By Mark Toma
Many economists view festival between relevant banks as resulting in an over-issue of cash. This booklet demanding situations the normal knowledge by way of displaying that pageant between Federal Reserve banks within the Nineteen Twenties didn't bring about an over-issue challenge. the united states Congress imposed a extra monopolistic constitution at the Fed within the mid-1930s in order that it could possibly accomodate a rise within the profit wishes of the Treasury. This e-book is exclusive in emphasizing the evolution of the Fed's constitution from a hugely aggressive one to a hugely monopolistic one.
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Extra info for Competition and Monopoly in the Federal Reserve System, 1914-1951: A Microeconomic Approach to Monetary History (Studies in Macroeconomic History)
However, congressmen offered no arguments that would have had the new institutions usurp the functions of the gold standard. In giving the Federal Reserve only limited powers, Congress did not feel the need to constrain the Fed's policies with explicit rules and goals. (Timberlake, 1993, pp. 249-50) In this view, the Federal Reserve System was intended to be a self-regulating, clearinghouse system operating on a real-bills basis. Because it represents a challenge to the modern-day consensus, this interpretation will be labeled the revisionist view.
Section 17 of the Act made reserve banks responsible for "servicing" these liabilities by authorizing them to act as clearinghouses in providing payments services associated with check-clearing and the handling of currency. With respect to the earnings issue, the Federal Reserve Act nominally designated member banks as shareholders. " Stock ownership, however, did not convey voting powers. " Next, member banks were to receive a dividend payment on the paid-in capital stock. " One thing the Act did not do was authorize transfer payments from the general government to the individual reserve banks in case of a shortfall in earnings.
This policy would insure that the newly created reserve banks would start off in a break-even position and at the same time close off any incentive they might have to conduct open market operations. 4 Do the predictions of the micro model match the policy actually chosen by the Board at the birth of the Fed? With respect to discount policy, the model predicts a discount rate that equals 6 percent - the prevailing market rate of interest and the rate of return on Fed equity. With respect to interest payments on reserves, the model predicts that reserve banks would impose service charges to cover costs - significant explicit nor implicit interest payments would not be made.