Iacono Research

I’m still working my way through Washington, A Life and it is now abundantly clear that my initial disappointment with the Revolutionary War ending about halfway through the book was misplaced. Washington as our first President is equally interesting, but, not necessarily because of Washington, rather, because of those around him, namely, Jefferson and Hamilton, who early-on fought over what the federal government should and should not do. 

The sequence of events surrounding the initial sale of U.S. debt and bank shares are fascinating, especially when considering how Hamilton pushed through legislation to form the nation’s first central bank, a move that was opposed by Southerners like Jefferson and Madison who felt that Hamilton had duped them.

Starting in the summer of 1791 the Jeffersonians followed with alarm the rampant speculation in government bonds and bank shares. On July 4, 1791, the treasury had begun selling shares in the new bank of the United States and pent-up demand proved so explosive that the entire subscriptions sold out in a matter of one frantic hour.

Swarms of investors invaded the treasury building, mobbing the clerks. For Hamilton supporters it was dramatic proof of the trust that investors placed in the new institution.
…
Although the par value of bank stock was $400 per share, Hamilton, to make it affordable to all investors, allowed them to make $25 down payments. In exchange, they received certificates called “scrip” which entitled them to full shares in future installments.

In the next few weeks, as the price of scrip soared, it produced a speculative frenzy that was dubbed “scipomania”. Far from construing it as symptomatic of Hamilton’s success, Madison was appalled by this scramble for so much public plunder. Equally aghast, Jefferson wondered aloud to Washington whether such sums should have been withdrawn from useful pursuits to be employed in gambling.

Hamilton erred in selling most scrip in Philadelphia, Boston, and New York feeding southern fears of a northern hegemony. In August, the price of scrip touched such dizzying heights that Senator Rufus of New York reported that business had ground to a halt as people rushed to buy scrip, with mechanics deserting their shops, shopkeepers sending their goods to auction, and not a few of our merchants neglecting the regular and profitable commerce of the city.

According to Dr. Benjamin Rush, there was madness in Philadelphia as well. “The city of Philadelphia for several days has exhibited the marks of a great gambling house. By August 11th, scrip had zoomed from the $25 offering price to $300 with government bonds also touching delirious new heights.

When bankers drained credit from the market, speculators dumped their scrip. The bubble burst as prices plummeted. Hamilton steadied the market by buying government securities, but Jefferson was convinced that scrip had already worked its evil influence, “the spirit of gaming, once it has ceased a subject is incurable”, he wrote.

This was soon followed by an even bigger bank bubble of some sort, the details of which I’ve yet to learn. I didn’t think much of Hamilton before this book - and I think even less of him now. Of course, to many on Wall Street and in the nation’s capital, he’s like a God.