Panic at the bank | The Ponte Vedra recorder
By Scott A. Grant
On September 17, 1819, John L. Harper and his accomplices broke into the Bank of the United States in Chillicothe, Ohio, and extirpated $ 120,000 in currency at gunpoint. Harper and his gang weren’t bank robbers. They were “tax collectors” commissioned by the state of Ohio. Harper and his gang were paid $ 2,000 for collecting a $ 100,000 tax levied by the Ohio State Legislature. The excess of $ 20,000 was returned.
The Bank of the United States was unpopular in many parts of the country. He lent money for free to settlers moving west. But, during times of economic downturn, the bank protected itself and reduced its loans resulting in foreclosures. This often led to what was called a “panic”. Before World War I, we called our recessions “panics” because they were often precipitated or exacerbated by “panics” on the banks.
After the War of 1812, the nation suffered its first great depression, the Panic of 1819. The citizens of Ohio were angry and blamed their suffering on the Bank of the United States. Their legislature passed a law taxing the bank $ 50,000 for each of its branches in the state. The bank, of course, refused to pay. So the state hired Harper and his gang to collect. The tax was unconstitutional. He violated a recent precedent stating that “the power to tax necessarily implies the power to destroy”. The Supreme Court ruled that Ohio must return the money, with interest.
The Bank of the United States is the brainchild of Alexander Hamilton. It was supposed to act like the Bank of England. From the start, it was controversial. Andrew Jackson led a populist campaign against the bank which led to his election as president in 1828. He had the bank’s charter revoked in 1836. This immediately led to the panic of 1837 and decades of unrest economics known as the era of free banking. or “Wildcat Banking”.
Thousands of wild banks, licensed by accommodating state legislatures, have sprung up everywhere and gone bankrupt almost as frequently. each bank issued its own currency. The value of the currency varied enormously. The currency of the stronger banks was worth more, the weaker banks less. Many railroads set up their own banks to finance their expansion and pay their workers. It was around the time of the first railroad boom. When a railroad failed, its bank also failed. This decentralized financing system was a total disaster. During the panic of 1857, all of Oklahoma’s banks went bankrupt.
In 1862, Congress authorized a system of national banks to finance the Civil War. National banks issuing their own banknotes have sprung up in apparently every city. The banknotes were guaranteed by the Treasury and are now considered collector’s items.
The panic of 1907 nearly bankrupted the country. Only the intervention of JP Morgan saved us from financial ruin. In his day, J. Pierpont Morgan was as popular as Elon Musk or Warren Buffett. As a result of this panic, Congress authorized the Federal Reserve to regulate commerce and currency. The Fed put us on the Gold Standard. For the next six decades, the dollar was backed by gold held at Fort Knox. To keep the value of the dollar from fluctuating, we have fixed the price of gold.
Today, we hear a lot about the idea of decentralized finance. The idea is popular with supporters of cryptocurrencies like bitcoin. They believe that fiat currencies like the dollar are actually worthless because they are only supported by the taxing power of the United States.
It was better, they say, in the old days when dollars were backed by gold and then the price of gold was fixed. (This was not the case !). Most people are familiar with bitcoin, but did you know that there are over 2000 different cryptocurrencies. None of them are worth the same. To me, it sounds a lot like the era of Wildcat Banking. I don’t see how letting anyone, anywhere, create their own money ends well.
Scott A. Grant is a local historian and trust asset manager. He is a frequent collaborator of the Recorder.