Banks and Politics During the Progressive Era by Richard T McCulley

CHAPTER I
Money, Banks and Politics During the
Nineteenth Century
Political traditions and ideologies rooted in eighteenth and nineteenth
century financial conflicts provided the broad context and boundaries for
Progressive Era banking reform. The debate between Thomas Jefferson and
Alexander Hamilton over the establishment of a central bank revealed
fundamental and enduring differences over the power of the federal
government and its relation to the economy and society. Jackson's
destruction of the Second Bank of the United States sent the Hamiltonian
tradition into eclipse and marked the resurgence of the Jeffersonian tradition
and the rise of the laissez-faire tradition. During the decades preceding the
Civil War the politically dominant Democrats minimized federal
involvement in money and banking and shifted power to the states. The
Hamiltonian and Whig traditions of economic nationalism found expression
when the Republicans established the National Banking System and enacted
other legislation that grew out of the Civil War and its financial aftermath.
The depression of the 1890s and the silver debate exposed the conflicts
between Jeffersonian and laissez-faire Democrats and left the party divided
and enfeebled at the end of the nineteenth century. Republicans emerged
from the political and economic upheaval of the 1890s as the majority party
and confronted the challenge of adjusting the National Banking System and
post-Civil War financial policies to the needs of the twentieth century.
The Hamiltonian and Jeffersonian Traditions
From the earliest days of the Republic the need to finance wars and the debt
growing out of wars has had a powerful impact on banking. When George
Washington became the first president, he faced many problems and
challenges, but none more formidable than the enormous debt that remained
outstanding from the American Revolution. The debt, expressed as a
percentage of national economic output, was at a level that the nation would
not exceed until the emergence of the massive debt associated with World
War II. On January 14, 1790, Washington's secretary of the treasury,
Alexander Hamilton, issued his Report on the Public Credit to meet this
financial challenge. Hamilton's plan called on all holders of depreciated
certificates of indebtedness to exchange them at full face value for
government bonds bearing a moderate rate of interest. The federal
government would assume responsibility for all Revolutionary War debt,
including the remaining debt of the states. The debt would be refunded
through a complex sinking fund provision that provided creditors
inducements and options for accepting obligations bearing a lower rate of
interest. The debt that hung over the new country as a burden and source of
doubt and weakness would be transformed into an instrument of strength
and stability. “A national debt, if it is not excessive, will be to us a national
blessing,” Hamilton predicted.
On December 14 of the same year Hamilton presented to Congress the
Report on a National Bank that outlined the means by which a debt
regarded as a curse would become a blessing. Hamilton proposed federal
incorporation of a privately owned bank that he patterned on the Bank of
England. The federally chartered bank would have exclusive privileges that

Banks and Politics During the Progressive Era (RLE Banking and Finance) by Richard T McCulley (2012-05-25) by Richard T. McCulley