled by the tumultuous and disconnected U.S. banking industry of the 1900s, Nelson Aldrich, the Senator from Rhode Island in 1913 partnered with the assistance secretary of the treasury and three bankers to write the initial draft of the Federal Reserve Act. This was done during a clandestine ‘hunting trip’ on Jekyll Island, Georgia at a private resort of which J.P. Morgan was a member. Morgan provided security and privacy for the group by ensuring the resort was empty during the time of the meeting.

As Lowenstein so expertly writes in this excerpt from his book’s introduction, The United States boasted the world’s largest economy, its vast territory was ribboned with railroad tracks and telephone wires, its cities were bursting with factories churning out iron and steel. Yet, almost as if history had missed a turn, its banks were disconnected and isolated, left to prosper or flounder (or fail) according to the reserves of each individual institution. As Paul Warburg, one of the heroes of this story, was to observe with his trademark acuity, America’s banks resembled less an army commanded by a central staff than they did an inchoate legion of disjointed and disunited infantry. It was hardly surprising that throughout the latter half of the nineteenth century and into the early twentieth, the United States—alone among the industrial powers—suffered a continual spate of financial panics, bank runs, money shortages, and, indeed, full-blown depressions.

This book tells the story of how, culminating in the days before Christmas 1913, the Federal Reserve came to be. It was not a gentle or an easy birth, nor was it swift. To Americans of the early twentieth century, especially farmers, the prospect of a central bank threatened the comfortable Jeffersonian principle of small government. To a people for whom local autonomy was sacrosanct, the notion of a powerful bank, joined to the even more powerful federal government, was deeply unnerving. Opposition to central authority had animated the minutemen at Lexington and Concord, and the battle to establish the Fed resembled a second American revolution—a financial revolution. (Lowenstein, 2015)

We are a long time removed from 1914, and the Fed has amassed large audiences of supporters and critics. If you get a chance to read the book, we will enjoy hearing your thoughts.