Friday, March 21, 2008

Quote of the Day

"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

-Thomas Jefferson

Hamilton vs. Jefferson: Whose economic vision was better?
It is well known that Hamilton and Jefferson disagreed strongly about the national bank. Hamilton was the architect of the First Bank of the United States, believing it essential to the financing of the federal government and to the establishment of a robust domestic banking system. As such, Hamilton is considered a pioneer of central banking and a forebearer of the modern Federal Reserve. Jefferson believed the bank would put too much power over the government in the hands of the bank’s owners.

But the issue went deeper than that. Jefferson, in fact, didn’t like banks at all. Steadfast in his belief that working the land was the only “honest” way to make a living, he saw bankers as essentially swindlers, and he didn’t trust them. Hamilton, by contrast, thought banks were to be a vital part of the American future—if we want a strong economy, we need lending, and lending is the business of banks. Better to have American banks doing the lending, he argued, than British or other foreign banks.

This disagreement is part of a long history of controversy about banking. There are basically two opposing views: One sees debt as essentially bad and looks at bankers as exploiting borrowers’ bad fortunes or poor judgments; the other sees lenders as providing a useful service for which there is enough demand that borrowers are willing to pay interest.

In retrospect, it may seem obvious that Hamilton was right, at least in predicting how America would develop. But this controversy is still alive, and Jefferson’s voice can be heard today, for example, in the reaction to problems in the subprime mortgage market.

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