Origins of the Federal Reserve System: The Interest Group Perspective

Abstract

I classify three possible interest group motives for the establishment of the Federal Reserve System. First, is a short description of the National Banking Era. I argue that while (i) the professional community quite truthfully recognized the problems with National Banking, motives of (ii) the political leaders and (iii) interest groups for establishing the Federal Reserve System were stronger. The historical situation characterized by a deepening capital concentration and globalization brought politicians to enforce interventionist public policy followed by imperialism. These reasons significantly contributed to the need for a tighter centralized political control of the money supply that would be provided by the Federal Reserve System.

Keywords: Federal Reserve System, institutions, interest groups, monetary policy, politicians, rent-seeking

JEL Classification: G18, L41, N21