Kindred’s Special: My Financial Interest in America–A chessplayer’s perspective Part 2

The overview of the commercial banking regulation discussed a generalization of the subject in the introductory where we will now expand into more detail of the various steps leading to our current times. A good time to start is a look at the colonial period in America where colonists had numerous problems with their money supply. A substantial part of trade was through the barter system where furs, tabacco, and then gold and silver coinage was commonplace as mediums of exchange. Shipping brought in varieties of coinage from round the world as well. Paper money, promissory notes was a common feature among various merchants and might be carried in several exchanges as money along with bills of credit that was popular.

Paper money was not issued until the Revolutionary War due to the British Parliament prohibition of such currency in 1751 and 1764. It became a sought after means of exchange favored by the Colonists that by 1786 several states were printing and issuing their own currency. This was one of the major attractions by lawmakers for a strong central government and common currency. With the founding of the United States, it was essential and the Congress ratified its adoption in 1789.

Commercial banks were not established in colonial times due to opposition by British merchants. The first such commercial bank was established in  Philadelphia which, for several decades, was the financial center of the USA. It was known as the Bank of Pennyslvania and formed in 1781 later to be renamed the Bank of North America. A number of additional banks were formed and by 1811 there were 88 banks doing business and grew by leaps and bounds with over 1600 by 1861. It was long understood that only federal regulation could provide an acceptable currency. Alexander Hamilton was responsible for the founding in 1791 of the Bank of the United States which was objected to by both Jefferson and Randolph. It proved highly successful accomplishing an orderly expansion of credit in 20 years. Political battles led to considerable strife within the system. However, with the advent of the 2nd Bank of the United States, Hamilton opposed the regulatory language but it was carried forward by the Congress.

Almost from the beginning of commercial banking there were efforts by states to prescribe rules. In due course it was recognized that a national banking system had to coincide with the state banking system. Through the years a number of regulations, laws and procedures were introduced in legislation.  Senator John Sherman was largely responsible for passage of the Currency Act of 1863  making the financial industry of America sounder and more reliable with needed safeguards. THOMPSON’S BANK NOTE AND COMMERCIAL REPORTER provided banks the opportunity to check weekly alphabetic listings by state of bank notes and discounts which valid notes should be accepted, and listing of counterfeit paper. One specializing in counterfeit detection was, BICKNALL’S COUNTERFEIT DETECTOR AND BANK NOTE LIST SAFEGUARD.

The first Comptroller of the Currency was Hugh McCulloch.

As the country expanded its borders ever westward, financial institutions required concrete but imaginative sets of rules and procedures due to the distances which separated many of the banks. North, West and South were developing greater and greater number of banks. The South especially was becoming an economic powerhouse. Branch banking had its ups and downs. Financial leaders often squabbled and either argued for support or objection to various proposals.  Eventually branch banking won out because it helped to establish safeguards and enabling finances to spread out for the benefit of depositors especially within areas of sparse population.

Various shortcomings of an ideal system existed just as it does today in the minds of supporters or critics. Salmon Portland Chase, Secretary of the Treasury under President Lincoln, completed his report on the state of finances in December, 1861. His proposals seemed revolutionary and while not entirely new were less thought about previously. Numerous support of many leaders were dowsed with water by a few who opposed such ideas. With the Christmas holidays, government more or less shut down and subsequent events upon returning to Washington unleashed heated debate; (Do you notice any comparison with today’s Congress?).

Our nation has been one of almost constant turmoil either at the federal, state, or local governance–often injecting the involvement of and with consequences, good or bad.  In time, practices were modified or strengthened and regulations and various Acts were introduced and carried forth or recinded with change of the Party gaining power through the election process. Somhow, out of the hodgepodge of such workings by government, the Nation seems to continue to survive. A number of elections changed leadership over the years following the Civil War where policies put in place is what I call the DARK AGE OF AMERICA.

The chessplayer knows that to conduct successful operations, a plan is necessary whether it be good or bad. The result coming from no plan is worse and leads to complete disaster where postmortem for the justification of play during the game is pure folly.

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