The Senate confirmed Kevin Warsh as the new Federal Reserve chair this week in the most partisan vote for a Fed chair in American history—54 to 45, almost entirely along party lines.
The confirmation came after months of pressure from President Trump, a Justice Department investigation into outgoing chair Jerome Powell (which a federal judge ruled was a pretext for political pressure), and repeated calls from the administration for what Warsh himself described as "regime change" at the central bank.
It is, depending on the perspective, either an alarming politicization of monetary policy or a potentially long-overdue reckoning with an institution that has operated with almost no accountability since 1913.
Reasonable people disagree on the Fed, but what's harder to disagree with is that none of this is new.
The fight over who controls America's money is, without exaggeration, one of the oldest and most consequential arguments in the country's history.
It started almost immediately after the Revolution ended.
In 1790, Alexander Hamilton proposed the First Bank of the United States as the new federal government's solution to its war debts and chaotic currency situation. Thomas Jefferson and James Madison argued it was flatly unconstitutional. They said (correctly) that nothing in the new document gave Congress the authority to charter a bank and that it would concentrate dangerous financial power in the hands of a small group of wealthy interests.
Washington sided with Hamilton, the bank got its charter, and Jefferson spent the next decade convinced it was one of the worst decisions the young republic had made.
The charter expired in 1811. Congress debated renewing it, didn't, and then watched the War of 1812 nearly break the country's finances entirely. Thus the Second Bank of the United States was born in 1816, and the whole argument started over again.
By the time Andrew Jackson ran for president in 1828, the bank question was the central political issue in America. Jackson despised the institution with a particular intensity. He told Martin Van Buren that, "the bank is trying to kill me, but I will kill it."
When the bank's president, Nicholas Biddle, moved to recharter it early in 1832 as a political maneuver, Jackson vetoed it in language that reads, frankly, like something you might see Thomas Massie say today. The bank, he said, was "unauthorized by the Constitution, subversive of the rights of the States, and dangerous to the liberties of the people."
When his advisors warned him the veto would destroy him politically, he didn’t seem to care. He was determined to “destroy the bank.”
He was right.
He won reelection in a landslide, spent the next four years methodically draining the bank of its federal deposits until its charter expired in 1836, and when Biddle's attempt to keep it alive as a Pennsylvania state bank collapsed five years after that, the institution Jackson had fought against for over a decade was finally finished.
The bank stayed dead for nearly eight decades.
Then in November 1910, a group of the country's most powerful bankers traveled under cover of darkness to a private island off the coast of Georgia. Using only their first names to avoid identification, they spent about ten days drafting what would become the Federal Reserve Act of 1913.
If you want to know more about that meeting (and you should!), G. Edward Griffin wrote the definitive account of it, and we wrote a kids’ version of his Creature from Jekyll Island!
Ethan and Emily have apparently already come to their own conclusions about the whole thing.
This is part of what we cover in our new America’s History Volume 3.
The period from 1791 to 1849 is when the arguments that still animate our politics today were being fought out for the first time. Not in the abstract, but in real battles with real consequences for real people right then.
How much power does the federal government actually have?
Who controls the money?
What do you do when the government you created starts doing things the document doesn't authorize?
These weren't rhetorical questions for Jefferson or Jackson. They were the most important thing.
Pre-orders for America's History Volume 3 open May 18th—just a few weeks before America's 250th birthday—which seems like exactly the right time to make sure your kids understand what the first fifty years actually looked like.
If you don't have America’s History Volumes 1 and 2 yet, you should grab them now so you can brush up.
For now, we wait to see what happens with the Fed.
I won’t be happy until it is audited, and then abolished, but something tells me neither of those things are likely to happen.
The more things change. Am I right?!
— Connor
