Other People’s Money: How Banking Worked in the Early Republic

Sharon Ann Murphy,  a professor of history at Providence College, examines the complex interactions between financial institutions and their clientele during the nineteenth century. She is the author of Investing in Life: Insurance in Antebellum America (2010), winner of the 2012 Hagley Prize for the best book in business history. Her newest book is Other People’s Money: How Banking Worked in the Early American Republic.

As I have worked these past few years on my new book Other People’s Money: How Banking Worked in the Early American Republic, I’ve been fascinated by the response from my fellow SHEARites. Almost every person I have talked to about the topic has responded with some version of: “Oh, we so need a book that explains bills of exchange!” This always makes me both chuckle and cringe. While I do indeed explain bills of exchange on pages 47-48, I never anticipated that this would be the main purpose or single highlight of the book. And if that’s the only thing it’s good for, then this is not going to be a very successful book.

Of course, in keeping with the series theme of How Things Worked, a main purpose of this book is to explain how money worked, how banking worked, how the fractional reserve system worked, how banknotes worked, how war finance worked, how Alexander Hamilton became a Broadway star (okay, maybe I don’t quite get there), how discounting worked, how the money multiplier worked, how inflation and deflation work, how panics worked, how incorporation worked, how branch banking worked, how the First and Second Banks of the United States worked, how the Bank War worked, how bimetallism and the gold standard worked, how the game “Robin’s alive” worked, how counterfeiting worked, how savings banks, investment banks, commercial banks, plantation banks, and building & loan associations worked, how free banks and wildcat banks worked (or didn’t work), how public and private banks worked, how note brokers and clearinghouses worked, how the independent treasury worked, how Confederate finance didn’t work, and how the National Banking Acts worked.

Wow. It sounds like I just wrote the encyclopedia of early American finance. But that is certainly not what I set out to write and, I hope, not what this book actually is. Rather, I sought to put finance back into the Early Republic, or – more specifically – to empower the average historian or history student to put finance back in. Most historians have no problem weaving together cultural experiences with political events. We readily examine how race, ethnicity, gender or class impact (or are impacted by) legal or social institutions. We can evaluate foreign policy decisions in terms of domestics concerns without breaking a sweat. The subfield boundaries of the historical profession have become much more fluid, with the best historians interweaving the sources, methods, and conclusions of multiple subfields as appropriate for their topic. And yet, for the average historian, economics and finance are rarely incorporated into these conversations. It is just too opaque, too foreign, too scary to be engaged as part of the analysis. While there is definitely a strong and ever-growing contingent of historians already comfortable embracing financial topics, they are still a very small subset of the overall profession. For the remainder, economic topics are either treated as something separate – somehow outside the bounds of the lived experience of the regular American. Or, when these topics can’t easily be ignored or relegated to the specialists, they are repackaged as something less scary.

Take, for example, the Bank War. For most students of American history, the Bank War is the main—if not the only—encounter with the history of money and banking from the Revolution through the Civil War. At its core, the Bank War was at the center of an extended debate over the acceptable role of banks and banknotes in the American economy. Most people agreed that the existence of banks provided many benefits to their local communities: facilitating exchange, encouraging commerce, enabling the completion of internal improvements projects, and generally creating more opportunities for local inhabitants to increase their wealth. Yet these benefits came at a cost, and Americans were divided over whether the benefits outweighed the costs. Although banks were supposed to promote economic stability, many believed that they were responsible for introducing even more instability into the system through their use of fractional reserve banking. Others questioned the republican implications of granting special privileges to the incorporators of banking corporations and of concentrating wealth in the hands of a few individuals. Yet historians most often tell the story of the Bank War almost exclusively from the perspective of politics. (In their defense, the Bank War did start and end as a political battle of wills between Andrew Jackson and Nicholas Biddle, along with a host of secondary characters.) This political fight, however, had economic causes and consequences that are often lost in the normal telling of that tale. It is difficult to understand the true extent of the passions behind the Bank War without first understanding how the financial system worked during the first century of the nation’s existence.

And beyond the Bank War, money and banking played a critical role in the lives of everyday Americans in the nineteenth century, shaping the society in which they lived and worked. Finance was not outside of their daily lived experiences but rather an integral part of it. Most Americans understood the promises and perils of banknotes as they navigated the monetary system with their regular transactions. They debated the pros and cons of the various banking proposals brought before their state legislatures. They dealt in promissory notes, tobacco warehouse certificates, double-name paper, and (yes) bills of exchange. Sure, some Americans employed these tools more often and understood the elements of the financial system better than others did, but not even the most isolated subsistence farmer was completely outside of the system. Thus an understanding of the financial history of this period is essential if we want to broaden and deepen our overall knowledge of the Early American Republic. My ultimate goal for Other People’s Money is to give historians both adequate background in financial topics as well as the confidence to apply this knowledge in their own work. I want to make finance just another tool in the methodological toolbox, to be taken out and employed competently – if not expertly – where and when the tool is appropriate.

Does this book accomplish all of that? You, my fellow SHEARites, will be the ultimate test. If you find this book useful and informative, that will be good. But if this book makes you rethink how you approach your own research, if it makes you rethink how you structure your syllabi, if it makes you rethink how you advise your undergraduate and graduate students in their projects, then maybe I’ll stop cringing when someone thanks me for (finally) explaining bills of exchange. Heck, if Alexander Hamilton can become a musical icon, then perhaps financial history has a place in the Early Republic after all.