America’s Bank, Roger Lowenstein’s 2015 book on the founding of the Fed, is, as I said in reviewing it for Barron’s, both well-written and well-researched. Few pertinent details of the story appear to have escaped Lowenstein’s notice. However, in assembling and interpreting these details, Lowenstein appears not to have entertained the slightest doubt that the Federal Reserve Act, for all the political maneuvering that led to it, was the best of all possible means for ending this nation’s periodic financial crises.
Instead of turning a critical eye toward the 1913 Act, Lowenstein writes as if history itself were a reliable judge. What it has condemned he condemns as well; and what it has favored he favors. Consequently he treats all those persons who contributed to the Federal Reserve Act’s passage as right-thinking progressives, while regarding those who favored other solutions to the nation’s currency and banking ills as so many reactionary bumpkins.
That some strains of triumphalism should have found their way into Lowenstein’s account of the Fed’s origins is hardly surprising. Though research by economic historians and others supplies precious little support for it, the view that the Fed has been a smashing success is, after all, a well-established element of conventional wisdom, and one that Fed officials themselves never cease to promote. Nor have those officials ever devoted more effort to doing so than in the course of celebrating the Fed’s recent centennial. Even a much more hard-bitten journalist than Lowenstein could hardly have been expected to resist setting considerable store by an institution so universally (if undeservedly) hallowed.
Still, one might have expected a note of skepticism, if no more than that, to have found its way into America’s Bank. Lowenstein was, after all, writing about an institution that was supposed to end U.S. financial crises once and for all, and doing so in the wake of a crisis at least as bad, in many respects, as those that inspired its creation. (Those who suppose that the Fed did all it could and should have done to combat the recent cataclysm are encouraged to read this, this, this, and this.) He had, furthermore, encountered the many arguments — and most were far from being plainly idiotic — of pre-1913 experts who favored other reforms, as well as those of some of the pending Federal Reserve Act’s critics, who predicted, correctly, that it wouldn’t be long before its results would acutely disappoint those of its champions who sincerely yearned for financial and economic stability.
Read the rest of this post »