On this day in 1914, Secretary of the Treasury William McAdoo and Secretary of Agriculture David Houston, opened hearings in St. Louis.1 They were, as Senator John Weeks would afterward say, in the midst of “tangoing about the country asking the people if they wanted a reserve bank.” At the close of their dance, “in the home States of each member of the committee at least one regional bank was established, while two were given to Missouri, Secretary Houston’s State.” Weeks went on, “they are not the natural locations for reserve banks.”

On the one hand, there were excellent substantive reasons for placing the banks as they did. Missouri stands at almost the geographic center of the contiguous U.S. and borders eight states. It was in 1910 the seventh-most populous state in the country, well ahead of its fellows in the national midsection.

On the other hand, it is profoundly difficult not to believe that politics played some role. It always does. Which is why I’m bringing up not the origin, but the organization, of the Federal Reserve system. Too often we write about the passage of legislation as the end of a story, rather than simply a chapter-break within it: in 1913, Congress established the Federal Reserve system, which we still have today — hurray! now we have completed the epic that began with Hamilton’s Bank, continued through the Second Bank and Jackson and the National Banking system of the Civil War and the gold and silver controversies.

Except, of course, not: while we do have the Federal Reserve System today, it is a very different creature from what any of its makers imagined. The two feuding factions — broadly rendered, Republicans wanted more private control and more centralization, while Democrats wanted the opposite — had to compromise on the shape of the thing-that-was-not-a-central-bank, and nobody knew what would happen next.2

So the first round of the fight drew to a close with both sides gaining a little and losing a little in shaping the system — but then what? Organizing the system was another round in the fight. Staffing it was a third, making policy a fourth, vying for control within the system a fifth, and so on. Creating the potential for reasonable competence in 1935 was a further move, and focusing policies on inflation to the (alleged) exclusion of unemployment yet another.

And so are the pressures on the system today. Keynes may have hoped that economists could get themselves “thought of as humble, competent people on a level with dentists” — but it is a forlorn hope, for central bankers anyway. We may have fewer fireworks over Federal Reserve appointments than we do over Supreme Court choices — but the positions are no less political.

Perhaps the major difference now is, we put pressure on personnel rather than seeking changes in the system. In the old days, folks seemed to have endless faith that a properly designed system would prevent them from having to rely on the tender mercies of Bernankes.

For example: the federal government produced the map below in 1917, showing the country’s financial readiness for war. I’ve enhanced it with some color, showing the reserve bank cities, the outlines of their districts — and also, some red dots, which are the cities with federal land banks, established in 1916, at the behest of the agrarian bloc wishing for still more publicly backed, decentralized farm credit than the Federal Reserve allowed.

Which is to say, this faction won some victories in establishing the Federal Reserve system, then immediately returned to wring some further concessions by establishing a further system. They didn’t simply suppose they should lobby Federal Reserve bankers — they tried to build a financial system that would respond to their needs. It suggests a people unused to the idea of putting themselves in the hands of a governing class.

1Yes, we know we could have done inauguration day or MLK day. Later, when we run out of ideas and are phoning it in from our villas on the French Riviera, I’m sure we will.
2People who want to claim the Federal Reserve Act resulted from Republican machinations have to contend with e.g. the vote on passage in the House, in which Democrats went 248-3 in favor and Republicans 30-80. Those are some wily Republicans, opposing their own measure like that.