Category: Insights

It was six o’clock in the evening on December 23, 1913 — just two days before Christmas. You could hear a pin drop in the Capitol Building.

Just an hour earlier, the United States Senate had cast one of the most consequential votes in American history. And then, in unison, the senators rushed out the doors and down to Union Station to catch their trains home.

Now the corridors were empty. The usual scuttlebutt of American politics was put on pause for the holiday season.

But a small group of men did not head for the train station. Instead, they made their way to the White House. There, President Woodrow Wilson sat waiting with their final bill in front of him and a small collection of gold pens laid out on the desk.

The bill was called the Glass-Owen Act, formally known as the Federal Reserve Act. With a few strokes of those gold pens, President Wilson signed the Federal Reserve System into existence.

When he finished, Wilson handed one of the pens to Carter Glass, the Virginia congressman whose name was on the bill. He handed another to Senator Robert Owen of Oklahoma, the bill’s Senate sponsor.

These were the “reformers” — the men who had spent the better part of a year, by their own account, writing legislation to break Wall Street’s grip on the American economy. They stood there beaming, holding up their gold pens. They seemed certain that they had just delivered a great victory for the common man.

Continue reading “The Year America Was Captured”

The train left Hoboken after dark… and no one seemed to notice that a private railcar had been coupled to the rear of it.

Anyone observing wouldn’t have thought much of it anyway. Six men boarded that private car, but each separately and through different doors. To any keen observers, it would have appeared to be a random group of travelers.

But nothing about it was random. The men who boarded that private railcar had been given their instructions in advance.

They were to arrive separately at their own designated time. And they were to address one another by a fictitious first name only. There would be no mention of titles or surnames. And if anyone were to ask, they were to state that they were going duck hunting and leave it at that.

By the time the railcar reached the coast of Georgia, those six men felt confident that they had avoided detection. Stepping off the railcar, a launch carried them across the narrow sound to a private island.

“Leave the guns in the case,” the man who organized the excursion said as they stepped onto the dock. “We won’t be needing them today.”

The year was 1910, and those six men had not come to hunt ducks. They had much bigger ambitions in mind.

Continue reading “Jekyll Island and the Capture of America”

“What suggestions have you to make, Mr. Morgan?”

President Grover Cleveland asked the question with something of a resigned sigh as he engaged his guest across a table in the White House.

The man he was speaking to had not been invited. He held no office. He had never been elected to anything. Instead, the man was a private banker from New York, and he had arrived in Washington the day before without an appointment.

When John Pierpont Morgan first reached the White House, President Cleveland had refused to see him. But Morgan wouldn’t take no for an answer.

“I have come down to see the president,” Morgan had told the staffers bluntly. “And I am going to stay here until I see him.”

So Morgan had sat patiently in a corner room inside the White House, alongside his partner and his lawyer. Contemporary reports suggest that he said very little, but that he rolled an unlit cigar between his fingers reflexively.

Every so often a fresh report would arrive from New York, and each one was worse than the last. The US government’s gold reserves were being drained. Wall Street was placing bets as to the exact day the United States Treasury would default.

Given the urgency of the situation, and Morgan’s considerable power and connections, President Cleveland agreed to hear him out.

The date was February 5, 1895. And the meeting between President Cleveland and J.P. Morgan would reveal exactly who had come to hold power over the American financial system.

Continue reading “How a Private Banker Became America’s Central Bank”

“Sir, we can’t coin that.”

The miner was confused. He had walked into the US Mint with sacks of silver a dozen times before and it had never been a problem.

“It’s good silver,” the miner replied politely. “You can weigh it yourself.”

The clerk offered a slight, somewhat confused smile. He appeared to be truly sympathetic.

“Sir, I don’t doubt that it’s good silver. But I’m not allowed to make it into dollars anymore. The law changed.”

The miner was shocked.

The sack of silver on the counter represented months of his labor. He had pulled the ore out of a Nevada mountain himself. Then he had it smelted down, and he made the long trip to the US Mint – just as he always had. And just as his father had done before him. It was a business as old as the country itself.

The miner couldn’t contain his frustration.

“Changed how!? Silver’s been money my whole life. We have made this transaction countless times.”

The clerk could only shrug and offer his sympathies. He explained that he didn’t entirely understand it either. Apparently Congress had passed a new law and the President had signed it, and it said that the silver dollar was no longer to be struck.

The clerk admitted that he didn’t know anything more than that. He was simply told that he could not accept silver bullion any longer.

“You can take it home,” the clerk offered timidly. “Or you can sell it as metal. But it doesn’t come out of here as money. Not anymore.”

The miner couldn’t do anything but shake his head. He grabbed his sack of silver and stomped out… never to return.

The miner’s name was lost to history. But his interaction, and scores of others, were recorded by the US Mint in those days.

He was one of thousands of men working the great silver lodes of the American West — the Comstock in Nevada most famous among them. The miners would risk it all to pull silver ore out of the mountains in the belief that what they mined would be converted into money.

And for the entire history of the republic up to that moment, it was. Silver was money. You could take your silver to the mint, hand it over, and walk out with silver dollars. That was the law. It had been the law since Alexander Hamilton wrote it into being in 1792.

But that had quietly changed.

Continue reading “The Crime of ’73: The Fracturing of the American System”

The doors of the library were locked from the inside. No one was allowed to leave.

It was the first week of November, 1907. Outside, a crisp autumn breeze brushed through the streets of Manhattan… and a silent fear permeated the air. The financial system was coming apart, and New Yorkers could “feel” it more acutely than most.

Perhaps absurdly, the trouble had started with a failed scheme to corner the stock of a copper company. It was a bet so bad that it took down an entire brokerage and triggered bank runs throughout the Big Apple.

Now the contagion was spreading through the whole of the New York financial system. Depositors stood in lines that wrapped around city blocks, weathering the sharp autumn air to pull their savings out of trust companies that might not last the afternoon.

At the same time, the stock market was crashing. And there was genuine panic that the entire financial system would lock up.

That is, until a seventy-year-old banker named J.P. Morgan decided it was in his best interest to act.

So it was that a group of bankers sat in J.P. Morgan’s private library on Madison Avenue that crisp November day. Renaissance paintings adorned the walls and the world’s finest collection of medieval manuscripts rested on the shelves.

Morgan moved between rooms as the long night wore on—trust company presidents gathered in the West Room, other bankers in the East. He made it clear that no man would leave until a plan was in place to rescue the American financial system.

Continue reading “The Panic of 1907: How a Copper Scheme Gave Foreign Bankers Their Opening”

Friends,

I’m neck-deep in research, and I’ll have the next installment in our essay series on the American System for you soon. But first, I do need to acknowledge something that’s come to my attention. That is, an oversight on my part perpetuated a fairly common economic fallacy in the second installment of the series.

My goal with this essay series is not to advocate… it’s to learn and gain understanding. As such, we have been trying to get inside the minds of the American System’s architects to get a feel for their perspective. And we’ve attempted to analyze the system objectively to understand why its modern proponents believe so strongly in it.

I think I’ve been fair in assessing where I think the American System ideas have merit, and I feel like I have a good understanding of why these ideas are seeing a resurgence. But I have also pointed out some glaring gaps and shortcomings, as I see them.

At this point I feel like I have a firm enough grip on the topic to see a fundamental misunderstanding about it. I’ll share that with you in a few minutes.

I’ve also developed a hypothesis that could potentially connect some historical dots – we’ll explore that in a future essay. But for now, let’s address the fallacy…

Continue reading “Acknowledging and correcting a common fallacy…”

At this point in our journey we can see how the American System came to be.

Alexander Hamilton built the institutional foundation… Friedrich List developed the theoretical framework… and Henry Carey extended it into economic development theory, which also blended with social issues related to class harmony.

While the work of each of these men contributed to the tradition, none of them had a name for their particular views. It was Henry Clay who gave the American System its name… and he spent thirty years of his political career fighting to implement it.

Clay was a Kentucky statesman who served as Speaker of the House, Secretary of State, and United States Senator at various points in a career that spanned the first half of the 19th century.

Clay ran for president three times but never won. And he is sometimes remembered today as the “Great Compromiser” for his role in brokering political deals like the Missouri Compromise of 1820 and the Compromise of 1850. They each held the United States together as a single “Union” in the decades before it came apart.

But Clay’s core identity was as the champion of what he called, in an 1824 speech to Congress, the “American System”.

Continue reading “The American System, the Man Who Named It, and the Irony That Destroyed It”

“In reducing economics to consumption, we forgot production. We measured abundance at the checkout counter rather than the factory gate. We talked about GDP, but not enough about its composition. And we prized low-cost inputs without first asking whether a nation can remain sovereign when it loses command over the things that matter most.

Manufacturing is more than output on a balance sheet. It is a reservoir of practical capability: engineers and welders, tool-and-die makers and logistics networks, plant managers and workers who know how to solve problems on the factory floor.

When that ecosystem is strong, a country can adapt quickly. When it is hollowed out, adaptation becomes slower, more costly, and less certain.”

That’s Treasury Secretary Scott Bessent speaking at the Ronald Reagan Presidential Library over the weekend. Reading through the transcript, it’s quite clear to me that we’ve caught onto something big…

We’ve been exploring the American System in our recent essay series. We traced the story from Alexander Hamilton’s meeting with Thomas Jefferson and James Madison in 1790… to Friedrich List and his theory of productive powers… to America’s first World Fair in 1876.

We’ll look at two more historical figures today who were foundational to fleshing out and propagating the American System. And like we did with List, we’ll analyze their key contributions and assess any gaps and omissions.

And it all comes down to this – the Trump administration is running the American System playbook. That’s become very clear. Indeed, Bessent’s entire speech last weekend espoused the American System’s core economic principles in a way that would resonate with a modern audience.

Bessent never mentioned the American System by name, however. And because it was largely lost to history, I don’t think many analysts have a framework in place to help them understand what’s actually happening… and how seemingly disparate policies are actually linked together in a coherent way.

So let’s continue our journey in exploring the system’s foundations today.

But before we press forward, please don’t take any of this as an explicit endorsement for anything. We’re learning together here, so I’m simply presenting you with my analysis and my takeaways.

My goal is for us to better understand the American System and its origins. Then we may be able to make some educated judgments about how its core principles could be applicable to the modern economy today.

Continue reading “The Forgotten Economist Who Argued Capital and Labor Don’t Have to Fight”

In the spring of 1825, a 35-year-old German political exile arrived in the port of New York with little money, no connections, and a prison record.

His name was Friedrich List. He had been a professor of political science at the University of Tübingen, a member of the Württemberg parliament, and one of the most vocal advocates for economic reform in the German states.

Specifically, List had agitated for a customs union that would allow goods to move freely across the patchwork of German territories. But that idea threatened the entrenched interests of local rulers who profited from the existing system of internal tariffs and trade barriers… and they weren’t too keen to give up their fiefdoms.

Tiring of his reform efforts, the German authorities expelled List from parliament. Then they sentenced him to ten months of hard labor in the fortress of Hohenasperg – almost certainly seeking to make an example of him.

Panicking, List escaped to France under the cover of night. Then he spent two years evading German authorities in Alsace, Baden, and Switzerland. But growing tired of living like a fugitive, List returned to Germany in 1824 in hopes of mercy.

He didn’t get it. List was arrested immediately and forced to serve his sentence.

Upon completing nearly a year of hard labor, List was only permitted to leave under the condition that he leave Europe entirely. And that’s how he found himself in America.

So here was a man who had been imprisoned for advocating economic modernization in his own country… arriving in a country that had already implemented many of the ideas he had been jailed for promoting.

Continue reading “The Economist America Forgot: Friedrich List and the Theory of Productive Powers”

On the morning of May 10, 1876, a crowd of nearly 200,000 people gathered in Fairmount Park on the western bank of the Schuylkill River in Philadelphia. It was the opening day of the Centennial International Exhibition — America’s first World’s Fair — and the largest public event the nation had ever staged.

Thirty-seven countries had sent delegations. Two hundred and forty-nine buildings had been constructed across 285 acres of parkland. The exhibition would run for six months and draw nearly ten million visitors — at a time when the entire population of the United States was roughly 45 million.

But the spectacle that people would remember — the image that would travel back to London, Berlin, Tokyo, St. Petersburg and change how the world thought about the United States — was inside a building called Machinery Hall.

Machinery Hall was the largest building in the world at the time. It covered 14 acres. And at its center stood the Corliss Steam Engine — a 700-ton, 1,400-horsepower mechanical colossus that rose forty feet above the exhibition floor.

The engine was connected to every machine in the building by a vast network of belts, shafts, and pulleys. When the Corliss ran, everything ran. When it stopped, everything stopped. It was the mechanical heart of American industry made visible.

President Ulysses S. Grant and Emperor Dom Pedro II of Brazil walked together to the engine’s platform and turned the valves. The Corliss shuddered, caught, and began to turn. Across 14 acres, hundreds of machines came alive simultaneously — looms weaving fabric, lathes cutting metal, printing presses rolling, pumps driving water.

The crowd, according to contemporary accounts, fell silent in a hushed awe. Then it erupted with cheers.

Continue reading “The American System: The Blueprint That Turned the Colonies Into a Superpower”