Small Change and the Depression of 1837-1843 - Part Two

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Part one of this series appears here.

Part Two – George Washington and Thomas Willing invent retail banking

In his last formal message as president, George Washington explained to his fellow Americans why foreign affairs should be avoided. By seeking particular friends, Americans were guaranteed to create particular enemies.

In the 16 years that followed the publication of his farewell address, Washington’s successors would diligently ignore what he had written about the risks of foreign entanglements. John Adams, Thomas Jefferson and James Madison would each promote a plan for the country’s direct engagement in the active quarrels of the European powers. In 1812, President Madison and the Democratic-Republican majority in Congress decided that America could only increase its current prosperity by starting a foreign war. To defend the sailors of the American merchant marine from impressment by the Royal Navy, the United States would launch a land invasion of Canada. Within a year the federal budget doubled; within two years, it tripled, and the national debt doubled. By 1816, the last year of his second term, James Madison would decide that his party’s former enemy, Alexander Hamilton, had been right after all. The country really did need a central bank to be the exchange of first resort for the U. S. Treasury’s IOUs. Like the Bank of England then and then Federal Reserve , the new Bank of the United States would accept sovereign debt at par; against those assets the national bank would issue its own currency that would be the legal equivalent of coinage.