By Nancy Spannaus
April 5, 2018–National banking in the United States built us into an industrial giant. It derives specifically from Alexander Hamilton’s concept of the First Bank of the United States, a partially government-owned credit institution devised to unify and build the young nation. The fact that most Americans are ignorant of the history of national banking contributes greatly to the fact that the opposite concept—that of monetarist central banking, confined to dealing with money per se–can continue to exercise a stranglehold over the U.S. through the Federal Reserve and its Wall Street cohorts.
The following brief history highlights the fact that it is in the periods of dominance of National Banking that the United States economy achieved the greatest scientific and technological progress. It was then that we built a national infrastructure to unite the nation—first roads, then canals and railroads, then electricity and highways. It was then we financed innovation in industry and science as well. What you read here is a review of the American System in action.
It’s past time we do it again.
1791—Congress approves Hamilton’s Bank of the United States (B.U.S.), the First National Bank.
Real Economic Results: Under the B.U.S., the United States develops a uniform national currency; escapes bankruptcy; connects the nation with 20,000 miles of post roads; begins a nascent manufacturing base; and issues the down-payment on creating the National Road, which played a key role in Western expansion. Engineering was also fostered by the establishment of West Point in 1802.
1811–Congress refuses to re-charter the Bank, leaving the nation and the government at the mercy of private and state financiers during the War of 1812.
Real Economic Results: Physical devastation due to lack of financing (and military infrastructure), and increasing sectional tensions.
1816–Congress approves a charter for the Second Bank of the United States.
Real Economic Results: After a bout of mismanagement where credit was unduly restricted, the Second Bank becomes a major source of capital and coordination for rapid expansion of infrastructure and industry in the country during the 1820s. President John Quincy Adams is a driving force for this development. This is the era of dramatic expansion of canals and railroads, which benefit all sectors of the economy and the nation. The coal and iron industries also take off.
1833–President Andrew Jackson removes government funds from the Bank, and announces his intent that the bank lose its charter when it expired in 1836.
Real Economic Results: Wildcat banking, and financial crash in 1837. The uneven development and chaos throughout the country contributes to the ultimate split causing the Civil War.
1863-64–Under the Presidency of Abraham Lincoln, Congress passes two National Banking Acts, which re-establish a national currency and provide funds for both prosecuting the war effort and building infrastructure and industry throughout the nation. These acts created the “greenbacks” which served these purposes.
Real Economic Results: Unification of the nation with the Transcontinental Railroad, improvement of agriculture with land-grant colleges, and a take-off of productivity in the industrial sector, which creates a momentum that lasts even after the greenback credit system is cut back with Species Resumption in 1879.
1933-34–President Franklin Roosevelt curtails Wall Street’s power with the Glass-Steagall Act, and gets an expansion of the powers of the Reconstruction Finance Corporation (RFC) to be able to lend to industry, including adjusting terms of the loans when a worthy company was having difficulty. The RFC functioned like a national bank, with guarantees by the Federal government.
Real Economic Results: The RFC was responsible for pumping $50 billion worth of credit into the U.S. economy, which resulted in the creation of much of the power, water management, and urban infrastructure the United States depends upon today. In addition, it almost singlehandedly provided the credit for building the defense industry, which made major breakthroughs in machine-tooling and other industrial processes. The development of nuclear energy and leaps in medical science also occurred during this period.
According to the National Bureau of Economic Research, the 1930s-1950s were the “golden age” of productivity in the U.S. economy. This was particularly due to the upgrading of the core infrastructure, especially electric power.
Significant follow-ups to the methods of the RFC, which ended officially in 1957, included President Eisenhower’s national highway system (built with a dedicated fund called the Federal gas tax), and the U.S. space program, which poured billions of Federal credit into a network of scientific and industrial institutions which produced the last qualitative innovative leaps in the U.S. economy.
Once these programs were scaled back, especially in the early 1970s, the result has been de-industrialization, collapse of vital infrastructure, and unbridled speculation—with effects well-known.