Why was the Federal Reserve Bank created?
A bank note is really just a promise: you put your money in (in whatever form: gold, checks, etc.) and they give you a piece of paper promising to give you your money back. It’s a lot easier than carrying around a bunch of gold, and you can give that note to somebody else knowing exactly how much it’s worth. That’s good as far as it goes, but there’s another trick: you can print up more notes than you actually have money for. That’s actually not technically a problem. If somebody wants a loan, you can give it to them in bank notes. As long as everybody doesn’t try to cash in the notes all at once, you’ll be fine, and it means you’re more productive as a whole. If they’re putting that money towards something useful (a house, a factory, a business) they’ll make enough money to give it back to you. It’s called “increasing the money supply”, and it’s important for a healthy economy. Otherwise we’d have a hard time actually building anything. But sometimes, you get panics. People all want t
