Banks and Politics in America from the Revolution to the Civil War

by Bray Hammond

This is a book about politics and banks and history. Yet politicians who read it will see that the author is not a politician, bankers who read it will see that he is not a banker, and historians that he is not an historian. Economists will see that he is not an economist and lawyers that he is not a lawyer.

With this rather cryptic and exhaustive disclaimer, Bray Hammond began his classic investigation into the role of banking in the formation of American society. Hammond, who was assistant secretary of the Board of Governors of the Federal Reserve System from 1944 to 1950, presented in this 771-page book the definitive account of how banking evolved in the United States in the context of the nation's political and social development.

Hammond combined political with financial analysis, highlighting not only the in.uence politicians exercised over banking but also how banking drove political interests and created political coalitions. He captured the entrepreneurial, expansive, risk-taking spirit of the United States from earliest days and then showed how that spirit sometimes undermined sound banking institutions. In Hammond's view, we need central banks to keep the economy on an even keel. Historian Richard Sylla judged the work to be "a wry and urbane study of early U.S. financial history, but also a timeless essay on how Americans became what they are." Banks and Politics in America won the Pulitzer Prize for history in 1958.

Genres: History, Economics, Finance, American History, Business, Nonfiction, Political Science

784 pages, Paperback

First published September 1, 1957

Reviews

[Frank Stein · Rating 5 out of 5]

For historians the sad irony is that histories usually don't age well, and this book has some age behind it. It was published back in 1956 (when it won a Pulitzer) and its author (a former banker) offhandedly mentions his personal memories of the 1896 McKinley/Bryan presidential campaign. That IS old. Yet this book fully deserves its Pulitzer and is probably the best single book on American banking out there. It is doorstopper, but its worth it.

As a former banker, Hammond intimately understands the banking procedures most historians only pretend to grasp (bills of exchange, deposit-liability ratios, discounting notes, etc.) and he is happy to explain them in clear, concise English. This alone should garner him a prize. Yet he has also conducted an incredible amount of research on the entire history of the American banking system and placed it in the center of US history more broadly. His narrative of the Second Bank of the United States, which of course takes up a significant chunk of the book, is enlightening and even exciting. He shows the drama and the importance behind bank charters, free banking, capital reserves, and commercial bills, all of which were not just economic issues, but were widely regarded to have national political importance.

He does spend too much time harping on the agrarians' opposition to banking (we get it, they WEREN'T William Jennings Bryan, they liked "hard" money), and in the later part of the book he gets repetitive extolling the virtues of central banking, but this would still be at the top of my list to recommend for people who want to understand American economic history.

[Mark · Rating 4 out of 5]

Written in 1956, Hammond's classic clearly has some miles on it and it asks different questions in different ways than would be posed by an historian writing today. But the perspective is invaluable, and Hamilton's experience working within the Federal Reserve system in the mid 20th century afforded him a unique perspective. This isn't a study of economics or finance -- it's fundamentally concerned with political economy. Hamilton got it right: from the earliest experiments in banking and the controversies surrounding the colonial land banks of the early 18th century through today's high stakes debates and Congressional theater the history of banking in the US has been fundemantally shaped by politics and politicians. Superficially, Elizabeth Warren and Andrew Jackson might seem to represent radically different cultures and worldviews -- but on issues connected with the "dangerous and distructive" role of "banking monsters" as a mortal threat to a free society their rhetoric is almost identical.

Here then, unpolished and unvarnisted are my notes from my first reading of Hammond in conjunction with my master's thesis on Hamiltonian Finance:

Good on the emergence of the US banking and the fundamental differences vs. European models. American banking did not evolve gradually, it arrived “by transplantation” and in, “public rather than private guise.” In a nation that came to accord almost sacred status to the virtues of free enterprise, banks, “never lost all the birthmarks of their public origin.” The European banking system served mature economies in which there was a surplus of capital; in America, the overriding reality (stressed continually by Hamilton and a major focus of his policies) was a chronic, severe shortage of capital, or specie in the vocabulary of the day. (pp. 68-69) Moreover, “The supply of specie was not elastic.” (p. 86)
“The establishment of banks … did not make Americans any more honest than they had been, nor did it introduce any more effective means of making them pay. Instead it simply created a new source and form of money, readily available … .” (p. 86) Although his language is sometimes a bit dated, Hammond is excellent on the close connection between credit and confidence, and in his understanding that, “with no confidence there can be no banking.” (p. 88) Good section on money and banking in the context of the Constitution; concludes that most of the delegates were in agreement on the need for banks to address the problems of the economy, but they made a conscious decision to ignore the subject in the Constitution because it was too controversial. (p. 105)
Hammond is very positive in his assessment of Hamilton’s legacy. “Alexander Hamilton prepared America for an imperial future of wealth and power, mechanized beyond the handicraft stage of his day, and amply provided with public credit to that end.” (p. 121) He notes that the political descendants of Thomas Jefferson have “out-Hamiltoned Hamilton” in their enthusiasm for mobilizing the power of the central government to guide economic behavior. (p. 121)

[Yong Kwon · Rating 5 out of 5]

Fantastic book that must be read in conjunction with Schlesinger's Age of Jackson. These two books are in conversation with one another and Hammond brings much-needed rebuttals to Schlesinger's skewed narrative on the operations of the Bank of the United States. Hammond identifies the policy options the Bank had to prepare for monetary shocks and reinterprets what Schlesinger saw as political maneuvers as preparatory measures in an uncertain climate created by the Jackson administration. In doing so, the book reveals Schlesinger to be a naive consumer of Jacksonian propaganda and presents still-salient reflections for today's fiscal-monetary policymaking.

A sane history of American finance for the current moment when radicals are poised to take back control of the lockbox.

[Daniel Glossenger · Rating 4 out of 5]

Kind of longwinded but informative on the subject. Disjointed in the end after the end of the Second Bank of the US.

[George King · Rating 1 out of 5]

Not as advertised. Not for the layman.