January 25, 2018 Reading Time: 2 minutes

The level of discourse in the lead up to the founding of the Federal Reserve System in 1913 is quite remarkable. Consider the work of Victor Morawetz, a corporate lawyer whose book, The Banking & Currency Problem in the United States, was published in 1909. Morawetz opposed the establishment of a “great central bank” (p. 349).

Morawetz worried that regional differences would undermine central bank independence. Since “business conditions in the different sections of the United States vary widely,” he thought the central bank would “often be called upon to meet demands due to sectional self-interest and would often be subjected to unjust criticism due to the ignorance or prejudice of those unable to understand the complicated and difficult problems of finance” (p. 350).

In view of the sectional questions with which a central bank would have to deal and in view of our political history and our political methods, is it reasonable to expect that the management and policy of such a bank would be kept out of politics? From the beginning of our government to the present day banking and currency problems have been treated as fit subjects of party politics (p. 351).

It seemed unlikely to Morawetz that the politicization would end with the creation of a great central bank.

As Morawetz lamented, central banking would only work well if the right people were put in charge.

A central bank would not prove a safe and useful institution in the United States unless its management could always be kept in the hands of experienced and able men free from political influences and ambitions and enjoying the confidence of the people in all sections of the country. The problem of securing such a management has not been solved (p. 352).

In other words, he believed central banking was not an especially robust institution.

Despite opposing a great central bank, Morawetz was no free banker. He supported a divisional reserve bank system along the lines proposed by Nelson Aldrich and ultimately adopted in the Federal Reserve Act. Ironically, the divisional reserve bank system he preferred would come to look a lot like a great central bank, as power gradually shifted from regional Reserve Banks to the Board of Governors in the years that followed.

William J. Luther

William J. Luther

William J. Luther is the Director of AIER’s Sound Money Project and an Associate Professor of Economics at Florida Atlantic University. His research focuses primarily on questions of currency acceptance. He has published articles in leading scholarly journals, including Journal of Economic Behavior & Organization, Economic Inquiry, Journal of Institutional Economics, Public Choice, and Quarterly Review of Economics and Finance. His popular writings have appeared in The Economist, Forbes, and U.S. News & World Report. His work has been featured by major media outlets, including NPR, Wall Street Journal, The Guardian, TIME Magazine, National Review, Fox Nation, and VICE News.

Luther earned his M.A. and Ph.D. in Economics at George Mason University and his B.A. in Economics at Capital University. He was an AIER Summer Fellowship Program participant in 2010 and 2011.


Selected Publications

Cash, Crime, and Cryptocurrencies.” Co-authored with Joshua R. Hendrickson. The Quarterly Review of Economics and Finance (Forthcoming).

Central Bank Independence and the Federal Reserve’s New Operating Regime.” Co-authored with Jerry L. Jordan. Quarterly Review of Economics and Finance (May 2022).

The Federal Reserve’s Response to the COVID-19 Contraction: An Initial Appraisal.” Co-authored with Nicolas Cachanosky, Bryan Cutsinger, Thomas L. Hogan, and Alexander W. Salter. Southern Economic Journal (March 2021).

Is Bitcoin Money? And What That Means.”Co-authored with Peter K. Hazlett. Quarterly Review of Economics and Finance (August 2020).

Is Bitcoin a Decentralized Payment Mechanism?” Co-authored with Sean Stein Smith. Journal of Institutional Economics (March 2020).

Endogenous Matching and Money with Random Consumption Preferences.” Co-authored with Thomas L. Hogan. B.E. Journal of Theoretical Economics (June 2019).

Adaptation and Central Banking.” Co-authored with Alexander W. Salter. Public Choice (January 2019).

Getting Off the Ground: The Case of Bitcoin.Journal of Institutional Economics (2019).

Banning Bitcoin.” Co-authored with Joshua R. Hendrickson. Journal of Economic Behavior & Organization (2017).

Bitcoin and the Bailout.” Co-authored with Alexander W. Salter. Quarterly Review of Economics and Finance (2017).

The Political Economy of Bitcoin.” Co-authored with Joshua R. Hendrickson and Thomas L. Hogan. Economic Inquiry (2016).

Cryptocurrencies, Network Effects, and Switching Costs.Contemporary Economic Policy (2016).

Positively Valued Fiat Money after the Sovereign Disappears: The Case of Somalia.” Co-authored with Lawrence H. White. Review of Behavioral Economics (2016).

The Monetary Mechanism of Stateless Somalia.Public Choice (2015).


Books by William J. Luther

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