Establishment of the United States Bank

A.D. 1791

ALEXANDER HAMILTON AND LAWRENCE LEWIS, JR.

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.

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.

"There is nothing in the acts of Congress which implies an exclusive right in the institution to which they relate, except during the time of the war. There is, therefore, nothing, if the public good require it, which prevents the establishment of another. It may, however, be incidentally remarked that in the general opinion of the citizens of the United States, the Bank of North America has taken the station of a bank of Pennsylvania only. This is a strong argument for a new institution, or for a renovation of the old, to restore it to the situation in which it originally stood in the view of the United States. But-there may be room to allege that the Government of the United States ought not, in point of candor or equity, to establish any rival or interfering institution in prejudice of the one already established, especially as this has, from services rendered, well-founded claims to protection and regard.

"The justice of this observation ought, within proper bounds, to be admitted. A new establishment of the sort ought not to be made without cogent and sincere reasons of public good. And in the manner of doing it every facility should be given to a consolidation of the old with the new, upon terms not injurious to the parties concerned. But there is no ground to maintain that in a case in which the Government has made no condition restricting its authority, it ought voluntarily to restrict it, through regard to the interests of a particular institution, when those of the State dictate a different course; especially, too, after such circumstances have intervened as characterize the actual situation of the Bank of North America.

"If the objections, which have been stated, to the constitution of the Bank of North America are admitted to be well founded, they, nevertheless, will not derogate from the merit of the main design, or of the services which that bank has rendered, or of the benefits which it has produced. The creation of such an institution, at the time it took place, was a measure dictated by wisdom. Its utility has been amply evinced by its fruits. American independence owes much to it.

"The Secretary begs leave to conclude with this general observation, that if the Bank of North America shall come forward with any propositions which have for their object the ingrafting upon that institution the characteristics which shall appear to the Legislature necessary to the due extent and safety of a national bank, there are, in his judgment, weighty inducements to giving every reasonable facility to the measure. Not only the pretensions of that institution, from its original relation to the Government of the United States, and from the services it has rendered, are such as to claim a disposition favorable to it, if those who are interested in it are willing, on their part, to place it on a footing satisfactory to the Government and equal to the purposes of a bank of the United States; but its cooperation would naturally accelerate the accomplishment of the great object, and the collision, which might otherwise arise, might, in a variety of ways, prove equally disagreeable and injurious. The incorporation and union here contemplated may be effected in different modes, under the auspices of an act of the United States, if it shall be desired, by the Bank of North America, upon terms which shall appear expedient to the Government."

As far as can be ascertained, however, the management of the bank took no steps in accordance with the suggestions of the report. The quiet and prosperous business in which they were engaged, under State auspices, was to them preferable to the anxieties and hazards which would probably attend the new national undertaking; the scheme of a separate institution was, therefore, rapidly pushed forward, and on February 19, 1791, the first Bank of the United States began its corporate existence.

The Bank of North America now sustained a serious loss in the resignation of its president, Mr. Willing, on January 9, 1792, after a term of service extending over a little more than ten years. He had been chosen to preside over the affairs of the Bank of the United States, a station for which it was justly supposed that his talents and experience eminently qualified him. He was succeeded in office by John Nixon, an almost equally well-known and respected citizen. Born in 1733 of Irish parentage, Mr. Nixon for a number of years did a prosperous business in the city of Philadelphia. He was one of the many signers of the Non-importation Resolutions, and upon the breaking out of the Revolution made himself prominent by his strenuous efforts and warm interest in the national cause. He was a member of the Committee of Safety, and had the honor of first proclaiming to the citizens of Philadelphia the Declaration of Independence. During some portion of the war he did active service, with the rank of colonel, in the Continental Army. He was one of the original subscribers to the bank,’ and had been a director since 1784. He retained the office of president for seventeen years until his death, which occurred on December 24, 1808.

Meantime the business of the bank was rapidly increasing as the commerce of the country grew. The profits were so great that annual dividends of 12 per cent, were paid to the various stockholders. Nor did the institution cease to accommodate the public from time to time with loans of considerable extent. During the year 1791 the bank advanced to the Commonwealth, at different times, in all one hundred sixty thousand dollars, and in the following year something over fifty-three thousand dollars.