The Rent-Seeking Origins of the Federal Reserve

This paper explores the possibility that the establishment of central banks may have not been the result of socially beneficial public policy but the result of rent-seeking. I use the case of the most powerful central bank in the world as a model. In the paper I classify and explain the possible motivations of three interest groups: (i) the federal government, (ii) small-scale state and national bankers, and (iii) financial entrepreneurs. The federal government and the financial entrepreneurs invested resources into creation of barriers to entry in order to restrict small-scale state and national banks in competition. This process resulted in the establishment of a central bank controlled by the federal government