This series has two easy 5 minute installments. This first installment: Why Did America Need a Central Bank?.
Through the founding of the first Bank of the United States, which existed from 1791 to 1811, and was succeeded by another national bank in 1817, the monetary affairs of the Republic, under Hamilton’s able administration, were placed upon a sounder basis, and the transaction of public business was greatly facilitated.
During the seventeenth century Indian money (wampum) was much used by the colonists, especially in their trade with the Indians. For a long time it was a legal tender in common with other currencies. The earliest American coinage is said to date from 1612. In Massachusetts, the “pine-tree” money — silver coins bearing the emblem of a pine-tree — was used from 1652 to 1686. Soon began the issue of various paper moneys in the colonies, and the establishment of banks under the colonial governments. The “Continental currency” of the Revolution, first issued in 1775 by authority of the Continental Congress, began to depreciate almost as soon as it appeared, and in 1780 ceased to circulate.
In 1780 the Pennsylvania Bank, in Philadelphia, began to assist the Government, and rendered useful service until 1784. But the need of a national bank had already become evident. Robert Morris, Superintendent of Finance for the United States, secured the organization, at Philadelphia, of the Bank of North America, with a capital of four hundred thousand dollars. It was incorporated by Congress in December, 1781, and soon after by the State of Pennsylvania. Its success led to the founding of the Bank of New York in 1784.
On the organization of the Government under the Federal Constitution, the genius of Alexander Hamilton was called into service for the work of constructive statesmanship. From 1789 to 1795 he was Secretary of the Treasury; and one of his first acts, as shown by Lewis, was the unfolding of a plan which led to the establishment of the first Bank of the United States. We list Hamilton as an author here because Lewis’ manuscript quotes from him so heavily.
This selection is from A History of the Bank of North America: Prepared at the Request of the President and Directors by Lawrence Lewis and by Alexander Hamilton published in 1882. For works benefiting from the latest research see the “More information” section at the bottom of these pages.
Place: New York City
In March, 1789, a great and fortunate change took place in the management of American public affairs. The Constitution of the United States went into operation. A vigorous, responsible executive was conferred upon the country, and an incredible impulse given to all schemes of national importance. Among those now called upon to take part in the administration of public affairs was Alexander Hamilton. Placed in charge of the Department of the Treasury, he found before him the prodigious task of settling the financial affairs of the United States upon a sure and satisfactory basis. Toward the attainment of this end no measure seemed more important to him than his old and favorite one for the establishment of a national bank. Without loss of time he devised a plan for such an institution which seemed to him practicable, and in 1790 spread before Congress the result of his labors.
“The establishment of banks in this country,” says Hamilton in the course of his report, “seems to be recommended by reasons of a peculiar nature. Previously to the Revolution, circulation was in a great measure carried on by paper emitted by the several local governments. This auxiliary may be said to be now at an end. And it is generally supposed that there has been for some time past a deficiency of circulating medium.
“If the supposition of such a deficiency be in any degree founded, and some aid to circulation be desirable, it remains to inquire what ought to be the nature of that aid.
“The emitting of paper money by the authority of government is wisely prohibited to the individual States by the national Constitution; and the spirit of that prohibition ought not be disregarded by the Government of the United States.
“Among other material differences between a paper currency issued by the mere authority of Government, and one issued by a bank, payable in coin, is this: that in the first case there is no standard to which an appeal can be made, as to the quantity which will only satisfy or which will surcharge the circulation; in the last, that standard results from the demand. If more should be issued than is necessary, it will return upon the bank. Its emissions must always be in a compound ratio to the fund and the demand. Whence it is evident that there is a limitation in the nature of the thing; while the discretion of the Government is the only measure of the extent of the emissions by its own authority.
“The payment of the interest of the public debt at thirteen different places is a weighty reason, peculiar to our immediate situation, for desiring a bank circulation. Without a paper, in general currency, equivalent to gold and silver, a considerable proportion of the specie of the country must always be suspended from circulation, and left to accumulate preparatorily to each day of payment; and as often as one approaches, there must in several cases be an actual transportation of the metals at both expense and risk, from their natural and proper reservoirs, to distant places.”
The report then goes on to explain the practical details of the plan proposed.
The measure met generally with popular applause, but there were some who doubted its wisdom. Among other difficulties that were thrown in its path was a suggestion that a new bank was quite unnecessary, since an institution was in existence which owed its origin to national bounty, and which had already, upon more than one occasion, manifested both its readiness and ability to extend a helping hand to the Government. With this objection Hamilton dealt most courteously.
“The aid afforded to the United States,” said he, “by the Bank of North America during the remaining period of the war was of essential consequence, and its conduct toward them since the peace has not weakened its title to their patronage and favor. So far its pretensions to the character of a national bank are respectable, but there are circumstances which militate against them and considerations which indicate the propriety of an establishment on different principles.
“The directors of this bank, on behalf of their constituents, have since acted under a new charter from the State of Pennsylvania, materially variant from their original one, and which so narrows the foundation of the institution as to render it an incompetent basis for the extensive purposes of a national bank.
Read next installment of this selection.
We want to take this site to the next level but we need money to do that. Please contribute directly by signing up at https://www.patreon.com/history