Birth of the Federal Reserve: crisis in the womb Silber, William L

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Silber, William L
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Journal of Monetary Economics
Federal reserve banks; Economics; Banking, finance and accounting industries
Academic; Trade
To link to full-text access for this article, visit this link: Byline: William L. Silber Keywords: Federal Reserve; Gold standard; Financial crises; World War I Abstract: The outbreak of World War I shut the New York Stock Exchange for more than 4 months. The conventional explanation maintains that the closure prevented a collapse in stock prices that threatened a repetition of the Panic of 1907. This paper shows that the Wilson Administration encouraged the suspension of trading to pave the way for launching the Federal Reserve System, which was in the process of being born. Federal Reserve insiders considered an adequate stock of gold crucial to the success of the new monetary system. Closing the Exchange helped to forestall an outflow of gold. Central bankers can learn how crisis control is supposed to work from the 1914 experience. Author Affiliation: Stern School of Business, 44 West 4th Street, New York, NY 10012, USA Article History: Received 25 August 2004; Accepted 14 October 2004 Article Note: (footnote) [star] The author is the Marcus Nadler Professor of Finance and Economics, Stern School of Business, New York University. He wishes to thank Stephen Cecchetti, Yang Lu, Allan Meltzer, Anna Schwartz, Richard Sylla, Josh Sullivan, Paul Wachtel, Ingo Walter, an anonymous referee and the Editor of the JME, Charles Plosser, for helpful comments. Special thanks to Ken Garbade who treated this paper as though it were his own.
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