The Rise of U.S. Commercial Banking: Implications on the Economics and History of the United States. Innovative or Destructive?

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Sidney P. Henggeler
ECON 40413
December 11, 2012
Dr. John Lovett

The Rise of U.S. Commercial Banking: Implications on the Economics and History of the United States. Innovative or Destructive?

The first findings of Commercial Banking in the United States can be dated back to around 1781 with the establishment of the Bank of North America. In time the rise of Commercial Banking saw an increase in opportunities for wealthy individuals to become involved in entrepreneurial venture they would not involve themselves in without someone else to guarantee a return on the investment. Early banks acted as intermediaries for entrepreneurs who did not have enough means to fund their own investment ventures as well as entrepreneurs who were in fact capable of financing the venture but did not want to take on the risk of the investment. On second thought many despised the discriminatory practices regarding insider lending, they believed that government monopolization of money was a corrupt problem that would bankrupt the people, presuming that this centralization of power taken away from local banks was unhealthy to a sound monetary system and was mostly to the benefit of business interests in the commercial north, not to those interest of southern agricultural, clarifying that the right to own property would be infringed upon if such proposals were enforced. Those still indifferent contested that the creation of such a bank would violated the Constitution, which specifically stated that congress was to regulate weights (measurements) and issue coined money (rather than mint and bills of credit). The establishment of the bank also raised early questions of constitutionality in the new government. Other arguments came from James Madison, who believed Congress had not received the power to incorporate a bank, or any other governmental agency. His argument rested primarily on the Tenth Amendment: that all rights not endowed to Congress goes right to the States (the people) exclusively. He added that if the Constitution's writers had wanted Congress to have such power, they would have made it explicit. These arguments raised real concerns regarding new policies being implemented in newly founded banking systems. I intend to specifically focus my research on the positive and negative effects that the First Bank of the United States has had on today’s United States economy. By investigating findings from economist of the 18th century along with further updated economic theories discovered by current economist I hope to prove that the “financial revolution”, specifically the First Bank of the United States, is what spurred United States rapid economic development. Implying that the cause of the United States rapid economic development and growth may be simplified to the development of Commercial Banking in the United States.

The Rise of U.S. Commercial Banking: Implications on the Economics and History of the United States. Innovative or Destructive?

Sidney P. Henggeler

The first findings of Commercial Banking in the United States can be dated back to around 1781 with the establishment of the Bank of North America. In time the rise of Commercial Banking saw an increase in opportunities for wealthy individuals to become involved in entrepreneurial venture they would not involve themselves in without someone else to guarantee a return on the investment. Early banks acted as intermediaries for entrepreneurs who did not have enough means to fund their own investment ventures as well as entrepreneurs who were in fact capable of financing the venture but did not want to take on the risk of the investment. On second thought many despised the discriminatory practices regarding insider lending, they believed that government monopolization of money was a corrupt problem that would bankrupt the people, presuming that this centralization of power taken away from local banks was unhealthy to a sound monetary system and was mostly to...
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