Founding of the Federal Reserve System

Mark Toma

Chapter Chapter 2 in Monetary Policy and the Onset of the Great Depression, 2013, pp 11-22 from Palgrave Macmillan

Abstract: Abstract Mentally transport yourself to 1913. You have been charged with designing a new monetary system. Before jumping into the details of the task, you and your cofounders must answer the basic question that every institutional architect must answer: Do you create a top-down or a bottom-up system? More concretely, do you create a system whose policy is determined at the discretion of decision makers at the top of a hierarchy, ideally motivated to do what is best for the economy? Or do you do you establish certain rules of the game where decisions are made bottom-up by individuals pursuing their self-interest? For the discretionary solution, the challenge is to design the system so that good leaders end up at the top. For the self-regulating solution, the challenge is to design rules that confront self-interested individuals with incentives that induce them to take actions that promote the common good.

Keywords: Federal Reserve; Federal Reserve System; Reserve Bank; Surplus Fund; Open Market Operation (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-137-37162-1_2

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DOI: 10.1057/9781137371621_2

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