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The Founding Father of Central Banking
Hamilton is also considered to be the founding father of central banking since America’s first central bank, the Bank of the United States (BUS), existed primarily due to his efforts as Treasury Secretary. As William Graham Sumner wrote in his biography of Hamilton, however, "[A] national bank . . . was not essential to the work of the Federal Government." The real purpose of Hamilton’s bank, Sumner believed, was "the interweaving of the interests of wealthy men with those of their government." And interweave it did, providing cheap credit to business supporters of the Federalist Party, attempting to engineer boom-and-bust cycles to influence elections (called "political business cycles" in today’s parlance) and even financing the political campaigns of BUS supporters.
The BUS was a disaster for the general public, however; excessive money creating by the BUS printing press caused 72 percent inflation in its first five years, from 1791 to 1796. It became so unpopular that its twenty-year charter was not renewed, but then the War of 1812 gave it a new life, and it was resurrected in 1817. It immediately caused the Panic of 1819, and did what all central banks have always done: generated boom-and-bust cycles for the next twenty years. The bursting of the housing bubble in our time is the latest example of this hoary tradition.
Hamilton’s BUS was de-funded by President Andrew Jackson, and then a version of it was resurrected once again in 1863 by the neo-Hamiltonian Lincoln administration with several National Currency Acts. This, and other interventions of that period (50 percent average tariff rates, massive corporate welfare for the railroad industry, income taxation, pervasive excise taxation), led historian Leonard Curry to observe in his book, Blueprint for Modern America: Nonmilitary Legislation of the First Civil War Congress, that the interventions "ushered in four decades of neo-Hamiltonianism: government for the benefit of the privileged few."
The record of Hamiltonian central banking from that time until the Fed was created in 1913 was summarized in a scholarly paper by economists Michael Bordo, Anna Schwartz and Peter Rappaport: "monetary and cyclical instability, four banking panics, frequent stock market crashes, and other financial disturbances." The Wall Street elite’s response to all this central bank-induced monetary instability was even more centralized banking with the creation of the Federal Reserve Board. It may have meant instability to the ordinary citizens, but was the source of great riches to the banking industry and other members of the politically well-connected class. Sound familiar?