The origins, purposes, and functions of the Federal Reserve System form the basis of this 1950 Encyclopedia Britannica Films, Inc., production. Made in collaboration with Columbia University Economics Professor James W. Angell, the black-and-white film opens with the narrator that a generation of Americans have grown taking the Federal Reserve System as much for granted as they do the US Postal Service. But there are also those who remember what life was like before the Fed. (The system was created in 1913 by the Federal Reserve Act in response to a 1907 financial crisis in which the New York Stock Exchange fell almost 50 percent from its peak the previous year. Panic occurred and there were numerous runs on banks and trust companies. The 1907 panic eventually spread throughout the nation when many state and local banks and businesses entered bankruptcy).
At the film’s opening, two men re-enact a common scene that would’ve occurred during the panic, as a local banker tells a grocery store owner that he would not be able to renew a promissory note and that it would be due in full. “I can’t lay my hands on $2,000,” the man pleads at mark 1:34, but to no avail. The banker then explains — with the assistance of graphics — how banks make their money by taking deposits and making loans and investments. A discussion of such fiduciary terms as portfolios, reserves, and liabilities follows, all of which are illustrated on the screen, as is a discussion of local banks and their relationship with correspondent banks.
“But if they can print bank notes, why are they short of money?” the businessman asks near mark 06:00. The answer, the banker explains, is that all of the notes possible against securities owned have already been printed. “Everyone’s scared. Nobody trusts anybody anymore.”
So what can be done? Perhaps a central reserve bank, the men wonder at mark 07:15. The narrator explains that Congress worked on developing the Federal Reserve System for five years, and by the time President Woodrow Wilson took office in March 1913, a preliminary draft of the legislation was ready. The film recreates a scene in which Wilson reviews the legislation along with Congressman Carter Glass, whose legislation created the Fed. “A bank called the Federal Reserve Bank,” he says at mark 09:19, “that will be in a very real sense a banker’s bank.” Additional graphics outline how local banks would do business with the Federal Reserve Bank, starting at mark 10:00. At mark 13:13, the narrator reads from the preamble of the legislation as the film shows “President Wilson” signing it into law.
“Today its main task is to promote stability in the country’s economy by using its influence to bring about increases or decreases in the country’s banking reserve,” it is explained beginning at mark 13:30. By 1929, the system had done well to curtail money shortages, until the Stock Market Crash and the Great Depression. During this period, a number of amendments to the Federal Reserve System were made through the Glass-Steagall Act of 1932, the Banking Act of 1933, the Securities Exchange Act of 1934, and the Banking Act of 1935, all of which are noted beginning at mark 16:42. The Federal Reserve System is applauded, starting at mark 20:50, with helping finance the United States’ involvement in World War II — as the film shows a number of quick cut battle scenes. “New times bring new problems, and we must always modify the Federal Reserve System to meet them,” the Glass character says as the film reaches its end.
