Theodore Roosevelt, the Election of 1912, and the Founding of the Federal Reserve

The Federal Reserve Act was the outcome of compromises among competing economic and political interests. Numerous studies examine how the act came together but largely take the makeup of Congress and the Administration as given rather than considering the unique circumstances that led to that political distribution. This paper examines how the election of 1912 changed the makeup of Congress and increased the likelihood of central banking legislation and shaped the act. The decision of Theodore Roosevelt and other Progressives to run as third-party candidates split the Republican Party and enabled Democrats to capture the White House and Congress. We show that the election produced a less polarized Congress and that newly-elected members were more likely to vote for the act. Absent their interparty split, Republicans would likely have held the White House and Congress, and any legislation to establish a central bank almost certainly would have been quite different.