Federal Reserve Board

The Federal Reserve Board was created in 1913 under Woodrow Wilson as part of a broader attempt to regulate monopoly in the financial sector. Its significance in the book lies in the institutional response it embodied: when concentrated wealth threatened to bend markets and government toward a narrow elite, political institutions could act as a counterweight.

Origins and Political Setting

By the late nineteenth and early twentieth centuries, large trusts and monopolies had demonstrated that markets alone did not ensure broad economic opportunity. Dominant firms could charge high prices and block the entry of more efficient rivals and new technologies. The book places the Federal Reserve Board within the Progressive response to this danger, alongside stronger antitrust enforcement.

Wilson’s 1912 election marked the high point of Progressive reform. In 1913, while arguing against the political influence of monopoly, he moved to increase regulation of the financial sector. The investigation of the so-called money trust by the Pujo Committee, led by Louisiana congressman Arsene Pujo, helped spur this effort. Wilson created the Federal Reserve Board that year to regulate monopolistic activity in finance.

Role in the Reform Program

The Board formed part of a wider set of measures aimed at checking concentrated economic power. In 1914 Wilson worked to pass the Clayton Antitrust Act, which strengthened the Sherman Act, and established the Federal Trade Commission to enforce the Clayton Act. The Board addressed the financial sector specifically, extending the reform campaign beyond the regulation of trusts in other markets.

These measures reflected the book’s distinction between markets and inclusive markets. Markets could be captured by a few powerful firms; maintaining broad access required institutions capable of restraining that dominance. The Federal Reserve Board’s creation is presented as one instrument through which the government sought to regulate monopoly in finance, not as a claim that markets would correct such concentrations on their own.

Institutional Significance

The Board illustrates how political institutions can act as a countervailing force when economic power threatens to undermine inclusive markets. In the book’s account, the United States’ response contrasts with Mexico, where no political body was described as restraining Carlos Slim’s monopoly. By contrast, American antitrust laws had repeatedly been used over the following century against trusts, monopolies, and cartels.

That contrast expresses the virtuous circle between inclusive political and economic institutions: broad political institutions can limit departures from open markets, while inclusive economic institutions help sustain pluralistic politics. The Federal Reserve Board’s establishment belongs to this argument as a concrete expansion of public oversight into finance, prompted by concern that concentrated private power could also command government.