History Book Club at the Homestead Museum

A Country of Vast Designs

Robert W. Merry

The Book Club is three short weeks away from its first meeting of 2016, and its second year. The Book Club at the Homestead Museum will start the year with the topic of "Politics and Presidents". The country is currently immersed in a seemingly never-ending Presidential campaign with loud, vulgar candidates launching misleading and inaccurate charges against fellow candidates. Candidates are making strategic alliances, raising money and introducing bills that could never become law. All this is happening as part of our countries tradition of electing its President from the beginning.

One of candidate Polk's promises was to reestablish the independent treasury system. This system provided that government funds remain within the Treasury's own buildings and that payments by and to the government were to made in specie, i.e., gold or silver. This system essentially remained in effect until the Panic of 1907 resulted in the creation of the Federal Reserve System.

From the beginning of our nation to current days, political factions have debated the role of the federal government in managing both its finances as well as managing the country's economy. The nation's first Secretary of the Treasury Alexander Hamilton was a leading proponent of a strong federal government. He proposed to consolidate national and state debts, to create a national bank modeled after the Bank of England, to establish a mint, to set up a revenue cutter service (now the Coast Guard), and to tax whiskey (a proximate cause of the Whiskey Rebellion).

The Bank of North America, chartered long before George Washington was inaugurated, became the first central bank of what would become the United States. It was succeeded by the First Bank of the United States as Alexander Hamilton successfully achieved one of his objectives as Treasury Secretary. One of the First Bank's objective was to create a common currency. Thomas Jefferson objected to Hamilton's financial program, stating that Hamilton's financial system was designed "to exclude popular understanding and inquiry"... and " as a machine for the corruption of the legislature". The charter for the First Bank expired in 1811 and was followed by the Second Bank of the United States.

The Second Bank was chartered for twenty years on from February 1816, with the federal government as the largest stockholder. The Second Bank was the exclusive agent for the federal government. So the federal government was its largest customer as well as its largest shareholder. It was in fact a national bank.

The charter for the Second Bank came up for renewal during the Presidency of Andrew Jackson, a strong opponent of a central bank. He succeeded in defeating attempts to renew the charter and the Second Bank, like the First Bank, became a private institution. Shortly thereafter, the Panic of 1837 occurred due to some degree from a shortage of hard currency, exacerbated by the lack of a central bank that could provide liquidity.

All this history set the stage for James Polk and his plan for an independent treasury. This system also had its problem. "In periods of prosperity, revenue surpluses accumulated in the Treasury, reducing hard money circulation, tightening credit, and restraining inflation of trade and production. In periods of depression and panic, when banks suspended specie payments and hard money was hoarded, the government’s insistence on being paid in specie tended to aggravate economic difficulties by limiting the amount of specie available for private credit."

This system presented problems during the Civil War when federal expenditures skyrocketed. It also failed to stop depressions, or panics as they were known. Panics in the 19th Century, after Polk, occurred in 1857, 1873, 1884 and 1893. The Coinage Act of 1873 placed the United States on the gold standard and depressed the price of silver and related stocks in silver mines. This cause the failure of the Bank of California, which in turn caused the ultimate demise of the Temple and Workman Bank.

We hope this bit of history will encourage you to read the book and to attend our Book Club discussion on Friday, February 5 at 10:00 AM at the Homestead Museum.