Six months after the financial world seemed to be coming to an end, the world’s economies appear to be recovering. Banks that seemed to be on the brink of failure less than a year ago are now able to pay back investments made by the Treasury.
It is too early to declare victory, but the world looks much safer than it did only a few months ago. Credit markets are recovering, to the point that the junk bond market will have its best year ever if it manages not to lose any money over the rest of 2009. The stock market has just finished its best six months since 1938.
If victory is to be had, it will owe a lot to the willingness of American policy makers to set aside cherished policies and simply create money. And that is one reason it is appropriate to pause and celebrate an unheralded bicentennial: The father of the greenback, Elbridge Gerry Spaulding, who was born 200 years ago, in 1809.
Spaulding was that rarest of creatures, a man who succeeded in both business and politics; a congressman who saw a problem coming and had a solution ready. It was he who, at the end of 1861, figured out that the American government simply needed to print money to pay for the Civil War. It was economic heresy then, but without it this country might not have survived.
Today Spaulding is largely forgotten. Civil war generals are remembered with monuments and even colleges; Spaulding has a dormitory named for him at the University of Buffalo.
A dorm?
But some deem him a hero. “If Wall Street had saints, then the college of financial cardinals would surely canonize Elbridge G. Spaulding,” wrote T. J. Stiles in his insightful new biography of Cornelius Vanderbilt, “The First Tycoon.”
A congressman from Buffalo, and a banker before and after he was a politician, he was chairman of a House Ways and Means subcommittee when the government was in danger of running out of money to pay for the Civil War. He wrote a law that allowed the government to print money and declare it had to be accepted as legal tender.
To opponents, Spaulding’s plan was simply immoral. “It will infinitely damage the national credit,” warned Representative Justin S. Morrill of Vermont, adding that it was “a breach of the public faith” that would lead to rampant inflation.
Wonder what other brilliant nuggets the gentleman from Vermont has to his credit.
Mr. Bernanke’s eventual reputation is likely to be determined by how well he succeeds in his vow to right the economy without prompting a major devaluation of the dollar.
Some doubt he can do it. “The Fed, which saw none of this coming, now asks us to believe that it will see clearly enough into the future to remove this massive monetary stimulus before it becomes harmful,” said James Grant, the editor of Grant’s Interest Rate Observer.
Maybe Chairman Ben didn't see the crisis looming, but he sure reacted quickly and forcefully, unlike his predecessor.
If Mr. Bernanke does manage to accomplish that, he, like Elbridge Spaulding, will have earned financial canonization.
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