The Great Debate on Banking Reform, Nelson Aldrich and the Origins of the Fed

Eminent monetary historian of economics Elmus Wicker examines the events which spurred a series of banking panics beginning in 1893–94, that led to the creation of the U.S. Federal Reserve Bank twenty years later. A serious lacuna exists in the literature on the origins of the Federal Reserve System. What is absent is a fair appraisal of the role Senator Nelson Aldrich, prominent Rhode Island senator, played. Carter Glass captured the acclaim while asserting that Aldrich be granted equal billing with Glass as “fathers” of the Federal Reserve System.

That claim is based on the fact that Aldrich removed three formidable obstacles that lay in the path to the establishment of a U.S. central bank. He can be credited with overcoming the shibboleth against a central bank which has its own origins in the nineteenth-century Jackson-Biddle feud over the renewal of the Charter of the Second Bank of the United States. In a single stroke he removed asset-based currency proposals from the banking reform agenda and substituted a central bank. Aldrich provided the necessary congressional leadership that was notoriously absent before 1908. He drafted the Aldrich bill which called for a central bank many of whose provisions appear in the Federal Reserve Act. Wicker paints a detailed picture of the history of this now-essential structure in the U.S. economy.
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“Wicker is a highly regarded authority on the history of banking and monetary policy in the U.S. and, as this book shows, he continues to publish influential work in this vein. This book examines how politicians, bankers, and, most of all, the American public shifted from opposing central banking to embracing it, with the passage of the Fed Act of 1913. It is a well-researched corrective to some commonly held myths about the origins of one of our most powerful policymaking institutions.” —J. Lawrence Broz, University of California–San Diego

“The strength of Wicker’s book is presenting a well-organized history of the central bank reform movement in the United States that heralds the role of Aldrich, whose importance is in danger of being forgotten. Indeed, Wicker skillfully and convincingly restores Nelson Aldrich to his rightful place alongside Carter Glass as a cofounder of the Fed. Both authoritative and entertaining, The Great Debate on Banking Reform could easily be adopted in classes focusing on American economic and business history.” —Mark Toma, University of Kentucky

Banking Panics of the Gilded Age

This is the first major study of post-Civil War banking panics in almost a century. The author has constructed for the first time estimates of bank closures and their incidence in each of the five separate banking disturbances. The book takes a novel approach by reconstructing the course of banking panics in the interior, where suspension of cash payment, not bank closures, was the primary effect of banking panics on the average person. The author also reevaluates the role of the New York Clearing House in forestalling several panics and explains why it failed to do so in 1893 and 1907, concluding that structural defects of the National Banking Act were not the primary cause of the panics.

Contents
Preface
1 The Bank Panic Experience: An Overview
Bank Suspension Estimates
Suspension of Cash Payment
The Response of the New York Clearing House
Summary
2 The Banking Panic of 1873
Bank Suspension Estimates
Banking Panic Narrative
The Panic's Impact: The Financial Effects
The Panic's Impact: The Real Effects
The Response of the New York Clearing House
3 Two Incipient Banking Panics of 1884 and 1890: An Unheralded Success Story
Bank Suspension Estimates
A Narrative of the Banking Disturbance
Was there a Banking Panic?
The Banking Disturbance of 1890
Did the Two Incipient Banking Panics Have Significant Economic Effects?
Brief Review of Findings
4 The Banking Panic of 1893
Profile of Bank Suspensions During the Panic
The Stock Market Collapse and Banking Unrest in May
The Banking Panic in June
The Banking Panic in July
Partial Suspension, the Currency Premium, and the Gold Inflow
Summary and Conclusions
5 The Trust Company Panic of 1907
Bank Suspensions and Their Geographical Distribution
Bank Panic Narrative
Role of the U.S. Treasury and Gold Imports
Hoarding
Behavior of Reserves, Loans, and Deposits of NYCH Banks and Trust Companies
Real Effects of the 1907 Panic
Institutional Failure
Summary and Conclusions
6 Were Panics of the National Banking Era Preventable?
The Behavior of Reserves of the NYCH Banks
Instruments of Clearing House Policy
Reserve Availability and Fixed Reserve/Deposit Ratios
The Coe Report: A Clearing House Plan to Prevent Panics
Sprague on the Treatment of Banking Panics
Supplementary Sources of Reserves: Gold Imports and U.S. Treasury Assistance
Apologia for Clearing House Bank Inaction
Summary
7 Epilogue
Similarities and Differences Among Panics
Contrast with Panics of the Great Depression
The Origin of Banking Panics
Banking Panics and Banking Reform
Appendix
References
Index

Banking Panics of the Great Depression

This is the first full-length study of five US banking panics of the Great Depression. Previous studies of the Depression have approached the banking panics from a macroeconomic viewpoint; Professor Wicker fills a lacuna in current knowledge by reconstructing a close historical narrative of each of the panics, investigating their origins, magnitude, and effects. He makes a detailed analysis of the geographical incidence of the disturbances using the Federal Reserve District as the basic unit, and reappraises the role of Federal Reserve officials in the panics. His findings challenge many of the commonly held assumptions about the events of 1930 and 1931, for example the belief that the increase in the discount rate in October 1931 initiated a wave of bank suspensions and hoarding. This meticulous account will be of wide interest to students of the Great Depression, monetary and financial historians, financial economists and macroeconomists.

Reviews
‘An important contribution to our understanding of the interactions between the banking system and the course of the Great Depression.’ John H. Wood, Wake Forest University, H-Net Reviews

‘This book substantially advances the literature on banks and money during the Great Depression.’ David C. Wheelock, Federal Reserve Bank of St. Louis, Journal of Economic History

‘ … he assembles a commendable representation of the major incidents that will be a springboard for a great deal of future research … a valuable addition to scholarly work on the causes and consequences of Depression-era bank failures and panics’. Economica

‘Wicker’s meticulous, in many respects exemplary, account is essential reading for the financial history of the Great Depression.’ The History Journal