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Founding of the Federal Reserve System

In: Monetary Policy and the Onset of the Great Depression

Author

Listed:
  • Mark Toma

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.

Suggested Citation

  • Mark Toma, 2013. "Founding of the Federal Reserve System," Palgrave Macmillan Books, in: Monetary Policy and the Onset of the Great Depression, chapter 0, pages 11-22, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-137-37162-1_2
    DOI: 10.1057/9781137371621_2
    as

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