The Federal Reserve: A Failure Of The Rule Of Law
14th March 2019
The Federal Reserve System was created in 1913. It was intended to be a formalization of the interbank clearing system that then existed in the National Banking System. It was not intended to be a central bank. Even in the early 20th century, economists and politicians had some idea of what central banks did and how they behaved, and the existence of such an institution was widely regarded as inherently un-American, in the sense that it could not be reconciled with a self-governing society. That’s why so many proponents of the Federal Reserve System bent over backward to insist they were not advocating the creation of a central bank. And at the time, their repudiations were reasonable; there was no reason the Federal Reserve System had to acquire the powers it did.
But then the US entered the First World War. Wars have a way of eroding society’s long-established institutions. And the political process has a logic of its own. These forces combined to transform the Fed into what its critics feared it might become: a genuine central bank.