anks always kept a reserve amount on hand for the withdrawal needs of the depositors.  Banks were independent organizations.   There was NO national bank.

     The Industrial Revolution was inexorable.  As it grew and grew, and developed more tools to make farming easier and more efficient, more and more equipment was desired (needed.)  Banks lent out more and more.  Once in a while a bank lent more than it actually had in assets, including its reserves.  The bank would borrow from another bank, would merge with another bank, or would fail.  In fact there were bank panics and serious local and national depressions throughout the 19th century.  There was no national protection or guidance.

     The banks, led by the large banks in New York City, decided that something had to be done to prevent these disruptions to the money system.  Since the time of Alexander Hamilton just the thought of a National Bank horrified the citizenry, although there had been experiments with a National Bank.  The banks came up with a proposal which eventually led to the passage of the law that established the Federal Reserve System in 1913.  The salient facts are included in “The Creature From Jekyll Island,” which tells this same story from a slightly different point of view.   The theory behind the Federal Reserve System as it was presented to, and passed by, Congress was very simple.  The Federal Reserve System would be created as a kind of super bank – a banker’s bank.  Local banks would become ‘members’ in the same way as local depositors formerly became ‘depositors.’  Local banks deposited and borrowed from the Federal Reserve Bank. In this way, the collective assets of the continually enlarging American economy, could be shared, benefitting everyone.  The likelihood of bank failure would be greatly diminished – if not eliminated.   AND the amount of money available for the still rapidly growing industrial segment of the economy, would grow through the regulations of the Federal Reserve System, the amount of interest charged the member banks, and the confidence in the economy.