Critics of the Federal Reserve are many, and one congressman has proposed creating the Centennial Monetary Commission to recommend ways to revamp the central bank. Blue-ribbon panels typically end up gathering dust, but a century ago such a commission — one that actually involved a cabal of Wall Street bankers — played a pivotal role in the founding of the Fed itself.

In 1907, a panic virtually shut down the banking system. America did not have a central bank to act as lender of last resort, and banks across the country ran out of money. The United States Treasury’s efforts to stem the panic were meager; J. P. Morgan, a private banker, organized more significant relief, but even his efforts were not enough. Many banks were forced to turn away depositors; hundreds of others stayed open by distributing improvised certificates (paper i.o.u.s) that circulated until the crisis abated. Not surprisingly, there were widespread calls for reform.

The next year, Congress passed a law to provide for more currency in an emergency, but the legislation was halfhearted and fell short of an overhaul. As if to acknowledge the insufficiency of the legislation, lawmakers also chartered the National Monetary Commission to study the banking system.

Little was expected of the commission, because the chairmanship was awarded to Senator Nelson W. Aldrich, a Republican from Rhode Island and the powerful head of the Senate Finance Committee. (His daughter married into the Rockefeller family, and his grandson was Gov. Nelson A. Rockefeller of New York.) Aldrich was a bastion of the conservative establishment and an ardent legislative friend of business — ties he had exploited to become personally wealthy — and he was opposed to establishing a central bank like those that existed in other industrialized countries.

But Aldrich, whose reputation had been tarnished by corruption charges, hoped to use the commission to burnish his legacy. He ordered a number of studies on banking practices in America and abroad. More consequentially, he and some of the other commissioners embarked on a fact-finding tour of the monetary systems, and in particular the central banks in London, Paris and Berlin. He even brought along a Harvard professor to tutor his group. ...