A short history of the Federal Reserve and the Progressive Era.

Editors Note: This was adapted from Prescott Davies' longer piece on the Progressive Movement. It remains an ongoing rough draft.

Many have been taught that the Progressive Era in American history was the time that the laborers fought, and won, against the evils of the Robber Barons. James Livingston argues in his monograph entitled “Origins of the Federal Reserve System: Money, Class, and Corporate Capitalism, 1890-1913,” that the labor movement lost the war against the capitalists, because many of the so called triumphs of labor during the progressive era only made big business stronger.

Livingston is able to successfully accomplish this task because he focuses on the struggles of the elite, when many modern historians focus on the struggles of the poor. The end result is a history of 1890-1913 that utilizes objective economic figures to explain the sociological norms, values, and mores of the elite during their struggle to transform the competitive entrepreneur capitalistic economic system to the current corporate capitalistic system that exists today.

Livingston’s thesis is that the rich were forced to modify the competitive economic system that the capitalist elite were forced to endure during the 1870-1880 period.

In order to verify this thesis, Livingston first examines the 1870’s from the perspective of the capitalists, with the help of many primary, and secondary documents including Senate testimonies, economic journals, and banker's magazines. The sources help to illuminate the progression towards the Federal Reserve. He states that the capitalist was not receiving the required profits that were needed to invest in new endeavors. This was due because of the extremely competitive atmosphere that resulted in falling prices and overproduction of commodities. To solve this problem, the elite businessmen of that time started to group together to form pools and trusts that would not only decrease competition, but would also enable them to share the secrets of the trade. The labor movement was appalled at these combinations, so they tried to eliminate them politically; and they were successful in bringing about the 1890 Sherman Antitrust Act. However, the legislation backfired on the laborers, because it largely eliminated competition; so many large individual companies that were involved in trusts became even larger corporations. With the rise of the corporations, the elite knew that they needed to change the current banking system, because there was not enough liquidity in the pre-Federal Reserve system to allow large corporations to fund projects during panics.

This proved to be a rather difficult task for the elite businessmen to accomplish because the politicians were largely against a private bank controlling the money supply of the United States. The bankers were forced to manipulate the politicians into believing that a new banking system was needed to ensure a healthy capitalistic society. After this vital task was complete, the Federal Reserve Act was enacted.