Pros And Cons Of The Federal Reserve Act Of 1913

Although the Federal Reserve Act of 1913 helped pull the United States out of the Panic of 190, many people believe the bill was unconstitutional. The act took seven long years to go into effect because of political infighting. The two major parties, Democrats and Republicans, did not come to an agreement till right before the eruption of the first World War. Many people argue the Reserve act was beneficial but others argue it was detrimental to the United States. One of the most dramatic stock market falls in United States History happened in 1907. From the beginning of the year, the stock market declined slightly every month until February, then from May to September, the stock market fell two and a half percent and then five percent more

Because of the rush for gold, the price of the valuable metal increased exponentially. The price of gold increasing was detrimental to the economy because when the price fell back down, it left hundreds of thousands of people in financial jeopardy. In addition, the import to export ratio fell tremendously. Because of the premium for gold, the United states noticed the demand and began it import it more frequently. As a result the increased value for gold, its imports took most of the market share, directly decreasing the number of exports the country had. Gold was not the only replacement for the failing currency in the United States; banks used loan certificates to transfer money between banks. Friedman and Schwartz hypothesis that “these substitutes may have amounted in all to something like half our absolute decline in the money stock” (163, Friedman and Schwartz). To combat the decreasing value of currency, the national treasury began to require all its payments be in currency. The mandate took place in January 1908. Later that year in February, people began to see light at the end of the tunnel for the market. “[there was] an increase of $81 million in bank vault cash...while deposits declined only $28 million” (163, Friedman and Schwartz). The post panic period, and the stock market contraction, in combination with the banking panic is what lead

Aldrich served as a private for the Union during the United States Civil War, he became enthralled with the capitol building saying, “it's splendid white marble staircase,” (34, Lowenstein). After Aldrich saw the capitol for the first time he set his sights on holding a position of office. Aldrich was discharged from the army for medical reasons and was elected to be a senator for the Republican party in October, 1881. In response to the Panic of 1907, he drafted the Aldrich-Vreeland Act. Aldrich’s bill was not ready for commissioning. His first bill was rejected, “central banking was too hot to handle even had the members [of the house] favored it, which most did not” (78, Lowenstein). After removing and modifying parts of Aldrich’s bill, it barely made it, being passed with a vote of 166-140 (Carson, Bonk). Aldrich’s bill did not receive a single democratic vote. The final Aldrich-Vreeland Act had many features to try to prevent another dip in the economy. First it allowed large banks (with five million or more to create their own currency). Secondly, the bill required all loans and deposits to be back by gold or government bonds. Moreover, the act also provided banks with an emergency hotline for money. Lastly, Aldrich’s bill allowed emergency loans to be taxed at five percent. In addition, Aldrich worried about a long term fix to the Panic of 1907, he