J.P. Morgan & Co.
J. P. Morgan & Co. is a commercial and investment banking institution founded by J. P. Morgan in 1871; the company was a predecessor of three of the largest banking institutions in the world, JPMorgan Chase & Morgan Stanley, was involved in the formation of Drexel Burnham Lambert. The company is sometimes referred to as the "House of Morgan" or "Morgan"; the origins of the firm date back to 1854 when Junius S. Morgan joined George Peabody & Co. a London-based banking business headed by George Peabody. Junius took control of the firm, changing its name to J. S. Morgan & Co. in 1864 on Peabody's retirement. Junius's son, J. Pierpont Morgan, first apprenticed at Duncan and Company in New York City founded his own firm with a cousin, J. Pierpont Morgan & Company, in 1864. J. Pierpont Morgan & Company traded in foreign exchange, it acted as an agent for Peabody's. Junius, considered some of Pierpont's ventures to be speculative. Therefore, Pierpont took on Charles H. Dabney, a connection established when he was sent to the Azores as a child as a senior partner, the firm was known first as Dabney and Company and "Drexel, Morgan & Co.".
In those firms, Pierpont used his Peabody connection to bring British financial capital together with the rapidly-growing US industrial firms, such as railroads, who needed financial capital. The Drexel of Drexel, Morgan & Co. was Philadelphia banker Anthony J. Drexel, founder of what is now Drexel University. On Junius's death in 1890, Pierpont Morgan took his place at J. S. Morgan and Company. After Drexel's death, Morgan reorganized in 1895 and became J. P. Morgan and Company becoming one of the most powerful banking companies in the world and helping to transform the United States from an economic novice into the strongest industrial power in the world at that time, it financed the formation of the United States Steel Corporation, which took over the business of Andrew Carnegie and others and was the world's first billion-dollar corporation. In 1895, it supplied the United States government with $62 million in gold to float a bond issue and restore the treasury surplus of $100 million. In 1892, the company began to finance the New York, New Haven and Hartford Railroad and led it through a series of acquisitions, which made it the dominant railroad transporter in New England.
Built in 1914, 23 Wall Street was known as "The Corner" and "The House of Morgan", for decades, the bank's headquarters was the most important address in American finance. At noon, on September 16, 1920, an anarchist bomb exploded in front of the bank, killing 38 and injuring 400. Shortly before the bomb went off, an unknown person placed a warning note in a mailbox at the corner of Cedar Street and Broadway; the warning read: "Remember. Free the political prisoners or it will be sure death for all of you. American Anarchists Fighters." While theories abound about, behind the Wall Street bombing and why they did it, after twenty years of investigation the FBI rendered the file inactive in 1940 without finding the perpetrators. In August 1914, Henry P. Davison, a Morgan partner, traveled to London and made a deal with the Bank of England to make J. P. Morgan & Co. the sole underwriter of war bonds for Great Britain and France. The Bank of England became a fiscal agent of J. P. Morgan & Co. and vice versa.
Over the course of the war, J. P. Morgan loaned about $1.5 billion to the Allies to fight against the Germans. The company invested in the suppliers of war equipment to Britain and France, thus profiting from the financing and purchasing activities of the two European governments. During the early 1920s, J. P. Morgan & Co. was active in promoting banks in the southern hemisphere, including the Bank of Central and South America. In 1933, the provisions of the Glass–Steagall Act forced J. P. Morgan & Co. to separate its investment banking from its commercial banking operations. J. P. Morgan & Co. chose to operate as a commercial bank, because after the stock market crash of 1929, investment banking was in some disrepute and commercial lending was perceived to be more the profitable and prestigious business. Many within J. P. Morgan believed that a change in the political climate would allow the company to resume its securities businesses but that it would be nearly impossible to reconstitute the bank if it were disassembled.
In 1935, after being barred from securities business for over a year, the heads of J. P. Morgan made the decision to spin off its investment banking operations. Two J. P. Morgan partners, Henry S. Morgan and Harold Stanley, founded Morgan Stanley on September 16, 1935 with $6.6 million of nonvoting preferred stock from J. P. Morgan partners. At the beginning, Morgan Stanley's headquarters were at 2 Wall Street, just down the street from J. P. Morgan, Morgan Stanley bankers used 23 Wall Street in closing transactions. In the years following the spin-off of Morgan Stanley, the securities business proved robust, while the parent firm, which incorporated in 1940, was a little sleepy. By the 1950s, J. P. Morgan was only a mid-sized bank. To bolster its position, in 1959, J. P. Morgan merged with the Guaranty Trust Company of New York to form the Morgan Guaranty Trust Company; the two banks had numerous relationships between them and had complementary characteristics as J. P. Morgan brought a prestigious name and high quality clients and bankers while Guaranty Trust brought a significant amount of capital.
Although Guaranty Trust was nearly four times the size of J. P. Morgan at the time of the merger in 1959, J. P. Morgan was considered the
Charles August Lindbergh
Charles August Lindbergh was a United States Congressman from Minnesota's 6th congressional district from 1907 to 1917. He opposed American entry into World War I as well as the 1913 Federal Reserve Act. Lindbergh is best known as the father of famed aviator Charles Lindbergh. Lindbergh was born Carl Månsson, in Stockholm, Sweden, to Lovisa Carlén, the 19-year-old mistress of Ola Månsson, a peasant member of the Riksdag of the Estates and a bank manager; when accused of bribery and embezzlement, Ola Månsson changed his name to August Lindbergh, left his wife and seven children, emigrated to the United States with his mistress and their illegitimate infant son, Carl, in 1859. Lovisa became young Carl became Charles August Lindbergh, they settled in Melrose and had six more children together. August worked as a farmer and a blacksmith for 26 years before marrying Louisa in 1885, having become a widower in 1864 with the death of his first wife in Sweden. Charles August Lindbergh studied law at the University of Michigan Law School, graduating in 1883 and was admitted to the bar that same year.
Lindbergh served as prosecuting attorney for Morrison County, Minnesota in 1891-1893. He was elected to the U. S. House of Representatives in 1906 as a Republican, serving in the 60th, 61st, 62nd, 63rd, 64th congresses. In 1912, he supported Theodore Roosevelt's unsuccessful third party Progressive bid for the White House. In 1916 he unsuccessfully campaigned for a seat in the United States Senate; when World War I broke out in Europe in 1914, Lindbergh was vocal that the United States should not become involved. In 1916 he lost his US Senate bid to an opponent who advocated American intervention in Europe. In March 1917, Lindbergh was one of only 14 congressmen to vote against the arming if U. S. Merchant ships. By 1917, the third year of the Great War, Lindbergh's son was aged 16, which meant some possibility of conscription. In Congress, Lindbergh was one of the first outspoken critics of the Federal Reserve, his stature grew when he was featured in an article in American Magazine: "It was a Swede from Minnesota who first raised in Congress the hue-and-cry of the Money Trust Hunt-'a Swede who dreams,'a fellow member described him-Charles A. Lindbergh."
Lindbergh declared, "This Act establishes the most gigantic trust on Earth. When the President signs this bill, the invisible government by the Monetary Power will be legalized, the people may not know it but the day of reckoning is only a few years removed.... The worst legislative crime of the ages is perpetrated by this banking bill." In 1917 Lindbergh brought articles of impeachment against members of the Federal Reserve Board including Paul Warburg and William Proctor Gould Harding, charging that they were involved "...in a conspiracy to violate the Constitution and laws of the United States..."In 1913 Lindbergh published Banking and the Money Trust. He wrote an anti-war polemic entitled "Why is Your Country at War?". In 1918, under the Comstock Act federal agents destroyed the printing plates, along with Banking and the Money Trust, which attacked the Federal Reserve and big banks; the former was posthumously released in 1934, under the title, Your Country at War, What Happens to You After a War In the first chapter, he wrote, "It is impossible according to the big press to be a true American unless you are pro-British.
If you are for America first and all time, for America and for the masses then you are classed as pro-German by the big press, supported by the speculators." These believes would influence his son, who would famously oppose American intervention in World War II. In 1918, Lindbergh ran for Governor as a Republican against the Republican incumbent, J. A. A. Burnquist. Lindbergh was endorsed by the Farmers Nonpartisan League, which called for government ownership of some agricultural enterprises, such as mills and grain elevators. Many of his campaign speeches were attended by thousands of supporters, but due to his opposition to American entry into the first World War and his connection to the Socialistic Farmers Nonpartisan League, Lindbergh was attacked by the press and there were protestors who pelted him with eggs and rocks. Lindbergh's son Charles worked as his driver and "never forgot the hostile crowds that harassed his father, or the way the press derided him." Lindbergh's 1918 bid for governor failed.
In 1924, Lindbergh was once again a candidate for governor on the Minnesota Farmer-Labor Party ticket. Lindbergh's campaign was cut short by his death, he would have been the first Minnesota governor from the party. In 1887, Lindbergh married Mary LaFond, with whom he had two daughters and Eva. Mary LaFond died in 1898. In 1901, Charles married Evangeline Lodge Land. In 1902, they settled in Little Falls, where Lindbergh established his successful law practice. Evangeline had difficulty raising her two step-daughters, who both moved away. Evangeline threatened Lindbergh with divorce, who caved in to her demands, fearing a divorce would cost him his seat in congress. After further problems, Evangeline began to live in a separate residence in 1909, they separated in 1918, their only child being the famous aviator Charles Lindbergh, who became an antiwar leader. Charles August Lindbergh died in 1924 in Minnesota of brain cancer, he has a memorial plaque in the columbarium at Lakewood Cemetery in Minneapolis.
According to his wishes, son Charles scattered his ashes over the place near Sauk River where the first Lindbergh home once stood. Larson, Bruce L. Lindbergh of Minnesota: A Political Biography. New York: Harcourt Brace
Sixteenth Amendment to the United States Constitution
The Sixteenth Amendment to the United States Constitution allows Congress to levy an income tax without apportioning it among the states on the basis of population. It was passed by Congress in 1909 in response to the 1895 Supreme Court case of Pollock v. Farmers' Loan & Trust Co; the Sixteenth Amendment was ratified by the requisite number of states on February 3, 1913, overruled the Supreme Court's ruling in Pollock. Prior to the early 20th century, most federal revenue came from tariffs rather than taxes, although Congress had imposed excise taxes on various goods; the Revenue Act of 1861 had introduced the first federal income tax, but that tax was repealed in 1872. During the late nineteenth century, various groups, including the Populist Party, favored the establishment of a progressive income tax at the federal level; these groups believed that tariffs unfairly taxed the poor, they favored using the income tax to shift the tax burden onto wealthier individuals. The 1894 Wilson–Gorman Tariff Act contained an income tax provision, but the tax was struck down by the Supreme Court in the case of Pollock v. Farmers' Loan & Trust Co.
In its ruling, the Supreme Court did not hold that all federal income taxes were unconstitutional, but rather held that income taxes on rents and interest were direct taxes and thus had to be apportioned among the states on the basis of population. For several years after Pollock, Congress did not attempt to implement another income tax due to concerns that the Supreme Court would strike down any attempt to levy an income tax. In 1909, during the debate over the Payne–Aldrich Tariff Act, Congress proposed the Sixteenth Amendment to the states. Though conservative Republican leaders had expected that the amendment would not be ratified, a coalition of Democrats, progressive Republicans, other groups ensured that the necessary number of states ratified the amendment. Shortly after the amendment was ratified, Congress imposed a federal income tax with the Revenue Act of 1913; the Supreme Court upheld that income tax in the 1916 case of Brushaber v. Union Pacific Railroad Co. and the federal government has continued to levy an income tax since 1913.
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, without regard to any census or enumeration. Article I, Section 2, Clause 3: Representatives and direct taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers... Article I, Section 8, Clause 1: The Congress shall have Power to lay and collect Taxes, Duties and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States. Article I, Section 9, Clause 4: No Capitation, or other direct, Tax shall be laid, unless in proportion to the Census or Enumeration herein before directed to be taken; this clause refers to a tax on property, such as a tax based on the value of land, as well as a capitation. Article I, Section 9, Clause 5: No Tax or Duty shall be laid on Articles exported from any State; until 1913, customs duties and excise taxes were the primary sources of federal revenue.
During the War of 1812, Secretary of the Treasury Alexander J. Dallas made the first public proposal for an income tax, but it was never implemented; the Congress did introduce an income tax to fund the Civil War through the Revenue Act of 1861. It levied a flat tax of three percent on annual income above $800; this act was replaced the following year with the Revenue Act of 1862, which levied a graduated tax of three to five percent on income above $600 and specified a termination of income taxation in 1866. The Civil War income taxes, which expired in 1872, proved to be both lucrative and drawing from the more industrialized states, with New York and Massachusetts generating about 60 percent of the total revenue, collected. During the two decades following the expiration of the Civil War income tax, the Greenback movement, the Labor Reform Party, the Populist Party, the Democratic Party and many others called for a graduated income tax; the Socialist Labor Party advocated a graduated income tax in 1887.
The Populist Party "demand a graduated income tax" in its 1892 platform. The Democratic Party, led by William Jennings Bryan, advocated the income tax law passed in 1894, proposed an income tax in its 1908 platform. Proponents of the income tax believed that high tariff rates exacerbated income inequality, wanted to use the income tax to shift the burden of funding the government away from working class consumers and to high-earning businessmen. Before Pollock v. Farmers' Loan & Trust Co. all income taxes had been considered to be indirect taxes imposed without respect to geography, unlike direct taxes, that have to be apportioned among the states according to population. In 1894, an amendment was attached to the Wilson–Gorman Tariff Act that attempted to impose a federal tax of two percent on incomes over $4,000; the federal income tax was favored in the South, it was moderately supported in the eastern North Central states, but it was opposed in the Far West and the Northeastern States. The tax was derided as "un-Democratic and wrong in principle".
In Pollock v. Farmers' Loan & Trust Co. the U. S. Supreme Court declared certain taxes on incomes – such as those on property under the 1894 Act – to be unconstitutionally unapportioned direct taxes; the Court reasoned that a tax on income from property should be treated as a tax on "property by
Panic of 1907
The Panic of 1907 – known as the 1907 Bankers' Panic or Knickerbocker Crisis – was a United States financial crisis that took place over a three-week period starting in mid-October, when the New York Stock Exchange fell 50% from its peak the previous year. Panic occurred, as this was during a time of economic recession, there were numerous runs on banks and trust companies; the 1907 panic spread throughout the nation when many state and local banks and businesses entered bankruptcy. Primary causes of the run included a retraction of market liquidity by a number of New York City banks and a loss of confidence among depositors, exacerbated by unregulated side bets at bucket shops; the panic was triggered by the failed attempt in October 1907 to corner the market on stock of the United Copper Company. When this bid failed, banks that had lent money to the cornering scheme suffered runs that spread to affiliated banks and trusts, leading a week to the downfall of the Knickerbocker Trust Company—New York City's third-largest trust.
The collapse of the Knickerbocker spread fear throughout the city's trusts as regional banks withdrew reserves from New York City banks. Panic extended across the nation as vast numbers of people withdrew deposits from their regional banks; the panic might have deepened if not for the intervention of financier J. P. Morgan, who pledged large sums of his own money, convinced other New York bankers to do the same, to shore up the banking system; this highlighted the impotence of the nation's Independent Treasury system, which managed the nation's money supply, yet was unable to inject liquidity back into the market. By November, the financial contagion had ended, only to be replaced by a further crisis; this was due to the heavy borrowing of a large brokerage firm that used the stock of Tennessee Coal and Railroad Company as collateral. Collapse of TC&I's stock price was averted by an emergency takeover by Morgan's U. S. Steel Corporation—a move approved by anti-monopolist president Theodore Roosevelt.
The following year, Senator Nelson W. Aldrich, father-in-law of John D. Rockefeller Jr. established and chaired a commission to investigate the crisis and propose future solutions, leading to the creation of the Federal Reserve System. When United States President Andrew Jackson allowed the charter of the Second Bank of the United States to expire in 1836, the U. S. was without any sort of central bank, the money supply in New York City fluctuated with the country's annual agricultural cycle. Each autumn money flowed out of the city as harvests were purchased and—in an effort to attract money back—interest rates were raised. Foreign investors sent their money to New York to take advantage of the higher rates. From the January 1906 Dow Jones Industrial Average high of 103, the market began a modest correction that would continue throughout the year; the April 1906 earthquake that devastated San Francisco contributed to the market instability, prompting an greater flood of money from New York to San Francisco to aid reconstruction.
A further stress on the money supply occurred in late 1906, when the Bank of England raised its interest rates in response to UK insurance companies paying out so much to US policyholders, more funds remained in London than expected. From their peak in January, stock prices declined 18% by July 1906. By late September, stocks had recovered about half of their losses; the Hepburn Act, which gave the Interstate Commerce Commission the power to set maximum railroad rates, became law in July 1906. This depreciated the value of railroad securities. Between September 1906 and March 1907, the stock market slid. Between March 9 and 26, stocks fell a further 9.8%. The economy remained volatile through the summer. A number of shocks hit the system: the stock of Union Pacific—among the most common stocks used as collateral—fell 50 points. In the first nine months of 1907, stocks were lower by 24.4%. On July 27, The Commercial & Financial Chronicle noted that "the market keeps unstable... no sooner are these signs of new life in evidence than something like a suggestion of a new outflow of gold to Paris sends a tremble all through the list, the gain in values and hope is gone".
Several bank runs occurred outside the US in 1907: in Egypt in May. The fall season was always a vulnerable time for the banking system—combined with the roiled stock market a small shock could have grave repercussions; the 1907 panic began with a stock manipulation scheme to corner the market in F. Augustus Heinze's United Copper Company. Heinze had made a fortune as a copper magnate in Montana. In 1906 he moved to New York City, where he formed a close relationship with notorious Wall Street banker Charles W. Morse. Morse had once cornered New York City's ice market, together with Heinze gained control of many banks—the pair served on at least six national banks, ten state banks, five trust companies and four insurance firms. Augustus' brother, devised the scheme to corner United Copper, believing that the Heinze family controlled a majority of the company, he believed that a significant number of the Heinze's shares had been borrowed, sold short, by speculators betting that the stock price would drop, that they could thus repurchase the borrowed shares cheaply, pocketing the difference.
Otto proposed a short squeeze, in which the Heinzes would aggressively purchase as many rem
Samuel Untermyer
Samuel Untermyer was a prominent American lawyer and civic leader. He is remembered for bequeathing his Yonkers, New York estate, now known as Untermyer Park, to the people of New York State. Samuel Untermyer was born in Lynchburg, Virginia but after the death of his father the rest of the family moved to New York City, he was educated at the College of the City of New York and received his LL. B. from Columbia Law School in 1878. Untermyer was admitted to the bar, started practicing in New York city, his younger brother, Maurice Untermyer, was admitted, in 1895 Louis Marshall joined the firm. They, with Randolph Guggenheimer, practiced as Untermyer & Marshall for 45 years. Untermyer gained fame as a lawyer focusing on corporate law, he became an advocate of stock market regulations, government ownership of railroads, various legal reforms. He was a prominent Zionist leader and the first attorney to earn a million dollars on a single case. In addition, Untermyer served as chairman of the board that framed America's income tax and excess profits laws during World War I.
Untermyer attended the Democratic National Convention as a delegate. As an active Zionist, Untermyer was an advocate for the Zionist liberation movement, was President of the Keren Hayesod, the agency through which the movement was conducted in America. Untermyer is well-remembered for donating his home to the people of New York; the property is now known as Untermyer Park. Between the start of his practice and the end of 1921, Untermyer was counsel in many celebrated cases, specifically: As counsel for H. Clay Pierce he prevented the Standard Oil Co. after its dissolution in 1910, from dominating the Waters-Pierce Co. In the same year he effected the merger of the Utah Copper Co. with the Boston Consolidated and the Nevada Consolidated Co.'s involving more than $100,000,000. In 1912, as counsel to the Kaliwerke Aschersleben and the Disconte Gesellschaft in the controversy arising out of the control of the potash industry by the German Government, he assisted in reaching a settlement. In 1903 he undertook the first judicial exposure of "high finance" in connection with the failure of the U.
S. Shipbuilding Co. organized only a year before as a consolidation of the larger shipbuilding companies in America including that subsequently known as the Bethlehem Steel Co. As a result of the sensational exposures connected with that company, a reorganization was effected under the name of the Bethlehem Steel Co. in which Untermyer became a large shareholder. After this he conducted a number of similar exposures. In 1911 he delivered an address entitled, "Is There a Money Trust?" which led the following year to an investigation by the Committee on Banking and Currency of the U. S. House of Representatives headed by Arsène Pujo. Untermyer was counsel to the Committee and famously cross-examined J. P. Morgan and other New York bankers; this so-called Pujo Money Trust Investigation resulted in the passage of remedial legislation, including the establishment of the Federal Reserve System. Untermyer for years agitated before Congress and state legislatures such measures as the compulsory regulation of stock exchanges.
He for many years conducted agitations and wrote magazine articles dealing with reforms in the criminal laws, the regulation of trusts and combinations and other economic subjects. He was counsel for many reorganization committees, including those of the Seaboard Air Line, the Rock Island railway, the Central Fuel Oil Co. and the Southern Iron and Steel Co. In 1915 he acted as a counsel for the U. S. Government in the suit brought against the Secretary of the Treasury and the Comptroller of the Currency by the Riggs National Bank of Washington, D. C. which charged there was a conspiracy to wreck it. He took an active part in preparing the Federal Reserve Bank law, the Clayton bill, the Federal Trade Commission bill, other legislation curbing trusts, he was a delegate to the Democratic National Convention in 1904, 1908, 1912, delegate-at-large for the state of New York in 1916. He was a strong supporter of President Wilson's administration. Untermyer acted as Counsel and investigator to the Pujo Committee and headed the investigation of the so-called "money trust".
After America entered the Great War he was adviser to the U. S. Treasury Department regarding the interpretation of the income tax and the excess profits tax laws, he was appointed by President Wilson to serve on the U. S. section of the International High Commission, which sat at Buenos Aires in 1916, for the purpose of framing uniform laws for the PanAmerican countries. In 1920 he was counsel for the Lockwood Committee, appointed by the state Legislature to investigate an alleged conspiracy among the building trades of New York City, it was charged that labor leaders were using their power by extorting bribes for the prevention of strikes, by preventing independent bids and by forcing building awards to favorites. Many illegal acts were disclosed and numerous convictions secured. Robert P. Brindell, at the head of the labor council of the building trades with a membership of 115,000 was prosecuted by Untermyer, who conducted the case in person as a special attorney-general, convicted of extortion and sentenced to five-to-ten years in state prison.
At the end of 1921, when the prosecutions were being continued, more than 600 indictments had been found as a result of the investigation and many more were said to be pending. There were more than 200 convictions including pleas of guilty by employers, labor leaders and others and over $500,000 had been collected in fines. In connection with the exposure of abuses and acts of illegality among the
Federal Reserve Act
The Federal Reserve Act was passed by the 63rd United States Congress and signed into law by President Woodrow Wilson on December 23, 1913. The law created the central banking system of the United States; the Panic of 1907 convinced many Americans of the need to establish a central banking system, which the country had lacked since the Bank War of the 1830s. After Democrats won unified control of Congress and the presidency in the 1912 elections, President Wilson, Congressman Carter Glass, Senator Robert Latham Owen crafted a central banking bill that occupied a middle ground between the Aldrich Plan, which called for private control of the central banking system, progressives like William Jennings Bryan, who favored government control over the central banking system. Wilson made the bill one of top priorities of his New Freedom domestic agenda, he helped ensure that it passed both houses of Congress without major amendments; the Federal Reserve Act created the Federal Reserve System, consisting of twelve regional Federal Reserve Banks jointly responsible for managing the country's money supply, making loans and providing oversight to banks, serving as a lender of last resort.
To lead the Federal Reserve System, the act established the Federal Reserve Board of Governors, members of which are appointed by the president. The 1933 Banking Act amended the Federal Reserve Act to create the Federal Open Market Committee, which oversees the Federal Reserve's open market operations. A amendment requires the Federal Reserve "to promote the goals of maximum employment, stable prices, moderate long-term interest rates." The Federal Reserve Act created a system of public entities. There were to no more than twelve private regional Federal Reserve banks. Twelve were established, each had various branches, a board of directors, district boundaries; the Federal Reserve Board, consisting of seven members, was created as the governing body of the Fed. Each member is appointed by the President of the U. S and confirmed by the U. S. Senate. In 1935, the Board was restructured. Created as part of the Federal Reserve System was a 12-member Federal Advisory Committee and a single new United States currency, the Federal Reserve Note.
The Federal Reserve Act created a national currency and a monetary system that could respond to the stresses in the banking system and create a stable financial system. With the goal of creating a national monetary system and financial stability, the Federal Reserve Act provided many other functions and financial services for the economy, such as check clearing and collection for all members of the Federal Reserve. With the passing of the Federal Reserve Act, Congress required that all nationally chartered banks become members of the Federal Reserve System; these banks were required to purchase specified non-transferable stock in their regional Federal Reserve banks, to set aside a stipulated amount of non-interest bearing reserves with their respective reserve banks. Since 1980, all depository institutions have been required to set aside reserves with the Federal Reserve; such institutions are entitled to certain Federal Reserve services. State chartered banks were given the option of becoming members of the Federal Reserve System and in the case of the exercise of such option were to be subject to supervision, in part, by the Federal Reserve System.
Member banks became entitled to have access to discounted loans at the discount window in their respective reserve banks, to a 6% annual dividend in their Federal Reserve stock, to other services. Central banking has made various institutional appearances throughout the history of the United States; these institutions started with the First and Second banks of the United States, which were championed in large part by Alexander Hamilton. The American financial system was fragmented after the American Revolutionary War; the government was burdened with large wartime debts, the new republic needed a strong financial institution to give the country a resilient financial footing. Alexander Hamilton and Thomas Jefferson had opposing views regarding whether or not the US could benefit from a European-style national financial institution. Hamilton was in favor of building a strong centralized political and economic institution to solve the country’s financial problem, he argued that a central bank could bring order to the US monetary system, manage the government’s revenues and payments, provide credit to both the public and private sectors.
On the other hand, Jefferson was suspicious of a central bank because, he argued, it would undermine democracy. Jefferson and Southern members of congress believed that a strong central financial institution would serve commercial interests of the north at the expense of Southern-based agriculture interests whose credit was provided by local banks during the post-revolutionary war era; the First Bank of the United States was established in 1791 chartered for a period of twenty years. The US government was the largest shareholder of the bank. Despite its shareholder status, the government was not permitted to participate in management of the bank; the bank accepted deposits, issued bank notes, provided short-term loans to the government. It functioned as a clearinghouse for government debt; the bank could regulate state-chartered banks to prevent overproduction of banknotes. The bank was successful in financing the government and stimulating the economy. In spite of its successes, hostility against the bank did not fade.
Jeffersonians questioned the bank’s constitutionality. In 1811, the first bank of the United States failed to be renewed by one vote in both the House and the Senate. After the War of 1812, econo
