Financial History 25th Anniversary Special Edition (104, Fall 2012) - Page 37

went to the floor for a vote, the bill was greatly changed. Committee members had made multiple alterations, many of which Girard detested. For instance, the revised bill did not restore the specie standard and was little more than an attempted revenue grab. Girard was pleased, therefore, when Madison vetoed his altered brainchild. The War of 1812 ended with the signing of the Treaty of Ghent on December 24, 1814, but the American financial system was still on a shaky foundation. Girard and Dallas pressed once again for the incorporation of a new central bank. With the aid of future Vice President John C. Calhoun, the “yeas” carried the day. On April 10, 1816, Madison signed into law a national charter for the Second Bank of the United States. Like the earlier bank (now referred to as the First Bank of the United States), the government would have 20% ownership in the institution, but this time the capital would be $35 million instead of $10 million. Hamilton’s creation had been cloned, three and a half times over! Another irony of this story is that Republicans — from Girard to Gallatin, and Madison to Calhoun — created what was far and away the largest bank in the country; the next largest bank at that time was infinitely smaller, the Citizens Bank of Louisiana with $12 million in capital. Most history books will say that the Republicans were anti-bank, but most Republicans loved banks as long as they were under their control. Gallatin continues to hold the record for the longest tenure as Treasury Secretary in US history. He made his share of friends and enemies on both sides of the political aisle, and his support of the First Bank of the United States was politically costly. But, like Alexander Hamilton in the 1790s, his actions were immensely important to America’s subsequent economic growth. Historians have often highlighted the sharp differences between Federalists and Republicans, with Hamilton’s philosophy on one end of the spectrum and Thomas Jefferson’s on the other. However, with respect to the country’s finances, Gallatin set the important precedent that Treasury Secretaries were to be guardians of the financial system and the economy first and foremost, above any party affiliation. He supported, used and expanded on the financial framework put in place by Hamilton, including a central bank, a unit of account defined in specie, a system of corporate intermediaries (banks and insurers), securities markets and the use of private syndicates to raise public funds. Though Gallatin failed to win a charter for a new national bank before leaving for the peace talks — itself an important mission for the financial sector — he planted the seeds that others, like Stephen Girard, would champion and grow into the Second Bank of the United States. Today, 200 years later, we again hear voices of those calling for the abolishment of a central bank. Those politicians and pundits ought to review what Secretary Gallatin, Stephen Girard and others faced in 1812 without one, and all of the subsequent difficulties financing the country in a period of wartime exigencies.  David Cowen has been the Museum’s President and CEO since 2009. He holds a BA in American history from Columbia College, an MBA from the Wharton School of Business, and an MA and Ph.D. in American history from NYU. He has written extensively on US financial history, and is co-author of Financial Founding Fathers: The Men Who Made America Rich, from which this article is adapted. www.MoAF.org  |  Fall 2012  |  FINANCIAL HISTORY  35