Saturday, January 12, 2019
Getting money right is hard...............
Those deliberations unfolded against a backdrop of America's long and often unsuccessful effort to maintain equilibrium between the demand for money and its supply, an effort that extended back to the controversy unleashed by Hamilton's First Bank of the United States, designed to give the economy sufficient liquidity, maintain currency stability, and ensure economic efficiency. Jefferson and his Republican allies attacked the bank as a dangerous concentration of financial power, and its charter lapsed in 1811. But the War of 1812 revealed the need for a central banking authority. State banks in the Northeast, where the war was unpopular, hoarded the country's meager reserves of specie (gold and silver), forcing banks in the other regions to rely on printed money. The result was a menacing wave of inflation and considerable economic dislocation. Thus the Second Bank of the United States was established in 1816—and immediately slipped into corruption as its officials speculated in the bank's stock and fostered venal practices by its branch members. When new bank leaders sought to clean up the mess by foreclosing on overdue mortgages and redeeming overextended notes from state banks, they triggered the Panic of 1819. Banks failed, prices collapsed, unemployment soared.
President Andrew Jackson, a sound-money man who hated all concentrations of power, killed the national bank with a series of bold and highly controversial political maneuvers in the 1830s. But the state banks he fostered couldn't always maintain the needed balance between money demand and money supply, and that proved disastrous when the Panic or 1837 ravaged the U. S. economy for nearly seven years. An anguished call rose up for rescinding Jackson's last executive action, his Specie Circular, designed to curb a dangerous inflationary wave sweeping the country in conjunction with wild land speculations in the West. Jackson's answer was to require purchases of government property to be transacted in gold or silver.
But when the threat of inflation suddenly gave way to the threat of falling prices, or deflation, Jackson's protege and chosen successor, New York's Martin Van Buren, couldn't see that the Specie Circular was precisely the wrong medicine when the country desperately needed liquidity. In the name of a sound currency, he clung to Jackson's old policy even as it deepened the Panic and destroyed his presidency in the 1840 elections.
-Robert W. Merry, from his book, President McKinley: Architect of the American Century
The context for this passage is framing the silver-versus-gold debate in the lead-up to the 1896 Republican National Convention's nomination of William McKinley for president.