These are unusual times that we are living in, with many of the foundations of our monetary systems being challenged by both political leaders and members of the financial community. Motivated by the desire to have a better response through which to explain why the U.S. dollar should not be tied to a gold standard, Dr. Tiemann set out to understand the underpinning of the banking system as originally designed by Alexander Hamilton, and to find a systematic way to think more deeply about money and banking.
Dr. Tiemann’s research led him first to a review of the Compromise of 1790, as negotiated by Alexander Hamilton, and how that laid the foundation for the expansion of money and government credit. He came to appreciate much better how a gold-based monetary standard induces a pro-cyclical monetary policy—makes booms boomier and busts bustier—amplifying economic booms and busts. Dr. Tiemann explained that, “with a gold standard, what happens is that credit expands when times are good and contracts when times are bad, which amplifies booms and makes busts worse. This is the exact opposite of what the Federal Reserve tries to do, which is to attenuate booms and relieve busts.”
Following his review of the Compromise of 1790, Dr. Tiemann decided he wanted to continue to understand important historical antecedents to the foundation of our banking system, and set about to find a unique period of history with the kind of economic conditions that would help illuminate the underlying principles of money and banking. He found these conditions in the context of the historical events occurring in San Francisco, as it underwent enormous economic expansion during the Gold Rush era. Several of Dr. Tiemann’s previous notes, Government Credit & Money (June 2017) and Banking Without Banks (November 2017), explored the relationship between government credit and money, inquiries that proceeded logically from Dr. Tiemann’s initial insights from his study of the Compromise of 1790.
Dr. Tiemann has continued to spend considerable time researching Gold Rush history as a means for thinking systematically about banking in general. He has become a member of the California Historical Society, based in San Francisco, and reader at the Huntington Library, which is based in Pasadena, California. Dr. Tiemann was invited to give a talk previewing his research to members of the Huntington Library community and he did so at a brown bag lunch at the Huntington on July 16, 2018. The title of his talk was “Globalization 1855: How the Crimean War Upended Banking in Gold Rush San Francisco.” You can click the highlighted link or the image to download the slides that he used in presenting his research.
[Update: We have now posted Dr. Tiemann’s Working Paper on this same topic, entitled “Contagion 1855: How the Crimean War Felled San Francisco’s Largest Banks.“]