quickly and aggressively in 2023 , the bank run at SVB would have spread further , faster and with much more destructive force than most people feared .

Envisioning counterfactual scenarios can also be applied to the past . What would have happened if Congress had renewed the charter of the First Bank of the United States ? Would state-chartered banks have proliferated throughout the 1810s ? Would land speculation have been contained ? All evidence from the past 200 years suggests that the magnitude and duration of the depression in the 1820s would have been considerably less severe if policymakers had a more robust fiscal and monetary response .

There is also an interesting flip side to this thought experiment . The most haunting question is whether Americans would have appreciated the painful consequences of unconstrained bank runs if past generations never allowed them to happen in the first place . This is the question that lies at the heart of the issue of moral hazard . The experience of extreme economic suffering — especially the suffering that occurred in the 1930s — inspired the creation of many tools and policies that prevented the recurrence of major

financial catastrophes . But the problem is that if people never suffer the consequences of their bad behavior , they have no incentive to stop behaving badly , and this can create conditions that invite even bigger crises in the future .

Balancing the benefit of extinguishing financial fires early with the cost of allowing moral hazard to become entrenched is a constant challenge for policymakers . How much pain should be tolerated in the present to prevent potentially more painful crises in the future ? What is most unsatisfying about this question is that we simply do not know the answer .

In 2023 , Americans are privileged to have access to many valuable lessons revealed by the mistakes and sacrifices of past generations . In 1819 , Americans were afforded no such luxury . Almost everything was new : a central bank , a newly democratic nation and a seemingly unbounded frontier of land to the West . It is essential that we regularly revisit these lessons because many remain transferable to the present . Financial crises will always be a feature of human civilization . Only by comparing the past to the present , can we incrementally improve our ability to navigate the future .

Elliot Chambers is the Founder and CEO of The Aurelian Companies . He ’ s a business advisor with decades of experience across multiple industries and at all stages of the company life cycle , with involvement in over $ 35 billion of capital formation transactions , mergers , acquisitions and divestitures .

Mark Higgins , CFA , CFP ® is a financial historian , experienced institutional investment advisor , and frequent contributor to Financial History magazine . His book , Investing in US Financial History , recounts the full financial history of the United States from 1790 to 2023 . The book will be published in February 2024 by Greenleaf Book Group .

Notes

1 . The First Bank also lacked the ability to serve as a lender of last resort , but it coordinated with the Treasury to use a sinking fund to serve in a similar capacity .

2 . Specie is a term used to describe the commodity for which bank notes were redeemable . In the 1810s , specie reserves took the form of gold and silver .

3 . There were an estimated 261 state banks in existence at the end of 1819 , which would mean that roughly 30 % of banks failed .

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