In this engaging volume, Roger Lowenstein chronicles the establishment of the Federal Reserve System. A journalist best known for When Genius Failed (2000), an account of the rise and fall of the Long-Term Capital Management hedge fund, Lowenstein here focuses on a story familiar to students of the Fed.

Between 1836 and 1914, the United States had no central bank. In the 1830s, President Andrew Jackson destroyed the Bank of the United States (BUS), the country's central bank, in the process demonizing all such institutions and making opposition to them a key principle of the Democratic Party. Unfortunately, neither Jackson nor any of his immediate successors devised a good substitute for the BUS, which had provided a stable currency and efficiently managed government finances. In the 1860s, the National Banking Act did create a uniform currency (more or less), but the American financial system remained decentralized and inflexible, the proverbial Achilles’ heel of an otherwise sophisticated economy. For instance, interest rates almost always spiked in the fall as the need to move the harvest created a sharp jump in the demand for money. The issue finally moved to the front of the national agenda with the financial panic of 1907. The crisis prompted calls for reform spearheaded by thoughtful economists and bankers, most notably Paul Warburg of Kuhn, Loeb, a German Jew who had broad experience with European banking. At the same time, Congress authorized a study of the issue led by the powerful senator Nelson Aldrich, who over his long political career had devoted his considerable talents to defending business interests. After a tour of European financial centers and extensive conversations with experts like Warburg, Aldrich became convinced of the need for radical change and proposed what was, in effect, the first draft of the Federal Reserve Act. His bill provided for a number of regional “reserve banks” that, collectively, would possess the powers of a central bank: issuing currency, holding reserves, and acting as “lender of last resort” in a crisis. Unfortunately, the unveiling of Aldrich's proposal coincided with the high tide of Progressive reform, to which suspicion of business was central. Most Progressives considered the stubbornly probusiness Aldrich anathema, and they suspected any proposals advanced by bankers. Reform appeared dead.

The issue, however, took an unexpected turn after the Democrats, the party of Jackson, won the 1912 election. Though infused with Progressivism's suspicion of big business and Jackson's hostility to banks, the party's leaders were also determined to demonstrate that they could govern effectively and saw financial reform as an opportunity to do just that. Meanwhile, Congress held hearings that pilloried the power of leading financial institutions like J.P. Morgan & Co., characterizing them as the “Money Trust,” thereby allowing Democrats to give financial reform a Progressive gloss. Representative Carter Glass took charge of the matter, framing a measure much like Aldrich's, and President Woodrow Wilson brokered compromises with William Jennings Bryan that secured congressional majorities for the bill. Among other things, these compromises created a divided structure, with authority apportioned among twelve regional banks scattered around the country and a central board in Washington—an arrangement that would create problems in the future because it was not clear who was in charge. Nevertheless, the measure created a single institution responsible for the currency, for holding reserves, and for acting as lender of last resort, and so it represented a huge advance on the existing system. One of the most entertaining parts of Lowenstein's book is his description of the subsequent efforts of everyone involved—and many who were not—to secure credit for creating the Fed. The author himself clearly thinks Warburg, Aldrich, Glass, and Wilson deserve the lion's share of the honors.

America's Bank has a subtext dictated by current events. The author disdains the many conspiracy theorists who have, over the decades, presented the Federal Reserve as an ongoing conspiracy directed by sinister influences, among which the Rothschild family and bank have usually figured large. Lowenstein argues convincingly that the Fed addressed a major need and reflected the normal push and pull of the democratic process, with various groups defending their interests and striking compromises. If bankers played a particularly large part in the process, it was because reform affected them most deeply and they possessed the technical knowledge to frame reform. As such, Lowenstein's tale offers hope to present-day Americans distressed by the unwillingness of the country's leaders to face problems like the looming bankruptcy of Social Security and Medicare as well as the scorched-earth politics of groups like the Tea Party and Occupy Wall Street that demonize their opponents and disdain compromises.

America's Bank is, at heart, a political rather than a financial history. Though Lowenstein mentions the gold standard and the real bills doctrine, which the Fed's architects expected to guide its policy, he does not examine them in depth. For instance, he hints that Aldrich had doubts about aspects of the real bills doctrine even after embracing reform, but does not pursue the matter. Yet Lowenstein's focus is politics, and it is unfair to ask him to delve too deeply into financial issues that did not seriously affect the public discourse. America's Bank is a first-rate piece of political history, worthy of attention from students of the Fed and anyone interested in the workings of democracy.