The Federal Reserve Act of 1913 (HOM 30-C)

all right part c let's take a look at the federal reserve act of 1913. so there's the electoral map in 1912 wilson wins handily thanks in part to teddy roosevelt's third party campaign woodrow wilson is a democrat he's the first southern president in the white house since before the civil war and the democrats had defeated the aldrich plan aldrich senator aldrich from rhode island had had a plan for national reserve associations and regional reserve centers and a national currency it will be banker run and and is killed by the democrats wilson campaigns against the aldrich plan in 1912 but he's vague about the alternatives now wilson places in his cabinet william jennings brian william james bryan was secretary of state uh wilson is very very different from william jennings bryan the two are far apart uh but william jennings bryan's a big democrat he ran for president three times lost three times and so wilson places him in his in his administration but wilson at the end of day is a banker guy he was friends with frank vanderlip and the aldrich plan is dead but the skeleton is not it's still there and those jekyll island attendees they haven't just given up and say oh we lost okay well well that's that's that um no what needs to be done the reformers say is you drop the fiercely republican partisan name of aldrich from the bill make a few minor adjustments and then re-baptize it as a democratic measure as a progressive measure and that's precisely what happens there is a case to be made that the currency system right now is way too inelastic we need a more elastic banking system and more elastic currency wilson and democrats believe they have their answer in the federal reserve act of 1913. federal reserve that bit the bill passed congress on december 22 1913. many of the congressmen were home on vacation the christmas holidays were coming about nearly one third of the senate was not there for the final vote and nearly one-fifth of the house was not present but the bill easily passed 298 to 60 in the house and in the senate 43-25 27 senators were not present 43-25 now sometimes you'll hear from critics of the federal reserve system that oh it was passed on intentionally right at the last minute before christmas and it's a little misleading because a week before an earlier version of this bill which was very close to this to the final version actually passed a fairly full senate 54-34 okay where he had 88 senators present the bill was going to pass no matter what uh the the lack of senators present actually didn't have any impact on whether or not the bill passed nonetheless it happens right on the eve of of christmas in fact this painting by the way sits in the federal reserve building the eccles building in washington dc today and we have our our currency law banking reform so what was this federal reserve act what did it do well it established the federal reserve as the lender of last resort the lender of last resort for the u.s banking system meaning when a bank was in crisis he can turn to this central bank for help and the federal reserve will be in charge of managing the money supply managing the my supply now the following lecture for lecture 31 i'm going to detail the ins and outs of of how the federal reserve functions i'm not going to do that this lecture i'm just going to kind of do the basic basic basics here talk about the 1913 law and and we'll save a more in-depth look at the how the federal reserve manages the money supply for lecture 31 but know that the federal reserve was meant from the beginning to manage the money supply of the country for our reserve system according to the act of 1913 will consist of a federal reserve board in washington dc whose members will be appointed by the president of the united states but also 12 regional federal reserve banks whose board of directors will be appointed by the banking industry or at least six of the nine members on the board of directors of of each of these federal reserve banks will be appointed by the banking industry three of the nine will be appointed by the federal reserve board in washington dc but these 12 regional banks are private institutions okay and and here's where they are located these are the 12 regional federal reserve banks next video i'll go into some greater detail about what this means private because they're not fully private in the sense that we would think of it for a usual corporation but certainly not a public institution either say sort of a strange uh so a quasi-private federally created instrumentality we'll get to that later all right under a federal reserve act all members or all excuse me all national banks remember the national banking system all national banks were required by law to become members of the federal reserve system what did that mean what does it mean to be a member of the federal reserve system that means that they had to own stock in their regional federal reserve bank so you have all of these different banks and if you were a former national bank and your headquarters are in san francisco you need to buy stock purchase stock in this 12th district bank and the amount of stock you had to buy depended on dependent on uh your the amount of capital your bank had owning stock in a regional federal reserve bank and you also had to keep a percentage of your reserves at that regional fed bank and so this made you a member bank you own stock by the way this stock is i'll go into more detail about this next video stock is non-transferable so that's quite different from stock and the way we picture it you can't buy and sell this stock but they receive dividends from it six percent dividend the member bank was entitled to that six percent annual dividend on that stock so you own stock and then you also have to keep reserve balances at that district bank whichever district you belong to there's district 2 the most important district still to this day the most important district new york federal reserve bank in new york also national banks will no longer issue paper currency no more national bank paper currency there will now be a single unified paper currency across the board and that is the federal reserve note and that of course is remains our paper currency in the united states of america the federal reserve note the federal reserve at this point in time from 1913 through 1933 so for a 20-year long period redeemable in gold at the u.s treasury redeemable in gold at the u.s treasury okay the treasury say well that's strange why would the treasury redeem a federal reserve note what why is that why is it the u.s treasury's obligation well it was the obligation of the u.s treasury to redeem those notes in gold however the treasury then received a reimbursement okay of that gold from the federal reserve bank okay so the treasury redeemed the note for gold but then the federal reserve banks the treasury would would redeem the note take the note and then present it to the federal reserve bank whichever it had been issued from and that federal reserve bank was then charged with reimbursing the u.s treasury it's a bit of a strange setup but that's how it was okay it doesn't work like that any longer but that's how it was between 1913 and 1933. so here are the the notes this is the inaugural federal reserve note issue oh there he is andrew jackson i'm sure andrew jackson would have been very very proud to be on the 10 federal reserve note and maybe not so much the uni knows the language here the united states of america will pay to the bearer on demand ten dollars so this note is an obligation of the federal government the united states america will pay to bear on demand ten dollars federal reserve note then some real fine print right here i'll have that text in an upcoming slide pretty cool note as much as jackson would have hated it by the way note here it also says uh the federal reserve bank of philadelphia so this note was issued forth from the federal reserve bank of philadelphia federal reserve bank of boston is a five dollar note abraham lincoln grover cleveland was on a twenty dollar note a twenty dollar note initially had grover cleveland pretty cool note there a railroad and a ship united states america will pay to the bearer on demand twenty dollars twenty dollars so a gold eagle or a double eagle excuse me double eagle even better ulysses s grant on the fifty dollar note benjamin franklin federal reserve note united states america will pay to bear on demand one 100 john marshall on the 500 note john marshall of course was the supreme court justice who ruled the bank in the united states to be constitutional back in 1819 in mcculloch versus maryland by the way on the back of this note we see uh hernan desoto venturing into the mississippi alexander hamilton on the one thousand dollar note oh man we're getting high dollars here ballin five thousand dollar note james madison there's uh it's a picture of george washington turning in his commission after the revolutionary war which is a pretty uh epic event most uh victorious commanders in military history seized power after winning war george washington very honorably retired to mount vernon and there's a ten thousand dollar note this was the highest denomination federal reserve note that is uh salman chase who is the treasury secretary during the civil war for abraham lincoln and was the man who gave jay cooke a monopoly on underwriting the sale of u.s bonds during the war there's the pilgrims on the mayflower all right well there are some differences from the aldrich plan but they're not substantively different okay the federal reserve act is essentially the aldrich plan with a few nominal differences really this part is not in the aldrich plan under the aldrich plan the paper currency that the national reserve association would issue was not redeemable in gold at the treasury it was not an obligation of the government it was an obligation simply of the banking system now this is a symbolic change because the federal reserve banks provide the treasury the gold right uh to to redeem these nodes they reimburse a treasury that is why this change well by making the notes an obligation of the government wilson i made it a little more democratic feeling the appearance of of a more democratic or a more public central bank was was the design behind this so that you know you could really say the united states of america will pay to the bearer right not a private bank but the united states of america will pay to the bearer five thousand dollars it's symbolic but it was enough to persuade some of the democratic skeptics of the bill then the other change which wasn't symbolic as symbolic was a bit more substantive was the fact that this federal reserve board in washington dc the members of it were appointed by the president of the united states with approval from the senate the aldrich plan had no such you know government appointed board right everything was banker appointed under the aldrich plan so this is a substantive difference but in practice most presidents throughout american history have appointed governors to the federal reserve board and the same legislation the federal reserve act of 1913 also created or allowed for what was called the federal advisory council which was a council of 12 members 12 representatives of the banking industry who officially counseled or issued recommendations to the federal reserve board about how to conduct policy so even here there's a bit of a it's a bit symbolic but uh more substantive than the other here's what the texas federal reserve note said up to 1933. after 1933 it changes united states america will pay to bear on demand such and such dollars and then on the back in the fine print this note is receivable by all national and member banks and federal reserve banks and for all taxes customs and other public dues so it's legal tender it is redeemable in gold on demand at the treasury department of the united states in the city of washington district of columbia or in gold or lawful money at any federal reserve bank now what did this latter portion mean you know the treasury was obligated to redeem in gold but if you presented these notes instead to the federal reserve bank they could give you they could give you gold or they could give you lawful money meaning change for your note or some other um certificate uh of of some sort they didn't necessarily have to redeem it in gold so this is the primary obligation here redeemable and gold at demand on demand at the treasury department of the united states now these notes also were were furnished or were printed by the comptroller of the currency who worked at the under the direction of the secretary of the treasury so you'll notice on these notes too and this would have been under the aldrich plan you'll see it too and to this day federal reserve notes include this the signature the secretary of the treasury and then the signature of the treasurer of the united states they're the ones who are in charge of pregnant notes furnishing the notes but these notes are not issued forth from the treasury department okay the treasurer furnishes the notes and then gives them to the federal reserve board and then the federal reserve board it was up to them then to to uh issue them forth to to the different federal reserve banks so if you were a federal reserve bank in new york and you wanted federal reserve notes you made an application to the federal reserve board in washington um in that application he presented collateral right collateral uh uh adding up to the sum of what however many notes you wanted however many federal reserve notes you wanted upon presenting that collateral at the federal reserve board you received federal reserve notes and so the treasury it's not issued forth from the treasury despite being furnished by the treasury as a a distinction but not one without a difference and to this day like i said the the treasury is responsible for for printing the notes for designing the notes now for a short period for 20 years [Music] individual federal reserve banks could also issue and print and create their own banknotes but this lasted for only 20 years and these particular notes were not obligations of the us government but were obligations solely of that particular federal reserve bank and and you could only get gold for these notes at that federal reserve bank you couldn't you couldn't present it to the treasury for gold these were short-lived there about 20 years but you know they're interesting there's a note of the federal reserve bank of new york and notice it doesn't say the united states will pay to the bearer it says the federal reserve bank of new york will pay to the bearer on demand one dollar the federal reserve bank of boston will pay to the bearer on demand two dollars federal reserve bank of atlanta will pay to the bear on demand five dollars and so on kansas city and these were used somewhat but for the most part the regular federal reserve notes were the ones that circulated you'll note here says national currency on the top actually these were intended to function somewhat like the old national bank notes and and according to the federal reserve act in 1913 if you were a federal reserve bank and you wanted to issue forth these you know federal reserve bank notes you had to uh you had to post collateral of up or you had to secure them 100 percent by us federal bonds so it was a lot like the net old national banknotes this was a 1929 issue of federal reserve bank of new york there was reserve bank of new york the reserve bank of cleveland another federal reserve bank of cleveland ohio 100 no it says secured by united states bonds deposited with the treasurer of the united states of america but the federal reserve bank of cleveland will be the one that pays to the bearer on demand 100 anyway this was the focus right this was the the big one the federal reserve notes and that's we don't have these today we don't have federal reserve bank notes today we just have federal reserve notes so that those are the differences from the aldis plan however however the 12 regional banks are owned and controlled by private banking interests that's the key private banking interest just like aldrich's plan all right and so in that sense the aldrich plan is is is retained it's it's this is the aldrich plan just with a few a few tweaks here and there there's the federal reserve board this is a early early photograph you see oh who's that is that mr warburg i do believe so and in fact paul warburg serves on the federal reserve board see the uh when i said that this sometimes is not this was a nominal difference from the aldrich plan as well because the president more time more often than not is appointing pro-industry members to the federal reserve board there's paul warburg paul warburg served on the federal reserve board from 1914 i'm trying to from 1914 to 1918 he actually quit his position at wells fargo his director at wells fargo at the time to assume that and then was appointed vice chair of the federal reserve board of governors and served in that capacity from 1916 to 1918 during world war one actually and then the head of the new york fed was none other than benjamin strong benjamin strong benjamin look at that benjamin strong was head was governor of the federal reserve bank of new york from 1914 to 1928 14 years now we can't blame wilson for that because wilson didn't appoint the president of the new york fed the banks in new york appointed the board of directors in the president or the governor as it was then called of the federal reserve bank of new york and they appointed a morgan man benjamin strong jackal island attendee jekyll island attendee what's up with these federal reserve banks again they're private i'll go into more detail on that for lecture 31. back in this day okay before 1933 before 1933 1933 is a big year we'll do that very shortly in a later lecture up until 1933 each federal reserve bank had its own autonomous monetary policy that's not so today okay today the federal was the the fomc the federal open market committee we'll talk about that later makes in lecture 31 they're the ones who set monetary policy before 1933 each individual private regional federal reserve district bank set its own monetary policy and conducted its own independent open market operations now what the heck is an open market operation i'm going to let that hang then let that hang and and and define what i mean by that in lecture 31 all right because time is running short for this particular lecture but because they were so independent the new and because the big banks are in new york the new york fed was far and away and still is far away the most powerful federal reserve bank the most powerful federal reserve bank and at this point in time before 1933 can't really say this necessarily anymore although you might be able to make a case but definitely before 1933 the new york fed was way more consequential for the monetary system than even the federal reserve board of washington the locus of power before 1933 was in new york not in washington dc and so this is the man this is the man they are the the different 12 district 12 districts now these are still the 12 districts today but it was based on population in 1913 and so you know you have one district for all of these western states i'm in phoenix arizona i'm in district 12. and then you'll have smaller districts you know just because population was different back then in the u.s but these remain the 12 federal reserve banks so we've got our elasticity all right all right got that currency that single currency and the ability for a lender blaster jordan but [Music] hmm has uh did this plan really go away was this plan killed off in 1912 because boy take a look at who's running his federal reserve system and doesn't look like that to me doesn't look like that to me this looks like the audit plan and uh you know again there are some differences but how important were those differences really um not all that important not all that important implications of the federal reserve act hey we definitely have elasticity there's a greater ability now to create new currency all right now that lender of last resort don't have to turn to jp morgan anymore he's dead anyway but it did a weaken the link between paper currency and gold weaken the length between paper currency and gold which allows for new currency allows for more elasticity but now to redeem you and i'll say oh you got to go to the treasury at washington dc so you know this is not you know back in the day you could go to the national you know national banks were everywhere you could go there redeem your note for for gold now it's you know there's some barriers there to redemption and then the other implication far from styming the consolidation of finance the federal reserve act actually furthered the consolidation of finance into the 20th century right up to the present day if you look at the at the numbers this is a far more centralized system and it's a centralized system that was firmly within industry hands william james bryan actually who was secretary of state under wilson was very unh happy with his bill and he threatened to come out publicly against it um this forced wilson to compromise in the compromise that wilson made in order to appease brian was he made federal reserve notes an obligation of the treasury of made federal reserve notes and obligation of the government at first it wasn't going to be an obligation of the government again it was a symbolic change but brian reluctantly went along with it because of that because of that change okay it's a united states no kinda sorta wilson persuaded the democrats hey this is a decentralized system this isn't centralized look at how many different banks there are they're all decentralized and and the notes are an obligation of the government it's this is a far superior system to the aldrich plan was the democratic argument charles lindbergh who i quoted in the previous lecture he opposed the aldrich plan and he opposed the federal reserve act he opposed both of them charles a lindbergh senior again the father of the aviator not the av aviator himself but the father of them was a republican congressman from minnesota from 1907 to 1917 he uh later opposed america's entry into world war one but he gave a speech on the floor of the house just prior to the bill's passage and this is what he said this act establishes the most gigantic trust on earth when the president signs this act the invisible government by the money power will be legalized the people may not know it immediately but the day of reckoning is only a few years removed the schemiest legislative crime of all the ages is perpetuated by this new banking and currency bill later in 1917 charles a lindbergh brought articles of impeachment forward against certain members of the federal reserve board including paul warburg and charge them in those articles of impeachment charge them of being involved quote in the conspiracy to violate the constitution and laws of the united states the article's impeachment didn't go anywhere um but uh that was from charles lindbergh so lecture 31. we're going to take a look at the structure of the federal reserve system i'm going to detail that a little bit as best as i can and try to do it in layman's terms as best as i can it's a complex system but i think i can do it so for lecture 31 we're going to take a closer look at the federal reserve system i look forward to seeing you there thank you for watching bye

Channel: Professor Barth

Views: 31,333

Keywords: Rothschilds, Rothschild, Rothschild family, J. P. Morgan, John D. Rockefeller, Nelson Aldrich, 1910, central banking, national bank, FOMC, Federal Open Market Committee, William Jennings Bryan, Charles A. Lindbergh, Charles August Lindbergh, Charles Lindbergh, Louis McFadden

Id: eE-ZbIQ_cSg

Length: 32min 0sec (1920 seconds)

Published: Fri Nov 13 2020