Of all the conspiracy theories that may come up in American political discourse, there is one that requires nothing that is supernatural, or even particularly out of the oridinary. The players may only be vaguely familiar: Rockefellers, Rothschilds, Morgans, Warburgs - and the Federal Reserve (whose part tonight will be played by Ben Bernanke, a PhD economist with education from Harvard and M.I.T.)
The scope is nothing short of a total underground or shadow government that directs hundreds of billions of dollars a year. But the cost of funding the operation would only be a few pennies on the dollar (quite literally).
Other conspiracies have come and gone, but the distrust of central banks has been with us for hundreds of years - and the actual verifiable history is murky at best. The individuals involved are known to posses incalculable wealth, and they entertain themselves with controversial social causes & international political activity - but they value their privacy and make their conclusions away from scrutiny. The totality of the plot is so pervasive, so totalitarian, that it encompasses a massive international network. If you've been reading a while, you may have heard me brush on a few of these topics.
The Promises of a Central Bank
The fundamental promise of a central bank like the Federal Reserve is economic stability. The theory is that manipulating the value of the currency allows financial booms to go higher, and crashes to be more mild. If growth becomes speculative and unsustainable, the central bank can make the price of money go up and force some deleveraging of risky investments - again, promising to make the crashes more mild.
In reality? The results are mixed. No doubt, America has experienced rapid growth since the institution of the central bank. Then again, we did pretty darn good before the Fed, too. Does it bring stability? Again, this is mixed. It must be noted that the Fed was established prior to the Great Depression, but it must also be noted that we have experienced many periods of rapid economic growth.
A Revolutionary History
The period leading up to the American revolution was characterized by increasingly authoritarian legislation from England. Acts passed in 1764 had a particularly harsh effect on the previously robust colonial economy. The Sugar Act was in effect a tax cut on easily smuggled molasses, and a new tax on commodities that England more directly controlled trade over. The navy would be used in increased capacity to enforce trade laws and collect duties.
Perhaps even more significant than the militarization and expansion of taxes was the Currency Act passed later in the year 1764.
"The colonies suffered a constant shortage of currency with which to conduct trade. There were no gold or silver mines and currency could only be obtained through trade as regulated by Great Britain. Many of the colonies felt no alternative to printing their own paper money in the form of Bills of Credit." 
The result was a true free market of currency - each bank competed, exchange rates fluctuated wildly, and merchants were hesitant to accept these notes as payment. Of course, they didn't have 24-hour digital Forex markets, but I'll hold off opinions on the viability of unregulated currency for another time.
England's response was to seize control of the colonial money supply - forbidding banks, cities, and colony governments from printing their own. This law, passed so soon after the Sugar Act, started to really bring revolutionary tension inside the colonies to a higher level. American bankers had learned early on that debasing a currency through inflation is a helpful way to pay off perpetual trade deficits - but Britain proved that the buyer of the currency would only take the deal for so long...
Establishing and Abolishing Central Banks
Following the (first) American Revolution, the "First Bank of the United States" was chartered to pay off collective war debts, and effectively distribute the cost of the revolution proportionately throughout all of the states. Although the bank had vocal and harsh skeptics, it only controlled about 20% of the nation's money supply. Compared to today's central bank, it was nothing.
Thomas Jefferson argued vocally against the institution of the bank, mostly citing constitutional concerns and the limitations of government found in the 10th amendment. There was one additional quote that hints at the deeper structural flaw of a central bank in a supposedely free capitalist economy:
"the existing banks will, without a doubt, enter into arrangements for lending their agency, and the more favorable, as there will be a competition among them for it; whereas the bill delivers us up bound to the national bank, who are free to refuse all arrangement, but on their own terms, and the public not free, on such refusal, to employ any other bank" 
Basically, the existing banks will fight over gaining favor with the central bank - rather than improving their performance relative to a free market. The profit margins associated with collusion would obviously outweigh the potential profits gained from legitimate business.
The Second Bank of the United States was passed five years after the first bank's charter expired. An early enemy of central banking, President James Madison, was looking for a way to stabilize the currency in 1816. This bank was also quite temporary - it would only stay in operation until 1833 when President Andrew Jackson would end federal deposits at the institution. The charter expired in 1836 and the private corporation was bankrupt and liquidated by 1841.
1863 & 1864:: National Bank Act(s)
While the South had been the major opponent of central banking systems, the end of the Civil War allowed for (and also made necessary) the system of national banks that would dominate the next fifty years.
The Office of the Comptroller of the Currency (OCC) says that this post-war period of a unified national currency and system of national banks "worked well."  Taxes on state banks were imposed to encourage people to use the national banks - but liquidity problems persisted as the money supply did not match the economic cycles.
Overall, the American economy continued to grow faster than Europe, but the period did not bring economic stability by any stretch of the imagination. Several panics and runs on the bank - and it became a fact of life under this system of competing nationalized banks. In 1873, 1893, 1901, and 1907 significant panics caused a series of bank failures. The new system wasn't stable at all, in fact, many suspected it was wraught with fraud and manipulation.
1907-1913: Triumph of the Robber Barons
"The most notable robber barons were J.P. Morgan (banking), John D. Rockefeller (oil), and Andrew Carnegie (steel)" 
Panic of 1907
The Federal Reserve Bank of Minneapolis is not shy about attributing the causes of the Panic of 1907 to financial manipulation from the existing banking establishment. "If Knickerbocker Trust would falter, then Congress and the public would lose faith in all trust companies and banks would stand to gain, the bankers reasoned." 
In timing with natural economic cycles, major banks including J.P. Morgan and Chase launched an all-out assault on Heinze's Knickerbocker Trust. Financial institutions on the inside started silently selling off assets in the competitor, and headlines about a few bad loans started making top spots in the newspapers. The run on Knickerbocker turned into a general panic - and the Federal Government would come to the rescue of its privately owned "National Banks."
During the Panic of 1907,
"Depositors 'run' on the Knickerbocker Bank. J.P. Morgan and James Stillman of First National City Bank (Citibank) act as a "central bank," providing liquidity ... [to stop the bank run]
President Theodore Roosevelt provides J.P. Morgan with $25 million in government funds ... to control the panic. Morgan, acting as a one-man central bank, decides which firms will fail and which firms will survive." 
How did JP Morgan get so powerful that the government would provide them with funding to increase their power? This question will come up again in 2008.
As Congressman Arsène Pujo would discover in his Congressional investigation of the "robber barons" or "money trusts," the key to expanding wealth beyond typical monopolies is the practice of interlocking directorates. Railroad and oil monopolists could still expand their power and wealth by creating series of banks, and sponsoring directors at the institutions. Alliances across the insiders would be cemented with cross-institution investment. Tycoon A would found banks 1, 2, and 3 - Tycoon B would found 4, 5, and 6 - and each bank would be heavily invested in the various banks and monopolies they represented.
The result is a sort of conglomeration of monopolies - a place where each industry's dominant corporation merges into a larger entity, a goal short of nothing but monopolization of everything.
But such a entity could not be expected to exist or thrive in a purely efficient (competitive) market. It is important then to remember that the private national banks of this "Robber baron" period were effectively subsidized by a tax on their state-based competition. This is of course in addition to the interest gained from public deposits, and the fees that the government paid for the printing of currency.
No, from the onset, the National Bank System was little more than a federally subsidized profit opportunity.
The resulting outrage and scandal would result in a chorus of calls all demanding the same thing: More government action, a stronger central bank. What few but the bankers understood is that the government action and stronger central bank subsidies allowed the creation the things the people feared the most: corruption, monopoly, and central planning of mundane activity and commerce.
1913 The Federal Reserve
Government interventionists got their wish in 1913 with the Federal Reserve (and income tax amendment). Just in time, too, because the nation needed a new source of unlimited cash to finance both sides of WW1 and eventually our own entry to the war. After the war, with both sides owing us debt through the federal reserve backed banks, the center of finance moved from London to New York.
But did the Federal Reserve reign in the money trusts and interlocking directorates? Not by a long shot. If anything, the Federal Reserve granted new powers to the National Banks by permitting overseas branches and new types of banking services. The greatest gift to the bankers, was a virtually unlimited supply of loans when they experience liquidity problems. 
From the early 1920s to 1929, the monetary supply expanded at a rapid pace and the nation experienced wild economic growth. Curiously, however, the number of banks started to decline for the first time in American history. 
Toward the end of the period, speculation and loose money had propelled asset and equity prices to unreal levels. The stock market crashed, and as the banks struggled with liquidity problems, the Federal Reserve actually cut the money supply. Without a doubt, this is the greatest financial panic and economic collapse in American history - and it never could have happened on this scale without the Fed's intervention. The number of banks crashed and a few of the old robber barons' banks managed to swoop in and grab up thousands of competitors for pennies on the dollar.
 The Currency Act, 1764 - http://www.ushistory.org/declaration/related/currencyact.htm
 Jefferson's Opinion on the Constitutionality of a National Bank, 1791 - http://www.yale.edu/lawweb/avalon/amerdoc/bank-tj.htm
 National Bank Notes: A Uniform Curency (1865-1914) - http://www.occ.treas.gov/exhibits/histor4.htm
 F. Augustus Heinze of Montana and the Panic of 1907 - http://minneapolisfed.org/pubs/region/89-08/REG898C.cfm
 FDIC Learning Bank: 1900-1919 - http://www.fdic.gov/about/learn/learning/when/19-1919.html
 Depression-era bank failures: the great contagion or the great shakeout? - http://www.encyclopedia.com/doc/1G1-132680382.html