There is a Ron Paul article at the Mises Institute on the origins of the Fed. I highly recommend following the provided link to read the full article. It is full of historical information.
Here’s how we got saddled with this monstrosity: In the early 1900s — during the so-called Progressive Era — the US government began a radical program of intervention into the economy. Pundits hailed this as fostering a new “spirit of cooperation” between business and government. In fact, the new system was a precursor of socialism and fascism.
Government-business cooperation took several forms, all of which conferred special privileges on favored firms, insulating them from the competition of the free market. Individual businesses and whole industries lobbied and bribed government officials for laws that benefited them at the expense of the consumer, and the whole operation was sold to the public as antimonopoly measures. This illegitimate and unconstitutional process happened time and time again, and government intervention became a permanent part of manufacturing, railroads, agriculture, and many other industries in the United States.
This was the era when the US free market received a beating, and, for lovers of liberty, its effect was much worse than the New Deal’s. ~ Ron Paul
If you have a real free market then opportunity is granted to all and privilege to none. We call this situation laissez-faire or market anarchy. (among other terms) Under laissez-faire we see laws applied equally to all without any respect to one’s station in life. All businesses are accountable to the consumers because the have to please the consumer or go out of business.
But in the late 1800’s the “progressives” agitated for a system of government intervention where industries where no longer accountable to the needs of the people. Many progressives thought they were helping “the little guy” no doubt, but in fact they were giving large business guaranteed profits and privileged status.
In the banking industry there was a full gold standard and near free banking in the years before the War Between the States. By the beginning of 1900’s this had been replaced with National Banking System (NBS) which Ron Paul (and others) have called a halfway point between free banking and a central bank.
Chiefly responsible for passing the National Banking Act of 1863 was Ohio investment banker Jay Cooke, who gained a government-granted monopoly on public debt underwriting. His success in the bond business gained him enormous influence with the Republican administrations during the Civil War and after, and especially with Salmon Chase, secretary of the Treasury, from Ohio, and Senator John Sherman from Ohio. Together they were able to push through Congress and past the public the National Banking Acts, all of which would benefit banking tremendously. Fractional-reserve banking was guaranteed by the government at 15 and 25 percent reserves. A 10 percent annual tax on state bank note issues was required, to force state banks into the NBS. Legal tender status was imposed on the national-bank notes. ~ Ron Paul
It turns out that there was control by the central government of the banking industry for decades leading up to the establishment of the Fed. Government interventions caused panics over and over. The Banksters and the government used the problems caused by the NBS to ram though the monstrosity that we know as the Fed. The reason for the Fed is simple — the Federal Reserve exists to give a special privilege to the banking industry and other knowledgeable insiders. The banks have profited greatly over the generations from this special privilege and have taken about greatly diluted the value of the US dollar.
As the Fed increases the money supply it makes existing dollars worth less and prices rise. But this does not happen instantaneously. There is a price lag that favors (guess who) the bankers and the insiders. The elite profit at the expense of the poor sods on the outside. Too bad, so sad, say the bankers.
The Fed has given the nation Depressions, Recessions, and Panics. (different names for the same thing) The Fed has given us onerous inflation. For what? To enrich the already mega-wealthy bankers, politicians, and other insiders. The favored elite in our system sucks the life blood out of the masses.