First Bank of the United States

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The First Bank of the United States

The Bank of the United States was designed to make money and build an economy. It was designed by men like Alexander Hamilton and Robert Morris, but did not benefit the common citizen as much as wealthy investors. Why did a fledgling government need to borrow millions from overseas in order to invest in a “national” bank, to turn around and then borrow the same money back and pay interest on it? The banking system developed by Alexander Hamilton and Robert Morris was prime pickings for speculators, and laid the groundwork for a history of unscrupulous activity regarding our nation’s money supply that continues to this day. The signatures on the Constitution were barely dry before corruption and greed laid their roots in our country’s economic foundation. It is not difficult to imagine a scenario where massive speculation by investors would cause a bubble in the money market. In such a scenario prices of shares climb over 1000%. So intense is the frenzy to get involved in the speculation game that people forgo their regular daily duties in order to get their money invested. Commerce grinds to a halt. The Secretary of the Treasury attempts to manipulate the situation by communicating with investors and having them curb their speculations in order to stabilize prices. Fearing that they are overextending, bankers cease extending credit to investors. The bubble bursts and prices plummet. This story could seemingly be ripped from today’s headlines. Instead, the foregoing was the story of birth of the first Bank of the United States. The banks tumultuous beginnings sent ripples through the precarious early-American economy. Hamilton endeavored to mold this economy into a capitalistic, industrial power, contrary to the wants of much of the agrarian population of the country. The Bank of the United States was his tool to direct the future of America, yet Hamilton and his bank were not without their detractors. Most notably, then Secretary of State Thomas Jefferson, Attorney General Edmund Randolph, and principal author of the Constitution James Madison, all argued against the charter for the bank. To understand why Hamilton wanted to direct the economy one must understand what the landscape of the nation’s monetary system was prior to the chartering of the bank. For years America had been suffering from a lack of circulating specie. As a result, the colonies had resorted to the printing press to fund the Revolutionary War debt. Inflation was rampant and prices soared. “At one point, seventy dollars in paper was not equal to one dollar in silver…it cost more to print a Continental dollar than it was worth in currency.” Following the ratification of the Constitution, Hamilton argued for the national government’s assumption of the states’ debt. He believed that “a national debt, if it is not excessive, will be to us a national blessing.” The issue of assumption brought scandal. In anticipation of the various states’ debts being paid off by the national government, speculators began buying up inflated and devalued states debt at very low rates. Several associates of Hamilton, most notably Congressman William Loughton Smith and Congressman Jeremiah Wadsworth, bought large amounts of the depreciated paper for as little as 10 cents on the dollar. Robert Morris, financier of the Revolution and mentor to Hamilton, was said to have made $20 million dollars through speculation. Historians and economists would call Morris the “Machiavellian string-puller” in the Washington administration, and claim that Hamilton was the puppet performing the master’s bidding. In 1818 Thomas Jefferson recalled the frenzy surrounding the speculation surrounding the assumption of the states’ debt, writing: “Active partners and agents were associated and employed in every State, town and country neighborhood, and this paper was bought up at five shillings, and often as low as two shillings in the...
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