The Northern Pacific Railway was a transcontinental railroad that operated across the northern tier of the western United States from Minnesota to the Pacific Coast. The goal was to connect the Great Lakes with the Puget Sound. Along with the Southern Pacific and the Union Pacific (originally the Central Pacific, but renamed during the Civil War), it was to be the northernmost of three transcontinental railroads.

The President, Directors and Company, of the Bank of the United States, or the First Bank of the United States, as it is more commonly known, was chartered for a term of twenty years, by the United States Congress on February 25, 1791. The bank was part of Alexander Hamilton’s plan for stabilizing and improving the nation’s credit by establishing a central bank, a mint, and introducing excise taxes. The Bank of the United States was to have $10 million in capital, of which $2 million would be subscribed by the government. The $8 million in shares sold to the public (20,000 shares at $400) were quickly purchased and the price of the stock initially rose to $600. Of the first $8 million in shares that were sold, one quarter had to be paid in gold or silver. The rest could be paid in bonds, scrip, etc. Shares sold for $400, and to understand how much money this was by today’s standard, the per capita income in the United States in 1791 was only $50 (vs. over $50,000 today), so one share of stock cost the equivalent of $400,000 in today’s dollars, making Berkshire Hathaway Class A stock cheap by comparison. Hamilton modeled the Bank of the United States on the Bank of England. The bank could be a depository for collected taxes, make short-term loans to the government, and could serve as a holding site for incoming and outgoing money. Nevertheless, Hamilton saw the main goal of the bank as a way of promoting commercial and private interests by making sound loans to the private sector, and most of its activities were commercial, not public. The Bank of the United States was a privately-owned bank and was the only Federal Bank, though states could also charter banks. The bank had a 20-year charter; foreigners could be stockholders (and owned about three-fourths of the stock), but could not vote; and the Secretary of the Treasury had the right to inspect the bank’s books as often as once a week. There were a couple ways, however, in which the First Bank of the United States differed significantly from the Federal Reserve Bank. The Bank of the United States could not buy government bonds, and the bank could neither issue notes nor incur debts beyond its actual capitalization. Alexander Hamilton would have been a strong opponent of Bernanke’s quantitative easing, and if Bernanke had studied the First Bank of the United States rather than the Great Depression, he might not be Fed Chairman today. The same battles that exist today between tight-money and easy-money factions existed when the Bank of the United States was established and will always exist. The “moneyed interests” of the northern, commercial businesses generally favored the bank while the southern, agricultural groups opposed it. The reason for this is quite clear. Since farmers had to borrow money to fund their crops and people in the southern and western United States needed capital to buy land and establish new communities, they wanted interest rates as low as possible. Lenders of money wanted to keep interest rates higher and provide sound money. Since the wealthy had suffered from the depreciation of the Continental Dollar, which lost 99.9% of its value during the Revolutionary War, lenders wanted to avoid another debasing of the currency. Moreover, the Bank of the United States was the largest bank in the country, so state banks were naturally opposed to this competition. When the Bank’s charter came up for renewal in 1811, the Democrats, who opposed the bank, were in control of Congress, while the Federalists, who had set up the bank, were not. The vote to renew the charter failed by one vote in both the House (65-64) and in the Senate where the vote was deadlocked at 17 and Vice-President Clinton cast the deciding vote against the renewal of the charter. The Bank of the United States was born of politics and died of politics. Votes along party lines are nothing new in Congress. This battle between lenders and borrowers continued for the rest of the century. It occurred again when the Second Bank of the United States was established in 1817, and when William Jennings Bryan ran for President three times at the end of the nineteenth century and made his “Cross of Gold” speech. Today, in the twenty-first century, the same battle lines are drawn between easy-money advocates in favor of quantitative easing, and tight-money opponents who believe these policies will lead to another bubble and financial crash. No doubt, two hundred years from now, the same battle lines will be drawn. The Bank of the United States was succeeded by Girard’s Bank in 1811. Girard’s Bank was chartered by Pennsylvania on September 1, 1832, was chartered under the National Bank Act on November 30, 1864 as the Girard National Bank, and was closed on March 31, 1926. Girard’s Bank spun off the Girard Life Insurance Annuity and Trust Co. which incorporated on March 17, 1836 and merged into Mellon National Corp. on April 6, 1983.

Global Financial Data has added four indicators of Global Warming. These four data sets use the Met Office Hadley Centre observations datasets for the World (HADCRUTGM), Northern Hemisphere (HADCRUTNM), Southern Hemisphere (HADCRUTSM) and Tropics (HADCRUTTM). Data are monthly and go back to 1850. The HadCRUT4 near surface temperature data set is produced by blending data from the CRUTEM4 surface air temperature dataset and the HadSST3 sea-surface temperature dataset. These ‘best estimate’ series are computed as the medians of regional time series computed for each of the 100 ensemble member realisations. Time series are presented as temperature anomalies (deg C) relative to 1961-1990. Rather than having someone tell you about Global Warming, check out the data for yourself.

Most people in the stock market have heard about the South Sea Bubble, the first stock market bubble, which took place in 1720, but few people realize that the South Sea Co. was also one of the first ETFs in market history. Many people have seen a chart of the stock rising from 100 to 1000 within a few months, then collapsing back to 100. But what happened after the stock price collapsed, and why did the stock price rise so suddenly and then collapse to begin with? The South Sea Company was a British joint-stock company founded in 1711 as a public-private partnership to consolidate and reduce the cost of British national debt. The company had a monopoly of British trade with South America, and the potential profits from this monopoly were used to justify the rise in price of South Sea Co. stock. When it was discovered the profits would not occur, which they did not, then the price of the stock collapsed. The South Sea Company was, in modern parlance, a debt-equity swap. The British government had increased its debt significantly as a result of the War of the Spanish Succession. The government debt was over £50 million pounds, or about 100% of GDP. Following in the footsteps of John Law, who had created the Banque Royale in France to reduce the French debt, the British government decided to do the same. South Sea Company shares were backed by government bonds, would pay 5% interest, and unlike British government debt, South Sea Co. shares would have the potential for increases in dividends as the South Sea Company profited from its monopoly. The British government benefited because it reduced its debt, and holders of British government debt could benefit from a higher rate of return and the potential for capital gains. The conversion of British government debt to South Sea Co. stock was a win-win. When things are too good to be true, they are. If the Securities and Exchange Commission had existed in 1720, they would have arrested everyone associated with the South Seas Co. since they broke almost every rule in the SEC book. Rumors about profits were spread, members of Parliament were bribed, shares could be bought with a small down payment or no down payment, shares could be purchased at the par price of £100 and sold at the higher market price, etc. Shares were sold to members of the government at the market price without them having to pay for the shares. When the price of the stock rose, the shares could be sold at a profit. This cost the “investors” nothing, made sure their interests lay with the South Seas Co., and insured profits to the supporters of the company. Even George I’s mistress was allowed to benefit from this scheme. The rise in the price of South Sea Co. stock led to numerous additional companies emerging to take advantage of the stock market bubble. Almost all of these companies became worthless, and this led to the passage of the Bubble Act in June 1720. The Act required that a joint stock company could only be incorporated by Act of Parliament or Royal Charter. The prohibition on unauthorized joint stock ventures was not repealed until 1825. The Bubble Act limited potential competition and drove the South Sea Co. stock price £890 in early June. The price finally reached £1,000 in early August, and sellers began to outnumber buyers. Liquidity started to dry up, in part because the first installments for shares purchased by investors on credit became due. By the end of September the stock had fallen to £150. Despite forays into the slave trade and Arctic whaling (an oxymoron for the South Seas Co.), the company never made a profit, but lost money, and as is always true of large companies that lose money, they sought subsidies from the government for their Arctic whaling, which they got, and they sought a bailout from the British government, which they did not get. After the 1732, the company’s slave trading and Arctic whaling were shut down. From then until 1855 when the company was liquidated, the South Sea Co. simply managed its government debt. After the Bank of England stock and East Indies Co. stock, the South Sea Co. stock was the third most traded stock on the London Stock Exchange for the rest of the 1700s, not for its monopoly profits, but for the steady income from government bond interest payments. In effect, the South Sea Company became an ETF for government debt, 250 years before ETFs became a mainstay of the US stock market. By 1855, the South Sea Co. had outlived its purpose and it was closed down. The chart below shows the history of the South Sea Co. from its inception in 1711 to its liquidation in 1855. Although the South Sea Co. will always be remembered for its bubble, it should not be forgotten that it also laid the foundations for the ETF mania of the twenty-first century.