Political cartoon for the article, “The Monster Born of the Gilded Age: The Federal Reserve” by Jada Li

The mission of the Federal Reserve is proudly displayed on the homepage of their website reading, “The Federal Reserve, the central bank of the United States, provides the nation with a safe, flexible, and stable monetary and financial system.” Americans are told that the Federal Reserve is in place to keep the economy safe from financial crashes and banking failures because it acts as a lender of last resort for failing enterprises. However, the Federal Reserve’s plutocratic origins and poor record at preventing financial crises expose the unstated reality.

In 1910, a secret meeting of six men was organized by Senator Nelson Aldrich of Rhode Island and the father-in-law of John D. Rockefeller Jr. after the Panic of 1907, the first economic contraction of the 20th century surpassed only in severity by the Great Depression. Aldrich was apparently “persuaded of the necessity of a central bank of the United States.” The meeting took place in the Jekyll Island Club, described in 1902 as “the island winter home of some of the multi-millionaires of America,” and which had on its incredibly selective roster one J. Pierpont Morgan. At the table was Senator Nelson Aldrich, Henry Davison of J.P Morgan, Benjamin Strong of J.P Morgan, A. Piatt Andrew of the U.S. Treasury, Frank Vanderrip of the City Bank of New York, and Paul Warburg of the Warburg Banking Consortium owned by the Rothschilds. After reviewing the plan made by these six in 1911 and revising the name from the Central Bank to the Federal Reserve, the National Monetary Commission claimed that what had been created was “scientific in its method and democratic in its control.” On December 23, 1913, the 62^nd Congress under President Wilson signed the Federal Reserve Act into law, thus fusing twelve commercial banks with government credit and exempting them from taxation according to 12 U.S.C. 531. 

The Federal Reserve Act gives considerable governmental privileges to private banks, but with the promise of increased economic stability. This, however, did not happen. A paper written by Eugene White at Rutgers University estimates that “the total losses from national banks during the period 1865-1913 totaled roughly $44 million, or the equivalent of 0.3-0.6% of the yearly GDP. Compare this to the 2.4% of GDP lost during the 1929-33 contraction, the 3.4% of GDP lost during the Savings and Loan crisis in the 1980s, or the whopping 11.6% of GDP from the 2008-09 financial crisis.” The Federal Reserve continues to fail to prevent and reduce the effects of financial crises. The Federal Reserve can bail out corporations and other banks to prevent a worsening economy, yet it often will not perform its original duty to be the lender of last resort. This is evident in the collapse of Silicon Valley Bank (SVB) in 2023. They were the 16^th largest bank in America and they did not get bailed out by the Federal Reserve. This private institution decides which businesses live and die, and which people lose their livelihoods. The government gave them the right to. The Vice Chair for Supervision of the Federal Reserve, Michael Barr, stated in a self assessment report that SVB’s failure was “a textbook case of mismanagement.” The report continues stating that “our banking system is strong and resilient…however… there are weaknesses in regulation and supervision that must be addressed.” According to Michael Barr, our banking system can be simultaneously strong and weak which is an idiotic contradiction coming from such a senior position in the Federal Reserve. Barr’s position is explained if one knows that the SVB could have been bailed out by the Federal Reserve but instead its “outlier” weakness allows for another one of the Federal Reserve’s power grabs to “strengthen the Federal Reserve’s supervision and regulation based on what [they] have learned” from a crisis which they could have solved.

How could they have solved it? It is literally the Federal Reserve’s job to create money. The Federal Reserve is a private corporation that creates money on the government’s credit. Texas House Representative Wright Patman stated in a hearing before the Committee on Banking and Currency, House of Representatives, Eightieth Congress, First Session, on H. R. 2233, March 3, 4, and 5 in 1947 the following: 

“I want you to know that the highest and best authorities in our Government and in our United States agree that the commercial banks and the Federal Reserve banks actually create money on the government’s credit in order to buy United States Government bonds.”   

This is why every U.S. dollar in the world has “Federal Reserve Note” in bold at the top. The Federal Reserve creates money, loans the money to the U.S. government in the form of bonds and profits off the interest in the debt of the loan. Every single dollar represents a dollar owed by the U.S. government to the Federal Reserve. 

This nightmarish system as it was dreamt up by the great American tycoons of yore continues to serve the wealthiest class today. The Federal Reserve only continues to accumulate fiscal power over the world’s largest economy through banking crises like what happened in the aforementioned collapse of the SVB. The rich will always save themselves. The Federal Reserve we inherit has entrenched the capitalist elite within the machinations of U.S. monetary policy. They have created an easy way to keep each other afloat during economic hardship, leaching on government credit through a modern-day “Jekyll Island Club membership.” They have class solidarity. That’s why the COVID-19 bailouts made the rich richer at the expense of the working class. The Federal Reserve’s primary revenue is from debt interest like many other banks. In March of 2020 it held $4.3 trillion in debt and by June 2022 it had ballooned to $9 trillion. It held nearly one-fifth of U.S. government debt as of 2022. 

The President of the United States does have legal authority to contribute to the appointing and termination of Federal Reserve Governors and Chairmen, though they are not the sole arbiter and they require proper “cause.” However Governors of the Fed serve for 14 years and the chairman requires appointments every 4 years with no term limits. Two Federal Reserve Chairmen, William Martin (1951-1970) and Alan Greenspan (1987-2006), have between them more than 36 years of chairman experience. That is nearly one-third of the 111 years the Federal Reserve has existed. Combine these lengthy dictatorial terms in office and the fact that once they are appointed they do not have to heed to the elected U.S. Representatives that appointed them, and the Federal Reserve becomes the most powerful and least checked “branch” of the government that is, in actuality, part of the private sector. 

The Federal Reserve is powerful because it has the private sector discretion to operate, the sole ability to create money with the backing of government credit, and it is–of course–tax exempt. This is a monstrous blend of power. A beast born from Gilded Age robber barons that masquerades as a public institution and has become only more indispensable and tyrannically powerful, especially during times of crisis.