Money on the Brink

The Bankers

by Martin Mayer
Weybright and Talley, 566 pp., $15.00

The distinction of being the first bank in American history to fail goes to Farmers Exchange Bank of Glocester, Rhode Island, which departed this world in the spring of 1809. The Farmers Exchange went down because it issued bank notes which it promised to redeem in gold it did not have.

Incidents like this prompted President John Adams to cry out that “Banks have done more injury to the religion, morality, tranquillity, prosperity, and even the wealth of the nation than they can have done or ever will do good.” The fact that George Washington owned stock in the Bank of England seems not to have impressed Adams, or Missouri’s Senator Thomas Hart Benton, who asked, “Are men with pens sticking behind their ears to be allowed to put an end to this republic?”

To ensure that such a disaster would not befall us the states of Texas, Arkansas, Oregon, and Iowa prohibited the banking trade while Andrew Jackson did much the same thing for the federal system by destroying the Bank of the United States. Most of this admirable, if misdirected, anger took hold of men because they did not understand what banks do. Try as they did, even such dissimilar advocates of banking as Alexander Hamilton and Tom Paine had little success in persuading people to accept this sinister activity. The suspicion and ignorance of banks hang on, although with the publication of Martin Mayer’s The Bankers we can hope that some part of them may be dispelled.

In a field where bankers and economists work at expressing themselves in language of impenetrable viscosity, Mayer has written a book that we can understand. We had best do it too, because no society, capitalist or socialist, can function without a banking system, whether it is called that or not. It is the only means we have of collecting the unused wealth generated in one place and apportioning it some-place else so that resources are put to work where we think we most need them. The problem with banks, as Mayer tells us, is not that they exist but how to make them do what we want.

Franchised fast-food establishments sprang up around the country like dragons’ teeth in large part because the First National Bank of Chicago was willing to supply the money,” writes Mayer, who quotes a bank executive saying, “We are the leading bankers for Kentucky Fried Chicken and McDonald’s; we got out of Minnie Pearl before it collapsed.” At the same time as First National was financing the research and development of the Big Mac—two beef patties on a sesame seed bun—the city in which the bank was located was falling down on its ears in part because the lending institutions had refused to allow the black and white working-class population to participate in the mortgage markets.

For sixty years some of the braver members of Congress have been trying with indifferent success to get banks to put money where the …

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