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Alexander Hamilton on Finance, Credit, and Debt

Author(s):Sylla, Richard
Cowen, David J.
Reviewer(s):McNamara, Peter

Published by EH.Net (November 2018)

Richard Sylla and David J. Cowen, Alexander Hamilton on Finance, Credit, and Debt. New York: Columbia University Press, 2018. xii + 346 pp. $30 (hardcover), ISBN: 978-0-231-18456-4.

Reviewed for EH.Net by Peter McNamara, School of Civic and Economic Thought and Leadership, Arizona State University.

“The effect of energy and system is to vulgar and feeble minds a kind of magic which they do not comprehend and thus they make false interpretation of the most obvious facts. The people of several parts of the state relieved and happy by the effects of the assumption execrate the measure with its authors to which they owe the blessing” (p. 289). So wrote Alexander Hamilton in his “Defense of the Funding System,” soon after resigning his post as the nation’s first Secretary of the Treasury. “The Defense” is one of a number of Hamilton’s economic writings that have not received the scholarly attention they deserve. The piece contains not only polemics and technical discussions of Hamilton’s financial program, it also contains a number of important philosophical reflections, rare in Hamilton’s writings, on the nature, especially the moral costs and benefits, of commercial societies. Richard Sylla, professor emeritus at the Stern School of Business at New York University and David J. Cowen, president and CEO of the Museum of American Finance have included the “Defense” in their new collection of Hamilton’s writings, Alexander Hamilton on Finance, Credit, and Debt.

In addition to drawing attention to neglected documents, Sylla and Cowen’s broader goal with this volume is to create a kind of Hamiltonian primer on public finance, to explain its magic to “citizens, financiers, and policy makers” (p. 322). To this end, they have brought together writings from across Hamilton’s career beginning with the young soldier thinking through the political and financial woes of the would-be new republic. In an effort to make Hamilton’s ideas more accessible, Sylla and Cowen have engaged in a drastic pruning of Hamilton’s voluminous, sometimes prolix output and have modernized spelling and punctuation. By my rough count, they have trimmed over 100,000 words, almost 60 percent of the original documents. The result is a unique, highly readable, and very useful collection of Hamilton’s writings on political economy, broadly understood. By including documents that are usually overlooked, they also give us a fuller picture of Hamilton.

Hamilton displayed a remarkable consistency in his economic thinking over the years. As noted, he began to think through the American situation while on Washington’s staff and quickly identified the most important problems. For solutions, he looked to the Dutch and British examples for guidance and to writers such as David Hume, James Steuart, Malachy Postlethwayt, and later Jacques Necker and Adam Smith. The lessons he learned were many but the key lesson, according to Sylla and Cowen, was that what the United States needed was a “financial revolution” of the kind the Dutch and British had experienced. Sylla and Cowen acknowledge the contributions of their sometime collaborator Robert E. Wright of Augustana College in developing this particular interpretation of Hamilton and of America’s economic take-off. What specifically was needed? Based on his inquiries: a national bank, a sound currency, assumption of the states’ Revolutionary War debt, an efficient and equitable tax system, and most immediately a plan to restore the public credit of the United States, then a bankrupt nation. Hamilton and the United States benefited from being late arrivers because they were able to innovate on Dutch and British precedents. This is, for example, evident in Hamilton’s plan for a national bank. As the editors point out, the Bank of the United States differed from the Bank of England as regards its voting procedures, its partial government ownership, its species reserve requirements, and branch banking. Hamilton’s vision and recommendations went beyond matters of pure public finance. If it was to realize its potential, the American private sector economy needed modernization as well. Hamilton recommended the encouragement of manufactures through modest tariffs and a variety of other government incentives. According to Sylla and Cowen, however, the critical thing was to make capital readily available to entrepreneurs. The Bank of the United States was one way to do this. It could lend to entrepreneurs and it provided the states with an incentive to encourage the creation of banks and a model to emulate. The editors include documents relative to Hamilton’s drafting of charters for the Bank of New York and the Merchants Bank (also of New York).

Hamilton’s neglected final report on public credit of January 15, 1795 is included in the volume. A clearly irritated Madison characterized it as Hamilton’s “arrogant valedictory Report” (p. 231). Hamilton did remark that the nation’s finances were “prosperous beyond expectation” (p. 239), a judgement with which Madison took issue. This piece is most important because it clarifies Hamilton’s views on public debt which were misunderstood at the time and have often been since. In a 1781 letter to Robert Morris, Hamilton had written that “A national debt if it is not excessive will be to us a national blessing; it will be powerful cement of our union” (p. 45). Hamilton enemies believed that he saw maintaining a high level of public debt as a weapon for subverting republican government. They feared a class of permanent government pensioners living off the debt would support the government and in turn the government would be beholden to them. Hamilton’s final report made clear his views. He warned against high levels of public debt and given the inevitability of future government borrowing he advised that new debt should be incurred only if the means of extinguishing it were also created. With respect to the current debt he proposed a plan that would extinguish it in thirty years. As matters turned out, it was forty years until Andrew Jackson (much as he loathed the Hamiltonian system) could announce in 1835 that the debt had been paid off. This period, of course, included the War of 1812, which by itself more than doubled the national debt at the time.

Hamilton does not fit neatly into contemporary categories. Free market economists will have difficulties with some of Hamilton’s argument about trade and with his belief that funding the debt would add to the nation’s stock of “active capital.” Notwithstanding the success of Hamilton: An American Musical, contemporary progressives will find Hamilton’s enthusiastic embrace of business and modern finance off-putting to say the least. Nor, it must be emphasized, does Hamilton provide us with ready answers for today’s problems. During the 2008 financial crisis, would Hamilton have bailed out the banks or would he have provided relief to embattled home-owners? Or would he, given his remarkable inventiveness, have come up with some third option? We cannot know. That said, there is much to learn from this collection of writings by the man who more than any other of the time thought through the complex problems of securing American power and prosperity.

Peter McNamara is the author of Political Economy and Statesmanship: Smith, Hamilton and the Foundation of the Commercial Republic.

Copyright (c) 2018 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (November 2018). All EH.Net reviews are archived at

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):North America
Time Period(s):18th Century

Jefferson’s Treasure: How Albert Gallatin Saved the New Nation from Debt

Author(s):May, Gregory
Reviewer(s):Wright, Robert E.

Published by EH.Net (November 2018)

Gregory May, Jefferson’s Treasure: How Albert Gallatin Saved the New Nation from Debt. Washington, DC: Regnery History, 2018. xxxii + 512 pp. $35 (hardcover), ISBN: 978-1-62157-645-7.

Reviewed for EH.Net by Robert E. Wright, Thomas Willing Institute, Augustana University.

International tax expert Gregory May’s entertainingly written birth-to-death biographical treatment of U.S. Treasury Secretary Albert Gallatin (1761-1849) covers Gallatin’s public career and private life in ten chapters and 300 pages of chronological narrative. Despite make passing reference to concepts like regulatory capture, May did not try to write a biography that would pass muster with economic historians. While generalists will find much merit in the book, economic historians, at least those who do not place a heavy premium on newness, have no clear reason to favor this Gallatin biography over those of Henry Adams (J. B. Lippincott, 1879) or Raymond Walters (Macmillan, 1957). Specialists interested in the history of the American System, higher education, Indian affairs, diplomacy, and so forth, also will find little new here.

Like most biographies, this one covers far more ground than can be summarized in even a long review. Much of it provides general context of only passing interest to economic historians. The most important background discussions justify the author’s views of Gallatin’s motivations when Gallatin himself remained silent on important issues, like why he never took a strong stand against slavery or why he emigrated from Geneva to the United States, in 1780 of all years. The political and social contextualization of the latter conundrum runs a half dozen pages, but the economic depression and monetary chaos gripping America in 1780 merits only four general sentences. Personal details of Gallatin’s life, like the tragic death of his first wife after just a few months of marriage, consume many more pages. Such scenes render the book compelling reading for general consumption but seem of minimal value to economic historians.

The conceit of the book’s subtitle, that Gallatin saved America from its debt, is untenable, as the author himself seems to concede. As Bill White showed in America’s Fiscal Constitution: Its Triumph and Collapse (PublicAffairs, 2014), Alexander Hamilton, not Gallatin, established the fiscal constitution that provided the basic policy frame by which the United States managed its national debt from the Washington administration until at least the Nixon years. When David Cowen (mistakenly cited as Cohen) and I published a prosopography of early U.S. financiers (Financial Founding Fathers, Chicago, 2006), we styled Gallatin “the savior,” not because he saved the early nation from its debt but because he protected Hamilton’s fiscal constitution from Thomas Jefferson’s palpably suboptimal financial policy preferences.

May sometimes ignores or distorts evidence that runs counter to his case. For example, he pushes the Jeffersonian view that ownership of U.S. debt securities in the 1790s was highly concentrated among a few hundred wealthy men in the big Northern seaports. In support of that tired canard, he cites several old studies based more on innuendo than data, and also my own One Nation Under Debt: Hamilton, Jefferson, and the History of What We Owe (McGraw-Hill, 2008), which most emphatically shows the opposite (The dataset undergirding the book is stored here on EH.NET: Federal bond registers reveal that considerable numbers of women, rural folks, and Southerners owned federal bonds, which traded prodigiously in secondary securities markets that were remarkably liquid and integrated given the technology of the era (on which point see and my book based on it, The Wealth of Nations Rediscovered [Cambridge, 2002]). May even disappoints on tax policy because he fails to explain that the infamous whiskey tax, resistance to which helped to launch Gallatin’s political career, was not primarily designed to increase federal revenue but rather was meant to offset the protection granted domestic distillers by the relatively high tax on imported spirits, which of course leveraged liquor’s notorious inelasticity.

This biography, like many, sometimes gives too much credit to the protagonist, for example presenting Gallatin as a major force in the formation of the Philadelphia-Lancaster Turnpike Company when his actual role was limited to some committee work in the Pennsylvania legislature. Similarly, the author almost invariably simply summarizes Gallatin’s policy pamphlets, insinuating that they were brilliant without subjecting them to informed critique. He does make clear, however, that Gallatin’s Eurocentric worldview rendered his work on Indian language and culture antiquarian, in the racist sense of the term.

Errors of omission and commission, too numerous and tedious to recount here, stand as solemn testament to the fact that penning the biographies of major political and policy figures is difficult business, especially for authors with no formal academic research training. The errors, though, signal only the writing of a non-specialist. To make up for his lack of formal credentials, May read extremely widely but, alas, with insufficient expert guidance. Two hundred pages of citations seem impressive at first glance but May often misses the most important citations and contextualizations, and not just in economic history. He misses, for example, Joanne Freeman’s work when discussing “affairs of honor” and provides readers with no context for the “rough music” or charivari that Federalists in Reading, Pennsylvania subjected Gallatin to one night after he became the opposition leader in the U.S. House of Representatives. Authors must be selective but not mentioning or explaining the ubiquity of that transplanted European social practice could be construed as authorial ignorance, another example of overplaying Gallatin’s importance, or a snide insinuation that the midnight revelers were Federalist extremists.

On that last point, it is unsurprising that Regnery History, which recently published a book that claims that Hamilton “screwed up America,” published this book, which gels with a certain strain in ahistorical libertarian scholarship that vilifies Hamilton, largely unfairly, on three important points. First, May regurgitates the claim that Hamilton advocated protective tariffs, an ancient but mistaken assertion demolished, yet again, by Richard Sylla and David Cowen in their Alexander Hamilton on Finance, Credit and Debt (Columbia University Press, 2018), and Sylla in his illustrated biography of Hamilton (Sterling, 2016). Hamilton understood Harberger triangles more than a century before Arnold was born!

Second, Hamilton wanted a vigorous federal government, not a large one, and he was a debt realist, not an advocate of a forever growing national debt. May, like others motivated to exaggerate Hamilton’s views on government size, conveniently leaves off the “if it is not excessive” (page 66) qualifying clause from Hamilton’s claim that the national debt could be “a national blessing.” Hamilton believed that population and economic growth would ease the nation’s real debt burden over time without unduly restraining government or taxing the private sector. Gallatin, by contrast, believed that all government debt was bad and should be paid off as quickly as possible, even at the expense of economic growth and national defense. Both policies are better than those of policymakers who think the debt can balloon to any size because we “owe it to ourselves” and can “always print money to service it,” but selectively quoting Hamilton to associate him with that group needlessly perverts the historical record. All this has been exhaustively explained by Richard Salsman in The Political Economy of Debt: Three Centuries of Theory and Evidence (Edward Elgar, 2017) and the books by Richard Sylla and David Cowen referenced above.

Third, although typographically the difference between adopting and adapting the British financial system is only one letter, interpretively it is huge. To play up his protagonist, May claims that Hamilton only did the former, on the basis of a comment made by Gideon Granger, Jefferson’s postmaster general and otherwise an insignificant politician and thinker. Several scholars, including myself and Sylla, have explained in detail that adaptation is a more apt characterization of Hamilton’s fiscal and financial policies.

In sum, read this well-crafted biography for general interest but not for new insights into the early U.S. financial system.

Robert E. Wright is the Nef Family Chair of Political Economy at Augustana University and the coauthor, with Bucknell’s Jan Traflet, of a forthcoming biography of NBC radio financial reporter and corporate governance “gadfly” Wilma Soss.

Copyright (c) 2018 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (November 2018). All EH.Net reviews are archived at

Subject(s):Government, Law and Regulation, Public Finance
Geographic Area(s):North America
Time Period(s):18th Century
19th Century

Origins of Commercial Banking in the United States, 1781-1830

Robert E. Wright, University of Virginia

Early U.S. commercial banks were for-profit business firms, usually structured as joint-stock companies. Many, but by no means all, obtained corporate charters from their respective state legislatures. Although politically controversial, commercial banks, the number and assets of which grew quickly after 1800, played a key role in early U.S. economic growth.1 Commercial banks, savings banks, insurance companies and other financial intermediaries helped to fuel growth by channeling wealth from savers to entrepreneurs. Those entrepreneurs used the loans to increase the profitability of their businesses and hence the efficiency of the overall economy.

Description of the Early Commercial Banking Business

As financial intermediaries, commercial banks pooled the wealth of a large number of savers and lent fractions of that pool to a diverse group of enterprising business firms. The best way to understand how early commercial banks functioned is to examine a typical bank balance sheet.2 Banks essentially borrowed wealth from their liability holders and re-lent that wealth to the issuers of their assets. Banks profited from the difference between the cost of their liabilities and the net return from their assets.

Assets of a Typical Commercial Bank

A typical U.S. commercial bank in the late eighteenth and early nineteenth centuries owned assets such as specie, the notes and deposits of other banks, commercial paper, public securities, mortgages, and real estate. Investment in real estate was minimal, usually simply to provide the bank with an office in which to conduct business. Commercial banks used specie, i.e. gold and silver (usually minted into coins but sometimes in the form of bars or bullion), and their claims on other banks (notes and/or deposits) to pay their creditors (liability holders). They also owned public securities like government bonds and corporate equities. Sometimes they owned a small sum of mortgages, long-term loans collateralized by real property. Most bank assets, however, were discount loans collateralized by commercial paper, i.e. bills of exchange and promissory notes “discounted” at the bank by borrowers.

Discount Loans Described

Most bank loans were “discount” loans, not “simple” loans. Unlike a simple loan, where the interest and principal fall due when the loan matures, a discount requires only the repayment of the principal on the due date. That is because the borrower receives only the discounted present value of the principal at the time of the loan, not the full principal sum.

For example, with a simple loan of $100 at 6 percent interest, of exactly one year’s duration, the borrower receives $100 today and must repay the lender $106 in one year. With a discount loan, the borrower repays $100 at the end of the year but receives only $94.34 today.3

Commercial Bank Liabilities

Commercial banks acquired wealth to purchase assets by issuing several types of liabilities. Most early banks were joint-stock companies, so they issued equities (“stock”) in an initial public offering (IPO). Those common shares were not redeemable. In other words, stockholders could not demand that the bank exchange their shares for cash. Stockholders who wished to recoup their investments could do so only by selling their shares to other investors in the secondary “stock” market. Because its common shares were irredeemable, a bank’s “capital stock” was its most certain source of funds.

Holders of other types of bank liabilities, including banknotes and checking deposits, could redeem their claims during the issuing bank’s open hours of operation, which were typically four to six hours a day, Monday through Saturday. A holder of a deposit liability could “cash out” by physically withdrawing funds (in banknotes or specie) or by writing a check to a third party against his or her deposit balance. A holder of a banknote, an engraved promissory note payable to the bearer very similar to today’s Federal Reserve notes,4 could physically visit the issuing bank to redeem the sum printed on the note in specie or other current funds, at the holder’s option. Or, a banknote holder could simply use the notes as currency, to make retail purchases, repay debts, make loans, etc.

After selling its shares to investors, and perhaps attracting some deposits, early banks would begin to accept discount loan applications. Successful applicants would receive the loan as a credit in their checking accounts, in banknotes, in specie, or in some combination thereof. Those banknotes, deposits, and specie traveled from person to person to make purchases and remittances. Eventually, the notes and deposits returned to the bank of issue for payment.

Balance Sheet Management

Early banks had to manage their balance sheets carefully. They “failed” or “broke,” i.e. became legally insolvent, if they could not meet the demands of liability holders with prompt specie payment. Bankers, therefore, had to keep ample amounts of gold and silver in their banks’ vaults in order to remain in business. Because specie paid no interest, however, bankers had to be careful not to accumulate too much of the precious metals lest they sacrifice the bank’s profitability to its safety. Interest-bearing public securities, like U.S. Six Percent bonds, often served as “secondary reserves” that generated income but that bankers could quickly sell to raise cash, if necessary.

When bankers found that their reserves were declining too precipitously they slowed or stopped discounting until reserve levels returned to safe levels. Discount loans were not callable.5 Bankers therefore made discounts for short terms only, usually from a few days to six months. If the bank’s condition allowed, borrowers could negotiate a new discount to repay one coming due, effectively extending the term of the loan. If the bank’s condition precluded further extension of the loan, however, borrowers had to pay up or face a lawsuit. Bankers quickly learned to stagger loan due dates so that a steady stream of discounts was constantly coming up for renewal. In that way, bankers could, if necessary, quickly reduce the outstanding volume of discounts by denying renewals.

Reduction of Information Asymmetry

Early bankers maintained profitability by keeping losses from defaults less than the gains from interest revenues.6 They kept defaults at an acceptably low level by reducing what financial theorists call “information asymmetry.” The two major types of information asymmetry are adverse selection, which occurs before a contract is made, and moral hazard, which occurs after contract completion. The information is asymmetrical or unequal because loan applicants and borrowers naturally know more about their creditworthiness than lenders do. (More generally, sellers know more about their goods and services than buyers do.) Bankers, in other words, must create information about loan applicants and borrowers so that they can assess the risk of default and make a rational decision about whether to make or to continue a loan.

Adverse Selection

Adverse selection arises from the fact that risky borrowers are more eager for loans, especially at high interest rates, than safe borrowers. As Adam Smith put it, interest rates “so high as eight or ten per cent” attract only “prodigals and projectors, who alone would be willing to give this high interest.” “Sober people,” he continued, “who will give for the use of money no more than a part of what they are likely to make by the use of it, would not venture into the competition.”

Adverse selection is also known as the “lemons problem” because a classic example of it occurs in the unintermediated market for used cars. Potential buyers have difficulty discerning good cars, the “peaches,” from breakdown-prone cars, the “lemons.” Sellers naturally know whether their cars are peaches or lemons. So information about the car is asymmetrical — the seller knows the true value but the buyer does not. Potential buyers quite rationally offer the average market price for cars of a particular make, model, and mileage. An owner of a peach naturally scoffs at the average offer. A lemon owner, on the other hand, will jump at the opportunity to unload his heap for more than its real value. If we recall that borrowers are essentially sellers of securities called loans, the adverse selection problem in financial markets should be clear. Lenders that do not reduce information asymmetry will purchase only lemon-like loans because their offer of a loan at average interest will appear too dear to good borrowers but will look quite appealing to risky “prodigals and projectors.”

Moral Hazard

Moral hazard arises from the fact that people are basically self-interested. If given the opportunity, they will renege on contracts by engaging in risky activities with, or even outright stealing, lenders’ wealth. For instance, a borrower might decide to use a loan to try his luck at the blackjack table in Atlantic City rather than to purchase a computer or other efficiency-increasing tool for his business. Another borrower might have the means to repay the loan but default on it anyway so that she can use the resources to take a vacation to Aruba.

In order to reduce the risk of default due to information asymmetry, lenders must create information about borrowers. Early banks created information by screening discount applicants to reduce adverse selection and by monitoring loan recipients and requiring collateral to reduce moral hazard. Screening procedures included probing the applicant’s credit history and current financial condition. Monitoring procedures included the evaluation of the flow of funds through the borrower’s checking account and the negotiation of restrictive covenants specifying the uses to which a particular loan would be put. Banks could also require borrowers to post collateral, i.e. property they could seize in case of default. Real estate, slaves, co-signers, and financial securities were common forms of collateral.

A Short History of Early American Commercial Banks

Colonial Experiments

Colonial America witnessed the formation of several dozen “banks,” only a few of which were commercial banks. Most of the colonial banks were “land banks” that made mortgage loans. Additionally, many of them were government agencies and not businesses. All of the handful of colonial banks that could rightly be called commercial banks, i.e. that discounted short-term commercial paper, were small and short-lived. Some, like that of Alexander Cummings, were fraudulent. Others, like that of Philadelphia merchants Robert Morris and Thomas Willing, ran afoul of English laws and had to be abandoned.

The First U.S. Commercial Banks

The development of America’s commercial banking sector, therefore, had to await the Revolution. No longer blocked by English law, Morris, Willing, and other prominent Philadelphia merchants moved to establish a joint-stock commercial bank. The young republic’s shaky war finances added urgency to the bankers’ request to charter a bank, a request that Congress and several state legislatures soon accepted. By 1782, that new bank, the Bank of North America, had granted a significant volume of loans to both the public and private sectors. New Yorkers, led by Alexander Hamilton, and Bostonians, led by William Phillips, were not to be outdone and by early 1784 had created their own commercial banks. By the end of the eighteenth century, mercantile leaders in over a dozen other cities had also formed commercial banks. (See Table 1.)

Table 1:
Names, Locations, Charter or Establishment Dates, and Authorized Capitals of the First U.S. Commercial Banks, 1781-1799

Name Location Year of Charter (Year of Establishment) Authorized Capital (in U.S. dollars)
Bank of North America Philadelphia, Pennsylvania 1781*/1782/1786** $400,000 (increased to $2,000,000 in 1787)
The Bank of New York Manhattan, New York (1784) 1791 $1,000,000
The Massachusetts Bank Boston, Massachusetts 1784 $300,000
The Bank of Maryland Baltimore, Maryland 1790 $300,000
The Bank of the United States Philadelphia, Pennsylvania 1791* $10,000,000
The Bank of Providence Providence, Rhode Island 1791 $500,000
New Hampshire Bank Portsmouth, New Hampshire 1792 $200,000
The Bank of Albany Albany, New York 1792 $260,000
Hartford Bank Hartford, Connecticut 1792 $100,000
Union Bank New London, Connecticut 1792 $50,000-100,000
Union Bank Boston, Massachusetts 1792 $400,000-800,000
New Haven Bank New Haven, Connecticut 1792 $100,000 (increased to $400,000 in 1795)
Bank of Alexandria Alexandria, Virginia 1792 $150,000 (increased to $500,000 in 1795)
Essex Bank Salem, Massachusetts (1792) 1799 $100,000-400,000
Bank of Richmond Richmond, Virginia (1792) n/a
Bank of South Carolina Charleston, South Carolina (1792) 1801 $200,000
Bank of Columbia Hudson, New York 1793 $160,000
Bank of Pennsylvania Philadelphia, Pennsylvania 1793 $3,000,000
Bank of Columbia Washington, D.C. 1793 $1,000,000
Nantucket Bank Nantucket, Massachusetts 1795 $40,000-100,000
Merrimack Bank Newburyport, Massachusetts 1795 $70,000-150,000
Middletown Bank Middletown, Connecticut 1795 $100,000-400,000
Bank of Baltimore Baltimore, Maryland 1795 $1,200,000
Bank of Rhode Island Newport, Rhode Island 1795 $500,000
Bank of Delaware Wilmington, Delaware 1796 $500,000
Norwich Bank Norwich, Connecticut 1796 $75,000-200,000
Portland Bank Portland, Maine 1799 $300,000
Manhattan Company New York, New York 1799# $2,000,000

Source: Fenstermaker (1964); Davis (1917)

* = National charter.
** = The Bank of North America gained a second charter in 1786 after its original Pennsylvania state charter was revoked. Pennsylvania, Massachusetts, and New York chartered the bank in 1782.
# = This firm was chartered as a water utility company but began banking operations almost immediately.

Banking and Politics

The first U.S. commercial banks helped early national businessmen to overcome a “crisis of liquidity,” a classic postwar liquidity crisis caused by a shortage of cash, and an increased emphasis on the notion that “time is money.” Many colonists had been content to allow debts to remain unsettled for years and even decades. After experiencing the devastating inflation of the Revolution, however, many Americans came to see prompt payment of debts and strict performance of contracts as virtues. Banks helped to condition individuals and firms to the new, stricter business procedures.

Early U.S. commercial banks had political roots as well. Many Revolutionary elites saw banks, and other modern financial institutions, as a means of social control. The power vacuum left after the withdrawal of British troops and leading Loyalist families had to be filled, and many members of the commercial elite wished to fill it and to justify their control with an ideology of meritocracy. By providing loans to entrepreneurs based on the merits of their businesses, and not their genealogies, banks and other financial intermediaries helped to spread the notion that wealth and power should be allocated to the most able members of post-Revolutionary society, not to the oldest or best groomed families.

Growth of the Commercial Banking Sector

After 1800, the number, authorized capital, and assets of commercial banks grew rapidly. (See Table 2.) As early as 1820, the assets of U.S. commercial banks equaled about 50 percent of U.S. aggregate output, a figure that the commercial banking sectors of most of the world’s nations had not achieved by 1990.

Table 2:
Numbers, Authorized Capitals, and Estimated Assets of Incorporated U.S. Commercial Banks, 1800-1830

Year No. Banks Authorized Capital (in millions $U.S.) Estimated Assets (in millions $U.S.)
1800 29 27.42 49.74
1801 33 29.17 52.66
1802 36 30.03 50.00
1803 54 34.90 58.69
1804 65 41.17 67.07
1805 72 48.87 82.39
1806 79 51.34 94.11
1807 84 53.43 90.47
1808 87 51.49 92.04
1809 93 55.19 100.23
1810 103 66.19 108.87
1811 118 76.29 142.65
1812 143 84.49 161.89
1813 147 87.00 187.23
1814 202 110.02 233.53
1815 212 115.23 197.16
1816 233 158.98 270.30
1817 263 172.84 316.47
1818 339 195.31 331.41
1819 342 195.98 349.66
1820 328 194.60 341.42
1821 274 181.23 345.93
1822 268 177.53 307.86
1823 275 173.67 283.10
1824 301 185.75 328.16
1825 331 191.08 347.65
1826 332 190.98 349.60
1827 334 192.51 379.03
1828 356 197.41 344.56
1829 370 201.06 349.72
1830 382 205.40 403.45

Sources: For total banks and authorized bank capital, see Fenstermaker (1965). I added the Bank of the United States and the Second Bank of the United States to his figures. I estimated assets by multiplying the total authorized capital by the average ratio of actual capital to assets from a large sample of balance sheet data.

Commercial banks caused considerable political controversy in the U.S. As the first large, usually corporate, for-profit business firms, banks took the brunt of reactionary “agrarian” rhetoric designed to thwart, or at least slow down, the post-Revolution modernization of the U.S. economy. Early bank critics, however, failed to see that their own reactionary policies caused or exacerbated the supposed evils of the banking system.

For instance, critics argued that the lending decisions of early banks were politically-motivated and skewed in favor of rich merchants. Such was indeed the case. Overly stringent laws, usually championed by the agrarian critics themselves, forced bankers into that lending pattern. Many early bank charters forbade banks to raise additional equity capital or to increase interest rates above a low ceiling or usury cap, usually 6 percent per year. When market interest rates were above the usury cap, as they almost always were, banks were naturally swamped with discount applications. Forbidden by law to increase interest rates or to raise additional equity capital, banks were forced to ration credit. They naturally lent to the safest borrowers, those most known to the bank and those with the highest wealth levels.

Early banks were extremely profitable and therefore aroused considerable envy. Critics claimed that bank dividends greater than six percent were prima facie evidence that banks routinely made discounts at illegally high rates. In fact, banks earned more than they charged on discounts because they lent out more, often substantially more, than their capital base. It was not unusual, for example, for a bank with $1,000,000 equity capital to have an average of $2,000,000 on loan. The six percent interest on that sum would generate $120,000 of gross revenue, minus say $20,000 for operating expenses, leaving $100,000 to be divided among stockholders, a dividend of ten percent. More highly leveraged banks, i.e. banks with higher asset to capital ratios, could earn even more.

Early banks also caused considerable political controversy when they attempted to gain a charter, a special act of legislation that granted corporate privileges such as limited stockholder liability, the ability to sue in courts of law in the name of the bank, etc. Because early banks were lucrative, politicians and opposing interest groups fought each other bitterly over charters. Rival commercial factions sought to establish the first bank in emerging commercial centers while rival political parties struggled to gain credit for establishing new banking facilities. Politicians soon discovered that they could extract overt bonuses, taxes, and even illegal bribes from bank charter applicants. Again, critics unfairly blamed banks for problems over which bankers had little control.

The Economic Importance of Early U.S. Commercial Banks

Despite the efforts of a few critics, most Americans rejected anti-bank rhetoric and supported the controlled growth of the commercial banking sector. They did so because they understood what some modern economists do not, namely, that commercial banks helped to increase per capita aggregate output. Unfortunately, the discussion of banks’ role in economic growth has been much muddied by monetary issues. Banknotes circulated as cash, just as today’s Federal Reserve notes do. Most scholars, therefore, have concentrated on early banks’ role in the monetary system. In general, early banks caused the money supply to be procyclical. In other words, they made the money supply expand rapidly during business cycle “booms,” thereby causing inflation, and they made the money supply contract sharply during recessions, thereby causing ruinous price deflation.

The economic importance of early banks, therefore, lies not in their monetary role but in their capacity as financial intermediaries. At first glance, intermediation may seem a rather innocuous process — lenders are matched to borrowers. Upon further inspection, however, it is clear that intermediation is a crucial economic process. Economies devoid of financial intermediation, like those of colonial America, grow slowly because firms with profitable ideas find it difficult to locate financial backers. Without intermediaries, search costs, i.e. the costs of finding a counterparty, and information creation costs, i.e. the costs of reducing information asymmetry (adverse selection and moral hazard), are so high that few loans are made. Profitable ideas cannot be implemented and the economy stagnates.

Intermediaries reduce both search and information costs. Rather than hunt blindly for counterparties, for instance, both savers and entrepreneurs needed only to find the local bank, a major reduction in search costs. Additionally, banks, as large, specialized lenders, were able to reduce information asymmetry more efficiently than smaller, less-specialized lenders, like private individuals.

By lowering the total cost of borrowing, commercial banks increased the volume of loans made and hence the number of profitable ideas that entrepreneurs brought to fruition. Commercial banks, for instance, allowed firms to implement new technologies, to increase labor specialization, and to take advantage of economies of scale and scope. As those firms grew more profitable, they created new wealth, driving economic growth.

Additional Reading

Important recent books about early U.S. commercial banking include:

Bodenhorn, Howard. A History of Banking in Antebellum America: Financial Markets and Economic Development in an Era of Nation-Building. New York: Cambridge University Press. 2000.

Cowen, David J. The Origins and Economic Impact of the First Bank of the United States, 1791-1797. New York: Garland Publishing, 2000.

Lamoreaux, Naomi. Insider Lending: Banks, Personal Connection, and Economic Development in Industrial New England. New York: Cambridge University Press, 1994.

Wright, Robert E. Origins of Commercial Banking in America, 1750-1800. Lanham, MD: Rowman & Littlefield. 2001.

Important recent overviews of the wider early U.S. financial sector are:

Perkins, Edwin J. American Public Finance and Financial Services, 1700-1815. Columbus: Ohio State University Press, 1994.

Sylla, Richard. “U.S. Securities Markets and the Banking System, 1790-1840.” Federal Reserve Bank of St. Louis Review 80 (1998): 83-104.

Wright, Robert. The Wealth of Nations Rediscovered: Integration and Expansion in American Financial Markets, 1780-1850. New York: Cambridge University Press. 2002.

Classic histories of early U.S. banks and banking include:

Cleveland, Harold van B., Thomas Huertas, et al. Citibank, 1812-1970. Cambridge: Harvard University Press, 1985.

Davis, Joseph S. Essays in the Earlier History of American Corporations. New York: Russell & Russell, 1917.

Eliason, Adolph O. “The Rise of Commercial Banking Institutions in the United States.” Ph.D., diss. University of Minnesota, 1901.

Fenstermaker, J. Van. The Development of American Commercial Banking: 1782-1837. Kent,Ohio: Kent State University, 1965.

Fenstermaker, J. Van and John E. Filer. “Impact of the First and Second Banks of the United States and the Suffolk System on New England Bank Money: 1791-1837.” Journal of Money, Credit and Banking 18 (1986): 28-40.

Gras, N. S. B. The Massachusetts First National Bank of Boston, 1784-1934. Cambridge: Harvard University Press, 1937.

Green, George. Finance and Economic Development in the Old South: Louisiana Banking, 1804-1861. Stanford: Stanford University Press, 1972.

Hammond, Bray. Banks and Politics in America, from the Revolution until the Civil War. Princeton: Princeton University Press, 1957.

Hedges, Joseph Edward. Commercial Banking and the Stock Market Before 1863. Baltimore: Johns Hopkins Press, 1938.

Hunter, Gregory. The Manhattan Company: Managing a Multi-Unit Corporation in New York, 1799-1842. New York: Garland Publishing, 1989.

Redlich, Fritz. The Molding of American Banking: Men and Ideas. New York. Johnson Reprint Corporation, 1968.

Schweikart, Larry. Banking in the American South from the Age of Jackson to Reconstruction. Baton Rouge: Louisiana State University Press, 1987.

Smith, Walter Buckingham. Economic Aspects of the Second Bank of the United States. Cambridge: Harvard University Press, 1953.

Wainwright, Nicholas B. History of the Philadelphia National Bank: A Century and a Half of Philadelphia Banking, 1803-1953. Philadelphia: Philadelphia National Bank, 1953.

1 Which is to say that they increased real per capita aggregate output. Aggregate output is the total dollar value of goods and services produced in a year. It can be measured in different ways, the two most widely used of which are Gross National Product (GNP) and Gross Domestic Product (GDP). The term per capita refers to the total population. Aggregate output may increase simply because of additional people, so economists must take population growth into consideration. Similarly, nominal aggregate output might increase simply because of price inflation. Real aggregate output means output adjusted to account for price changes (inflation or deflation). Real per capita aggregate output, therefore, measures the economy’s “size,” adjusting for changes in population and prices.

2 A balance sheet is simply a summary financial statement that lists what a firm owns (its assets) as well as what it owes (its liabilities).

3 Early bankers used the formula for present value familiar to us today: PV = FV/(1+i)n where PV = present value (sum received today), FV = future value (principal sum), i = annual interest rate, and n = the number of compounding periods, which in this example is one. So, PV = 100/1.06 = 94.3396 or $94.34.


5 In other words, banks could not demand early repayment from borrowers.

6In order to maintain bank revenues, bankers are willing, under competitive conditions, to take some risks and therefore to suffer some defaults. For example, making a simple year-long loan for $100 at 10 percent per annum, if the banker determines that the borrower represents, say, only a 5 percent chance of default, is clearly superior to not lending at all and foregoing the $10 interest revenue. Early U.S. banks, however, rarely faced such risk-return tradeoffs. Because the supply of bank loans was inadequate to meet the huge demand for bank loans, and because banks were constrained by usury law from raising their interest rates higher than certain low levels, usually around 6 to 7 percent, bankers could afford to lend to only the safest risks. Early bankers, in other words, usually faced the problem of too many good borrowers, not too few.

Citation: Wright, Robert. “Origins of Commercial Banking in the United States, 1781-1830″. EH.Net Encyclopedia, edited by Robert Whaples. March 26, 2008. URL

The First Bank of the United States

David Cowen

Birth of the Bank

In February 1791, the First Bank of the United States (1791-1811) received a unique national charter for twenty years. Alexander Hamilton’s brainchild, a semi-public national bank, was a crucial component in the building of the early U.S. economy. The Bank prospered for twenty years and performed traditional banking functions in exemplary fashion. With a main office in Philadelphia and eight branches nationwide to serve its customers, the Bank’s influence stretched along the entire Atlantic seaboard from Boston to Charleston and Savannah and westward along the Gulf Coast to New Orleans.

Hamilton’s Broad Economic Plan

When the Treasury Department was created by an Act of Congress in September 1789, President George Washington rewarded Hamilton with the post of Secretary. Hamilton quickly became the nation’s leading economic figure. When Congress asked Hamilton to submit an economic plan for the country, he was well prepared. The Secretary delivered several monumental state papers that forged the financial system for the nation: The Report on Public Credit (January 9, 1790), The Report on the Bank (December 13, 1790), The Establishment of a Mint (January, 1791), and The Report on Manufactures (December 5, 1791). Hamilton’s reports outlined the strategies that were part of a comprehensive Federalist economic and financial program. They included a sinking fund to extinguish the national debt and an excise tax to be collected on all distilled liquors.

A key component of Hamilton’s economic plan for the country was the national Bank, an institution that would safeguard all pecuniary transactions. The Bank would not only stimulate the economy but also enhance the shaky credit of the government. The English financial system, particularly the Bank of England, provided an important model for Hamilton.

The Bank’s Funding and Privileges

The Report on the Bank explained that the national Bank would be chartered for twenty years, during which time the Congress would agree not to establish another national bank. The seed capital would be $10 million: $8 million from private sources, and $2 million from the government. The Bank would have the right to issue notes or currency up to $10 million. The government would also pledge that the notes of the Bank would be unique in that they were valid for payments to the United States. In short, the notes would be suitable for payment of taxes, a feature that would provide the Bank with a strong advantage over its competitors.

The national Bank would confer many benefits on the government including a ready source of loans, a principal depository for federal monies that were transferable from city to city without charge, and a clearing agent for payments on the national debt. The government, as the largest stockholder, would share in the profits, but have no direct participation in the management.

Debate over Establishment of the Bank

The Bank bill was introduced into Congress on December 13, 1790, passed the Senate on January 20, 1791, the House on February 8, 1791, and therefore was forwarded to President Washington for his signature. It was unclear whether Washington would sign the bill into law. Powerful forces led by James Madison, Thomas Jefferson and the Attorney General, Edmund Randolph, argued to Washington that the Constitution had not granted the government the power to incorporate a Bank and therefore he should not sign the bill.

Washington Accepts Hamilton’s View on Implied Powers

Washington showed Hamilton the opposition’s argument and asked him to prepare a document explaining why he should sign the bill. The pressure was therefore on Hamilton to produce a flawless retort. His reply to Washington has been christened as the benchmark of a broad interpretation of the Constitution. Hamilton turned the tables on his opposition. If Thomas Jefferson, James Madison and Edmund Randolph argued that the power to incorporate was not available unless explicitly prescribed by the Constitution, then Alexander Hamilton retorted that a power was not unavailable unless so stated in the Constitution. Washington accepted Hamilton’s logic and signed the bill on February 25, 1791 to create the national Bank.

Most important, however, was not the political infighting, but rather that Hamilton’s view holding that implied governmental powers were a viable part of the Constitution had carried the day. Hamilton had accomplished his aim: his detractors defeated; his economic approach adopted. In the ensuing years the Bank of the United States occupied center stage of the American financial system.

Life of the Bank

Initial Stock Offering

On July 4, 1791, in the largest initial stock offering the country had ever witnessed, investors displayed confidence in the new funding system by scooping up $8 million in Bank of United States stock with unprecedented alacrity. Many notable members of the Congress were purchasers. Prices of receipts for the right to buy stock (i.e. not the stock itself), know as scripts, were driven from an initial offering price of $25 to the unsustainable height of over $300, and then tumbled to $150 within days, causing alarm in the markets. Secretary Hamilton calmed the storm much as a modern central banker would have by using public money to directly purchase government securities. However, the script bubble led many to blame the Bank for such rabid speculations.

Bank Branches

In the fall of 1791 the new stockholders met in Philadelphia to choose board members and decide on rules and regulations. While the Bank would be headquartered in Philadelphia, the stockholders clamored for and received branches, with four opening in Baltimore, Boston, Charleston, and New York in 1792, and eventually four more in Norfolk (1800), Washington (1802), Savannah (1802) and New Orleans (1805). The branches were of great concern to the existing state banks, which viewed the national Bank as a competitive threat.

The Bank’s First President and Cashiers

Thomas Willing accepted the title of president of the Bank and remained in that position until 1807. Willing possessed strong credentials as he had been president of the Bank of North America, Mayor of Philadelphia, the Secretary to the Congress of delegates at Albany, and a Judge of the Supreme court of Pennsylvania. As the day-to- day manager, the role of bank cashier was also important. At the head office in Philadelphia, John Kean was appointed the cashier; however, the most noteworthy was George Simpson, who held the post from 1795-1811.

The Bank’s Roles in the Economy

On December 12, 1791, the Bank opened for business in Philadelphia. The customers were merchants, politicians, manufacturers, landowners, and most importantly, the government of the United States. The Banks notes circulated countrywide and therefore infused a safe medium of paper money into the economy for business transactions. The sheer volume of deposits, loans, transfers and payments conducted by the Bank throughout the country made it far and away the single largest enterprise in the fledgling nation. Profits, however, were moderate during the operation of the Bank because its directors opted for stability over risk taking.

The Bank and the “Panic of 1792″

The Bank had an enormous impact on the economy within two months of opening its doors for business by flooding the market with its discounts (loans) and banknotes and then sharply reversing course and calling in many of the loans. Although the added liquidity initially helped push a rising securities market higher, the subsequent drain caused the very first U.S. securities market crash by forcing speculators to sell their stocks. The largest speculator caught in the financial crisis was William Duer. When he went insolvent in March 1792, the markets were temporarily paralyzed. This so-called “Panic of 1792″ was short lived as again Secretary Hamilton (as in the previous year during the script bubble) injected funds by buying securities directly and on behalf of the sinking fund. Yet incidents like the Panic of 1792 and the script bubble would be remembered for many years by opponents of the Bank who were still in steadfast opposition to the Hamilton inspired institution.

The Bank’s Business with the National Government

The rest of Bank years were never as tumultuous as the events surrounding the Panic of 1792. Rather during its twenty-year lifespan the Bank performed many mundane pecuniary functions for its customers. The largest customer, the government, had many notable interactions with the Bank. One of the highlights of the relationship was the Bank’s efficient managing of the government’s fiscal affairs with respect to the Louisiana Purchase in 1803. In its earlier days, the Bank had lent heavily to its largest customer. By the end of 1795 the Bank had lent the government over $6 million, or 60% of its capital. At this point Willing and the other directors became alarmed and demanded the Government repay part of its loan. Since Government credit was still weak, the Treasury resorted to selling shares of its Bank stock. The sales began in 1796 and ended in 1802. With the proceeds from the sales of stock, the government repaid the Bank.

Central Banking Functions of the Bank

The Bank performed certain functions that today are associated with central banking. First, the Bank attempted to regulate state banks by curtailing those that had overissued their bank notes. Second, the Bank, in coordination with the Treasury department, discussed economic conditions and attempted to promote the safety of the entire credit system. Third, while the Philadelphia board gave each branch autonomy respecting lending to individuals, the Bank tried to coordinate aggregate policy changes, whether a loosening or tightening of lending credit, across the entire network of branches.

Death of the Bank

The anti-Bank forces had remained steadfast in their opposition to the Bank since its inception in 1791. By the time of the renewal debate in Congress, the Federalists were no longer in control. The Democrats now held the majority and were ready to act against the Federalist conceived institution. The opponents of the Bank included Henry Clay, William Branch Giles and Vice-President George Clinton. The Federalists supported renewal and were joined by two notable Democrats who crossed party lines, Treasury Secretary Albert Gallatin, who believed in the usefulness of the institution, and then President Madison, who had switched camps with respect to the Bank issue because he believed the matter had been settled by precedent.

Complaints about the Bank

The opponents charged that because three-fourths of the ownership of the stock was held by foreigners, that the Bank was under their direct influence. The charge was false, as foreigners were prohibited from electing directors. The opposition also charged that the Bank was concealing profits, operating in a mysterious fashion, unconstitutional, and simply a tool for loaning money to the Government.

Rechartering Suffers a Narrow Defeat in Congress

Although the charter did not expire until March 4, 1811, the renewal process commenced in the House on March 28, 1808 and in the Senate on April 20, 1808. The matter developed slowly and was referred to Secretary Gallatin for an opinion. On March 3, 1809 Gallatin communicated his beliefs to the House that the Bank charter should be renewed. The matter returned to the House on January 29, 1810 for Committee debate. On February 19th, the committee recommended in favor of renewing the charter and sent the bill to the floor of the House. Floor debate opened on April 13th, and the bill was stopped dead in its tracks. Stockholders resubmitted the bill on December 10th, and despite an intense three-month debate, the bill was killed. The vote in each section of the Congress was incredibly close. The bill was defeated in the House by a 65 to 64 margin on January 24, 1811, and in the Senate was deadlocked at 17 on February 20th before Vice-President Clinton, an enemy of both Madison and Gallatin, broke the tie with a negative vote. The Bank of the United States closed its doors on March 3, 1811.

The Bank and the Debate over Central Government Power

The reason the Bank lost its charter had precious little to do with banking. When charter renewal debate transpired in 1811 banking on the whole was flourishing. The Bank was born, lived, and eventually died a victim of politics. The Bank has been remembered not for what occurred during its operation — stimulating business, infusing safe paper money into the economy, supporting the credit of the country and national government, and with the Treasury department regulating the financial arena — but rather for what occurred during the stormy debates at its birth and death. The death of the Bank was another chapter in an ongoing debate between the early leaders of the country who were split between those who preferred a weak central government on the one hand and those who desired a strong central government on the other.

The chartering of a national economic institution, a Bank of the United States, marks the take-off of the Federalist financial revolution that began several years earlier with the signing of the Constitution. The political die of the United States was cast with that document, and by 1792 the economic base of Federalism was in place, first with the Federal funding of national and state war debts, and second, with a sound national Bank in place to give coherence to the developing U.S. financial system.

Further Reading:

Bowling, Kenneth R. “The Bank Bill, the Capital City and President Washington.” Capital Studies 1, no. 1 (1972).

Cowen, David J. “The First Bank of the United States and the Securities Market Crash of 1792.” Journal of Economic History 60, no. 4 (2000).

Cowen, David J. _The Origins and Economic Impact of the First Bank of the United States, 1791-1797_. New York: Garland Publishing, 2000.

Dewey, Davis Rich and John Thom Holdsworth. The First and Second Banks of the United States. Washington, D.C.: Government Printing Office, 1910.

Hammond, Bray. Banks and Politics in America: From the Revolution to the Civil War. Princeton: Princeton University Press, 1957.

Klubes, Benjamin. “The First Federal Congress and the First National Bank: A Case Study in Constitutional History.” Journal of the Early American Republic10 (1990).

McDonald, Forrest. “The Constitution and Hamiltonian Capitalism.” In How Capitalistic is the Constitution? Edited by Robert A. Goldwin and William A. Schambra. New York: American Enterprise Institute for Public Policy Research, 1982.

Perkins, Edwin. American Public Finance and Financial Services 1700-1815 Columbus: Ohio State University Press, 1994.

Redlich, Fritz. The Molding of American Banking. New York: Johnson Reprint Corporation, 1968.

St. Clair Clarke, M. and D. A. Hall. Legislative and Documentary History of the Bank of United States. Washington, D.C.: Gales and Seaton, 1832. Reprint. New York: Augustus M. Kelley Publishers, 1967.

Sylla, Richard. “U.S. Securities Markets and the Banking System, 1790-1840.” Federal Reserve Bank of St. Louis Review 80, no. 3 (1998).

Syrett, Harold, editor. The Papers of Alexander Hamilton. New York: Columbia University Press, 1961-87.

Wettereau, James O. “Branches of the First Bank of the United States.” Journal of Economic History 2 (1942).

Wettereau, James O. “New Light on the First Bank of the United States.” Pennsylvania Magazine of History and Biography 61 (1937).

Wettereau, James O. Statistical Records of the First Bank of the United States. New York: Garland Publishing, 1985.

Wettereau, James O. “The Oldest Bank Building in the United States.” Transactions of the American Philosophical Society 43, part 1, 1953.

Wright, Robert. Origins of Commercial Banking in America, 1750-1800. Lanham, MD: Rowman & Littlefield, 2001.

Wright, Robert. The Wealth of Nations Rediscovered: Integration and Expansion of the U.S. Financial Sector, 1780-1850. New York: Cambridge University Press, 2002.

Wright, Robert. “Thomas Willing (1731-1821): Philadelphia Financier and Forgotten Founding Father.” Pennsylvania History, Fall, 1996.

Citation: Cowen, David. “First Bank of the United States”. EH.Net Encyclopedia, edited by Robert Whaples. March 16, 2008. URL


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Hawley, Ellis W.
Hayes, M. G.
Hayes, Patrick J.
Hayward, Oliver
Heckelman, Jac
Heinicke, Craig
Hejeebu, Santhi
Helliwell, John F.
Hemenway, Robin L. E.
Heston, Alan
Hewett, Roger
Higgins, David
Higgs, Robert
Hill, Peter J.
Hinde, Andrew
Hinz, Christienne L.
Hirschman, Charles
Hodgson, Geoffrey M.
Hoeveler, J. David
Hoffman, Philip T.
Hogendorn, Jan
Hohenberg, Paul M.
Hollander, Samuel
Honda, Gail
Honeyman, Katrina
Horesh, Niv
Horn, Gerd-Rainer
Hornstein, Jeffrey M.
Horowitz, David A.
Horowitz, Joel
Horwitz, Steven
Howard, Vicki
Howlett, Peter
Huberman, Michael
Hudspeth, Harvey G.
Hueckel, Glenn
Huffman, Joseph P.
Hughes, Lindsey
Hughes, Michael
Huijzendveld, Frans D.
Hultén, Staffan
Hummel, Jeffrey Rogers
Humphries, Jane
Huneke, William
Hussey, David
Hutchinson, William
Hutchinson, William K.
Inwood, Kris
Irons, Janet
Irwin, Douglas
Irwin, Douglas A.
Irwin, James R.
Jacobsen, Joyce P.
Jacoby, Daniel
Jaffe, James
Jaffe, James A.
James, Hamish
James, Harold
James, John A.
Jayadev, Arjun
Jenkins, Andrew
Jeremy, David
Jimerson, Randall C.
John, Richard R.
Johnsen, D. Bruce
Johnson, D. Gale
Johnson, Noel D.
Johnson, Ryan
Jones, Eric
Jones, Geoffrey
Jones, J. Steven
Jones, Laird
Jones, Norman
Jongman, Willem M.
Jonung, Lars
Jordan, Erin
Jovanovic, Franck
Kaiser, Brooks A.
Kamphoefner, Walter D.
Kanazawa, Mark
Karmel, James
Kasper, Sherry Davis
Kates, Steven
Kaukiainen, Yrjö
Kay, Alison C.
Keech, William
Keech, William R.
Keefer, Philip
Keehn, Richard H.
Keeling, Drew
Keen, Steve
Kenen, Peter B.
Kennedy, Michael V.
Kenzer, Robert C.
Kerr, K. Austin
Khan, B. Zorina
Khula, Bruce A.
Kiefer, Kay
Kiesling, Lynne
Kim, Sukkoo
Kimura, Mitsuhiko
Kindleberger, Charles P.
King, Julia A.
King, Steve
Kirby, Maurice
Kitsikopoulos, Harry
Kleer, Richard A.
Klemann, Hein A.M.
Knaap, Gerrit
Knodell, Jane
Knoedler, Janet T.
Kolenda, Stephen A.
Kontorovich, Vladimir
Koot, Christian J.
Kostal, Rande W.
Kraft, Jeff
Kragh, Martin
Kristjanson-Gural, David
Kulikoff, Allan
Kurtz, Royce
Kuziemko, Ilyana
Kwan, Man Bun
Köll, Elisabeth
La Croix, Sumner
Lai, Cheng-chung
Laird, Pamela W.
Lal, Deepak
Landes, David S.
Landry, Michael
Langdon, John
Langlois, Richard N.
Larson, Bruce
Laurent, Jerome K.
Law, Marc
Lawlor, Michael S.
Lazarev, Valery
Lazarev, Valéry
Lee, Chulhee
Lee, Ming-Hsuan
Leeson, Peter T.
Leonard, Carol
Lester, Richard
Levenstein, Margaret
Levenstein, Margaret C.
Levy, Barry
Levy, David M.
Lewis, Frank D.
Libecap, Gary
Libecap, Gary D.
Licht, Walter
Lichtenstein, Nelson
Liebowitz, Jonathan
Liebowitz, Jonathan J.
Liggio, Leonard P.
Lin, Rachel Chernos
Lindert, Peter H.
Lindo-Fuentes, Héctor
Lindstrom, Diane
Lipartito, Kenneth
Logan, Trevon D.
Lufrano, Richard
Lydon, Ghislaine
Lyons, Thomas
Ma, Debin
MacDonald, John A.
MacKinnon, Mary
MacLeod, Christine
Macesich, George
Madison, James H.
Maharajh, Rasigan
Main, Gloria L.
Majewski, John
Mak, James
Makasheva, Natalia A.
Makinen, Gail
Malone, Laurence J.
Maloney, Thomas N.
Mancall, Peter C.
Mandell, Nikki
Mann, Ralph
Manning, Jason
Margo, Robert A.
Marichal, Carlos
Marr, Bill
Marr, William
Martínez Fritscher, André
Mason, David L.
Mason, Joseph R.
Masschaele, James
Matthews, Jeffrey J.
Maurer, Noel
Mayhew, Anne
Mazzoleni, Roberto
McAvoy, Michael R.
McCalla, Douglas
McCannon, Bryan C.
McCants, Anne E. C.
McCants, Anne E.C.
McClenahan, William M.
McCraw, Thomas K.
McCusker, John J.
McElderry, Andrea
McGreevey, William
McGuire, Mary K.
McGuire, Robert A.
McInnis, Marvin
McNamara, Peter
McSwain, James B.
Meardon, Stephen
Meissner, Christopher M.
Melosi, Martin V.
Menard, Russell R.
Menes, Rebecca
Metcalf, Michael F.
Metzler, Mark
Meulen, Jacob Vander
Meyer, David R.
Michener, Ron
Michie, Ranald C.
Middleton, Roger
Mierzejewski, Alfred C.
Miller, Karen S.
Miller, Marla R.
Mills, Geofrey T.
Miranti, Paul
Mirás-Araujo, Jesús
Misevich, Philip
Mitch, David
Mitchener, Kris James
Miyajima, Hideaki
Moehling, Carolyn M.
Moeller, Astrid
Moen, Jon
Moen, Jon R.
Moggridge, D. E.
Mokyr, Joel
Mongiovi, Gary
Montes, Leonidas
Moreno, Paul
Morris, Clair E.
Morris, Cynthia Taft
Mosk, Carl
Moss, Laurence S.
Mullin, Debbie
Munger, Michael
Munro, John
Munro, John H.
Murphy, Sharon Ann
Murray, James M.
Murray, John
Murray, John E.
Musacchio, Aldo
Mushin, Jerry
Muzhani, Marin
Nafziger, Steven
Namorato, Michael V.
Nance, Susan
Naseem, Anwar
Nawiyanto, S.
Neal, Larry
Neill, Robin
Neill, Robin F.
Nelson, Daniel
Nelson, Heather
Nelson, Jon P.
Neufeld, John
Nickless, Pamela
Nickless, Pamela J.
Noell, Edd
Noll, Franklin
Nonnenmacher, Tomas
Nunn, Nathan
Nuvolari, Alessandro
Nye, John
Nye, John V.C.
O’Brien, Anthony P.
O’Brien, Anthony Patrick
O’Connor, Alice
O’Driscoll, Gerald P.,Jr.
O’Rourke, Kevin H.
Oakes, James
Oberly, James
Odell, Kerry
Ofek, Haim
Offer, Avner
Officer, Lawrence
Officer, Lawrence H.
Olds, Kelly
Olsen, Randall J.
Olson, Keith W.
Oosterlinck, Kim
Otoo, Sharon
Owen, Laura J.
Pack, Spencer J.
Paganelli, Maria Pia
Palairet, Michael
Pamuk, Sevket
Pamuk, Şevket
Pandya, Sachin S.
Parente, Stephen L.
Parker, Randall E.
Parkerson, Donald
Parthasarathi, Prasannan
Paterson, Donald G.
Patterson, Perry L.
Peart, Sandra
Peart, Sandra J.
Pemberton, Hugh
Perdue, Peter
Perelman, Michael
Perez, Stephen J.
Perkins, Edwin
Perkins, Edwin J.
Perlman, Mark
Perren, Richard
Persson, Karl Gunnar
Peskin, Lawrence A.
Phillips, Jim
Phillips, William H.
Pilbeam, Pam
Pincus, Jonathan
Poitras, Geoffrey
Pokorny, Michael
Pomeranz, Kenneth
Pomfret, Richard
Poole, Keith T.
Porter, Theodore M.
Prakash, Om
Pritchett, Jonathan
Pritchett, Jonathan B.
Pryor, Frederic L.
Quinn, Stephen
Ramirez, Carlos D.
Ramrattan, Lall B.
Ranieri, Ruggero
Ransom, Roger
Ransom, Roger L.
Rashid, Salim
Rauchway, Eric
Ray, Himanshu Prabha
Reagan, Patrick D.
Redenius, Scott A.
Redish, Angela
Redmount, Esther
Reed, Barbara Straus
Rei, Claudia
Reid, Joseph D.,Jr.
Reis, Jaime
Reiss, Julian
Rhode, Paul
Richards, Lawrence
Richardson, David
Richardson, Gary
Richardson, Mike
Riello, Giorgio
Rima, Ingrid H.
Ringrose, David
Ritschl, Albrecht
Robertson, Andrew
Robertson, Paul
Robertson, Paul L.
Rock, David
Rockoff, Hugh
Roehner, Bertrand M.
Rollings, Neil
Romani, Roberto
Ronning, Gerald
Ros, Jaime
Rose, Clare
Rosenbloom, Joshua L.
Rosenthal, Jean-Laurent
Rossi, John Paul
Rothenberg, Winifred B.
Rothenberg, Winifred Barr
Rousseau, Peter L.
Roy, Tirthankar
Rubin, Jared
Russell, Malcolm
Ryan, Paul
Ryden, David
Ryden, David B.
Saito, Osamu
Salvucci, Linda K.
Salvucci, Richard
Salvucci, Richard J.
Samuels, Warren J.
Sanderson, Michael
Santoni, Gary
Santoni, Gary J.
Santos, Joseph M.
Santos-Redondo, Manuel
Saunders, Dawn
Sautet, Frederic
Schachter, Hindy Lauer
Schaefer, Donald F.
Schaps, David M.
Schell, William ,Jr.
Schenk, Catherine
Schenk, Catherine R.
Scherner, Jonas
Schiffman, Daniel A.
Schiltz, Michael
Schneirov, Richard
Schramm, Jeff
Schuler, Kurt
Schulze, Max-Stephan
Schwab, Robert M.
Schwartz, Anna J.
Schweikart, Larry
Schwekendiek, Daniel
Scott, Carole E.
Scott, Peter
Scranton, Philip
Self, James K.
Selgin, George
Sent, Esther-Mirjam
Sexton, Terri A.
Shammas, Carole
Shanor, Charles A.
Sharpe, Pamela
Shearer, Ronald A.
Shepherd, James F.
Sheridan, George J.,Jr.
Sheriff, Abdul
Shiue, Carol H.
Short, Joanna
Shubik, Martin
Shughart, William F.,II
Shy, John
Sicilia, David B.
Sicotte, Richard
Sicsic, Pierre
Siklos, Pierre
Silva, Jonathan
Silver, Morris
Simons, Kenneth L.
Simpson, James
Singleton, John
Sivin, Nathan
Sjostrom, William
Skemp, Sheila L.
Smil, Vaclav
Smiley, Gene
Smith, Daniel Scott
Smith, Fred H.
Smith, John K.
Smitka, Michael
Snooks, Graeme D.
Snowden, Kenneth A.
Snyder, D. Jonathan
Snyder, Jonathan
Sokoloff, Kenneth L.
Sorensen, Todd
Southall, Roger
Spechler, Martin C.
Spoerer, Mark
Spolaore, Enrico
Squatriti, Paolo
St. Clair, David J.
Stabile, Donald
Stabile, Donald R.
Stallbaumer-Beishline, L. M.
Stanciu Haar, Laura N.
Stanger, Howard R.
Stead, David
Stebenne, David
Steckel, Richard H.
Steeples, Douglas
Steindl, Frank
Stewart, Larry
Stitt, James W.
Stobart, Jon
Subramanian, Lakshmi
Sullivan, Richard J.
Sullivan, Timothy E.
Sumida, Jon
Sundstrom, William A.
Surdam, David
Surdam, David G.
Sutherland, Heather
Suzuki, Masao
Swearingin, Steven D.
Sylla, Richard
Szenberg, Michael
Szostak, Rick
Tabak, Faruk
Tallman, Ellis W.
Tandy, David
Tarry, Scott E.
Tassava, Christopher
Tauger, Mark B.
Taylor, Alan M.
Taylor, Christiane Diehl
Taylor, Graham D.
Taylor, Ranald
TeBrake, William
Teagarden, Ernest
Tebeau, Mark
Teichgraeber, Richard F.
Temin, Peter
Thomasson, Melissa A.
Thomson, Ross
Thornton, Mark
Tiffany, Paul
Tilly, Richard
Tolliday, Steven
Tollison, Robert D.
Toma, Mark
Tomlinson, Jim
Toninelli, Pier Angelo
Toniolo, Gianni
Touwen, Jeroen
Traflet, Janice M.
Trescott, Paul B.
Triner, Gail D.
Troesken, Werner
Tulchin, Joseph S.
Tuttle, Carolyn
Tweedale, Geoffrey
Twomey, Michael J.
Tympas, Aristotle
Ugolini, Laura
Vedder, Richard
Vedder, Richard K.
Velde, François R.
Ventry, Dennis J.
Verdon, Nicola
Ville, Simon
Virts, Nancy
Vitell, Scott J.
Vivenza, Gloria
Volckart, Oliver
Voth, Hans-Joachim
Vries, Peer
Wahl, Jenny
Wahl, Jenny B.
Wale, Judith
Wallis, John J.
Wallis, John Joseph
Wallis, Patrick
Walsh, Lorena S.
Walsh, Margaret
Walvin, James
Wanamaker, Marianne
Ward, Marianne
Wardley, Peter
Waterman, A. M. C.
Weber, Cameron M.
Wegge, Simone A.
Weidenmier, Marc D.
Weiher, Kenneth
Weir, Robert E.
Weir, Ron
Weiss, Thomas
Wells, Wyatt
Wendt, Ian C.
West, Martin
Westerman, Thomas D.
Whaples, Robert
Whatley, Christopher A
Whatley, Warren C.
Wheatcroft, Stephen
Wheeler, Hoyt N.
Wheelock, David C.
White, Eugene N.
White, Michael V.
White, Nicholas J.
Whitehead, John C.
Whitman, T. Stephen
Wicker, Elmus
Wilkins, Mira
Will, Pierre-Étienne
Williamson, Samuel H.
Wilson, John
Wilson, John F.
Winpenny, Thomas
Winpenny, Thomas R.
Wishart, David M.
Woeste, Saker
Wolcott, Susan
Wolf, Nikolaus
Wolff, Robert
Wood, Geoffrey
Wood, John
Wood, John H.
Woodward, Ralph Lee
Worden, Nigel
Wright, Gavin
Wright, Robert E.
Wright, Tim
Wuthrich, Bryan
Wynne, Ben
Yeager, Mary A.
Young, Garry
Young, Jeffrey T.
Zalewski, David A.
Zamagni, Vera
Zeiler, Thomas W.
Zevin, Robert
Zieger, Robert H.
Ziliak, Stephen
Ziliak, Stephen T.
de Fátima Brandão, Maria
del Mar Rubio, M.
van der Beek, Karine
van der Eng, Pierre
Álvarez-Nogal, Carlos
Ó Gráda, Cormac

Alexander Hamilton

Author(s):Chernow, Ron
Reviewer(s):Wright, Robert E.

Published by EH.NET (May 2005)


Ron Chernow, Alexander Hamilton. New York: Penguin Press, 2004. xi + 819 pp. $35 (cloth), ISBN: 1-59420-009-2.

Reviewed for EH.NET by Robert E. Wright, Stern School of Business, New York University.

Dear Sir,

Your letter of February 22nd covering Mr. Chernow’s recent biography of General Hamilton came to hand some months ago. The press of other business and the great weight of the volume, however, prevented me, before this very day, from responding to your request for my views of this most prodigious work.

This tome brilliantly elucidates the general’s meteoric career and his supreme contribution to the formation of his adopted nation and does so without resort to the hyperbole or exultation that would rightly bring down upon it the epitaph of hagiography, though I daresay General Hamilton’s many friends will find Mr. Chernow’s efforts highly satisfactory, notwithstanding discussions of Hamilton’s carnal and adulterous knowledge of Maria Reynolds, the dim possibility that Hamilton and John Laurens engaged in sodomy, and the likelihood that Hamilton was born in 1755, not 1757, all topics notorious among us who, like myself, love the poor bastard orphan at the center of the story.

Mr. Chernow’s biography is learned but not scholarly, a characterization meant mostly, but not completely, in praise. To complete the study, the author traveled widely — even braving yellow fever and malaria to visit Hamilton’s birthplace in the West Indies — and read all of the most important books heretofore published on this most august of Augustan subjects. He also waded deeply in Hamilton’s personal correspondence and the newspaper record, discovering a number of newspaper essays not hitherto attributed to the “Little Lion.” Readers who are not blinded by partisan rage should find the discussions of events and descriptions of men accurate and adroit. Documentation is provided, but sparingly, and reference to the endnotes often yields disappointment for the scholar. Moreover, rather than suspend judgment when evidence is lacking or in conflict, as most scholars are wont to do, Mr. Chernow weighs the evidence and makes a call, though a deliberate and informed one to be sure.

This book, like Mr. Chernow’s other massive studies of the icons of American financial history, is extremely easy on the senses. The composition is elegance itself, well worthy of Hamilton, a noted wordsmith. Hamilton’s phrases generally were not as felicitous as those of Mr. Chernow, but would have carried even more rhetorical and logical force and, of course, would have been finished in a quarter of the time. Hamilton’s oratory could bring listeners to tears but his written words rarely had that effect, except perhaps cries of fury from Mr. Jefferson. By contrast, I admit that I often found myself choking back tears teased forth by Mr. Chernow’s prose, especially his vivid descriptions of the General’s heartbreaking youth.

The embarrassment that I feel at making so startling a revelation is to a large degree mitigated by the fact that Mr. Chernow is a professional writer, not a professor. He therefore passes his days enlarging his own already considerable powers of expression, rather than toiling like Sisyphus to help others to improve their literary prowess. His efforts are more agreeable than almost all other books I’ve thus far encountered that purport to offer readers more than a fleeting diversion. Were all books of merit so sweetly composed, I daresay more collegians would complete their lessons in good order. I would therefore urge professors and headmasters to consider adding it to their required reading lists. The book easily surpasses earlier biographies of General Hamilton and could even substitute for surveys of the Federalist period like that of Messrs. Elkins and McKitrick, which leans at times toward Jacobinism.

Despite its great girth, Mr. Chernow’s opus is less suitable for more advanced students, particularly those of a mercantile or financial bent. Discussions of the Bank of North America, the Bank of New York, the Bank of the United States, the funding system, and other matters financial are of course present, and more or less correctly parrot back the ideas of a few earlier writers, but they lack that perspicuity and precision that characterize the rest of the book. I therefore flatter myself that those interested in the more technical aspects of Hamilton’s financial system will find more satisfaction by consulting my Hamilton Unbound, Wealth of Nations Rediscovered, First Wall Street, and Financial Founding Fathers, or perusing the works of Drs. Bodenhorn, Cowen, and Sylla, if not for their literary merits, then for the depth, accuracy, and clarity of their analyses.

No missive can possibly do justice to such a long and masterfully written book, so I can do no more than urge you, and anyone who should see this letter, to read Mr. Chernow’s book. It is certain to give pleasure on any long summer sojourn, and is much to be preferred over wallowing in idleness and profligacy. I remain, Sir,

Yr. Most Humble and Obdt. Servant,

Robert Wright of Abington, in the Commonwealth of Pennsylvania, near the old Presbyterian Church on the York Road

Robert E. Wright teaches business, economic, and financial history at the Stern School of Business, New York University, and is a curriculum consultant at Robert Welch University. The University of Chicago Press will publish his fifth and sixth books — The First Wall Street: Chestnut Street, Philadelphia, and the Birth of American Finance and Financial Founding Fathers: The Men Who Made America Rich (with David J. Cowen) — later this year and early next, respectively, despite the fact that they are not written in the faux eighteenth-century style adopted in this review.


Subject(s):History of Economic Thought; Methodology
Geographic Area(s):North America
Time Period(s):18th Century

A Financial History of the United States

Author(s):Markham, Jerry W.
Reviewer(s):Wright, Robert E.

Published by EH.NET (June 2002)


Jerry W. Markham, A Financial History of the United States. Armonk, NY: M.E. Sharpe, 2002. Volume 1: xxii + 437 pp.; Volume 2: xx + 412 pp.; Volume 3: xx + 449 pp. $349.00 (cloth), ISBN: 0-7656-0730-1.

Reviewed for EH.NET by Robert E. Wright.

Former SEC attorney Jerry W. Markham currently teaches corporate and international law at the University of North Carolina at Chapel Hill. Heretofore, he has written extensively on the history of the regulation of commodity futures trading. The work under review is his first significant foray into the broad study of financial history and, quite frankly, it shows. Given the high costs of purchasing and reading these three volumes, the reviewer feels an obligation to the academic community not to mince words: the thesis of this review is that Markham’s opus is seriously flawed.

Markham clearly wanted his book to be a Narrative in the Grand Olde Style, not an academic monograph seeking to prove a point, so not a single table or equation graces the volume. Moreover, the book does not present a thesis so much as an attitude. Like many Americans, Markham views the financial sector with suspicion. He fails, therefore, to give full credit to the crucial role of finance in U.S. economic development. For instance, he claims that banks issued notes “without limits” (1:132; 1:133), that “speculators” made “vast fortunes” (1:109), and that investors fell easy prey to any old “speculative frenzy” (1:98) that happened to form. “Every advance in finance,” Markham opines, “was accompanied by fraud and over-reaching by the unscrupulous” (1:380). Busy with such hyperbole, he fails to explicate how intermediaries, speculators, and investors interacted to finance the mightiest economy on Earth.

Markham ignores too many important secondary works to be taken seriously as an authority in financial history. For instance in Volume 1, which covers the colonial period to 1900, he fails to cite any of the following economic historians: Howard Bodenhorn, Stuart Bruchey, David Cowen, Thomas Doerflinger, E. James Ferguson, Gary Gorton, Gregory Hunter, Naomi Lamoreaux, Diane Lindstrom, John Majewski, Cathy Matson, John J. McCusker, Ranald Michie, George Rappaport, Winifred Rothenberg, Mary Schweitzer, or Richard Sylla. Moreover, he pays scant attention to the important contributions of Stuart Banner, Edwin Perkins, and Hugh Rockoff, among others. In short, the book is not based on anything approaching a comprehensive review of the extant literature.

Markham also fails to survey significant primary source material. He cites a few court cases, an occasional old legal treatise, some congressional reports, a handful of newspaper articles, and Joseph Martin’s descriptions of the Boston stock market. More maddening still, Markham cites recent articles from the Wall Street Journal, the Washington Post, the New York Times, and the Raleigh News & Observer as authorities on historical subjects! Journalists often rely on the same outdated, often nineteenth-century, secondary sources that Markham also leans upon, including William Gouge’s infamous book on antebellum banks and an array of late nineteenth-century hard money polemicists. Worst of all, many of Markham’s assertions are completely undocumented, allowing him to breathe life into a series of apocryphal stories of questionable origins and unlikely authenticity (see, for example, 1:50, 68).

Historians do not have to uncover new archival sources or re-examine known sources in a fresh manner in order to make a contribution. A good story well told will always be appreciated. Due to the inadequacies of Markham’s prose, however, few readers will come to appreciate financial history’s many good stories. The book reads like a rough draft, not a polished book. Numerous simple declarative sentences, at times virtually unconnected conceptually, and rampant use of the passive voice make the book difficult to read. Consider, for example, the following excerpt, which is all-too-typical of the author’s style: “Wheat farm bonds on Canadian lands were sold in Chicago. Those bonds paid 7 per cent per annum. Spitzer, Rorick & Co. offered municipal bonds that netted from 4.25 to 5.75 percent. Seney, Rogers & Co. sold real estate gold bonds and mortgages on Chicago property. Investments from $100 to $50,000 were sought” (2:62).

Markham regularly incorporates quotations of secondary authors into his own sentence structure, as if the words emanated from an historical figure instead of an historian. Only when the reader turns to the endnote, at the end of the volume and difficult to find because of the book’s odd numbering scheme does it become clear that the ‘great quotation’ is that of Bray Hammond, Paul Studenski, or Margaret Myers, not that of Robert Morris, Alexander Hamilton, or Jay Gould.

Indeed, Markham displays precious little historical sense. He notes that “colonial governments eventually found themselves issuing the paper currency advocated by Franklin and others,” then goes on to describe paper money emissions made decades before Franklin’s birth (1:50). He describes a retail purchase that George Washington made in Maryland in 1770 and bolsters it with Madame Knight’s famous discussion of prices in New England in 1704 (1:53-54). I wonder what a judge would say to the following reasoning: “The worldwide depression in 1765 added to the economic problems encountered by the American colonies. A creditor of Paul Revere sought to attach his property for a debt of ten pounds. Nevertheless, some consumer protection was appearing. A law against usurious loans was adopted in New York in 1661″ (1:56)? Similar examples abound (1:63, 70, 83, 126).

Outright errors also abound. Some of the more technical errors, like confusing “bottomry” loans (on ships) with “respondentia” loans (on cargo), would perhaps be partially understandable were not the author a legal scholar (1:6). Other errors, like calling a tontine “a form of lottery scheme” (1:81), referring to bills of exchange as “currency” (1:48), and confusing banknotes and bills of credit (1:72) suggest that Markham is not conversant with the financial terminology of the era. Other errors probably stem from the volume’s impoverished editing. Consider, for example, his “definition” of a put option: “A put option entitled the option holder to sell stock to the writer of the stock [sic] at a specified price.”

Markham makes little use of financial theory. In numerous places, for instance, he could have explained his anecdotes using basic financial concepts like adverse selection and moral hazard (1:38-39, 55). In other places, Markham makes wild comparisons between past and present practices. For instance, he somehow concludes that the “exchange of flour in one state for flour in another in order to save transportation expenses” is “an early form of a swap transaction” (1:70). He describes U.S. Deferred bonds as “when issued” securities instead of discount (zero coupon) bonds (1:119). Similarly, he fails to see that the market correctly priced convertible bank notes as discount bonds (1:132).

The very subtitle of Volume 2, From J.P. Morgan to the Institutional Investor (1900-1970), is misleading because it implies that Morgan predated institutional investors. In fact, institutional investors, particularly life insurance companies and mutual savings banks, were important players in the nation’s financial markets by the 1860s, not the 1960s. True, institutional investors largely eschewed common stocks until the 1960s, but it is well known that equity investment represents a small percentage of external finance flows. Markham’s assertion that “the first seven decades of the twentieth century witnessed more challenges to American finance than all the years before” seems at best a matter of opinion and, at worst, another example of the author’s lack of historical perspective (2:369).

Outright errors and misleading statements again abound in Volume 2. For instance, Markham claims that the Blue Sky Laws were passed “to stop the sale of worthless securities” (2:370). Law professor Paul Mahoney, however, has shown that commercial banks fought for the passage of those securities regulations in order to disembowel their major competitor, the commercial paper market. Markham also asserts that “the Federal Reserve legislation [of 1913] adopted the concept of ‘open market’ operations in which the Federal Reserve banks bought and sold government securities and eligible private debt issues in order to influence the money supply” (2:46). In fact, the Fed discovered the monetary policy uses of open market operations some years after its establishment ( and at first favored private paper and municipal warrants over Treasuries (David Marshall, “Origins of the Use of Treasury Debt in Open Market Operations: Lessons for the Present,” Federal Reserve Bank of Chicago Economic Perspectives, 2002 1Q: 45-54).

Time and space limitations prevent a fuller discussion of the shortcomings of Markham’s mammoth book. Volume 3, From the Age of Derivatives into the New Millennium, appears to contain fewer outright errors than the first two volumes, but it too suffers from a lack of focus, editing, evidence, and documentation. Indeed, only six pages of notes support 357 pages of text. The conclusion to the third volume confidently predicts the demise of paper money, paper correspondence, brick-and-mortar stores, and specialized financial services firms. “Undoubtedly, Wal-Mart and its like,” Markham claims, will supply consumers with mortgages, mutual funds, insurance policies, and “a host of other financial services” (3:365). Markham does not make clear, however, why Wal-Mart will fare any better than Sears did.

To conclude, I do not suggest that you use this opus, but if you do, use it with great care. The historical development of U.S. financial markets and institutions is an enormously important and complex topic. A quality, scholarly synthetic overview is still desperately needed.

Robert E. Wright is the author of The Wealth of Nations Rediscovered: Integration and Expansion in American Financial Markets, 1780-1850 (Cambridge, 2002), Hamilton Unbound: Finance and the Creation of the American Republic (Greenwood, 2002), History of Corporate Finance: Development of Anglo-American Securities Markets, Laws, and Financial Practices and Theories (Pickering & Chatto, 2002), Origins of Commercial Banking in America, 1750-1800 (Rowman & Littlefield, 2001), and three forthcoming works tentatively titled Corporate Governance in Historical Perspective: The Importance of Stakeholder Activism (Pickering & Chatto), Mutually Beneficial: The Guardian and Life Insurance in America (New York University Press), and Financing American Economic Growth: The Philadelphia Story (New York University Press).

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

The Origins of Commercial Banking in America, 1750-1800

Author(s):Wright, Robert E.
Reviewer(s):Perkins, Edwin J.

Published by EH.NET (November 2001)

Robert E. Wright, The Origins of Commercial Banking in America,

1750-1800. London and New York: Rowman & Littlefield Publishers, 2001. xii

+ 219 pp. $65 (cloth), ISBN: 0-7425-2086-2; $24.95 (paperback), ISBN:


Reviewed for EH.NET by Edwin J. Perkins, Professor of History, emeritus,

University of Southern California.

Robert Wright has written a highly original book that merits our attention.

First, he overlaps the late colonial period and the first decade of the early

national era — an uncommon periodization for financial historians. Previous

authors typically have covered either the colonial period or the national

period, not both. Second, Wright approaches the subject mainly from an

economic perspective rather than from a political angle. Earlier writers have

been mostly concerned with the public policy ramifications of legislative

debates over financial matters, and they have been less concerned with the

impact of financial legislation on the economy. Trained as a historian but

employed for several years in the economics department of the University of

Virginia, Wright has a unique academic profile. That interdisciplinary

background has enabled him to generate an analysis of critical financial

issues during this era that is unmatched by any of his predecessors. For

economists, in particular, this volume stands as the new starting point for

gaining an understanding of the evolution of U.S. commercial banking.

Wright focuses throughout on the perpetual demand for improved liquidity. The

colonial economy had no active private banks. Likewise, there was no uniform

currency since the British had forbidden the establishment of a colonial mint.

As a result, most of the coinage in circulation originated in Spain’s colonial

empire in the Western Hemisphere. The paper currency issues of the various

colonial legislatures supplemented these hard monies. Capital markets in the

colonies were non-existent or thin. Only Massachusetts had a public debt that

was privately held and occasionally traded. The whole financial system was

institutionally immature. A huge percentage of the outstanding colonial

mercantile debt could be traced back to the London money market. Colonial

merchants did make use of domestic and foreign bills of exchange, but it was

nearly impossible to convert these financial instruments into cash during

periods of stringency. While the financial system was sufficiently functional

to support steady increases in the size of the colonial economy (primarily due

to population growth), its overall performance was less than optimal.

Liquidity was sorely lacking. Merchants, family farmers, great planters, and

artisans all sought some form of institutional relief.

Parliamentary regulations and the negative attitudes of distant British

administrators who were responsible for colonial affairs discouraged private

initiatives. Colonial leaders from South Carolina to New England periodically

sought legislative permission to create banks of one variety or another, but

none of these attempts produced anything sustainable. Wright covers these

early efforts in a fair amount of detail. He views these abortive efforts as

legitimate antecedents of the private commercial banks that emerged after


After the achievement of independence, the new nation began to experiment with

modern commercial banking. Luckily, these experiments, which aroused much

public debate and legislative controversy at the state and federal levels,

almost immediately led to the creation of viable institutions. I say “luckily”

because the effort to create similar institutions in many other emerging

nations over the last two centuries has produced numerous tragic missteps.

The Bank of North America, the brainchild of Robert Morris, the famous

treasurer of the confederation government, became the prime model for all

subsequent commercial banks. It issued currency supported by adequate specie

reserves, accepted deposits, discounted mercantile notes, and turned a

respectable profit for investors. Other commercial banks operating under state

charters began to multiply. The problem of illiquidity in the U.S. economy was

steadily alleviated thereafter. The national government created the Bank of

the United States, which was the largest economic unit in the economy

throughout its twenty-year life span. Commercial banks were the pillars and

catalysts for the expansion of the U.S. economy from 1790 forward. We are

finally coming to the realization, thanks largely to the contributions of

Richard Sylla and his collaborators, that improvements in financial services

preceded advancements in agriculture, transportation, and industry.

For his discussion of events after 1780, Wright draws most of his information

from a careful analysis of banking in Pennsylvania and New York. His

conclusions contrast at many points with Naomi Lamoreaux’s study of New

England banking during the same period. In her research, Lamoreaux found that

commercial banks were typically closely held; the major investors dominated

the board of directors and made numerous insider loans to themselves. Wright

has found a different pattern in the middle Atlantic region. These banks had a

larger capitalization and a broader ownership. They made loans mainly to

depositors, not owners, and the occupations of borrowers varied — from

merchants to farmers to artisans. As much as I admire Wright’s detailed

discussion of the development of the commercial banking system, I would have

gone about this project in a different manner — not necessarily better, but

different and complementary. Since I have been working in this subfield for

decades, I offer my own admittedly biased opinions without apology.

Whereas Wright concentrates on the demand for liquidity, I would have

celebrated the supply side of the equation. I am not convinced that the

colonial demand for liquidity was any different than the persistent demands of

thousands of urban merchants in past civilizations. I take the demand for

superior financial services as a given — a truism. What was astonishingly

different in the eighteenth century was the institutional response in the new

United States. Borrowing piecemeal from the example of a handful of British

private bankers and the singular Bank of England, the first generation of

independent Americans were imaginative and prudent institutional innovators.

Despite their strategic differences, Hamiltonians and Jeffersonians both

wanted a successful financial system — if only to prove to a skeptical world

that a republican form of government could survive and indeed thrive

financially as well as politically.

I also wish Wright had cited the public loan offices created by the colonial

legislatures as the prime forerunners of the modern commercial bank. Across

the Atlantic Ocean, advocates of land banks had tried for centuries to gain

the attention and approval of the ruling classes. Their proposed land banks

were designed to offer loans to citizens with real estate as collateral. None

of these European schemes proved viable. But in English North America, land

banks in the middle colonies (but not in New England) operated successfully

for decades. They made loans to a wide swath of landholders; they experienced

few losses; and they generated substantial interest revenue for their

provincial legislatures. Their issues of paper currency were retired at their

original purchasing-power values; depreciation was not a serious problem. The

Pennsylvania legislature imposed no new taxes for decades because interest

income from the loan office covered its modest annual expenses. True, the loan

offices did not accept deposits and did not discount mercantile paper, but

they succeeded over a long period of time, whereas similar efforts in all

other contemporary societies had failed. The colonial land offices were

remarkable enterprises for their era and deserve more recognition as emulative

institutional models.

My third friendly amendment relates to the coverage of the Bank of the United

States. Wright just does not devote sufficient space to this novel

institution. It too was highly innovative. Unlike the Bank of England, its

main customers after 1795 were private citizens, not governments. It possessed

branch offices in major port cities. As David Cowen has recently argued, the

BUS in tandem with the U.S. Treasury Department acted very much like a modern

central bank. Fourthly, Wright might have cited the recent work of Glenn

Crothers on commercial banking in northern Virginia in the 1790s. I had better

stop here with my recommended additions or I might be roundly accused of

criticizing the author for not writing the book I had envisioned rather than

the book he chose to write. By revising the analytical model for all subsequent

historians who embark on an examination of the origins of U.S. commercial

banking, Robert Wright has made a major scholarly contribution. The supply

side innovations did not occur in a vacuum, Wright reminds us; they came about

because thousands of participants in the eighteenth-century economy desired

increased levels of liquidity. If the author has gone slightly overboard to

prove a valid point, he has done so in a noble cause.

Edwin J. Perkins has written extensively about financial history. His books

include American Public Finance and Financial Services, 1700-1815 (Ohio

State University Press, 1994). His most recent publication is Wall Street

to Main Street: Charles Merrill and Middle Class Investors (Cambridge

University Press, 1999).

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):North America
Time Period(s):18th Century

The Origins and Economic Impact of the First Bank of the United States, 1791-1797

Author(s):Cowen, David J.
Reviewer(s):Perkins, Edwin J.

Published by EH.NET (May 2001)

David J. Cowen, The Origins and Economic Impact of the First Bank of the

United States, 1791-1797. New York and London: Garland Publishing, 2000.

xxix + 323 pp. $70 (hardback), ISBN: 0-8153-3837-6.

Reviewed for EH.NET by Edwin J. Perkins, Department of History, University of

Southern California, Emeritus.

Years ago, Stuart Bruchey persuaded Garland Publishing to create a book

series devoted to the publication of unrevised dissertations with outstanding

merit which, for one reason or another, had not caught the eye of mainstream

academic presses. Many of us in niche fields, like financial history, will

remain forever indebted to Bruchey for his foresight and initiative. A great

deal of valuable material conveniently got into print that otherwise would

have remained difficult to track down. This volume by David Cowen, a recent

student of Richard Sylla at NYU, is the latest publication in Garland’s

financial history series. Cowen already had a lucrative day job as a currency

trader on Wall Street, and with no plans to test the academic job market, he

opted for the promise of a quick and painless publication process — meaning

the avoidance of endless revisions to satisfy annoying outside referees. While

not a polished work of art from a literary standpoint, the original

dissertation format retains one valuable attribute: the author’s lengthy and

extremely informative endnotes remain intact. In the tradeoff between meeting

the highest literary standards and providing interested readers with long,

enlightening citations, I would choose the latter every time, and so too would

most scholars.

Cowen focuses on the first six years of the First Bank’s operations. The

bank’s internal records were long ago destroyed by fire, and as a consequence,

no authoritative history of the institution has ever been published. Cowen

brings together most of what we know about the bank from indirect sources and

from a few scattered extant records.

The author offers two original arguments linked to the First Bank. He asserts

that a sharp curtailment in bank credit in early 1792 caused the prices of

federal government bonds to drop by 20 percent in the major markets —

Philadelphia, Boston, and New York — over a two month period. Previous

explanations of the price decline pointed primarily to the financial

difficulties of William Duer, a major speculator in securities and their

derivatives. The book chapter devoted to this topic formed the basis for an

article recently published by Cowen in the Journal of Economic History

(December 2000). Interested parties can read all the details there. I think

Cowen is correct in identifying the First Bank as a major culprit in causing

the sharp decline in bond prices.

My major problem with his analysis, and the accounts of nearly every writer

who has preceded Cowen over the last two hundred years, is that financial and

political historians, in the interest of creating exciting drama, have too

often made mountains out of molehills — or at least out of gentle foothills.

The author, and practically everyone else, has labeled this episode as the

“Panic of 1792.” I believe the language surrounding this sharp drop in

securities prices has been irrespons1bly exaggerated. We are talking about the

price movements of only one benchmark security — US government bonds with

long maturity dates — not an entire market basket of securities. The price of

this bond issue fell from 120 to 100; it never dropped below par value. The

current yield rose from 5% to 6%. Not a tremendous sea change in my book, and

not enough to justify the “panic” label. I hope readers do not think I’m

engaging in petty criticism over a minor issue because what we call things

does matter. Overall there is too much journalistic hype in financial history,

and this author has poured more gasoline on the flame.

Cowen’s second original argument relates to the long-running debate about

whether the First Bank was, or was not, a central bank. Some experts have said

yes; others no. The author adds a new wrinkle. He believes the United States

had a de facto central bank in this period, but it arose from the

complementary actions of the Secretary of the Treasury and the First Bank. In

combination, these two powerful financial institutions kept pressure on the

state banks to restrain their issuance of banknotes and, simultaneously, their

volume of loans. Cowen tends to give the Treasury Department, and

particularly Secretary Alexander Hamilton, the lion’s share of the credit for

initiating this tandem arrangement. Treasury secretaries did not hesitate to

urge bank management to adopt stabilizing policies which seemed to be in the

best interest of the nation — irrespective of whether those policies might

run counter to the interests of the bank’s shareholders. Typically, the First

Bank complied with the Treasury’s suggested action. The maintenance of

financial stability in the new national economy was a joint goal of the

Treasury and the First Bank. And, of course, they succeeded admirably. From

1789 until the outbreak of the War of 1812, the United States enjoyed the

advantages of a safe and sound financial system. Many emerging markets today

should be so lucky!

Who should read this book? Financial historians of the United States, of

course — and be sure to check out those fabulous endnotes. I can recommend it

as well to all historians of the early national period whatever their topical

specialty. Presumably, most professors lecture students about the First Bank

and the evolution of the US financial system in their upper division courses,

and they ought to get the story straight.

To his credit, Cowen has produced not just one, but two, original arguments

related to the history of the First Bank of the United States, and his

scholarly contribution deserves our applause and careful attention. If the

currency trading job on Wall Street does not pan out over the long run, we can

welcome him back into the academy — but almost certainly at a lower starting


Edwin J. Perkins, emeritus professor of history at the University of Southern

California, is the author of American Public Finance and Financial

Services, 1700-1815 (Columbus, Ohio State University Press). His most

recent publication is Wall Street to Main Street: Charles Merrill and

Middle-class Investors (Cambridge University Press, 1999).

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):North America
Time Period(s):18th Century