13 Bankers - Hamilton verses Jefferson

The real reason I wanted to post was to describe the conflict between Hamilton and Jefferson in regards to banking that is described in Simon Johnson's book.

Thomas Jefferson is the hero of the libertarian movement, and lately the Republicans have adopted him as well. Its funny, by the way, how the party out of power suddenly becomes libertarian. Liberals and libertarians loved each other during Bush's presidency.

And its true, libertarians and Thomas Jefferson have a lot of common cause. In reality, everyone else is a Hamlitonian. The difference, really, ideologically, between our two political parties are small. The differences seem larger than they are because the party out of power emphasizes and exaggerates these differences with the goal to get back into power.

But Thomas Jefferson had some interesting views on banking:

"Suspicion of large, powerful banks is as old as the United States, dating back at least to Thomas Jefferson - author of the Declaration of Independence, secretary of state under President George Washington, third president of the United States, and staunch proponent of individual liberty. Although Jefferson is one of the most revered founders of the republic, according to conventional wisdom he was not much of an economist. Jefferson believed in an agrarian society of decentralized institutions and limited political and economic power. He was deeply suspicious of banks and criticized them in vitriolic terms, writing, 'I sincerely believe, with you that banking institutions are more dangerous than standing armies.' In a letter to James Madision, Jefferson even suggested, quite seriously, that anyone who cooperated with a federally chartered bank was guilty of treason and should be executed."

Hamilton, however, "favored a stronger federal government that actively supported economic development. In particular, Hamilton believed that the government should ensure that sufficient credit was available to fund economic development and transform America into a prosperous, entrepreneurial country. This would require the introduction of modern forms of finance opposed by Jefferson. This tension between Jefferson and Hamilton has endured to the present day."

"When it came to basic economic issues, Hamilton was right. Economic development in the early United States depended heavily on the creation of a well-function financial system, as shown by modern scholars such as Richard Sylla and Peter Rousseau. The United States in the 1780s 'lacked nearly all the elements of a modern financial system, but by the 1820s had a financial system that was innovative, large and perhaps the equal of any in the world.' This was due not only to the Bank of the United States, but also to other financial reforms implemented by Hamilton..."

"In retrospect, Jefferson's economic positions seem either cranky and uninformed or motivated by his distaste for the Northern commercial interest that he predicted would benefit from a strong central government and eventually undermine Southern plantation (and slave) owners such as himself."

...

"But while Hamilton may have been right about the economics, that was not Jefferson's primary concern. His fear of large financial institutions had nothing to do with the efficient allocation of capital and everything to do with power. Jefferson correctly discerned that banks' crucial economic functions - mediating financial transactions and creating and managing the supply of credit - could give them both economic and political power. In the 1790s, Jefferson was particularly worried that the Bank of the United States could gain leverage over the federal government as its major creditor and payment agent, and could pick economic winners and losers through its decisions to grant and withhold credit. "

We have largely become a Hamiltonian nation...

"However our Hamiltonian inclinations - to seek out efficiency, to celebrate bigness, and to look favorably on anything that makes money - have been kept at least partially in check by the legacy of Jefferson."

Jefferson lost the battle over the Bank of the United States, but he had 3 champions:

1) "In the 1830s, Andrew Jackson's showdown with the Second Bank of the United States set back the development of the concentrated financial sector."

2) "At the beginning of the twentieth century, the crusade against the industrial trusts begun by Theodore Roosevelt.."

3) "Franklin Delano Roosevelt was finally able to break up the largest banks and constrain their risky activity".

Read that again, Andrew Jackson, Theodore Roosevelt, and Franklin Delano Roosevelt were Jeffersonian.

Reagan, Clinton, Bush were Hamiltonian.

Obama, so far, has continued the Hamilton tradition. Right now, we really need a Jefferson.