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A Brief Monetary History Of The United States: Part V

Today we bring you Part V of “A Brief Monetary History of the United States” from the Ron Paul Monetary Policy Anthology. The full series can be found at the following links:

  • Part I – Colonial Money and the Coinage Act of 1792
  • Part II – The Banks of the United States, McCulloch v. Maryland, and Private Coinage
  • Part III – Government Begins to Monopolize Currency
  • Part IV – The Legal Tender Cases and the “Crime of ’73”
  • Part V – The Rise of the Fed
  • Part VI – The Great Depression, Gold Confiscation, and the Gold Exchange Standard
  • Part VII – The Dollar Reigns Supreme: From Bretton Woods to Stagflation
  • Part VIII – The 1980s to the Great Recession and on to the Future
  • IV. THE RISE OF THE FED

    The Panic of 1907

    The year 1907 saw a particularly severe financial panic and recession. The underlying cause of the recession, as in previous instances, can be found in the government’s intervention into banking and monetary affairs. The Treasury Department sought to conduct itself as a central bank, even to the extent of making purchases on the open market to supply liquidity to the financial system. Once the Treasury-created inflation bubble burst, banks began to fail and the stock market plunged. Specie redemption was once again suspended, leading to runs on banks.

    In the aftermath of the panic, calls for reform of the monetary and banking systems intensified. The nascent central bank movement acted with renewed vigor in its attempt to create a central bank. The Aldrich-Vreeland Act, passed in 1908, established a National Monetary Commission, which ostensibly sought to examine possible reforms to the American banking system. Like many commissions established by Congress, its conclusions were pre-ordained. It was intended to solicit expert opinions in favor of central banking in order to convince the public of the necessity of creating a central bank. The commission surveyed the banking systems of the United States, Canada, Mexico, and many European countries, eventually recommending the creation and formation of a national reserve association, similar in structure to what eventually became the Federal Reserve System.