The Panic of 1907 and the High Tide of Progressivism (A)

Abstract

In June 1913, President Woodrow Wilson confronts a legislative deadlock over terms to define a new Federal Reserve Bank for the United States. The recent Panic of 1907 triggered a major civic reaction that sought to dispense with a 100-year-old antipathy to central banking. Now, Wilson must decide how best to harness the civic reaction in framing a new central bank. Wilson's dilemma occurs in the midst of a dramatic regime shift in American politics. The rise of Populists and Progressive politicians in reaction to the rapid transformation of America in the Gilded Age marks 1913 as a historic pivot point. It is useful to consider how the Panic of 1907 contributed to that pivot and how the public subsequently reacted to the panic.

Excerpt

UVA-F-1781

Rev. Sept. 14, 2020

The Panic of 1907 and the High Tide of Progressivism (A)

In early June 1913, President Woodrow Wilson contemplated legislative deadlock over a bill to establish a central bank in the United States. The law under consideration was titled An Act to Provide for the Establishment of Federal Reserve Banks, to Furnish an Elastic Currency, to Afford Means of Rediscounting Commercial Paper, to Establish a more Effective Supervision of Banking, and for Other Purposes (also known as the Federal Reserve Act). A disagreement between prospective sponsors of the bill, Representative Carter Glass and Senator Robert Owen, threatened to derail its progress through Congress (see Exhibit1 for brief biographies of Wilson, Glass, and Owen). It had been in development since early January and represented a massive change in public opinion and legislative sentiment. Wilson had ordered Congress to remain in session during what was proving to be a long, hot Washington, DC, summer in order to push through this legislation. Now, the whole effort seemed threatened by intransigence. He called Glass and Owen to the White House to resolve their differences and restore momentum to the effort.

Wilson reflected on the competing versions of the bill and how they compared to legislation presented 20months earlier by a Republican, Senator Nelson Aldrich (see Exhibit1). He wondered how well the Federal Reserve Act might forestall financial panics in the future. And how would this act reflect the popular will? What would a central bank accomplish that the US Treasury and clearinghouses couldn't? How did the Federal Reserve Act complement the Progressive impulse? He reflected on the rapid change in public opinion regarding a central bank and on the possible influence of the recent Panic of 1907.

Wilson wanted to exploit the momentum of the first year of his presidency. He was on the way to establishing a remarkable record of new laws and policies, consistent with Progressive ideals:

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Keywords: finance, historical finance, Woodrow Wilson, 1907, Federal Reserve, central banking, clearinghouses, politics, political finance, financial crisis, Federal Reserve