Report on a National Bank (1790)

SECRETARY ALEXANDER HAMILTON

THE establishment of banks in this country 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. . . .

Assuming it then as a consequence, from what has been said, that a national bank is a desirable institution, two inquiries emerge—Is there no such institution, already in being, which has a claim to that character, and which supersedes the propriety or necessity of another? If there be none, what are the principles upon which one ought to be established?

There are at present three banks in the United States: that of North-America, established in the city of Philadelphia; that of New-York, established in the city of New-York; that of Massachusetts, established in the town of Boston. Of these three, the first is the only one which has at any time had a direct relation to the government of the United States. . . .

The directors of this bank, on behalf of their constituents, have since accepted and 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. . . .

The order of the subject, leads next to the inquiry into the principles upon which a national bank ought to be organized.

The situation of the United States naturally inspires a wish, that the form of the institution could admit of a plurality of branches. But various considerations discourage from pursuing this idea. . . .

Another wish, dictated by the particular situation of the country, is, that the bank could be so constituted as to be made an immediate instrument of loans to the proprietors of land; but this wish also yields to the difficulty of accomplishing it. Land is alone an unfit fund for a bank circulation. If the notes issued upon it were not to be payable in coin, on demand, or at a short date, this would amount to nothing more than a repetition of the paper emissions, which are now exploded by the general voice. If the notes are to be payable in coin, the land must first be converted into it, by sale or mortgage. The difficulty of effecting the latter, is the very thing which begets the desire of finding another resource; and the former would not be practicable on a sudden emergency, but with sacrifices which would make the cure worse than the disease. Neither is the idea of constituting the fund partly of coin and partly of land, free from impediments. These two species of property do not, for the most part, unite in the same hands. . . .

Considerations of public advantage suggest a further wish, which is, that the bank could be established upon principles that would cause the profits of it to redound to the immediate benefit of the state. This is contemplated by many who speak of a national bank, but the idea seems liable to insuperable objections. To attach full confidence to an institution of this nature, it appears to be an essential ingredient in its structure, that it shall be under a private, not a public direction, under the guidance of individual interest, not of public pulicy; which would be supposed to be, and in certain emergencies, under a feeble or too sanguine administration, would really be, liable to being too much influenced by public necessity. The suspicion of this would most probably be a canker that would continually corrode the vitals of the credit of the bank, and would be most likely to prove fatal in those situations in which the public good would require that they should be most sound and vigorous. It would, indeed, be little less than a miracle, should the credit of the bank be at the disposal of the government, if in a long series of time, there was not experienced a calamitous abuse of it. . . .

As far as may concern the aid of the bank, within the proper limits, a good government has nothing more to wish for, than it will always possess; though the management be in the hands of private individuals. As the institution, if rightly constituted, must depend for its renovation from time to time on the pleasure of the government, it will not be likely to feel a disposition to render itself by its conduct unworthy of public patronage. The government, too, in the administration of its finances, has it in its power to reciprocate benefits to the bank, of not less importance than those which the bank affords to the government, and which, besides, are never unattended with an immediate and adequate compensation. . . .

It will not follow, from what has been said, that the state may not be the holder of a part of the stock of a bank, and consequently a sharer in the profits of it. It will only follow, that it ought not to desire any participation in the direction of it, and therefore, ought not to own the whole or a principal part of the stock . . .

There is one thing, however, which the government owes to itself and to the community; at least to all that part of it, who are not stockholders; which is to reserve to itself a right of ascertaining, as often as may be necessary, the state of the bank, excluding, however, all pretension to control. . . .

Abandoning, therefore, ideas which, however agreeable or desirable, are neither practicable nor safe; the following plan for the constitution of a National Bank, is respectfully submitted to the consideration of the house.

I. The capital stock of the bank shall not exceed ten millions of dollars, divided into twenty-five thousand shares, each share being four hundred dollars . . . Bodies politic, as well as individuals, may subscribe.

II. The amount of each share shall be payable, one fourth in gold and silver coin, and three fourths in that part of the public debt, which . . . shall bear an accruing interest at the time of payment of six per centum per annum. . . .

IV. The subscribers to the bank and their successors shall be incorporated, and shall so continue, until the final redemption of that part of its stock which shall consist of the public debt.

V. The capacity of the corporation to hold real and personal estate, shall be limited to fifteen millions of dollars, including the amount of its capital or original stock. . . .

VI. The totality of the debts of the company, whether by bond, bill, note, or other contract, (credits for deposits excepted,) shall never exceed the amount of its capital stock. In case of excess, the directors, under whose administration it shall happen, shall be liable for it in their private or separate capacities. Those who may have dissented, may excuse themselves from this responsibility, by immediately giving notice of the fact and their dissent, to the President of the United States, and to the stockholders, at a general meeting to be called by the president of the bank, at their request.

VII. The company may sell or demise its lands and tenements, or may sell the whole or any part of the public debt, whereof its stock shall consist; but shall trade in nothing, except bills of exchange, gold and silver bullion, or in the sale of goods pledged for money lent: nor shall take more than at the rate of six per centum per annum, upon its loans or discounts.

VIII. No loan shall be made by the bank, for the use or on account of the government of the United States, or of either of them, to an amount exceeding fifty thousand dollars, or of any foreign prince or state; unless previously authorized by a law of the United States. . . .

X. The affairs of the bank shall be under the management of twenty-five directors, one of whom shall be the president. . . .

XIII. None but a stockholder, being a citizen of the United States, shall be eligible as a director. . . .

XX. The bills and notes of the bank originally made payable, or which shall have become payable on demand, in gold and silver coin, shall be receivable in all payments to the United States.

XXI. The officer at the head of the treasury department of the United States, shall be furnished from time to time, as often as he may require, not exceeding once a week, with statements of the amount of the capital stock of the bank, and of the debts due to the same, of the monies deposited therein, of the notes in circulation, and of the cash in hand; and shall have a right to inspect such general accounts in the books of the bank, as shall relate to the said statements; provided that this shall not be construed to imply a right of inspecting the account of any private individual or individuals, with the bank.

XXII. No similar institution shall be established by any future act of the United States, during the continuance of the one hereby proposed to be established.

XXIII. It shall be lawful for the directors of the bank to establish offices, wheresoever they shall think fit, within the United States, for the purposes of discount and deposit only, and upon the same terms, and in the same manner, as shall be practised at the bank . . .

XXIV. And lastly. The President of the United States shall be authorized to cause a subscription to be made to the stock of the said company, on behalf of the United States, to an amount not exceeding two millions of dollars . . . borrowing of the bank an equal sum, to be applied to the purposes for which the said monies shall have been procured, reimburseable in ten years by equal annual instalments; or at any time sooner, or in any greater proportions, that the government may think fit. . . .

The combination of a portion of the public debt, in the formation of the capital, is the principal thing of which an explanation is requisite. The chief object of this is, to enable the creation of a capital sufficiently large to be the basis of an extensive circulation, and an adequate security for it. . . . But to collect such a sum in this country in gold and silver, into one depository, may, without hesitation, be pronounced impracticable. Hence the necessity of an auxiliary, which the public debt at once presents.

This part of the fund will be always ready to come in aid of the specie. It will more and more command a ready sale; and can therefore expeditiously be turned into coin if an exigency of the bank should at any time require it. This quality of prompt convertibility into coin, renders it an equivalent for that necessary agent of bank circulation; and distinguishes it from a fund in land, of which the sale would generally be far less compendious, and at great disadvantage. . . .

The interdiction of loans on account of the United States, or of any particular state, beyond the moderate sum specified, or of any foreign power, will serve as a barrier to executive encroachments, and to combinations inauspicious to the safety, or contrary to the policy of the Union.

The limitation of the rate of interest is dictated by the consideration, that different rates prevail in different parts of the Union; and as the operations of the bank may extend through the whole, some rule seems to be necessary. . . .

The last thing which requires any explanatory remark, is, the authority proposed to be given to the President to subscribe to the amount of two millions of dollars, on account of the public. The main design of this is, to enlarge the specie fund of the bank, and to enable it to give a more early extension to its operations. Though it is proposed to borrow with one hand what is lent with the other; yet the disbursement of what is borrowed, will be progressive, and bank notes may be thrown into circulation, instead of the gold and silver. Besides, there is to be an annual reimbursement of a part of the sum borrowed, which will finally operate as an actual investment of so much specie. In addition to the inducements to this measure, which result from the general interest of the government to enlarge the sphere of the utility of the bank, there is this more particular consideration, to wit, that as far as the dividend on the stock shall exceed the interest paid on the loan, there is a positive profit.

Alexander Hamilton, (New York, 1810), I, 80–109 passim.