OMW Sprague: The Man Who Wrote the Book on Financial Crises and the Founding of the Federal Reserve

Working Paper: NBER ID: w19758

Authors: Hugh Rockoff

Abstract: O.M.W. Sprague was America's leading expert on financial crises when America was debating establishing the Federal Reserve. His History of Crises under the National Banking Act is one of the most enduring legacies of the National Monetary Commission; a still frequently cited classic. Since the Commission recommended a central bank, and its recommendation after some modifications became the Federal Reserve System, it might be assumed that Sprague was a strong supporter of establishing a central bank. But he was not. Initially, Sprague favored more limited reforms, a position that he did not abandon until the Federal Reserve became a fait accompli. Here I discuss the sources of Sprague's opposition to a central bank and the relationship of that opposition to his understanding of the history and structure of the American banking system at the turn of the nineteenth century.

Keywords: Financial Crises; Federal Reserve; Banking History

JEL Codes: B26; N1

Causal Claims

Cause	Effect
Sprague's encyclopedic knowledge of American banking history (N21)	Sprague's opposition to a European-style central bank (E59)
Sprague's belief that a central bank would exacerbate inflationary pressures (E59)	Sprague's opposition to a European-style central bank (E59)
The potential substitution of central bank notes for existing money (E41)	excessive credit expansion and inflation (E51)
Geographical dispersion of the American banking system (F65)	complications for a central bank (E58)
Political pressures to allocate funds based on population rather than need (H77)	inefficiencies in a central banking system (E58)
Sprague's historical analysis and experiences (N91)	advocacy for alternative solutions to financial panics (E44)
Advocacy for pooling reserves among banks and providing emergency liquidity (E44)	opposition to establishing a central bank (E58)