Competition and Monopoly in the Federal Reserve System, 1914–1951

Competition among central banks in a monetary union is thought to result in an over issue problem, which has its roots in the view that moneys produced by competitive central banks are perfect substitutes for each other. In the conventional set-up over issue can be overcome by granting a central bank exclusive rights to conduct monetary policy. In this book Mark Toma explores the workings of the early Federal Reserve System as a basis for challenging the conventional wisdom. He is able to show that competition among reserve banks in the 1920s did not result in an issue of Fed money. Rather the main effect of competitive structure was to cause reserve banks to make substantial interest payments to the private banking system in place of transfers to the US government. The book emphasizes the evolution of the Federal Reserve from a competitive to a monopolistic structure.