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).