Gluskin 1 Jared Gluskin Instructor Caitlin Hudgins English 802 21 September 2011 Alexander Hamilton and the Evolution

of Central Banking President Andrew Jackson expressed his hatred of the National Bank when he said, the bank is trying to kill me, but I will kill it. In the United States there has long been a debate over the issue of a central bank. A central bank or reserve bank uses monetary policy, the methods by which the supply of cash is increased or decreased, to control the interest rate and thus the economy. There have been three main central banks in U.S. history, The First Bank of the United States, The Second Bank of the United States and currently The Federal Reserve System. The issue of the bank has existed since its inception when argument raged over how the First Bank of the United States would be controlled and what powers it had. With a strong anti-federalist sentiment still intact, the Bank became a private company working in compliance with the Federal Government. The creators hoped that by keeping the bank and government separate, the bank would avoid corruption generally associated with politics. Today, this idea of separation causes problems due what is being called a lack in transparency in the Federal Reserve System. Another trend of central banking today also has its roots of the chartering of the First Bank back in 1791; the government borrowing money. When the bank was being proposed it was said to require an initial funding of $10 million with the government contributing $2 million. However, at the time, the U.S. government simply did not have that much money. The solution was that the Bank itself lends the money to the government to be reimbursed at a later date.

Gluskin 2 The man behind all of this was the Secretary of the Treasury, founding father and economist, Alexander Hamilton. His idea of governmental borrowing is a hot topic in todays economy with the U.S. in debt over $5 trillion to the Federal Reserve. Just like President Jackson, today many people want to close down the central bank, including Republican presidential candidates Michele Bachmann, Rick Perry and Ron Paul. While the public looks for somebody to blame for how things are now, some might start by judging Alexander Hamilton. In the popular anthology, Cultural Conversations, one important theme is how the past should be judged; is it fair to judge the past from a current perspective? In At the Buffalo Bill Museum, June 1988 Jane Tompkins states, It is not so much that we cannot learn from history as that we cannot teach history how things should have been (602). Though the ideas of Alexander Hamilton laid the foundation for over 220 years of economic anguish and debate, he should be revered for his contributions rather than reviled for what he could not control. When Jane Tompkins visited the Buffalo Bill Museum her immediate reaction was of awe as she was absorbed into the world of the American frontier. Everything she saw or touched made her feel like she had gone back in time and was enjoying the West from a first-person perspective. However, she soon began to realize that everything in the museum was full of violence. The pictures were of guns and shooting, there heads of hunted animals all over the walls and even the jewelry contained ivory or other animal parts. She became disgusted at how much violence was just a part of the culture of Buffalo Bills time. And there, in the middle of it all was Buffalo Bill, beloved by all despite his apparent atrocities. According to Tompkins there was a, wall of trophieswhere jewelry is displayed. A buffalo head stickpin and two buffalo head rings, the heads made entirely of diamonds, with ruby eyes, the gifts of the Russian crown prince. A gold and diamond stickpin from Edward VII; a gold, diamond, and garnet locket from

Gluskin 3 Queen Victoria (592). She left the museum, full of moral outrageundermined by the knowledge that I knew nothing about Buffalo Bill, nothing of his life, nothing of the circumstances that led him to be involved in such violent events (597). Determined to learn more on the subject, she set out to discover all there was to know and soon she came to love Buffalo Bill. This is the same open-minded sort of discovery that should apply to Alexander Hamiltons ideas. While today it has come to Governor Rick Perry calling the Federal Reserves actions, treasonous, the fact that the central bank and government could be separate was a huge moment in the United States creation back in 1791. After fighting for independence, there was a strong push for small federal government to avoid becoming like Britain. To the new United States, having a Central Bank as a separate company was a step towards establishing their own identity. Five trillion dollars is an absurdly large sum of money to be in debt. The fact that at this moment the U.S. government is indebted to the Federal Reserve for well over that amount is a fact that should not be taken lightly. The risk of defaulting is becoming increasingly relevant as around the world other countries are experiencing the same sort of crippling debt. However, it would be incorrect by any means to blame Hamilton for multiple reasons. First off, the only reason Hamilton pushed for the plan of borrowing was that America, as a new country, did not have $2 million in assets in the first place to afford to execute the plan. Second, he did not want to make the borrowing a long term ordeal. His original plan stated that the total sum would be paid back by ten equal, annual installments. Today if the total debt of the U.S. ($14,748,696,379,844 and rising by the second) were to be paid off, it would take every citizen of this country contributing $47,231. Lastly, Alexander Hamilton actually argued against this excessive borrowing after he left office. Multiple times the question arose of either borrowing

Gluskin 4 money or raising taxes. The people in office almost always went with borrowing simply because it looks better politically. They stood a better chance of reelection by taking the easy way out. Hamilton knew that basing the entire economy on borrowed funds was a bad idea and constantly fought against this reckless behavior, which he had accidentally created. Alexander Hamilton helped create America; he was a politician, economist, lawyer and founding father. His contributions, for better or for worse, set up how our country works. We can either accept that fact and be proud of our history or lament our current status and throw blame at whoever would seem most convenient. Tompkins says, The thirst for moral outrage, for selfvindication, lay pretty close to the surface (602). People, in whole, must look past the easy, automatic way of thinking; one that readily places blame on others but would never even think to look inwards to solve their problems. As David Foster Wallace said in his commencement speech at Kenyon College: If you're automatically sure that you know what reality is and who and what is really important -- if you want to operate on your default-setting -- then you, like me, will not consider possibilities that aren't pointless and annoying. But if you've really learned how to think, how to pay attention, then you will know you have other options. Our country has advanced beyond the wildest dreams of the founding fathers. We have endured economic booms, busts, depressions, recessions and everything in between. Our world is so advanced that Hamilton would barely recognize his system of central banking. Technology has completely changed the game as banks are infinitely more connected than they could have been in Hamiltons time; for example, without the convenience of phones, computers and cars the current institution of overnight inter-bank loans could never be possible. Events like the

Gluskin 5 Great Depression and the prevalence of bank runs, the globalization of economics and the speed at which technology works have transformed the base ideas of old into what we have now. To place blame on such an innocent bystander of history would be a travesty. As America heads into the future, it must also learn from the past; but if America fails to correctly analyze the past, then it is destined to make the same mistakes in the future

Gluskin 6 Works Cited Tompkins, Jane. At the Buffalo Bill Museum, June 1988. Cultural Conversations: the Presence of the past. Ed. Dilks, Stephen, et al. Boston: Bedford/St. Martin's, 2001. 587603. Print. Substitutes for cash in the panic of 1907; ANDREW, A. P. Quarterly Journal of Economics); 1908 Vol. 22 Issue 4, 20p. Central Bank. Wikipedia: The Free Encyclopedia. Wikimedia Foundation, Inc. 22 July 2004. Web.