The panic of 1907 brought sharply to the attention of the whole country the inherent weaknesses of our banking and credit system and stirred Congress to action. In 1908 the Aldrich-Vree-land law was enacted as a temporary measure permitting national banks to organize themselves into National Currency Associations for the purpose of issuing additional circulation upon certain classes of securities other than government bonds. This act also created the National Monetary Commission, composed of members of the Senate and of the House of Representatives, to make a thorough investigation into the banking and currency systems of the leading commercial countries and to bring in a report. The commission spent four years in investigating banking and credit systems and methods at home and abroad, seeking the counsel of economists, bankers and business men, and published its findings in nearly fifty volumes, which constitute the most complete library on the subject ever issued. In January, 1912, the commission finally reported to Congress and brought in a bill embodying what came to be known as the "Aldrich plan," after Senator Aldrich, chairman of the commission. The bill was referred to a committee in the House of Representatives, but it was never reported out of committee. This plan, amended in some respects and put forward as the National Reserve Association plan, received the indorsement of the American Bankers' Association, numerous chambers of commerce and other business organizations, economists and publicists.
The plan proposed by the Monetary Commission provided for the establishment of local associations of banks and the grouping of these into regional associations, and the grouping of these in turn into a national reserve association with a head office at Washington. Under certain conditions all banks in the country were to be eligible for membership in this central institution. Its functions were to be essentially the same as those performed by the great central banks of Europe, namely, the holding and administration of the bank reserves of the country, the issue of an elastic currency based upon commercial assets, the rediscount of commercial paper for banking institutions, and the serving as depositary and disbursing agent for the Government. The commission believed that it had worked out a system of control which would prevent the domination of the association by any group of interests, political or financial. Though the plan submitted by the commission was intended to be non-partisan, the report being unanimous and signed by Republican and Democratic members alike, it failed to get strong public support partly because of its apparent resemblance to a central bank and of popular suspicion of its reputed author, Senator Aldrich, but chiefly because the public was not thoroughly aroused to the need for banking reform and informed as to what the proposed plan essayed to accomplish.
The appearance of the Monetary Commission's report stimulated widespread interest and discussion of banking reform. In June, 1911, the National Citizens' League was organized in Chicago by a group of business men under the auspices of the Association of Commerce to disseminate information as to the essentials of banking reform and to give organized expression to the demand for it. It sent speakers into all parts of the United States and formed branch organizations in every state. As part of its educational campaign it distributed over a million pieces of literature.
In the presidential campaign of 1912 two of the political parties in their national platforms condemned the plan proposed by the National Monetary Commission, and the successful Democratic party specifically opposed any plan involving a central bank. Many of the best features of that plan, however, were incorporated in the banking bill, known as the Federal Reserve Act introduced in the House of Representatives, June 26, and finally enacted into law, December 23, 1913.1
Conway and Patterson: Operation of the New Bank Act, Ch. 1. Laughlin (Ed.): Banking Reform. White: Money and Banking, Bk. III, Ch. XVII, XVIII.
1 For a sketch of the legislative history of this Act, see H. P. Willis: "The Federal Reserve Act," American Economic Review, March, 1914, pp. 3-17.