Economics becomes a science · 1770s–1920s
1913
The Federal Reserve
After the Panic of 1907, Congress creates a central bank to steady the system.
In the Panic of 1907, bank runs spread until financier J. P. Morgan organized a rescue. To avoid depending on one man again, Congress passed the Federal Reserve Act in December 1913.
The Fed could lend to banks in a crisis and influence how much money and credit flowed through the economy.
💡 Why it made sense then
Panics kept recurring, and the country had no lender of last resort.
Ideas it gave us
- 🌍 Monetary policy
Monetary policy is how a central bank manages interest rates and the money supply to keep inflation low and employment high. Raising rates cools the economy; cutting them stimulates it.
Practise with $10,000 in play money
Free. No real money involved.