ORGINS OF THE FEDERAL RESERVE SYSTEM: INTERNATIONAL INCENTIVES AND THE DOMESTIC FREE-RIDER PROBLEM

In: International organization, Band 53, Heft 1, S. 39-70

Abstract

THE FEDERAL RESERVE SYSTEM WAS ESTABLISHED IN 1913 TO PROVIDE THE PUBLIC GOOD OF DOMESTIC FINANCIAL SYSTEM STABILITY. ITS MAIN PURPOSE WAS TO SAFEGUARD THE NATION FROM BANKING PANICS AND OTHER ECONOMICALLY COSTLY FINANCIAL DISTURBANCES. THE AUTHOR EXPLAINS THE COLLECTIVE ACTION BEHIND THE FEDERAL RESERVE ACT BY WAY OF THE JOINT PRODUCTS (SELECTIVE INCENTIVES) MODEL. THE SELECTIVE INDUCEMENT THAT MOTIVATED LOBBYING FOR THE FEDERAL RESERVE WAS THE DESIRE TO INTERNATIONALIZE USAGE OF THE U.S. DOLLAR, A BENEFIT RESTRICTED PRIMARILY TO MONEY-CENTER BANKERS. BANKERS INTERNALIZED THE COSTS OF PRODUCING THE FEDERAL RESERVE BECAUSE THE PRODUCTION OF DOMESTIC FINANCIAL STABILITY. THE ARTICLE PROVIDES A ROAD MAP OF THE JOINT PRODUCTS MODEL AND DEMONSTRATES EMPIRICALLY THE SUPPLY TECHNOLOGY THAT BOUND TOGETHER THE PUBLIC AND PRIVATE GOODS OF THE FEDERAL RESERVE ACT.