• The Federal Reserve Act of 1913 marked a significant transition from a laissez-faire economic model to one characterized by centralized government control, fundamentally altering the U.S. financial system.
• Contrary to the popular narrative, the Progressive Era – which aimed to regulate the economy – was largely driven by powerful business and financial interests, particularly those associated with the House of Morgan, who used the rhetoric of reform to justify government intervention that benefited their monopolistic practices.
• Facing intense competition, big businesses lobbied for regulatory commissions like the Interstate Commerce Commission and the Federal Trade Commission. These commissions, often staffed by industry insiders, served to restrict competition and consolidate power, rather than promote fair markets.
• The financial crisis of 1907 highlighted the need for a more stable banking system. The National Monetary Commission, influenced by corporate and financial leaders, drafted the Aldrich Plan, which proposed a central banking system to provide a safety net for banks and coordinate inflation, laying the groundwork for the Federal Reserve.
• The establishment of the Federal Reserve was part of a broader strategy of economic imperialism, where the U.S. sought to expand its influence globally through the gold-exchange standard. This system tied other countries’ currencies to the dollar, facilitating coordinated international inflation and integrating client states’ economies with those of imperial powers.

In the annals of American economic history, few pieces of legislation have had as profound and lasting an impact as the Federal Reserve Act of 1913. This act, which established the Federal Reserve System, marked a significant shift from a laissez-faire economic model to one characterized by centralized government control.

The story of the Federal Reserve’s creation, as detailed in Murray Rothbard’s book “The Origins of the Federal Reserve,” is a complex narrative of power, influence and the strategic maneuvering of big business and financial interests.

The Progressive Era, which spanned from the late 19th century to the early 20th century, was a time of significant social and political reform in the United States. This period saw the rise of a movement aimed at transforming the U.S. economy from one dominated by free market principles to one regulated by a centralized government. However, contrary to the popular narrative that the Progressive Era was a grassroots movement driven by workers and farmers, Rothbard’s research reveals that it was largely orchestrated by powerful business and financial interests, particularly those associated with the House of Morgan.

In the late 19th century, competition in industries such as railroads and large-scale corporations was intense and attempts to form cartels often failed due to the dynamic nature of the market. Big businesses, recognizing the need for government intervention to enforce their monopolies, began to lobby for regulatory commissions. These commissions, such as the Interstate Commerce Commission (dissolved in 1996) and the Federal Trade Commission, were often staffed by individuals from the industries they were supposed to regulate. This arrangement allowed big businesses to use the rhetoric of anti-monopoly to justify government intervention, while in reality, these commissions served to subsidize, restrict and cartelize industries, consolidating the power of the very businesses they were meant to control.

The push for a more elastic monetary system began to gain traction in the late 1890s, with the Indianapolis Monetary Convention playing a pivotal role. This convention, dominated by influential corporate and financial leaders, including members of the Morgan and Rockefeller circles, called for a revised monetary system that would maintain the gold standard while allowing for greater elasticity in bank credit. The convention’s recommendations laid the groundwork for the eventual creation of a central bank.

The Panic of 1907, a severe financial crisis that exposed the vulnerabilities of the U.S. banking system, further fueled the demand for a central bank. The National Monetary Commission, established in response to the crisis, was composed of experts and bankers sympathetic to the idea of a central bank. After touring Europe to gather information and advice, the commission drafted the Aldrich Plan, which proposed a central banking system that would provide a safety net for banks in trouble and allow for coordinated inflation.

The Federal Reserve Act of 1913, which was signed into law by President Woodrow Wilson, was the culmination of these efforts. The act created a system of 12 regional Federal Reserve Banks, overseen by a central board in Washington, D.C. This new system was designed to provide a more stable and elastic monetary supply, act as a lender of last resort, and coordinate inflation. The Federal Reserve’s role as a central bank was not just a domestic policy initiative; it also had significant international implications. The U.S. sought to expand its influence abroad through the promotion of a gold-exchange standard, which tied the currencies of other countries to the dollar, allowing for coordinated international inflation.

Economic imperialism played a crucial role in the push for the gold-exchange standard. The U.S. and other Western countries were eager to expand their markets and investments globally, and the gold-exchange standard was seen as a means to integrate the economies of client states with those of the imperial powers.

Charles A. Conant, a leading theorist of economic imperialism, was instrumental in promoting this system both domestically and internationally. Under his influence, the U.S. successfully imposed the gold-exchange standard on countries like the Philippines, Panama and Mexico, often with the support of local elites who saw the benefits of aligning with the U.S. economy.

The establishment of the Federal Reserve System in 1913 was a turning point in American economic history. It marked the beginning of a new era of centralized statism, where the government played an increasingly active role in managing the economy. The Federal Reserve’s ability to coordinate inflation and act as a lender of last resort has had far-reaching consequences, shaping the financial landscape of the 20th and 21st centuries.

As Rothbard’s work underscores, the origins of the Federal Reserve are deeply intertwined with the rise of Big Government, the push for centralization and the expansion of economic imperialism. Understanding this history is crucial for anyone seeking to grasp the complexities of modern economic policy and the ongoing debates over the role of central banks in the global economy.

Watch this video about Murray Rothbard’s book “The Origins of the Federal Reserve.”

This video is from the BrightLearn channel on Brighteon.com.

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