National Banking Era: 18641913

1
National Banking Era 1864-1913

• Two major issues
• Money supply was tied to the bond market. If
  bonds declined in value than banks had to
  restrict credit or call in existing loans
• The farming problem The liquidity needs of rural
  banks were determined by the needs of its primary
  customers, farmers.
• In the spring farmers had a high demand for
  currency to finance planting
• At harvest farmers would increase cash deposits.
• Rural banks would take deposits from urban banks
  in the spring to finance planting, and deposit
  additional liquidity in the fall.

2
Bank Panics

• When National banks experienced a drain on
  reserves as rural banks made deposit withdrawals,
  reserves had to be replaced by federal law. This
  could be done by
• selling bonds and stocks
• borrowing from a clearing house (what is this?)
• calling in loans
• A mass attempt to sell bonds and stocks would
  lead to a market crash, which would force banks
  to call in loans, forcing many into bankruptcy.
  As loans were unpaid, depositors would run on
  banks. If not, depositors who stayed home would
  lose their savings.
• Panics occurred in 1873, 1884, 1893, and 1907

3
The 1907 Bank Panic

• The 1907 panic resulted in mass bank failure, a
  self-imposed bank holiday, failure of several
  major New York banks, and an unemployment rate of
  20.
• J.P. Morgan bailed out several banks but the
  Panic led to the institution of the Federal
  Reserve Act of 1913.

4
The Populists

• Who are the Populists?
• The Peoples Party
• Located on the political spectrum, left of the
  Democrats
• What did the Populists want?
• An expansion of life, liberty, and the pursuit of
  happiness to the masses.
• Populists are the first group of people, not in
  the upper classes, to attempt to use the
  political process for economic gain. Such special
  interest politics are a hallmark of 20th century
  politics.

5
Populists Political Demands

• Direct election of U.S. Senators
• Demand for a secret ballot to elect public
  officials
• Womens suffrage (although other minorities
  were not generally supported)
• Demand for public education only 7 of the
  population in 1900 graduated from high school.

6
Populists Economic Demands

• Abolition of the National Banking System
• National Banks did not make real estate loans,
  which extends to mortgage loans on farm real
  estate.
• Recall the conflict between farmers and lenders
  led to the Revolutionary War and the end of the
  First and Second Bank.
• Nationalization of the railroads and telegraph
  system
• Prohibition of subsidies to corporations
• Not a realistic demand, since the federal
  government does grant subsidies to individuals.
  Had such a demand been met, the subsequent
  history of American corporations would have been
  very different.
• No alien or corporate ownership of land or
  natural resources
• A combination of nationalism and
  environmentalism
• The Free Silver Issue
• The issue of falling farm prices and the quantity
  theory of money.
• Rockoff, Hugh. 1990. The Wizard of Oz as a
  Monetary Allegory. Journal of Political Economy.
  vol. 98, no. 4 739-760.