What is the history of the Federal Reserve?

While many are critical of the Federal Reserve, and the system has even generated a large amount of conspiracy theories, the prehistory of the Federal Reserve System and the reason for its creation may help to dispel some of these negativity and give a more accurate view. The Federal Reserve was the United States' third attempt at a central banking system, as banking crises and especially liquidity crises or bank runs were a common occurrence before the passing of the Federal Reserve Act. One such panic, the Knickerbocker Crisis (1907 Bankers’ Crisis) was particularly severe and was a last straw of sorts, leading Congress to establish the National Monetary Commission the following year.

The Nation Monetary Commission led to Nelson Aldrich, leader of the Republican Party, traveling to Germany to research European central banks, and he later formed a banker controlled plan for a privatised central bank. But it was through the addition of further provisions by President Woodrow Wilson’s economic advisers that the Federal Reserve Act was passed in 1913 as a compromise, “a decentralized central bank that balanced the competing interests of private banks and populist sentiment” [1]. While many libertarians and conspiracy theorists may be critical of the Fed, going back to the 19th century and dealing with ongoing bank runs is just one reason why this system is wholly necessary, and the complex compromise that led to its formation is arguably why it is so deeply misunderstood.

[1] federalreserveeducation.org/about-the-fed/history bankrate.com/banking/federal-reserve/federal-reserve-misconceptions jstor.org/stable/1010701?seq=1#metadata_info_tab_contents