Lessons From Wall Street’s First Crash... In 1792

Tyler Durden's picture

The New York Fed's historical appreciation society has looked back at what was likely the US' first crash and foud that Alexander Hamilton's actions in 1792 which they claim "appears to have effectively managed the crisis with little or no long-term spillover to the economy," has now become the blueprint for manipulative intervention until this day by the central planners who know far better than 'us' collectively...


Authored by James Narron and David Skeie of Liberty Street Economics.

As we observed in our last post on the Continental Currency Crisis, the finances of the United States remained chaotic through the 1780s as the young government moved to establish its credit. U.S. Congress was finally given the power of taxation in 1787 and, in 1789, Alexander Hamilton was appointed as the first Secretary of the Treasury. Hamilton moved quickly to begin paying off war debts and to establish a national bank—the Bank of the United States. But in 1791, a burst of financial speculation in subscription rights to shares in the new bank caused a tangential rally and fall in public debt securities prices. In this edition of Crisis Chronicles, we describe how Hamilton invented central bank crisis management techniques eight decades before Walter Bagehot described them in Lombard Street.

From Political to Financial Revolution
Although the American political revolution ended in 1783, it was soon followed by a financial revolution as the United States implemented a number of key reforms common to modern financial systems. The first American mint was established in Philadelphia in 1786 in a move to create a more stable currency. In 1787, Congress was given the power of taxation to pay off the debt, which helped the United States make significant progress toward more stable public finances. And after Hamilton was appointed Treasury Secretary, he worked to pay off war debts, in the process creating an active securities market in what were called U.S. Sixes—the U.S. 6 percent bond that the Treasury issued in 1790. But it was Hamilton’s second Report on Public Credit, delivered to Congress in December 1790, in which he called for a national bank, headquartered in Philadelphia.

The Bank Scrip Bubble of 1791
Congress approved the Bank of the United States in early 1791, and the subscription rights—called “scrips”—to the July 1791 public offering were heavily oversubscribed. The $25 scrips were a down payment on the $400 per share bank stock, with the balance due over the course of the next two years. But only a quarter of the $400 due was in gold or silver specie; the remaining 75 percent was to be paid in Treasury securities.

From the oversubscription, it was clear that demand for shares in the Bank was strong and the price of bank scrips in the secondary market initially doubled, before going even higher. And because investors needed U.S. Treasury securities for a substantial portion of the future payments, the price of securities rose as well. But just as rapidly as the prices had run up in July, they fell just a month later in August. Fortunately, the Treasury had previously set aside a cash surplus, in what was called a sinking fund, to buy securities in the open market in the hopes of retiring some of the national debt early. So as the securities market fell and credit became constrained, Hamilton used the sinking fund to purchase securities in the open market, and the mini-panic came to an end by September. Hamilton’s early use of “open market operations” had effectively stabilized interest rates.

Panic of 1792Wall Street’s First Crash
In late 1791, a former Treasury Department assistant and later speculator and businessman William Duer conspired to corner U.S. securities.  Duer and his co-conspirators borrowed heavily to do so. At the same time, the Bank of the United States opened in December 1791 and began making loans and issuing banknotes. So as Duer borrowed heavily to finance his securities purchases, and as the Bank expanded credit, the price of U.S. Sixes rose from 110 to 125 from early December 1791 to mid-January 1792. But by February 1792, depositors began returning liabilities for gold and silver specie and the Bank slowed its credit expansion, as did other banks, creating another credit crunch.

By early March 1792, U.S. Sixes fell back to nearly 115, but because Duer was long U.S. securities, he was unable to pay his debts. By early March, Duer defaulted. Duer’s debt was overwhelming and his default caused a selloff in the securities market. By March, U.S. Sixes fell to 95. But once again, Hamilton moved quickly to calm the markets. By mid-March, in coordination with the Bank of New York, Hamilton began a series of lender-of-last-resort operations in the Treasury market, authorizing open market purchases of securities at a penalty rate of 7 percent, but against all good collateral in the form of Sixes presented. By April, the panic had subsided.

Eighty Years Before Bagehot and the Seeds of the New York Stock Exchange
The Panic of 1792 appears to have been effectively managed with little or no long-term spillover to the economy. And most importantly, it didn’t derail the financial and economic revolution taking place. What’s more, key features of Hamilton’s market intervention predate Walter Bagehot’s famous rules for central bank crisis management by nearly a century. For example, Hamilton instructs Bank of New York to lend on good collateral, in this case U.S. Treasury securities, at a penalty rate of 7 percent on the U.S. Sixes. This action was coordinated with the bond dealers in New York so as not to drain gold and silver specie from the banks. And this coordination ultimately led to a May 1792 meeting of twenty-four broker-dealers under a buttonwood tree on Wall Street, who signed an agreement of cooperation, an act many historians view as the origin of the New York Stock Exchange.

While mismanagement of one financial crisis may sow the seeds of the next, effective management by Hamilton prevailed and the United States was able to avoid another financial crisis until 1819. How should Hamilton’s early example of market crisis management be compared with the later, more famous “Bagehot’s dictum” for a central bank to lend freely to solvent banks during a banking crisis at a high interest rate against good collateral? Bagehot explained this strategy in this way:

First. That these loans should only be made at a very high rate of interest. This will operate as a heavy fine on unreasonable timidity, and will prevent the greatest number of applications by persons who do not require it. The rate should be raised early in the panic, so that the fine may be paid early; that no one may borrow out of idle precaution without paying well for it; that the Banking reserve may be protected as far as possible.


Secondly. That at this rate these advances should be made on all good banking securities, and as largely as the public ask for them. The reason is plain. The object is to stay alarm, and nothing therefore should be done to cause alarm. But the way to cause alarm is to refuse some one who has good security to offer . . . . No advances indeed need be made by which the Bank will ultimately lose. The amount of bad business in commercial countries is an infinitesimally small fraction of the whole business . . . . The great majority, the majority to be protected, are the “sound” people, the people who have good security to offer. If it is known that the Bank of England is freely advancing on what in ordinary times is reckoned a good security—on what is then commonly pledged and easily convertible—the alarm of the solvent merchants and bankers will be stayed. But if securities, really good and usually convertible, are refused by the Bank, the alarm will not abate, the other loans made will fail in obtaining their end, and the panic will become worse and worse. (Lombard Street, Chapter 7, paragraphs 57-58).

In fact, Hamilton’s actions even predated the predecessor to many of Bagehot’s principles contained in Henry Thornton’s 1802 An Enquiry into the Nature and Effects of the Paper Credit of Great Britain. So who deserves credit for the original doctrine of lender of last resort? Do Bagehot’s words speak louder than Hamilton’s actions? Tell us what you think.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
GOSPLAN HERO's picture

Alexander Hamilton - America's original crony-capitalist and fascist.

Rusty Shorts's picture

I think children should have to recite the pledge. However they should recite the pledge as written before 1954.

Zirpedge's picture

I think Praise Obama should be in there somewhere...maybe right at the end. "with liberty and justice for all..Praise Obama" and then they courtsey or something.

Stackers's picture

Hamilton was a Rothschild pawn. The Rothschild's invented the private central bank printer of last resort.

Arius's picture

exactly, funny to see how history is written though: "hamilton the first secretary and he moved quickly to establish the Bank, he foresaw what was to come and established the sinking fund, he manages the crisis quickly, nothing mentioned of the owners, only the investors interest ... funny thing a small details only 25% put down by the owners ... almost the same as Bank of England establishment  and all the others i would guess .... yeah well, just coincidental .... am sure Hamilton figured it all out on his own ....

w1LE.e's picture

Have the mic or the heater but you can't hold both

Arius's picture

exactly. but, wait a minute ... why not?

The Blank Stare's picture

Certainly explains the long nose.

Arius's picture

the choosen ones ... hmmmm ....tricky isnt it? .... my understanding that's where the antichrist will come....


as far as "chosen ones" term in general, that includes the original tribes except one tribe and includes all the people who believe in GOD


it will happen as described by St. John of Patmos in the Book of Relevation.


The Apocalypse ("apocalupsis" in Greek, means revelation) of St. John the Theologian is the only prophetic book of the New Testament. 


Stoploss's picture

"U.S. Congress was finally given the power of taxation in 1787"  

No taxation without representation?  

We are still under Monarch rule. Always have been, since 1787.

The US everyone is so proud of, only lasted 11 years before it fell.


cowdiddly's picture

A Burr got rid of the first cb scum. Where oh where are the statesmen today.

e_goldstein's picture

In a sane world, the anniversary of the death of A. Hamilton would be celebrated as a national holiday.

weburke's picture

ever read federalist papes? he was killed because he opposed the old order.

washington obelisk goes 111 feet into the ground. "buttonwood tree" has interesting 911 storyline. 

Zirpedge's picture

Arron Burr was a British hired assasin acting on bealf of the money power. He represented himself as defending "States Rights", this hoax still works on the sound bite "Tea Party" today.

Zirpedge's picture

Common core should evaluate schools based on this new pledge. Those kids were rusty and the fear of god needs to be put in them.

The Wizard's picture


A historical analysis of the Pledge will reveal it was proposed and written by Socialists with a desire to assist in building a strong central government. Just one step closer to bringing on the New World Odor.

Through statist education, we learn and accept without question what we are fed as long as it is seasoned with sugar-coated treats. In the midst of America's present cultural war, it is imperative that we re-examine all of our "traditions" that have been accepted as part of American "patriotism." This we shall attempt to do with the "PLEDGE OF ALLEGIANCE," which was born out of the concepts of political liberalism and "Christian Socialism."

During the nineteenth century, America became deeply involved in a social, political, religious and philosophical warfare that was equivalent to the French Revolution. The opposing forces in this warfare were Biblical Christianity and constitutional government on one side and liberal Christianity and socialistic government on the other side. Among those who became proponents of the liberal and socialistic views were many prominent northern poets, philosophers, educators, editors and even Christian ministers. A Baptist minister of Boston, named Francis Bellamy (1855-1931) was one of those ministers.

Zirpedge's picture

"Alexander Hamilton - America's original crony-capitalist and fascist." No my good man, Arron Burr was a professional hit man hired by Britain in the interest of the money power. He represented the hoax of "States Rights" which continues to dazzle a poorly misguided "teaparty" today.

Jumbotron's picture

Hamilton was indeed the godfather of The Federal Reserve.  Jefferson hated the man and vowed to destroy the First Bank of The United States and did during his term as President.  As a Federalist...Hamilton wanted more power concentrated at the top...including matters concerning money.  He erroniously thought the key to America's survival and vitality was to have the money available through issuance of debt from a federally controlled bank in order to protect the young country from attack as had just been repelled during the revolution.  Also Hamilton wanted America to be an empire one day as well.


I would suggest "The Whiskey Rebels" by David Liss as a very good historical novel that really gives you a feel for the mindset and the machinations of the real characters involved in "The Duer Affair" which was this country's first financial collapse....and sadly....for all the reasons we have seen for all our financial.collapses since then.





navy62802's picture

Who shot Alexander Hamilton in that famous duel??


Got milk?

navy62802's picture

By the way (and this is totally off-topic) has anyone realized that the action of commanding someone to do something is built into the English language? Of course, we are all taught the imperative mood in grammar class, but do people really comprehend the implications of it? Why does our language include an entire verbal structure dedicated to orders and commandments? Isn't that perverse? It's like totalitarianism is built into our very language in the West.

Uber Vandal's picture

Our whole language is also built on deceit.

One only need read the terms of a software, cell phone, or credit card "agreement".



navy62802's picture

Yeah, but what I'm talking about is more basic than a legal construct. I think the legal profession could take a collection of random scrawlings and come up with a document that restricts your freedom as a human being.

What I'm talking about is something more sub-conscious than that. The concept of having authority over another human is built into the English language. It's probably built into other Indo-European languages.

If the thoughts that you have are built out of the base language that you learn as a child, and the base language that you learn incorporates the subjugation of one person to another (as a linguistic construct), then how can anyone be surprised that we have arbitrary conflict in the modern world?

BigJim's picture

Interesting point. I'm guessing most languages have this; after all, parents use language to teach their kids how to survive and sometimes the kids need to just 'do it'... or they're dead.

sessinpo's picture

navy62802      What I'm talking about is something more sub-conscious than that. The concept of having authority over another human is built into the English language. It's probably built into other Indo-European languages.

If the thoughts that you have are built out of the base language that you learn as a child,


Think about that. As a parent, is the child on equal standing with you as the parent? When your child throws a fit in the grocery store because the child wants the candy, are you going to debate with them on equal standings? More then likely, you are going to show some authority (without being abusive), move on and hopefully teach the child something.

Additionally, relationships between adults have generally been between one dominate and one submissive partner. This goes with heterosexual and homosexual relationships. I am not surprised of having a world in conflict. But it is not arbitrary. It does mean something. The problem is that the leaders of the world take this conflict to extreme and violent directions that result in death of the regular folks or all religions, all sexes, and all races.

OC Sure's picture



"Why does our language include an entire verbal structure dedicated to orders and commandments?"

Because of remnants of admonitory hallucinations from when before humans invented an introspective, conscious dialogue? See The Origin of Consciousness in the Breakdown of the Bicameral Mind by Julian Jaynes:


blindman's picture

there is a dynamic, powerful and troubled relationship
between the nouns and the verbs to begin with and it gets worse
when you add to the mix the long maturation process
required by humans and our long dependence on nurturing,
mother culture and associated technology, the commandments
and the father figure and the long childhood etc...
somehow advancing technology might keep the population,
in general, at a permanent state or stage like childhood?
nouns and verbes comporting to the designs of them who
have mastered fire or becoming burn victims, moaning lo.
"The real menace of our republic is this invisible government which like a giant octopus sprawls its slimy length over city, state and nation. Like the octopus of real life, it operates under cover of a self created screen....At the head of this octopus are the Rockefeller Standard Oil interests and a small group of powerful banking houses generally referred to as international bankers. The little coterie of powerful international bankers virtually run the United States government for their own selfish purposes. They practically control both political parties."
-- New York City Mayor John F. Hylan, 1922

"Fifty men have run America, and that's a high figure."
-- Joseph Kennedy, father of JFK, in the July 26th, l936 issue of The New York Times.
February 27, 2013
Waiting to Die

navy62802's picture

What I'm talking about is even more insidious than any of the things you have mentioned. If you are formulating thoughts from a basic language that incorporates the subjugation of one person to another, then you have already been corrupted. It is the English language, itself, which plants the seed of subjugation. Sub-consciously, all English speakers feel that they may command another human through the Imperative mood of a verb. Because this linguistic structure is the construct of thoughts in the nascent human mind, it carries through to maturation. And the mature human retains the thought construct, however sub-conscious it may be, that it is always possible to subjugate one human to another.

blindman's picture

i think my point was that, perhaps, the language
has this feature you point out because it actually
works given the nature of the beings that use it to
survive in the cultures as they are. i make no claim
that they are perfect, efficient or just tools of
survival or communication, just that the vernacular/s
do get an infant into adolescence in one piece more
often than not. then you are on your own to refine
utterances or make up your own if you like, ....
i think life was simpler when people lived to be 34
and then died of old age. just a bad joke ....
Tom Waits First Kiss Orphans (Bastards)

navy62802's picture

I can certainly understand what you're saying here. And just to be clear, I am no linguist or historian or anything like that. I just wanted to ask the question, as this is something that only recently dawned on me. I'm pretty much as clueless as anyone else on the subject. But it surely can't hurt to raise the question and get people to think about it.

blindman's picture

don't get me wrong, i think it is a brilliant
insight, question and topic of inquiry that
everyone would learn a great deal from contemplating
and discussing. you may not be clueless at all
but may have arrived at the key line of sight to
comprehending this human experience, motivations
and like that?

shovelhead's picture

Because the language of command exists, it doesn't follow that that the compulsion to comply also is present.

My wife and kids are a living testimony to the veracity of this observation.

OC Sure's picture




"Because this linguistic structure is the construct of thoughts in the nascent human mind, it carries through to maturation. And the mature human retains the thought construct, however sub-conscious it may be, that it is always possible to subjugate one human to another."

You are correct. This is why adults use a certain admonitory tone and choice words with children and likewise as does authority with adults.

However, as one matures they must recognize the power of language by harnessing it rather than receiving it as a whip.

This is also why I point out not to accept the Terms-of-Tyranny. As tyranny, unearned authority, controls the language thus it controls the thought thus it controls the action; what people do is a result of what they think.

Emperor Popes 1,500 years ago grew wise to this and institutionalized Plato's  theory of Forms as the new means of controlling the masses not by brute force but instead verbal sedation.

Please do not accept the terms of tyranny; resist the sedation and tell two friends to tell two friends the same.



SilverRhino's picture

Imperative form is in all Indo - European languages. English is not all that special.

tulip_permabull's picture

"It's like totalitarianism is built into our very language in the West."

Bizarre comment. You've got to be trolling. The ability to make requests/give orders is built into every natural language as far as I am aware, including non-Western languages, of which I speak two. Nonetheless, if you think that being able to say "Pass the butter" is opening the door to totalitarianism, remember, you can always mitigate the authority of your request by adding the word "please".

There. Problem fixed. 

Zirpedge's picture

Cue the Tricorn Hat wearin and Fife playing teatards coming in to discredit Hamilton and say that central banks aren't federal institutions with an interest for the common good of the nation.

A Nanny Moose's picture

So you are against those who are against an abstraction? Define common good? Who exactly, benefits from the "common good," because it sure as shit ain't the "commons."

disabledvet's picture

If Washington and Hamilton were alive today they'd be preparing the plans for attack while Von Stueben drills the fanatical battle hardened of the New Republic for a final the the final push on the Capital.

I mean you can't even begin to compare the Byzantine tax and bureaucratic structure of today with what existed in Colonial times....let alone the sense of honor and how a man's reputation was over and above all else His only concern.

Now it's just "who's the biggest slime ball who can shakedown the entire tax structure itself for their personal benefit."

Zirpedge's picture

@nannymoose: Re: Who are "The Commons". Re-read the Declaration of Independence...particularly the last line.

We, therefore, the Representatives of the united States of America, in General Congress, Assembled, appealing to the Supreme Judge of the world for the rectitude of our intentions, do, in the Name, and by Authority of the good People of these Colonies, solemnly publish and declare, That these United Colonies are, and of Right ought to be Free and Independent States; that they are Absolved from all Allegiance to the British Crown, and that all political connection between them and the State of Great Britain, is and ought to be totally dissolved; and that as Free and Independent States, they have full Power to levy War, conclude Peace, contract Alliances, establish Commerce, and to do all other Acts and Things which Independent States may of right do. And for the support of this Declaration, with a firm reliance on the protection of divine Providence, we mutually pledge to each other our Lives, our Fortunes and our sacred Honor.


NickVegas's picture

Ad Hominen, party foul. Sit in the paid stooge corner until summoned.

AccreditedEYE's picture

You are a very, very, VERY good troll. You've done your homework on how to piss off ZH readers. Maybe you should take 1/2 that energy and do some research. The Fed stands in stark contrast to everything the Founders of the United States stood for... Most of them anyway. So much deception can be accomplished under the banner of "doing the common good for the nation". Common good is when everyone plays by the same rules. Royalty and privilege was never intended for the U.S. There's plenty of it across the Atlantic already. Wake. Up.

Zirpedge's picture

The question is who is "trolling" and "being trolled" here in ZH land. One would be keen to observe the inflammatory articles and hyperbolic headlines presented for our consumption.

Off topic, it's like who is a "terrorist" or "being terrorized". It requires a special group to claim victim status, this war on trolling ahem terror.


Ckierst1's picture

Hey, Zirp, congrats on your recent one month anniversary as a ZHer!  It's amazing the way you pegged the ZH community after only a month of membership.  You must be a mensa or sumpin'!

Sean7k's picture

Perhaps, but the FED IS a private corporation, therefore, it is ultimately not subject to the peversions of government, but by its' owners. Two, if it was interested in the common good, it would never have institutionalized fractional reserve banking. Three, that First National Bank had only one investor whom actually paid their tenth share- the US Government, however, all ten shares profited in its' operations- until it failed- because of paper money.

Fourth, and most important, the money of the Constitution is gold and silver, with silver being the ONLY dollar by definition of 371 1/4 grans of pure silver. No other money is allowed to be legal tender. It was one of the first bastardizations of the Constitution that led to its' complete failure (after judicial review). See, "Pieces of Eight". 

While I am not a teatard, I am a pretty decent historian. Hamilton was a Rothschild agent and in collusion with Morris, opened the path the for the re-taking of America by financial means with the First National Bank. You could consult, "The Creature from Jekyll Island" or Rothbards', "Concepts in Liberty". 


Aussiekiwi's picture

Its always manipulation of the money supply that starts everything,