The Challenge of Credit Supply

American Problems and Solutions, 1650-1950

by Michael Anthony Kirsch

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"Michael Kirsch’s new book provides a concise overview of an incredibly complex subject. His effort to historicize and contextualize credit supply over three centuries is no small task. Yet Kirsch has succeeded in explaining this complicated material and why it matters.

"Economic history and the history of banking have been neglected by professional historians for several decades. In light of our most recent recession and the growing interest in banking practices, Kirsch asks important questions about the origins and evolution of policies and regulations that have shaped these institutions and the financial history of the United States. Furthermore, the book is written in accessible prose that will appeal to non-specialists and interested readers in the general public."

Dr. Lee L. Willis, History Department Chair, University of Wisconsin-Stevens Point

"Kirsch’s history of American finance from 1650 to 1950 is fascinating reading. He shows that business leaders understood even in 1650 that the lack of money and credit was preventing would-be borrowers from putting the country’s ample real resources to work. Credit appears as the life blood and the Achilles heel of the economy many times over the next 300 years in Kirsch’s book, as it has shown itself to be recently. Business people and various governments wrestle over and over again to master the elusive, changing relationship between credit and the production of real things. The ideas of financial geniuses like Alexander Hamilton are sometimes taken and sometimes ignored by leaders who wrangle through three centuries to find financial systems that support growth and avoid periodic catastrophes. This book performs a great service because it gives the reader a view of the big picture over time without bogging down in the details of one event."

Dr. Paul A. London, U.S. Deputy
Under Secretary of Commerce for Economics and Statistics (1993-1997)

"The presumption of the United States as the primary source of credit creation in the early 21st century is taken for granted by participants in the global financial markets. However, a concise historical lineage of credit creation in the U.S. has until now remained the provenance of footnotes in disparate economic papers and journals. The Challenge of Credit Supply draws from actual historical documents to put into perspective the process by which credit, currency and the banking system came into being in the U.S. from the Massachusetts Bay Colony through World War II. Economists, financial professionals and historians will not find a story of unimpeded success they might expect. Rather they will discover an opera of misguided political initiatives, poorly qualified individuals, the root cause of a series of multiple depressions and the demise of institutions that could have accelerated growth of the U.S. economy decades earlier. Readers will discover the influential role Alexander Hamilton and Andrew Jackson had in structuring and restructuring banking institutions in the early days of an independent United States.

"The reader will come away with an important perspective on the difficulty present today for many emerging market economies seeking to establish robust credit supply. In this way, Michael Kirsch delivers into the 21st century a highly relevant time capsule on the history of credit creation in the United States."

Michael Litt, CIO of Arrowhawk Capital Partners

"In his book, The Challenge of Credit Supply, Michael Kirsch provides a detailed review of the national debate about money, credit, and fiscal policy spanning a period from well before independence to the 1950s. Although the concepts are sometimes difficult to understand, they are worth mastering for several reasons. First, the existence of a sound money base is critical to economic growth, as is the creation of a credit system that expands and contracts with economic activity in local and national markets. While few dispute this importance, differences in how to achieve it have often frustrated public policy. Second, the reader will be impressed with the degree to which the same points of view echo over the centuries of debate and influence current discussions over the role of gold, federal deficits, the powers of the Federal Reserve, and proper supervision of the banking system.

"The issues highlighted in The Challenge of Credit Supply remain relevant to today’s economy. Kirsch clearly summarizes the continuing debates regarding whether to establish a national bank and which powers to give it, often relying on the words of the main proponents of each view. He also shows the influence of policy action or inaction on the national economy. The reader gets a real sense for how these issues affected the prosecution of wars, the development of the nation’s economy, its balance of payments, and regional growth. Digging through a massive body of research we find that the foundational debates of the past continue to have a profound effect on our current institutions."

Dr. Joseph V. Kennedy, Kennedy Research LLC, Chief Economist, Department of Commerce (2007-2009)

"This book is an excellent introduction to the history of credit and banking in the U.S. This book covers a lot of ground in a short space and does it well. It will be useful to anyone who wants a basic understanding of how U.S. banking and credit markets developed from the 1680s to the 1950s. The footnotes and extensive use of original sources provide a helpful tool to anyone who wishes to delve more deeply into the developments during any of the periods covered.

"The book will be useful to students of financial policy who will benefit from the description of how many of the efforts to improve the financial system failed or led to new and unforeseen problems. This is especially relevant during a period in which we are attempting to assess what led to the problems of recent years and how to avoid such problems in the future. While the author draws his own conclusions he provides a factual basis for the reader to draw theirs. One interesting insight I drew from the book that is relevant to today it is how periods of intense anti-bank feeling can lead to even less effective policies."

Dr. Charles F. Hoffman, Adjunct Professor of Money and Banking at George Mason University

"The supply of credit in America – how much is needed, how it should be disbursed, and its cost – remains a central feature of economic policy in the United States. Michael Anthony Kirsch’s The Challenge of Credit Supply provides an authoritative and well-researched window into American experience prior to the 1950s. Reliant largely on primary sources – the words of Winthrop, Hamilton, Madison, Washington, Lincoln, and others -- Kirsch demonstrates that inadequate credit supply was a recurring American nightmare, with consequences ranging from severe recessions to existential threats.

"Today, the U.S. dollar and U.S. government debt are considered high quality assets, but this was not always the case. After their loss in the Battle of Yorktown, the British hoped to gain by financial failure what they could not win on the battlefield. On the eve of the U.S. Civil War, there were more than 1,600 different types of bank notes in circulation. Credit supply was unreliable at best, with periods of severe disruptions caused by political interference and opportunistic speculation.

"The book is valuable to historians, economists, financial policymakers, and anyone who wants to acquire some historical perspective on the financial questions of today, such as the value of quantitative easing, the independence of the Federal Reserve, and whether to raise the debt ceiling."

Andrew Szamosszegi, Capital Trade, Washington D.C.

This book is for anyone seeking a succinct and accessible treatment of the most pivotal financial and monetary policies throughout American history from 1650-1950. But it is especially written for those who desire an intricate and detailed knowledge of how and why these policies worked with respect to the supply of adequate credit for economic development. A thorough examination of key credit institutions and their specific powers, functions, mechanisms, context, and economic impact brings the reader to a recognition of which policies and institutions were successful and unsuccessful in supporting the economy and preventing crisis.

Its extensive use of primary sources, period literature, and carefully chosen quotations allows the reader to participate in the original discussion and issues that faced Americans in each era. This vivid account leads to a unique grasp of relationships between essential facts, ideas, and time periods. The reader is rewarded with the rare experience of seeing the evolution of three hundred years of policy development as an integrated process.

The book’s content will be new and provoking to the academic, policy maker, and economist, but is presented in a manner and style ensuring comprehension for a general audience and those new to the topics involved. Many of the lessons learned in the course of the investigation are relevant and applicable to modern economic and financial policies.


Part I Early American Banking and Credit
Chapter 1 The 1687 Bank of Credit and the First Colonial Bills of Credit
Chapter 2 Expanded Uses of Bills of Credit in the 1720s-1760s

Part II The Bank of North America, the Bank of the United States, and the Development of the Funding System
Chapter 3 Designing a Currency with Credit
Chapter 4 The Bank of North America Takes Action
Chapter 5 The 1782-1783 Origins of the Bank-Based Funding System
Chapter 6 The Economic Path to the U.S. Constitution
Chapter 7 The Bank of the United States and the Funded Debt

Part III The Second Bank of the U.S. as an Instrument for Economic Growth
Chapter 8 Currency Disorder and the Finances of Madison’s Second Term
Chapter 9 The Bank and the Economic Depression of 1818-1822
Chapter 10 The Bank and the Economic Growth of the 1820s and 1830s
Chapter 11 Confirming the Success of the Bank

Part IV The Return to Currency Management and the Promise of the National Banking System
Chapter 12 The Independent Treasury and State Banking
Chapter 13 The Departure from the State Banking Era
Chapter 14 Banking & Funding Strategy 1863-1865

Part V The Challenges and Problems of the National Banking System
Chapter 15 Circulation Limitation and Other Errors of Implementation 1865-1870
Chapter 16 Speculation and the Crisis of 1873
Chapter 17 Partisan Wrangling and the Decline of National Bank Circulation
Chapter 18 National Bank Difficulties and Financial Crisis 1879-1907

Part VI The Federal Reserve and the Credit Modifications of the 1930s-1940s
Chapter 19 The Federal Reserve System and its Beginnings
Chapter 20 Fed Discount Limitation Problems and the Amendments of 1929 -1933
Chapter 21 Credit Supply Initiatives of 1934-1935
Chapter 22 Fed Lending Powers and Proposals 1939-1950


Appendix I The Causes of Inflation and Increases in the Price of Gold 1862-1865
Appendix II Oversights of the National Banking Acts of 1863 and 1864



Michael Anthony Kirsch is a scholar and researcher with a deep interest in the relationship between banking, finance, and economic growth. His book, The Challenge of Credit Supply, is the result of an in-depth treatment of the financial system’s ability to meet growth requirements throughout American history that he began in 2014. He has a BA in history with a minor in economics from George Mason University.

John Quincy Adams, Balance of Trade, Bank credit, Bank of North America, Bank of the United States, Thomas Benton, Nicholas Biddle,Bills of exchange, Bills of credit, Eugene Black, John Blackwell, Salmon P. Chase, Langdon Cheves, Freeman Clarke, Colonial office, Stephen Colwell, Continental Congress, Alexander Dallas, Deposit and Distribution Act, Discounts, Domestic exchange, Marriner Eccles, William Elder, Federal Reserve Board, William Fessenden, Benjamin Franklin,Free banking, Foreign exchange, Funding system, funded debt,Alexander Hamilton, Hiland Hulburd, Andrew Jackson, Jesse Jones, Independent Treasury, Industrial Advances Act, Industrial credit, Investment banking, John Knox, David Lawrence, Legal tender notes, Abraham Lincoln, Loanable Funds, James Madison, Cotton Mather, Massachusetts Bay, Hugh McCulloch, James Mead, Means of payment, Medium of exchange, Gouverneur Morris, Robert Morris, National Bank, National Banking Act, National Banking System, James Polk, William Potter, Thomas Pownall, Promissory note, Public credit, Public debt, Reconstruction Finance Corporation (RFC), Specie, Specie Circular, Specie payments, Specie resumption, Menc Szymczak, Charles W. Tobey, Martin Van Buren, H. Parker Willis, James Wilson, John Jr. Winthrop, Waitstill Winthrop, Oliver Wolcott, John Woodbridge

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Bibliographic Information

Book Title

The Challenge of Credit Supply

Book Subtitle

American Problems and Solutions, 1650-1950





Number of pages


Physical size

236mm x 160mm

Publication date

March 2016