Why Is Central Bank Independence Important

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US Federal Bank The US federal Bank was first introduced in 1791 as the central bank for the United States. Alexander Hamilton had really pushed for this Central bank and he finally got it. Alexander Hamilton was the first secretary of the treasury and helped establish this central bank (1). This first bank had a capitol stock of 10 million, 2 million put in by the federal government and the rest was put in by private individuals (1). This central bank was headquartered in Philadelphia, Pennsylvania and it had different branches in other cities. This bank held normal banking duties such as accepting deposits, issuing bank notes, making loans and purchasing securities. This bank deemed to be the biggest corporation in America and…show more content…
McDonough. Through his article he feels that central bank independence is so very important to a democracy. According to McDonough, the main opponents of the first central bank were the farmers or the agrarians (2). These people dominated the population and their spokesperson was Thomas Jefferson. These people challenged the federal bank’s constitutionality (2). He shows the farmers malcontent attitude in this statement, “They mistrusted the central bank, seeing in it both the subordination of the states prerogatives and a federal government that was exceeding its powers”(2). McDonough also feels that the farmers or agrarians could be held responsible for the destruction of the second bank. They were able to do this under the leadership of President Jackson. The failure to renew this second bank charter allowed for a generation of “bank anarchy and monetary disorder ”(2). It was not until much later through other financial crisis through associated business bankruptcies and other economic problems that led to the support from congress in a central bank…show more content…
Johnson. He is the author of the book Historical beginnings… The Federal Reserve. Johnson looks at the argument between Hamilton and Jefferson. Hamilton wanted to vest power in congress to establish a central bank whereas Jefferson did not agree with this because the constitution did not require this. Hamilton argued that since congress has been given so many monetary and fiscal powers it would be practical to create a central bank to carry them out (3). Johnson also recognizes the fact that people feared the power the central bank would have. He states in the book that farmers, businessmen, politicians and state-chartered banks viewed the bank as a giant monster standing in their way. Johnson looks at another important figure in the controversy of the central bank. He looks at Henry Clay, who was Jackson’s opponent in the 1832 election. Clay wanted to push a bill through congress in order to re-charter the bank (3). Clay wanted to use Jackson’s veto as an issue against him. Clay did have a point for assuming the constitutionality of the bank because of the court case Maryland v. McCulloch. They affirmed the banks constitutionality here. However, most of the population agreed with President Jackson’s belief. President Jackson described the dangers of this bank by stating, “such a concentration of power in the hands of a few men irresponsible to the people” (3). Because the people

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