Hamilton was without doubt the best and most foresighted economic policymaker in U.S. history.

So writes former Fed chairman Ben Bernanke.

Monetary economist and fellow UCLA grad Lawrence H. White disagrees. Larry writes:

Now that the controversy has cooled we can take a more informed perspective. There is no denying Hamilton’s importance and influence, or that his life story is compelling, as evidenced by the sold-out hip-hop musical Hamilton currently running on Broadway. But the wisdom of his policy advice, and the merits of the First Bank of the United States (BUS), are another matter.

To describe Hamilton’s Bank accurately, one should note that Congress owned one fifth of its shares, and chartered it exclusively, that is, made it the only bank allowed by law to branch nationwide. (State governments chartered banks, but each state denied entry to banks with charters from other states.) The BUS monopoly franchise was among the chief of the objections of Jefferson and Madison, and deservedly so. One nationwide bank is better than none, but many is better than one. Creating a legal monopoly where open competition could and should prevail is hardly a mark of good or foresighted economic policy.

Larry continues:

Many modern-day historians miss this point, and laud Hamilton as a man of unerring financial genius. Robert E. Wright and David J. Cowen, in their 2006 book Financial Founding Fathers: The Men Who Made America Rich, write of Hamilton’s “creative genius, as he became the architect and chief advocate of a powerful national bank.” They claim that “Hamilton’s thought was often far in advance of that of most of his contemporaries,” as when he was early to advocate a national bank. They quote Hamilton’s 1781 statement that “in a National Bank alone we can find the ingredients to constitute a wholesome, solid and beneficial paper credit,” and add: “He was correct.” They call Hamilton’s 1790 Report on the Bank “a masterpiece that cogently explained the importance of banks in a capitalist economy.” They credit Hamilton with the following argument, as though it made good sense: “Next, he stressed that all the great powers of Europe possessed public banks and were indebted to them for successful trade and commerce. The implications of the comparison were clear: if young America wanted to join the ranks of the elite powers, it too would have to create a banking infrastructure.” In much the same way, Hamilton would elsewhere argue that if the leading European nations have protective tariffs, we should have them too. The error should be plain.

Wright’s and Cohen’s last sentence above, which Larry responds to with his tariff analogy, reminds me of what I call “the best question your mother ever asked you.” Namely, “if your friends want to jump off a cliff, is it a good ides for you to jump off a cliff too?”

The great tragedy of U.S. monetary policy in the 19th century was that the United States was saddled with regulations that caused us to have a fairly primitive banking system, a system that led to panics. The solution was not a banking monopoly.

By the way, Jeff Hummel has an excellent comment on Larry’s article laying out one interesting aspect of one of Hamilton’s policy proposals.

You might wonder why I’m blogging about this a year after the earlier discussion. Answer: I didn’t then, it’s still relevant, and it’s an important issue.