A crescendo is going to start building soon in respect of the centenary of the Federal Reserve. The central bank was created by a law passed just before Christmas of 1913. The official anniversary festivities, if that is the word, will climax in 2014, a century after the nation’s central bank began its operations. Let us get the ball rolling by recalling the warnings of the critics of the Fed and the language in which its proponents defended the new institution.

The sturm and drang centered around gold. Congress was acting little more than a decade after it had ended the era of bimetallism, when money had been thought of in terms of both gold and silver. The bi-metal era had been launched by the first treasury secretary, Alexander Hamilton, with the coinage act of 1792. By the late 19th Century, gold had emerged as the preferable specie. In the election of 1896, William Jennings Bryan led a last gasp for silver declaring: “You shall not crucify mankind upon a cross of gold.”

He lost to William McKinley, who from his front porch had run a campaign for sound money. In 1900, McKinley signed the Gold Standard Act. It fixed the dollar at 25.8 grains — or a bit less than a 20^th of an ounce — of gold. One of the things to mark about the 100^th anniversary of the Fed is that the Congress that established the Fed would not have created the Fed in the first place had it even imagined that it was going to lead to an abandonment of the gold standard.

The Republicans tried to block the bill on exactly that line. One of them, James F. Burke of Pennsylvania, warned that the Congress was “departing from the gold standard, and that the new money to be handled by the American people in the needs of exchange shall have a basis not of gold, but of gold ‘or lawful money.’ And when called upon to redeem it the option may be exercised to redeem it either in gold or possibly in the $300,000,000 of greenbacks.”

The Pennsylvanian asserted that the “moral and legal effect” of the Gold Standard Act of 1900 “will be seriously impaired, and those who would artfully dodge the gold standard may triumph at the cost of the country’s credit.” He attributed the country’s suspicion of the measure to it being “brought into being by the party that has stood for an unsound currency since the Civil War . . . a party that struck the word ‘gold’ out of its platform in 1896.”

Burke fixed on the phrase “lawful money,” into which the Federal Reserve Act established that the Federal Reserve’s note would be redeemable. Why not strike out the phrase “lawful money,” Burk asked, “and allay the apprehension and remove the alarm?” This prompted the congressman guiding the Federal Reserve Act through the House, Carter Glass, to reply in respect of his own measure with a head-scratcher worthy of the Three Stooges: “You think this is an alarm bill. It is no alarm bill. It is a false alarm.”

The Republican protests were met with impassioned promises. “This bill provides that the currency to be issued under the control of the Federal Reserve board shall be redeemed at the Treasury in Washington in gold or in lawful money which is redeemable in gold making every dollar issued under this bill convertible into gold directly or into lawful money and gold ultimately,” declared the Hoosier Finly Gray, speaking from the floor of the Congress in September of 1913.

Gray was one of the so-called “gold Democrats” who’d opposed what The New York Sun of the time called “the slime of Bryanism.” The next day, Carter Glass himself, denounced suggestions that the legislation would lead to an abandonment of gold. He noted that the record “teems with protestations” against “the charge that there was one single, solitary word, sentence or suggestion in this bill that undertook, directly or indirectly, to repeal” the Gold Standard Act.

Another Democrat, Rufus Hardy of Texas, noted that the Gold Standard Act of 1900 asserted that the “man who in this day and time, at this part of the 20^th century, professes to believe that the United States, or any great commercial country of the world, will ever depart from the gold standard and go back to our former uncertain and non-parity maintained currency is fighting a shadow . . .”

Congress passed the Federal Reserve Act only after adopting an amendment put forth by one of the Republican skeptics, Simon Fess of Ohio, marking the point about gold. It declared, as Glass put it in his memoir, that nothing in the bill should be construed as a repeal of the law “providing a gold parity for all forms of money.” It was only against that assurance in law that the Federal Reserve Act actually made it through the House.

Even then, the critics were unsatisfied. Benjamin Strong, a banker who would himself eventually become head the Federal Reserve Bank of New York, wrote to another banker, Paul Warburg: “In my opinion, if the United States Government embarks once more upon the expedient or experiment of issuing fiat paper, although in this case supported by bank assets and a percentage in gold reserve, the day will come when we will deeply regret it.”

If one were to stipulate, if only as a thought experiment, that Congress had the power to create the Fed, one could suppose that it had the power to alter the terms on which the Fed issued its scrip. It did so in stages, eventually ending the role of gold in the monetary system and openly embracing fiat money. One of the historical points to confront on the centenary of the Fed is simply how horrified the Congress that created the Fed would have been at the notes it issues today, which are redeemable into “lawful money” that is bereft of all backing and has been marked down so that a dollar has lost all but a tiny fraction of the value it had when the Congress acted almost a century ago.