More on the history of United States banking and currency here. This is a many part series on the history of United States currency, markets, banks, and industrialization.In the accepted, and it must be added, far from inspired view of the monetary history of the United States, the years after 1832 were deplorable. Free banking, the resulting bank failures, then greenbacks, agitation for more greenbacks and the pressure, partly successful, for the coinage of cheap silver combined with the reoccurrence of panic to make the financial system of the United States, as Andrew Carnegie held, “the worst in the civilized world.”
Yet not everything could have been wrong. For those who spoke most to disparagingly of the monetary aberrations of the United States in the last century spoke always admiringly and sometimes a statically of the nation’s economic development. Nothing like it had ever been seen before. One of two things must be true. The monetary arrangements must have had some redeeming aspect. Or else they were exceptionally unimportant.
In a more serious and slightly deeper view, the hundred years from 1832 on or ones of basic compromise. There existed, in effect, a duel monetary system. Each of the parts fitted the needs or predilections of the part of the country or economy that it served. Between the parts was an uneasy coexistence interrupted by vocational conflict. Peace was based, in the main, on the inability of each side to destroy the system favored by the other. On each side this incapacity was the source of much righteous regret.
For the growing economy, trading and creditor community, mostly of the East but as always with the passing decades extending its influence west and south, the arrangement provided a basic hard money – gold and silver. And for this community, first understate, then under federal regulation, there were increasingly reliable banks – banks with a firm disposition to redeem their notes and deposits in such hard money when asked. Bank notes and deposits had thus the full equivalent in purchasing power of gold and silver.
For the new parts of the country as they opened up, there was the right to create banks it will and there with the Notes and deposits that resulted from their loans. No central bank tested the ability of these banks to redeem their Notes; while there were state regulations specifically specifying the cash to be held in reserve against Notes and deposits, these were enforced with a light and gracious hand. In consequence, as civilization, or some approximation, came to an Indiana or Michigan crossroads in the 1830s or 1840s, so did a bank.
It’s Notes, when issued and loaned to a farmer to buy land, livestock, seed, feed, food or simple equipment, put him into business. If he and others prospered and paid off their loans, the banks survived. If he and others did not so prosper and pay, the bank failed, and someone – perhaps a local creditor, perhaps an Eastern supplier, was left holding the worthless notes. But some borrower’s from this bank were by now in business. Somewhere someone holding the notes had made an involuntary contribution to the winning of the West.
Continued in part two – see related posts below.
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