In this New York Times commentary, Roger Lowenstein shares a few thoughts about the origins and evolution of the Federal Reserve that, later this year, will celebrate its 100-year anniversary amid growing concern over what it hath wrought.
ONE hundred years ago today, President Woodrow Wilson went before Congress and demanded that it “act now” to create the Federal Reserve System. His proposal set off a fierce debate. One of the plan’s most strident critics, Representative Charles A. Lindbergh Sr., the father of the aviator, predicted that the Federal Reserve Act would establish “the most gigantic trust on earth,” and that the Fed would become an economic dictator or, as he put it, an “invisible government by the money power.”
Had the congressman witnessed Ben S. Bernanke’s news conference last week, he surely would have felt vindicated. Investors, traders and ordinary citizens listened with rapt attention as Mr. Bernanke, the Fed chairman, spoke of his timetable for scaling down stimulative bond purchases. “If things are worse, we will do more,” he said of the nation’s economy. “If things are better, we will do less.”
In 1913, few of the framers of the Fed anticipated that the institution would do anything of the sort. The preamble to the act specified three purposes: to furnish “an elastic currency,” to provide a market for commercial paper so that banks would have more liquidity, and to improve supervision of banks. Regulating the economy was not among them.
When considering that, back in 1913, we were still operating under a gold standard that severely restricted what the new central bank could do, the evolution of the Fed and how powerful it has become – particularly under Fed Chief Ben Bernanke – is even more amazing.