Many problems plagued the nation's economic system as the 20th century began; some of them were obvious to almost everyone, others were understood only by a relatively few financial experts. One of the obvious flaws was that currency was incapable of expanding in size to meet the unpredictable needs of agriculture and trade. “Inelastic,” they called it. This was obvious to people of the Northwest, because periodically they found that banks could not convert their deposits into cash, forcing them to resort to scrip or to barter. Harvest-season shortages of cash continually upset farmers, and at times, they had to pay “premium” to get currency.

These were but a few of the recognized problems of the extant system. Congressional study during this period found seventeen such defects, many of which played a part in the Panic of 1907. This crisis started, somewhat differently from most of its predecessors, by rumors of bankruptcy followed by panicky withdrawals from a few big banks in the New York money market. But the anxiety spread quickly, and runs were soon made on banks in distant farming areas. The effects of these runs, in turn, converged back on New York. The result: complete collapse of the nation's banking system and the forced bankruptcy of many businesses. Although major panics had occurred before, the Panic of 1907 turned out to be the one that initiated reform efforts. Something needed to be done.

There is no better way to understand the creation of the Federal Reserve than through the life and work of Carter Glass. The son of a printer, Glass wanted to become a reporter, however, with very little education he abandoned that dream and eventually found his way into a job working as a clerk in the auditors office for the Atlantic, Mississippi and Ohio railroad. Later he went on to buy two major newspapers and eventually fulfilled his lifelong dream of being a reporter. Writing editorials soon had Glass hooked on politics and in 1899, he was elected to the Virginia senate. As a typical southerner of the day, glass thought white males to be the highest element of society and, as a senator, he worked to disenfranchise many groups with whom he did not agree. In 1902, Glass was elected to the house of representatives. Within two years, he was appointed to the powerful Committee on Banking and Currency and threw himself into the study of finance.

The district banks are headed by a president (prior to the 1930s district banks were headed by two officials: an agent and a governor), who is selected by a board of directors. The board of directors consists of nine members—selected to represent various

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