Interesting to look at some of the debate in 1913 surrounding the Act.
The last paragraph is the most troubling
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Wilson saw this as a campaign to free the nation’s banks and businessmen from monopolistic control.(1) "No object stood higher on the Democratic reform schedule than banking and currency reform." Arthur Link noted that there were thousands of letters, in the Papers of Carter Glass in the Library of the University of Virginia, received in January and February of 1913 from businessmen, manufacturers, merchants, editors or bankers all strongly condemning the national banking and currency system and begging Glass and his House committee to lead the way in reforming the system. This points to the growing feeling that this was one of the more important needs of the country.(2)
The current system had been in place since 1864 and was certainly in need of overhaul.(3) Multiple currency problems spurred crisis after crisis even in times when the economy was relatively strong. Those encouraged progressive-thinking Democrats and conservative Republicans to work for change. The question remaining to be solved was whose plan would command broad enough support to pass through Congress. It seems there were as many opinions about the best way to go about currency reform as there were experts.
Historian Arthur Link summarizes the 1911-12 Republican plan:
Senator Nelson W. Aldrich proposed a plan to solve the banking dilemma, this was supported by the American Bankers’ Association. It provided for one great central bank, the National Reserve Association, with a capital of at least $100 million and with fifteen branches in various sections. The branches were to be controlled by the member banks on a basis of their capitalization. The National Reserve Association would issue currency, based on gold and commercial paper, that would be the liability of the bank and not of the government. It would also carry a portion of member banks’ reserves, determine discount reserves, buy and sell on the open market, and hold the deposits of the federal government. The branches and businessmen of each of the fifteen districts would elect thirty out of the thirty-nine members of the board of directors of the National Reserve Association.(4)
This plan was ideal for bankers, but did not muster significant support in Congress and was stalled when Wilson became the president-elect.
The democrats, particularly the progressive wing, opposed the control of the Federal Reserve by Bankers rather than Federal officials. Wilson, aware of the importance of the issue met with experts and members of his party even before his inauguration in order to hammer out the details and come to some kind of agreement on the form and detail of the new banking and currency bill.(5) The bill which was developed in secret by Carter Glass, Dr. H. Parker Willis, and William McAdoo, was supported by bankers from New York, Chicago , and St. Louis, but opposed by the progressive wing of the democratic party. The system that Glass and Wilson had agreed upon was substantially a decentralized version of the Aldrich plan. (6) The Progressives demanded that the Government control the reserve system and that government issue the currency.
McAdoo drafted a compromise to appeal to both Glass’s supporters and Bryan’s Radicals. By late May Senator Owen also sent a copy of the proposed bill to the president. Wilson now had three to choose from. (7) After considering the matter further and meeting with financial experts, the President agreed to compromise and insisted upon exclusive governmental control of the Federal Reserve Board and upon making Federal Reserve notes obligations of the United States. This satisfied the progressives and was acceptable to Glass.(8) In the meantime the press, confused by the multiple plans and ideas about reform that was circulating behind the scenes, insisted on details from the president. Wilson managed to hold them off though, promising to give the details to the press as soon as they were ironed out.(9) Wilson met with the House Committee on Banking and Currency on June 20th and presented the committee with the bill, and asked for their support. Three days later Wilson presented the bill to Congress. On June 26th the debate began and it would continue for three months, the main opposition coming from Democratic radicals.
Hearings in the house were refused because it was believed that previous committee work had unearthed all the necessary facts, but there were several amendments that had to be passed before the progressives would vote for the act.(10) Together with Bryan’s help Wilson was able to muster enough support and the Bill passed the house on September 18th by a vote of 282-85 with only 3 democrats voting against it.(11)
The battle was not over. Party discipline and bipartisan effort had carried the day in the House, but the fight in the Senate would drag on for six months and make the three month struggle in the House look like a Sunday stroll. With the compromises that had to be made to pass the House, bankers, business leaders and spokesmen in Congress had a field day. They denounced the bill as socialistic, theoretical, vicious, as the "preposterous offering of ignorance and unreason."(12) The American Bankers association severely criticized the bill (see document 3 for full text of their critique) Surprisingly, even "liberal" bankers opposed public control of the Reserve.(13)
Hearings were held from the 1st of September to October 25th in the Senate. The sheer amount of witnesses paraded before Senator Owen’s committee was staggering. (There are over 3000 pages of documents contained in 3 volumes that deal with the Banking and Currency Hearings of 1913) Wilson and other democratic leaders accused the opposition of attempting to frighten the American people with incorrect reports of the bill.(14) Wilson was also constantly at work persuading the Democratic leaders of the Senate to support the bill, and to fight the diversionary tactics and delays of the opposition.(15) (Documents 3,4,7,8 are hearings or letters opposing the bill, and Documents 7 and 9 are representative of those who favored the bill.)
Wilson and his allies were successful in finally overcoming the opposition and the almost endless delays. The Senate passed the Federal Reserve bill, 54-34 on December 19th with full Democratic support. The conference committee agreed and on December 23rd the two houses ratified and the President signed the measure. (Wilson’s comments after signing the bill are contained in Document 12.)
The legacy of the bill was noted by the New York Times in February of 1924, "It has been the habit of our people to speak of the enactment of the Federal Reserve law in December, 1913, as a piece of good luck for the country. ‘Luck’ it certainly was, when considered in the light of the possibility that without it the United States might have been swept along with Europe into depreciated paper money."(16)
The Federal Reserve Act officially provided for the establishment of Federal reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes. Unofficially it brought the United States out of the 19th century financial world and into an acceptable financial position just in time for its entrance onto the world stage in WWI and the resulting economic chaos. |
