shot banking

shot banking - OPINION A Short Banking History of the...

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OPINION A Short Banking History of the United States Why our system is prone to panics. By JOHN STEELE GORDON October 10, 2008 We are now in the midst of a major financial panic. This is not a unique occurrence in American history. Indeed, we've had one roughly every 20 years: in 1819, 1836, 1857, 1873, 1893, 1907, 1929, 1987 and now 2008. Many of these marked the beginning of an extended period of economic depression. The Granger Collection President Andrew Jackson destroying the Bank of the United States. Lithograph, 1828. How could the richest and most productive economy the world has ever known have a financial system so prone to periodic and catastrophic break down? One answer is the baleful influence of Thomas Jefferson. Jefferson, to be sure, was a genius and fully deserves his place on Mt. Rushmore. But he was also a quintessential intellectual who was often insulated from the real world. He hated commerce, he hated speculators, he hated the grubby business of getting and spending (except his own spending, of course, which eventually bankrupted him). Most of all, he hated banks, the symbol for him of concentrated economic power. Because he was the founder of an enduring political movement, his influence has been strongly felt to the present day. Consider central banking. A central bank's most important jobs are to guard the money supply -- regulating the economy thereby -- and to act as a lender of last resort to regular banks in times of financial distress. Central banks are, by their nature, very large and powerful institutions. They need to be to be effective.
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Jefferson's chief political rival, Alexander Hamilton, had grown up almost literally in a counting house, in the West Indian island of St. Croix, managing the place by the time he was in his middle teens. He had a profound and practical understanding of markets and how they work, an understanding that Jefferson, born a landed aristocrat who lived off the labor of slaves, utterly lacked. Hamilton wanted to establish a central bank modeled on the Bank of England. The government would own 20% of the stock, have two seats on the board, and the right to inspect the books at any time. But, like the Bank of England then, it would otherwise be owned by its stockholders. To Jefferson, who may not have understood the concept of central banking, Hamilton's idea was what today
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This note was uploaded on 02/19/2011 for the course AGEC 217 taught by Professor Deboer during the Fall '08 term at Purdue.

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shot banking - OPINION A Short Banking History of the...

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