Ever wonder why US banking is what it is–prone to periodic crashes and crises? How banking evolved in the US from 1781 up to the creation of the central bank, the Fed, in 1913? Why the Federal Reserve was created in 1913, as a product of the big New York and east coast banks, an institution structured and managed directly by those same private banks, and designed to function in their interests?
Or why all the talk today about ‘central bank independence’ is really a myth, an ideological term created after 1945 to obfuscate the continuing influence of the private banking system over the Fed?
Or why the Fed and other central banks are in crisis today and won’t survive, in current form, the next global financial crisis?
For some answers to these questions, take a look at my just published, March 2019 book, ‘Alexander Hamilton and the Origins of the Fed’–now available on Amazon, or from the publisher, Lexington Books, and soon from this blog.
How Hamilton, the current darling of the conservative and capitalist right, a banker, and the father of US capitalism, laid the groundwork for the US banking system and the central bank as the vehicle for periodic banking system bailouts.
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(For more information go to Amazon books at:
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Or go to the publisher website at:
https://rowman.com/isbn/9781498582858
PUBLISHER’S SYNOPSIS
“The US in 1913 was one of the last major economies to establish an institution of a central bank. The book examines, however, the history and evolution of central banking in the US from the perspective of central banking functions—i.e. aggregator of private lending to the federal government, fiscal agent for the government, regulator of money supply, monopoly over currency issuance, banking system supervision, and lender of last resort. The evolution of central banking functions is traced from earliest pre-1987 proposals, through the Constitutional Convention and Congressional debates on Hamilton’s 1st Report on Credit, the rise and fall of the 1st and 2nd Banks of the United States, through the long period of the National Banking System, 1862-1913.
The book describes how US federal governments—often in cooperation with the largest US private banks in New York, Philadelphia, and elsewhere in the northeast—attempted to expand and develop those functions, sometimes successfully sometimes not, from 1781 through the creation of the Federal Reserve Act of 1913. Other themes include how rapid US economic growth, and an expanding, geographically dispersed private banking system, created formidable resistance by banks at the state and local level to the evolution and consolidation of central banking functions at the national level. Whenever central banking functions were dismantled (1810s, 1830s) or were weakened (after 1860s), the consequences were financial instability and severe economic depressions.
The book concludes with a detailed narrative on how, from 1903 to 1913, big eastern banks—leveraging the Panic of 1907, weak economic recovery of 1909-13, and need to expand internationally—allied with Congressional supporters to prevail over state and local banking interests and created the Fed; how the structure of the 1913 Fed clearly favored New York banks while granting concessions to state and local banks to win Congressional approval; and how that compromise central bank structure doomed US monetary policy to fail after 1929.”
BOOK TABLE OF CONTENTS:
Chapter 1: The Evolution of Central Banking in the US
Chapter 2: Hamilton’s Vision
Chapter 3: The 1st Bank of the United States
Chapter 4: The 2nd Bank of the United States
Chapter 5: Jackson Contra Central Banking
Chapter 6: From ‘Free Banking’ to National Banking
Chapter 7: The Legacies of National Banking, 1872-1898
Chapter 8: Panic of 1907 and Treasury’s ‘Last Hurrah’
Chapter 9: The Road to the Fed 1903-1913
Conclusion: Hamilton’s Vision…Hamilton’s Fed?
Postscript: Will Central Banks Survive to Mid-Twenty First Century?
Dr. Jack Rasmus @drjackrasmus
Jack Rasmus 
This morning I was reading about central banking, chapter two in Robert Kuttner’s book “Can Democracy Survive Global Capitalism?”. ” A Vulnerable Miracle” is the chapter’s title. After the Great Depression and WWII finance was contained, he says it was made into almost a public utility. But it came apart as finance pushed back. It also globalized like a cancer. Consider that Pew Research says that half of humanity survives today on less than $5 a day, less than $2,000 a year per person. In the U.S. the post-tax “disposable income” is over $47,000 a year per person, or $128 a day (BEA.gov, table 2.1). Of course the median household income is $61,000 for an average 2.5 person household, call it $66 a day, half the “average” but still much greater than $5 a day. Why do we have such miserly growth and sparse modern development in most of humanity? Finance is my answer — private finance that only invests where there is a profit, and often acts like a horde of sucking leeches until the victim collapses. The U.S. since January 2009 has doubled (nominally) it’s household net worth; in Jan. 2009 it stood at $48 trillion, today it’s at $104 trillion (Federal Reserve Flow of Funds, page 2). How do you double net worth in ten years following the worst crisis in 75 years? Private finance. Our economy is truly sick, and few realize it. I’m worked up about this issue, and your book will be a great contribution, much needed. I’ll type out a paragraph from Kuttner’s book:
“The postwar system squared a circle. It achieved the improbable feat of combining dynamic capitalism with near-full employment, increasing income equality based on rising wages, and expanding social benefits. Such a convergence was unprecedented in the history of capitalism. Core elements of the system were the tight regulation of private finance, the offsetting empowerment of organized labor, and the activist role of government. The reign of finance in the 1920s had proved both deflationary and destabilizing — promoting speculation during booms and austerity during busts, and creating protracted unemployment. Joblessness, in turn, fed fascism and pan-European war. This was the fate the postwar (WWII) architects were determined to avoid.”
One simple question (I have not heard anyone ask this question of any Fed Chair):
Why does the Fed have a target CPI of 2%?
Thank you,
michael zitterman
mikiesmoky@aol.com
The 2% is an arbitrary target that the Fed assumes is associated with reasonable real economic growth of GDP between 2%-3%. However, there’s no evidence of that association. And since 2008 the 2% has not been attained despite massive money injections and chronic low interest rates. (In other words, excess money no longer generates inflation–at least in goods and services but of course it does in financial asset prices). Failing to attain the 2% target, the Fed is now in the process of redefining the 2% by averaging it over time, thus enabling it to declare the ‘new price target’ is less than 2%. If you can’t reach your target, just redefine it in other words. That is, move the goal posts so you can.
Whereas I appreciate your comments, I believe it may be somewhat more insidious than your characterization.
The Fed’s “advertised” dual mandates are maximum employment and low inflation, but it primary goal is to protect the banking system.
A bank holding paper that is secured by real estate provides the “incentive” to inflate the underlying asset.
How many recessions have been caused by the Fed?
Offerings:
Have you noticed you almost always overeat @ Thanksgiving?
It takes 10-12 minutes for the brain to sense “fullness”.
Unfortunately, we continue to eat after we are full but our brain
enables us to eat another 10-12 minutes as we haven’t realized
that we were full, 10-12 minutes ago.
The Fed tells us that rate increases may take 12-18 months to
become effective.
Once the Fed senses “fullness”, it is 2 or 3 rate increases beyond
“fullness” which too many times has stimulated a downturn.
Thus the Fed must not increase, tomorrow; to increase in the face
of our current ambiguities would be malfeasant, at best.
Mr. Powell has said that “the economy can afford” the increases;
that is “evil”; the middle-class is doing better, so the Fed forces a shift
of wealth from the middle-class to the top 2%.
The Fed has, also, indicated it wants to increase rates so when recession
hits, it can lower rates to stimulate; INSANITY; set the fire and then come to
the rescue? A pyromaniac firefighter?
Written Dec. 18, 2018
The Fed appears to be a quasi-criminal enterprise (please don’t let this scare you off)
Short-term rates should be zero or what the market dictates (no risk, no reward)
All rates should be market-based
Anyone notice we didn’t have a “business cycle” during the past 8-9 years?
Because the Fed was not manipulating rates via discount and fed funds rates
Thank you,
michael zitterman
RATE, TODAY SHOULD BE 1.50-1.75, at most
After reading “All the Presidents Bankers…” by Nomi Prins, many of the
areas indicated in your table of contents seem covered.though Prins’ style is more narrative than analytica;l But it covers many of the same areas you have indicated.
I eagerly look forward to your forthcoming book on neoliberalism. It has
been too long in “forthcoming”..
Many thanks for all your incites. I read and re-read for a deeper understanding
since I began ( basically from underwater economically speaking).
I particularly appreciate your constant understanding of what it is like to live in
society the elite has built for us, The Democrats have made the bed that Trump
and his ilk are laying in. As you succinctly pointed out, Barack Obama’s
“recovery for the few” was no help..
Here’s looking forward to your continued work.—Peter Loeb, Boston
Too bad the book is $85. Really important topic, but the book won’t likely reach a wide audience at this price. Any plans for a paperback edition?
Yes, it is only out in hardcopy. Possible PB later. My critique of the Fed’s history since 1913 is contained in lengthy chapters in my 2017 book, ‘Central Bankers at the End of Their Ropes: Monetary Policy and the Coming Depression’. It’s in PB and much cheaper. Same themes, of which the ‘Alexander Hamilton’ book is the prequel. (Also covers a critique of EUrope, UK, Japan and China central banks). Check it out on my blog and website, where it sells at a discount.)