Philosophy of Business
Michael Lin
BADM 300- Midterm Exam
Term 1: Spring 2012
Dr. Gilchrist
1/3. The United States was one of the last major industrialized nations to form a Central Bank because of distrust in a central government agency. One can see this throughout the history of efforts to create the Central Bank (First Bank, Second Bank, and finally the National Bank). This is also why the Federal Reserve Bank System set up twelve Regional Banks rather than having only one.
The First Bank of the United States was created to fix the debt caused by the Revolutionary war. Although the original intent of the First Bank was to finance the government, Alexander Hamilton decided to make it a commercial bank as well, meaning a for-profit bank. Although this allowed Hamilton to loan money to business owners, many argued this idea was unconstitutional as it allowed a private institution the power to tax and print money. Therefore, in 1811, having “taken care of the national debt,” Congress refused to renew the Bank’s charter (by one vote), causing it to shut down.
After just 5 years, due to the War of 1812, the national debt began to accumulate once again, and the Congress saw another need for a national bank. Acting as a regulator for state-chartered banks and a whole lot bigger in size (35 million dollar capital compared to the First Bank’s 10 million), the Second Bank was established in 1816. The main reason for the downfall of the Second Bank was primarily the cause of President Andrew Jackson. Since the beginning, Jackson announced his opposition to the bank and eventually the banks chartered having not being renewed, expired in 1836.
Up until the Civil War, United States ran on what is commonly called the free banking system. This allowed state-chartered banks to print their own money and have minimum regulation on their loans. Due to the debt caused by the Civil War, United States was forced to renew the idea of a national bank. The new policy allowed banks to choose
BADM 300- Midterm Exam
Term 1: Spring 2012
Dr. Gilchrist
1/3. The United States was one of the last major industrialized nations to form a Central Bank because of distrust in a central government agency. One can see this throughout the history of efforts to create the Central Bank (First Bank, Second Bank, and finally the National Bank). This is also why the Federal Reserve Bank System set up twelve Regional Banks rather than having only one.
The First Bank of the United States was created to fix the debt caused by the Revolutionary war. Although the original intent of the First Bank was to finance the government, Alexander Hamilton decided to make it a commercial bank as well, meaning a for-profit bank. Although this allowed Hamilton to loan money to business owners, many argued this idea was unconstitutional as it allowed a private institution the power to tax and print money. Therefore, in 1811, having “taken care of the national debt,” Congress refused to renew the Bank’s charter (by one vote), causing it to shut down.
After just 5 years, due to the War of 1812, the national debt began to accumulate once again, and the Congress saw another need for a national bank. Acting as a regulator for state-chartered banks and a whole lot bigger in size (35 million dollar capital compared to the First Bank’s 10 million), the Second Bank was established in 1816. The main reason for the downfall of the Second Bank was primarily the cause of President Andrew Jackson. Since the beginning, Jackson announced his opposition to the bank and eventually the banks chartered having not being renewed, expired in 1836.
Up until the Civil War, United States ran on what is commonly called the free banking system. This allowed state-chartered banks to print their own money and have minimum regulation on their loans. Due to the debt caused by the Civil War, United States was forced to renew the idea of a national bank. The new policy allowed banks to choose