According to wikipedia:
It's my understanding that at this time we were still on a gold standard in this country. How could the federal reserve print money?
I probably need to pick up some books on the creation of the Fed, but I'd appropriate if someone could explain this to me.
The term Gold Standard can mean a lot of different monetary systems. Most in this boards use Gold Standard meaning a market selected gold standard. A system of competing currencies where the market selected gold as money[1]. Then others use Gold Standard as a government imposed gold standard. Inside this categories there are a lot of different versions, depending on what regulations the government decides to implement. Each version can and will produce very different results.
Specifically, in 1913 the Fed was created to manage the gold standard under some regulations that, to be honest, were not that bad. To create a dollar the Fed needed a dollar in "real goods" (a bond from a commercial bank backed by real assests like steel, wood, ...) and 40% of gold. So the Fed was quite limited in the money creation. There is a very good article at mises.org explaining this period.
For IWW the Fed was given special powers to encourage the war bonds. Using this special powers the Fed expanded the money supply, which led to prices doubling in only 6 years. Also, housing bubbles developed in different states, like Florida. When the war ended and therefore the money expansion ended too, the bubble bust and the economy went into recession. This is the 1921-1922 recession, that started worst than the 1929 crash that led to the Great Depression, but because the government lowered taxes and spending and the Fed did not had power to inflate got solved in year and a half.
By the end of 1922 (I am not 100% sure about the year) the Fed was allowed to make Open Market Operations, which allowed the Fed to start inflating the money supply. This was the intention since the beginning but the strong opposition towards the central bank made them go slowly and progressively. This allowed the Fed to create the credit sxpansion that was the roaring 20's that ended when the bubble poped in the 1929 crash.
[1] I personally think that the term Gold Standard used to describe when the market selects gold as money is confusing. First of all, it seems to imply that the market will always choose gold and wont change. Also and more important, it gets confused with the government managed and regulated gold standards that have existed in history. It has to be noted that, while gold has been selected as money by the market in lot of places and historic periods, there have been places and periods where the market has elected a mix of different currencies, f.e. gold and silver together, or the market has even selected other currencies rejecting gold, f.e. in the Philipines at the beginning of the XX century they used only silver as currency (with no government interference).
I think the term Competing Currencies is a better term for describing a system of competing currencies, even if the chosen one is gold.
