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Alexander Hamilton and the US Financial Revolution of the 1790s
Alexander Hamilton and the US Financial Revolution of the 1790s
Financial Revolution
Financial Revolution
Historical Financial Revolutions
Historical Financial Revolutions
Who was Hamilton
Who was Hamilton
Who was Hamilton
Who was Hamilton
Who was Hamilton
Who was Hamilton
Alexander Hamilton and the US Financial Revolution of the 1790s
Alexander Hamilton and the US Financial Revolution of the 1790s
The US Financial Revolution
The US Financial Revolution
Alexander Hamilton and the US Financial Revolution of the 1790s
Alexander Hamilton and the US Financial Revolution of the 1790s
US Growth Rates per year, 1790-2009
US Growth Rates per year, 1790-2009
Finance and Economic Growth
Finance and Economic Growth
US Financial System, 1788 and 1795
US Financial System, 1788 and 1795
The US Financial Revolution, 1789-95
The US Financial Revolution, 1789-95
Public Finance and Debt Management
Public Finance and Debt Management
Alexander Hamilton and the US Financial Revolution of the 1790s
Alexander Hamilton and the US Financial Revolution of the 1790s
Alexander Hamilton and the US Financial Revolution of the 1790s
Alexander Hamilton and the US Financial Revolution of the 1790s
Report on the Bank, December 1790
Report on the Bank, December 1790
Report on the Bank
Report on the Bank
Hamiltons Report on the Mint, January 1791
Hamiltons Report on the Mint, January 1791
Hamiltons
Hamiltons
US State-Chartered Banks: Numbers and Authorized Capital, by Region
US State-Chartered Banks: Numbers and Authorized Capital, by Region
Compare and Contrast
Compare and Contrast
Table 3. Corporations Chartered in USA, 1607-1800
Table 3. Corporations Chartered in USA, 1607-1800
Alexander Hamilton and the US Financial Revolution of the 1790s
Alexander Hamilton and the US Financial Revolution of the 1790s
Alexander Hamilton and the US Financial Revolution of the 1790s
Alexander Hamilton and the US Financial Revolution of the 1790s
Securities Markets: City Listings in 1811
Securities Markets: City Listings in 1811
Growth of the New York Securities Market, 1797-1832
Growth of the New York Securities Market, 1797-1832
Alexander Hamilton and the US Financial Revolution of the 1790s
Alexander Hamilton and the US Financial Revolution of the 1790s
Alexander Hamilton and the US Financial Revolution of the 1790s
Alexander Hamilton and the US Financial Revolution of the 1790s
Alexander Hamilton and the US Financial Revolution of the 1790s
Alexander Hamilton and the US Financial Revolution of the 1790s
Foreign Investment and Capital Flows to the US Emerging Market
Foreign Investment and Capital Flows to the US Emerging Market
Alexander Hamilton and the US Financial Revolution of the 1790s
Alexander Hamilton and the US Financial Revolution of the 1790s
Alexander Hamilton and the US Financial Revolution of the 1790s
Alexander Hamilton and the US Financial Revolution of the 1790s
A crucial US advantage: modern finance from the start
A crucial US advantage: modern finance from the start
Alexander Hamilton and the US Financial Revolution of the 1790s
Alexander Hamilton and the US Financial Revolution of the 1790s
Growth of US Industrial Production, 1790-1913 (percent per year in the
Growth of US Industrial Production, 1790-1913 (percent per year in the
The US Case: Part II
The US Case: Part II
Threats to the Financial Revolution
Threats to the Financial Revolution
Panic of 1792 threatens to undo the US financial revolution, as had
Panic of 1792 threatens to undo the US financial revolution, as had
Why you probably never heard of the US panic of 1792:
Why you probably never heard of the US panic of 1792:
1792: Bubble, collapse, panic
1792: Bubble, collapse, panic
Alexander Hamilton and the US Financial Revolution of the 1790s
Alexander Hamilton and the US Financial Revolution of the 1790s
Causes of the 1792 Bubble
Causes of the 1792 Bubble
Bank of the United States, Dec
Bank of the United States, Dec
1792: Hamiltons crisis management tactics (1) Open Market Purchases
1792: Hamiltons crisis management tactics (1) Open Market Purchases
1792: Hamiltons crisis management tactics (2) Induces banks to extend
1792: Hamiltons crisis management tactics (2) Induces banks to extend
1792: Hamiltons crisis management tactics (3) Arranges cooperative
1792: Hamiltons crisis management tactics (3) Arranges cooperative
Let deposits of stock be received to an amount not exceeding a
Let deposits of stock be received to an amount not exceeding a
Bagehots rules, 1873, independently formulated by Alexander Hamilton
Bagehots rules, 1873, independently formulated by Alexander Hamilton
Was Hamiltons Bagehot-like plan of March 22, 1792, implemented
Was Hamiltons Bagehot-like plan of March 22, 1792, implemented
1792: Hamiltons crisis management tactics (4) Induces banks to
1792: Hamiltons crisis management tactics (4) Induces banks to
1792: Hamiltons crisis management tactics (5) Releases reassuring
1792: Hamiltons crisis management tactics (5) Releases reassuring
Dutch loans served two purposes in 1792
Dutch loans served two purposes in 1792
Summary and an extension
Summary and an extension
Hamilton, Central Banking Theory, and Greenspan/Bernanke
Hamilton, Central Banking Theory, and Greenspan/Bernanke
After the panic of 1792, US financial system grows rapidly
After the panic of 1792, US financial system grows rapidly
The US Case: Part III
The US Case: Part III
Comparing UK and US levels, 1830
Comparing UK and US levels, 1830
Comparing populations, 1830
Comparing populations, 1830
Centers of two empiresUK/England & Wales, and US Northeast (to scale)
Centers of two empiresUK/England & Wales, and US Northeast (to scale)
Per capita comparisons, 1830, in $
Per capita comparisons, 1830, in $
After 1825-1835
After 1825-1835
Butby 1830, the winner is
Butby 1830, the winner is
From 1790 to 1830
From 1790 to 1830
Foundation of US expansion: The financial revolution planned and
Foundation of US expansion: The financial revolution planned and
The 100 most influential Americans of all time, in an Atlantic
The 100 most influential Americans of all time, in an Atlantic
Alexander Hamilton and the US Financial Revolution of the 1790s
Alexander Hamilton and the US Financial Revolution of the 1790s

: Alexander Hamilton and the US Financial Revolution of the 1790s Richard Sylla, New York University. : rsylla. : Alexander Hamilton and the US Financial Revolution of the 1790s Richard Sylla, New York University.ppt. zip-: 1047 .

Alexander Hamilton and the US Financial Revolution of the 1790s Richard Sylla, New York University

Alexander Hamilton and the US Financial Revolution of the 1790s Richard Sylla, New York University.ppt
1 Alexander Hamilton and the US Financial Revolution of the 1790s

Alexander Hamilton and the US Financial Revolution of the 1790s

Richard Sylla, New York University

Financial University lecture, Moscow 25.10.10

2 Financial Revolution

Financial Revolution

What is it? Emergence, in a brief period of history, of a modern financial system with: Stable public finances and public debt management Stable Currency/Money A good banking system An effective central bank Efficient securities markets Business corporationsfinancial & non-financial authorized by governments and with shareholders and managers

3 Historical Financial Revolutions

Historical Financial Revolutions

Which countries in modern history had financial revolutions? Successful cases: Dutch Republic, 1550-1620 England, 1688-1740s USA, 1789-1795 Japan, 1870s-1880s Aborted case: France, 1715-1720 (John Law)

4 Who was Hamilton

Who was Hamilton

(1)

Born 1757 (or 1755) on island of Nevis in West Indies Illegitimate child; orphaned in 1768 Showed high intelligence, and was sent to American mainland for education in 1772 Kings College (now Columbia University) in New York, 1773 Revolutionary (anti-British rule) pamphleteer, 1774-1775

5 Who was Hamilton

Who was Hamilton

(2)

Captain, New York Artillery Co., 1775-77 Lt. Colonel, Continental Army, and principal aid de camp to Gen. Washington, 1777-1781 Lawyer, New York, 1782-1804 Member of Confederation Congress and New York legislature, 1780 Founder, Bank of New York, 1784

6 Who was Hamilton

Who was Hamilton

(3)

Annapolis Convention delegate, 1786 Philadelphia Constitutional Convention delegate, 1787 Principal author of Federalist Papers, 1787-88 Washington, first president of US under Constitution, 1789-97, appoints Hamilton Secretary of the Treasury (finance minister), 1789. Serves from 1789 to 1795.

7 Alexander Hamilton and the US Financial Revolution of the 1790s
8 The US Financial Revolution

The US Financial Revolution

The US financial revolution of the early 1790s gives the new federal government strong public finances and debt management, and also jump starts the modern growth and development of the US economy.

9 Alexander Hamilton and the US Financial Revolution of the 1790s
10 US Growth Rates per year, 1790-2009

US Growth Rates per year, 1790-2009

1790-1860 1860-1920 1920-2009

Real GDP 4.40% 3.61% 3.36% Real GDP/Capita 1.30% 1.52% 2.13% Population 3.02% 2.05% 1.20%

11 Finance and Economic Growth

Finance and Economic Growth

The USA grew at modern rates virtually from its start as a nation, from 1790 on Modernization of the US financial systemthe financial revolution of the early 1790swas a crucial input to growth The US financial revolution was conceived and executed mainly by Hamilton

12 US Financial System, 1788 and 1795

US Financial System, 1788 and 1795

13 The US Financial Revolution, 1789-95

The US Financial Revolution, 1789-95

Stable public finances and debt management Stable money An effective central bank A functioning banking system Active securities markets Growing numbers of corporations, financial and non-financial Before 1789, the US had none of these. By 1795, perhaps even by 1792, it had all of them.

14 Public Finance and Debt Management

Public Finance and Debt Management

Establishing Public CreditHamiltons January 1790 Report to Congress --Fund all debts at par value (these were about 40% of GDP then), but at reduced interest rate --No discrimination between original and present owners --Assume state debts --Commence interest on US debts in 1791, and assumed state debts in 1792 Problem: Government revenues far from adequate to deliver on the promises Solution: Using deft financial management, borrow from domestic banks and foreign lenders to meet obligations until tax revenues become adequate

15 Alexander Hamilton and the US Financial Revolution of the 1790s
16 Alexander Hamilton and the US Financial Revolution of the 1790s
17 Report on the Bank, December 1790

Report on the Bank, December 1790

Hamiltons plan for the Bank of the United States (1) --Limited liability corporation, privately managed, with capital of $10 million divided into 25,000 transferable shares with par value of $400 each --US government to take 5,000 shares (20%), paying for them with a loan from the Bank, to be repaid in installments over ten years --Private investors offered 80% of shares, one-fourth payable in specie and three-fourths payable in the new US 6% bonds issued as part of the plan to restore public credit

18 Report on the Bank

Report on the Bank

Hamiltons plan for the Bank of the United States (2) --BUS to have 25 directors, one to be president --Prudent mean voting rightsno shareholder to have more than 30 votes, regardless of no. of shares owned --BUS bills and notes receivable in all payments to US --Branch offices of discount and deposit can be established throughout the US --BUS to report to Secretary of Treasury as often as weekly, and Secretary has right to inspect BUS books

19 Hamiltons Report on the Mint, January 1791

Hamiltons Report on the Mint, January 1791

Hamilton defines a new US dollar as the monetary base: the unit in the coins of the United States ought to correspond with 24 Grains and ? of a Grain of pure Gold and with 271. Grains and ? of a Grain of pure silver, each answering to a dollar in the money of account. Recommends various coins be minted, including ten dollar gold coins, one dollar silver and gold coins, disme or tenth dollar coins, and a copper Cent or Hundreth of a dollar. Congress enacts the plan a year later, but US Mint develops slowly, so foreign coins with dollar ratings are used for decades. A US dollar currency union among American states is established in the 1790s, two centuries before the euro. Monetary unification. Banks moneynotes and depositsare convertible into dollar base. US banking system expands rapidly after 1790.

20 Hamiltons

Hamiltons

21 US State-Chartered Banks: Numbers and Authorized Capital, by Region

US State-Chartered Banks: Numbers and Authorized Capital, by Region

and Total, 1790-1835 (Capital in millions of dollars)

Region

New Engl

Mid-Atl

South

West

US

Year

No.

Cap.

No.

Cap.

No.

Cap.

No.

Cap.

No.

Cap.

1790

1

0.8

2

2.3

3

3.1

1795

11

4.1

9

9.4

20

13.5

1800

17

5.5

11

11.9

28

17.4

1805

45

13.2

19

21.7

6

3.5

1

0.5

71

38.9

1810

52

15.5

32

29.4

13

9.1

5

2.2

102

56.2

1815

71

24.5

107

67.1

22

17.2

12

6.4

212

115.2

1820

97

28.3

125

74.4

25

28.6

80

28.4

327

159.6

1825

159

42.2

122

71.2

32

33.3

17

9.4

330

156.6

1830

186

48.8

140

73.8

35

37.3

20

10.5

381

170.4

1835

285

71.5

189

90.2

63

111.6

47

35.0

584

308.4

22 Compare and Contrast

Compare and Contrast

Canada did not have chartered bank until 1817. It had 6 banks in 1830 and 16 in 1840. Mexico did not have a chartered bank until 1863. It had 8 banks in 1883 and 46 in 1911. In England, until 1825 all banks apart from the Bank of England had to be unlimited-liability partnerships with no more than six partners. By 1825 the US had 330 state banking corporations and a central bank with 25 branches carrying on interstate banking. England, France, and Germany did not offer general incorporation to banks and other business until the latter half of the 19th century. By that time the US had thousands of corporations. The US had 80 banks and branches by 1805, 600 by 1835, 1,600 by 1860, and 25,000 by 1910. In 1913, the US had at least 30% of the total bank deposits of the entire world, and at least 36% of commercial bank deposits--far more than any other country.

23 Table 3. Corporations Chartered in USA, 1607-1800

Table 3. Corporations Chartered in USA, 1607-1800

24 Alexander Hamilton and the US Financial Revolution of the 1790s
25 Alexander Hamilton and the US Financial Revolution of the 1790s
26 Securities Markets: City Listings in 1811

Securities Markets: City Listings in 1811

27 Growth of the New York Securities Market, 1797-1832

Growth of the New York Securities Market, 1797-1832

28 Alexander Hamilton and the US Financial Revolution of the 1790s
29 Alexander Hamilton and the US Financial Revolution of the 1790s
30 Alexander Hamilton and the US Financial Revolution of the 1790s
31 Foreign Investment and Capital Flows to the US Emerging Market

Foreign Investment and Capital Flows to the US Emerging Market

One of Hamiltons main reasons for establishing a modern financial system in the US is that it would attract foreign investment and capital flows The new financial system did exactly that The US economy and financial system have continued to attract foreign investment and capital flows, with some fits and starts, for more than two centuries

32 Alexander Hamilton and the US Financial Revolution of the 1790s
33 Alexander Hamilton and the US Financial Revolution of the 1790s
34 A crucial US advantage: modern finance from the start

A crucial US advantage: modern finance from the start

The US westward expansion depended on finance: e.g., the Louisiana Purchase, lands sold on credit The US transportation revolution depended on finance: e.g. turnpike and bridge companies, the Erie and other canals, the railroads The US industrial revolution depended on finance: e.g., textile manufacturers raised equity capital by selling stock, and obtained working capital via bank loans Rapid industrial growth began with the establishment of a modern financial system in the 1790s

35 Alexander Hamilton and the US Financial Revolution of the 1790s
36 Growth of US Industrial Production, 1790-1913 (percent per year in the

Growth of US Industrial Production, 1790-1913 (percent per year in the

new Davis index)

1790-1913 5.2 1790-1802 5.3 1802-1815 3.9 1815-1833 5.3 1833-1860 6.0 1860-1913 5.0

37 The US Case: Part II

The US Case: Part II

The US financial revolution of the early 1790s, and the jump start it gave to economic growth and development A threat to financial modernization that was handled successfully: Wall Streets first crash in 1792 Comparing the US and UK financial systems in the early 19th century: Who had the better system?

38 Threats to the Financial Revolution

Threats to the Financial Revolution

Today we know that the Federalists financial revolution was a success. But it could have failed at a number of points. An instructive example is the securities market panic of 1792 when the US national debt lost 25% of its value in two weeks. Hamilton saved the day by modern central-bank-like interventions, which are just now coming into historical focus.

39 Panic of 1792 threatens to undo the US financial revolution, as had

Panic of 1792 threatens to undo the US financial revolution, as had

happened earlier in France and almost happened earlier in England: The collapse of the Mississippi Bubble of 1720 actually undid John Laws plans for a French financial revolution. The collapse of the South Sea Bubble of 1720 in Great Britain threatened that countrys financial revolution, but modern finance survived there in a weakened form.

40 Why you probably never heard of the US panic of 1792:

Why you probably never heard of the US panic of 1792:

Interventions executed and orchestrated by public agents, chiefly Alexander Hamilton, Secretary of the Treasury, ended the financial crisis with no damage to the US economy. There was political fallout, as Federalist (pro-business, pro strong central government) and Republican (pro-agriculture, pro states right devolution) political parties formed. The politics of Jefferson vs. Hamilton overshadowed the successful weathering of the financial crisis in most subsequent historical accounts.

41 1792: Bubble, collapse, panic

1792: Bubble, collapse, panic

--Fueled by increases in bank credit and a speculative cabal, securities prices rose rapidly early in 1792 [see securities price chartsnext slide]. --Prices crashed in March, after banks stepped on the brakes and the cabal collapsed in default. Panic selling drove US 6s in New York from 126 on March 5 to 95 on March 20, a drop of 25% in two weeks. --Hamilton intervened on a number of fronts.

42 Alexander Hamilton and the US Financial Revolution of the 1790s
43 Causes of the 1792 Bubble

Causes of the 1792 Bubble

The traditional story: Speculative cabal of Wm. Duer and others to corner market for US 6s. A more recent extension of the story: Rapid credit expansion by the new Bank of the United States, opened Dec. 1791, followed by credit contraction as it lost reserves.

44 Bank of the United States, Dec

Bank of the United States, Dec

1791 to Mar. 1792

Date/BUS data

Discounts

Notes and deposits

Specie reserves

Dec. 29, 1791

$0.96 mill.

$1.10 mill.

$0.706 mill.

Jan. 31, 1792

$2.68 mill.

$2.17 mill.

$0.510 mill.

Mar. 9, 1792

$2.05 mill.

$2.06 mill.

$0.244 mill.

45 1792: Hamiltons crisis management tactics (1) Open Market Purchases

1792: Hamiltons crisis management tactics (1) Open Market Purchases

Directs open-market purchases of 1-2% of US debt outstanding. Meredith, Treasurer of US, purchases $133K par value of US debt for $92K cash in Philadelphia, Mar. 21-Apr. 25, 1792. Seton, cashier of Bank of New York, purchases $192K par value for $151K cash in New York, Apr. 2-17, 1792.

46 1792: Hamiltons crisis management tactics (2) Induces banks to extend

1792: Hamiltons crisis management tactics (2) Induces banks to extend

credit

Directs banks in major cities to grant credit to merchants having US tax payments falling duetwo examples: The merchants of New York have to pay considerable sums in duties in this and the next Month. You may boldly accommodate them under an assurance that the money shall in no event be drawn out of your hands in less than three Months, unless perfectly agreeable to you. Hamilton to Seton of B of NY, Mar. 19, 1792. Considerable sums of duties have become due, or are to fall due, in Baltimore, in the course of the present month. I have determined to inform you that, if you should incline to make discounts for the importers, to enable them to pay the duties which have become due or which shall fall due on or before the 15th day of April, I will leave a sum of money equal thereto in your hands, for sixty days after the dates of the notes. Hamilton to the Bank of Maryland, Mar. 29, 1792.

47 1792: Hamiltons crisis management tactics (3) Arranges cooperative

1792: Hamiltons crisis management tactics (3) Arranges cooperative

agreements among banks and securities dealers.

Directs Bank of New York to grant credit to securities dealers collateralized by US debt securities at prices Hamilton names, and at a penalty rate of interest, with promisein case the B of NY got stuck with the collateral, to repurchase the collateral at the prices he had named:

48 Let deposits of stock be received to an amount not exceeding a

Let deposits of stock be received to an amount not exceeding a

millionSix per Cents at par, three per Cents at 10 shillings on the pound, and deferred at 12 shillingsLet credits be passed on your books in favor of the Depositors for the amounts, according to those values, transferable at the Bank as in the case of deposits at the Bank of Amsterdam. Let the terms of the deposit be that the Depositors may withdraw their Stock at any time paying in specie the sums credited whenever the Credits have been transferredwith a right to the Bank after six months to sell the Stock and pay them the overplus. Let the Bank engage at the end of six months to pay the amount of these Credits in Gold or Silver; for the undertaking of which let them receive a compensation in Interest at the rate of 7 per Centum per annum. I take it for granted in the prevailing disposition of your City, transfers of these Credits under the promise of the Bank to pay in Specie at the end of six months would operate as Cash in mutual payments between Individualswhile the Bank would be perfectly safe from the danger of a run & undoubtedly safe eventually. To render the operation more perfectly safe to the Bank, I will engage at the expiration of six months to take off your hands at the rate specified to amount of 500,000 Dollarsin case the parties should not redeem & there should be no adequate demand. Which however is not supposeable. Hamilton to Seton, Mar. 22, 1792

49 Bagehots rules, 1873, independently formulated by Alexander Hamilton

Bagehots rules, 1873, independently formulated by Alexander Hamilton

in 1792

The end is to stay the panic; and the advances should, if possible, stay the panic. And for this purpose, there are two rules:--First. That these loans should only be made at a very high rate of interest. Secondly. That at this rate these advances should be made on all good banking securities, and as largely as the public ask for them. If it is known that the Bank of England is freely advancing on what in ordinary times is reckoned as a good securityon what is then commonly pledged and easily convertiblethe alarm of the solvent merchants and bankers will be stayed. Walter Bagehot, Lombard Street (1873)

50 Was Hamiltons Bagehot-like plan of March 22, 1792, implemented

Was Hamiltons Bagehot-like plan of March 22, 1792, implemented

Yes.

The Dealers last Night had a meeting & appointed a Committee, to confer with the Directors of the two Banks. The propositions which they are to hold out I hear in general is to offer, funded debt, at your price as pledges for their discounts--& they are to sign an Agreement to bind themselves not to draw any Specie from the Banks, on account of the discounts which they shall obtain and giving checks to each other, if anyone shall part with the Checkexcept to those, who engage by the agreement, not to draw out Specie, he shall be deemed infamous &... no one of the signers of the agreement will deal with him. Philip Livingston, New York, to Hamilton, Philadelphia, March 27, 1792.

51 1792: Hamiltons crisis management tactics (4) Induces banks to

1792: Hamiltons crisis management tactics (4) Induces banks to

cooperate

Directs US Treasury and banks not to draw on other banks reservesexamples: I have explicitly directed the Treasurer to forbear drawing on the Bank of New York, without special direction from me. And my intention is to leave you in possession of all the money you may have or may receive till I am assured the present storm is effectually weathered. Hamilton to Seton, Jan. 24, 1792. I request that you will not draw out from the Bank of N America any further sum without a previous communication from me. Hamilton to John Kean, cashier of Bank of the United States, Philadelphia, Mar. 28, 1792.

52 1792: Hamiltons crisis management tactics (5) Releases reassuring

1792: Hamiltons crisis management tactics (5) Releases reassuring

news

Publicizes new loan from Dutch bankers to US at 4%: Private. I have just received a Letter from Mr. Short, our Minister Resident date Amsterdam 28th December, by which he informs me that he has effected a loan for Three Millions of Florins [$1.2 million] at 4 P Cent Interest on account of the United States. This may be announced; and as in the present moment of suspicion some minds may be disposed to consider the thing as a mere expedient to support the Stocks, I pledge my honor for its exact truth. Is the Treasury of Great Britain comparatively in so good a state? Is the Nation comparatively so equal to its debt? Why then is there so much depression? I shall be answeredthe immediate necessity for Money. But if the Banks are forbearing as to the necessity of paying upcannot the parties give each other mutual credit and avoid so great a press? Hamilton to Seton, Mar. 25, 1792 [Before Hamilton learned that his Mar. 22 plan was being implemented in New York]

53 Dutch loans served two purposes in 1792

Dutch loans served two purposes in 1792

Publicizing the loan of 3 million florins, or $1.2 million, was a tactic for calming panicked markets in Mar. and Apr. 1792 As in 1791, Dutch loans financed the open market operations of Mar. and Apr. 1792: The whole sum successively received on account of Amsterdam bills, subsequent to the 1st of March, and prior to July, 1792, was $235,412.33. The amount of the moneys invested in purchases between those periods was $242,688. 31. Hamilton reporting to the House of Representatives, February 13, 1793.

54 Summary and an extension

Summary and an extension

Together, the interventions Hamilton orchestrated ended the Panic of 1792 by May, after which securities markets recovered. There were numerous bankruptcies in New York City and fewer elsewhere. But there was little economic damage. The US economy had been growing at modern rates of 1.4% per capita per year from the time the new government appeared in 1789, and that growth continued through the 1790s and after. In May 1792, 24 dealers in securities met under a buttonwood tree in Wall Street and founded the NYSE, a better trading system. Ten of the 24 had sold securities to Hamiltons agents during the open market purchase program of March and April, and probably had participated in the plan for bank-dealer cooperation in a crisis as unveiled in Hamiltons March 22nd letter.

55 Hamilton, Central Banking Theory, and Greenspan/Bernanke

Hamilton, Central Banking Theory, and Greenspan/Bernanke

There are parallels of what Hamilton did in 1792 and what Greenspan did more recently: 1987 stock market crash Russian/LTCM crisis of 1998 Late 90s bubble and 2000-2002 crash 9/11/2001 terrorist attacks 2007-2009 credit crisis

56 After the panic of 1792, US financial system grows rapidly

After the panic of 1792, US financial system grows rapidly

Economic historians often say that Britain had the most developed financial system and was the financial leader of the 19th C. But that was not true in the 1790-1830 period, when the USA developed a more advanced financial system and grew economically far more rapidly than Britain. After 1830 Britain improved its financial system, and the USA weakened its system.

57 The US Case: Part III

The US Case: Part III

The US financial revolution of the early 1790s, and the jump start it gave to economic growth and development A threat to financial modernization that was handled successfully: Wall Streets first crash in 1792 Comparing the US and UK financial systems in the early 19th century: Who had the better system?

58 Comparing UK and US levels, 1830

Comparing UK and US levels, 1830

UK US PF: Nat. Debt $3,830 m. $80 m. Money stock $643 m.,M3 $129 m.,M2 Cent. Bank assets $166.1 m. $68.4 m. Banking capital $70-80 m. $154 m. (E&W is $55m) Secs. Mkts.-co. listings 206 216 Corps./ Jt. Stk. Cos. 250-300 1,100-1,200

59 Comparing populations, 1830

Comparing populations, 1830

UK 23.3 m. England & Wales 13.8 m. US 12.9 m. US Northeast 6.1 m.

60 Centers of two empiresUK/England & Wales, and US Northeast (to scale)

Centers of two empiresUK/England & Wales, and US Northeast (to scale)

61 Per capita comparisons, 1830, in $

Per capita comparisons, 1830, in $

UK US E&W US Northeast Pub. Debt/ cap. $161 6-7 Money stock/cap. 27 10 Cent. Bank assets/cap. 6.97 5.30 6.97 8.41 Fin. crises, 1790-1830 6 2 Bank assets/cap. 19 27.30 24 43 Annual bank failure rate/1000 18 5 . SM: listed cos./mill. 8.7 16.7 14.9 32 . Corps./Jt stk cos./mill. 13 93 22 180

62 After 1825-1835

After 1825-1835

UK got better1707 BoE monopoly ended, 1720 Bubble Act repealed, Jt stk banks come to England, unltd. cos. by registration (1844) and ltd. (1857), banks consolidate with extensive branch systems US got worseBUS recharter vetoed (1832), unit banking becomes entrenched UK orientation is international, US is domestic

63 Butby 1830, the winner is

Butby 1830, the winner is

UK US Public finance, debt mgmt. X Money tied Central banking X Banking system X Securities markets X Corporations X Financial system overall X

64 From 1790 to 1830

From 1790 to 1830

US grew faster than the UK, by 0.8 to 1%/yr US had fewer financial crises, 2 vs. 6 US bank failure rate was lower than that of England and Wales, 5 vs. 18 Admittedly, UK was at war more of time, 1793-1815, than US US Northeast had more bank assets/capita than England and Wales, $43 vs. $24 US Northeast had more co. securities listings/mill.pop. than England and Wales, 32 vs. 15 US Northeast has many more corps/mill.pop. than England and Wales, 180 vs. 22 US Northeast, comparable in size to UK, in 1830 arguably was the most financially developed large region in the world. Why?

65 Foundation of US expansion: The financial revolution planned and

Foundation of US expansion: The financial revolution planned and

executed by Alexander Hamilton as Secretary of the Treasury in the years 1789-1795

1788 1795 Public finances, national Bankrupt Thriving, debt is serviced Money Fiat state paper, US dollar foreign coins Central bank No Yes, with 5 branches --------------------------------------------------------------------------------------------------------------------------------- Banks 3, isolated 20 state + 5 BUS branches Securities markets Trivial, sporadic Organized, active in several cities Corporations Few Many more

66 The 100 most influential Americans of all time, in an Atlantic

The 100 most influential Americans of all time, in an Atlantic

magazine poll of historians, Dec. 2006. Top ten:

Abraham Lincoln George Washington Thomas Jefferson Franklin Delano Roosevelt Alexander Hamilton: Soldier, banker, and political scientist, he set in motion an agrarian nations transformation into an industrial power Benjamin Franklin John Marshall Martin Luther King, Jr. Thomas Edison Woodrow Wilson

67 Alexander Hamilton and the US Financial Revolution of the 1790s
Alexander Hamilton and the US Financial Revolution of the 1790s Richard Sylla, New York University
http://900igr.net/prezentacija/anglijskij-jazyk/alexander-hamilton-and-the-us-financial-revolution-of-the-1790s-richard-sylla-new-york-university-204938.html
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900igr.net > > > Alexander Hamilton and the US Financial Revolution of the 1790s Richard Sylla, New York University