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opinion | Roger Lowenstein

America’s innate fear of the Fed


It may seem strange that the Republican Party is struggling to pick a speaker of the House primarily because the party is split over whether to try (again) to shut down the US government.

The deputes in the French Assembly, whatever else provokes them, do not labor to extinguish the central government in Paris, nor do members of Parliament concern themselves with shuttering the British state.

But in America, this is nothing new. Since Thomas Jefferson’s time, Americans have distrusted central power. That distrust has spawned a sorry legacy — an obsessive and excessive fear of central authority manifest from the beginning, when the new Republic was hidebound by the Articles of Confederation.

And no sooner was the Constitution launched than minirebellions against federalism blossomed. Alexis de Tocqueville, who famously visited America in the 1830s, could not believe the vitriol that Americans felt for the (modest) central government. Americans, he wrote, were “preoccupied by one great fear,” the fear of “centralization.”


The byproduct of this Jeffersonian legacy has been a misbegotten faith in “originalism,” the peculiarly American belief that anything that didn’t exist in 1776 shouldn’t be created or legislated now. Reforms that in other nations are accepted as a matter of course (i.e., national health care) are controversial here.

Whereas other nations accept that conditions change, societies evolve, and therefore so must civic responses to them, Americans cling to a myth of Edenic purity. Thus, constitutional scholars debate the meaning of a comma in the Second Amendment, oblivious to the homicidal power of modern weaponry. Then, too, foes of a central bank yearn for a second coming of the gold standard, gold having cast a religious spell on the ancients. Alas, a monetary system based on mineral extraction is wholly insufficient for the vigorous and complex commerce of the 21st century. Even in the early decades of the 20th century, allegiance to the gold standard provoked or accentuated severe depressions in both Britain and the United States.

The most visible current manifestation of anticentralism is the populist outcry against government in the banking system. This, too, has Jeffersonian roots; the sage of Monticello famously mistrusted bankers.


In Europe, as nations industrialized in the 18th and 19th centuries, each, in turn, adopted central banking to shore up its finances, smooth the vicissitudes of the credit cycle, and provide a lender of last resort. America, by contrast, abolished not one but two national banks early in its history.

Until the Civil War, the American economy was a disunited polyglot, with hundreds of private banks minting notes, each of which was purportedly a “currency.” Even into the 20th century, the United States remained the only advanced nation without a central bank. Since no central reserve of credit existed, each bank kept its own reserve. In times of stress, each bank tightened — accentuating the general distress and frequently leading to a financial panic.

Reformist bankers argued that this antiquated and disjointed system was holding back the country’s development, and that the United States needed a central bank. But the idea was hugely unpopular. As Jacob Schiff, a Wall Street mogul, remonstrated to reformers, “If you go away from New York City and discuss this subject of a central bank, you will find grave distrust in the proposition.” Schiff, who had emigrated from Germany after the Civil War, declared to the New York Chamber of Commerce in 1906 that the American people “at the time of Andrew Jackson, and more so today, do not want to centralize power.”


After yet another terrible financial panic and then a painstaking legislative process, in 1913 Congress enacted the Federal Reserve. But antipathy to centralism lives on, particularly in areas remote from the Northeast. Bizarrely, populists today are angry not because the Fed failed to save the financial system in 2008 but, rather, because it forcefully intervened and did save it.

Candidates for high office are popular merely because they are not from “Washington.” The political labels are reversed (in 1900, Democrats were the party of laissez-faire; today, Tea Party Republicans are). But obsessive anticentralism is just as toxic. Americans would do better to mimic an alternative legacy of the Founding Fathers — faith in a robust federal government, properly tempered by constitutional checks.

Roger Lowenstein is the author of “America’s Bank: The Epic Struggle To Create the Federal Reserve.’’