Alexander Hamilton, Central Banker: Crisis Management During the U.S. Financial Panic of 1792

Abstract

Most scholars know little about the Panic of 1792, America's first financial market crash, during which securities prices dropped nearly 25 percent in two weeks. Treasury Secretary Alexander Hamilton adroitly intervened to stem the crisis, minimizing its effect on the nascent nation's fragile economic and political systems. U.S. policymakers soon forgot the crisis management techniques Hamilton invented but failed to codify. Many of them were later rediscovered, and became theoretical and practical standards of modern central bank crisis management. Hamilton, for example, formulated and implemented Bagehot's rules for central bank crisis management eight decades before Walter Bagehot wrote about them in Lombard Street.

Keywords: Panic of 1792, Alexander Hamilton, Bagehot's Rules, government bonds, securities markets, financial crises

JEL Classification: B10, B31, E44, E58, E61, E65, N11, N21, N41