Is the Federal Reserve Out of Date?

In our November/December 2015 issue of the magazine, we brought back our colleague and former web editor, Ryan Cooper, to do a review of a new book on the history of the Federal Reserve. As far back as our March/April/May 2014 issue, Cooper has been wrestling with the proper role of Federal Reserve and best ways to boost employment and get the economy into a robust recovery.

Roger Lowenstein’s America’s Bank: The Epic Struggle to Create the Federal Reserve is primarily a history of the events leading up to and the battle to enact the law that authorized the Federal Reserve system.

The account of the intrigues and political horse trading is where the book shines. The looseness of political ideology at the time is particularly striking in today’s hyper-polarized days. [Rhode Island Senator Nelson] Aldrich was an arch-conservative Republican and sworn enemy of progressivism, yet his plan was passed with only a few substantive changes by a progressive Democratic president and Congress, backed by William Jennings Bryan himself.

As Cooper notes in his opening observations, “When the financial crisis of 2008 was quickly followed by the deepest recession in eighty years, central banking suddenly became important“, yet, understanding it is “a particularly difficult task in the United States, because of the bizarre structure of our central bank, the Federal Reserve.”

America’s Bank is an excellent primer for understanding why the Federal Reserve system was necessary and how it was created, but Cooper was left wanting more.

On the structure and function of the Fed, however, Lowenstein is less convincing. He’s fairly clear on what it’s supposed to do but is a little too enthusiastic about the quality of the institution produced…

Of course, this is nominally a book about a single bill, and I don’t fault Lowenstein for mostly ignoring the later history of the Fed in the main body of his text, which is well worth reading. However, there is altogether too much sense that the Fed was a destined star in the American firmament, and the epilogue, which chronicles the later careers of the era’s protagonists, is a missed opportunity to discuss the Fed’s later trajectory—most critically, whether the institution handed down from 1913 needs an overhaul.

To see what Cooper recommends by way of an overhaul, make sure to read the whole thing.

Martin Longman

Martin Longman is the web editor for the Washington Monthly and the main blogger at Booman Tribune.