The First Bank of the United States - Essay Example

The First Bank of the United s The First Bank of the United s Introduction As can be expected, war is expensive. This is true today, but it was also true during the early days of America, perhaps even more so. The Revolutionary War, by its very nature, left America nearly penniless. In fact, what money the nation did have, it owed to others. Most states at the time has various forms of debt, each in its own currency. This made it extremely difficult to manage, and one state could not simply help another because their money would have been worthless. While America won the War and gained its hard fought independence, they quickly discovered that the country as a whole needed to have a solid financial plan for the near and long term. They needed to shore up their own fiscal policy and standardize a currency that could be adopted nationwide and begin to get the country off on the right financial footing. The First Bank of the United States was an effort to do this, and its charger came into effecting 1791. While certainly far from perfect, nor even ideal in the eyes of many, it was a solid first effort by the founding fathers of the nation to set the country on the right path to financial security and freedom, in addition to their newfound global independence. They also wanted to show the world that the nation was capable of not only paying back its debt, but also in handling its own internal needs moving forward. This was seen as a necessary first step towards establishing domination throughout the region and keeping potential invaders from arriving on the shores of the young country. To understand this First Bank, one needs to discuss the background of Hamilton’s Plan, the economic policy associated with the Bank, and its eventual implementation. Background While the First Bank of the United States was all about creating fiscal policy for the new country, it is still important to remember that it was also an actual physical building. The bank itself was built in Philadelphia, which at that time of the capital of the country. Alexander Hamilton was the brainchild behind the concept of the bank, and his desire was to implement a mechanism by which the United States, and each individual state within the union, could begin to tack its monumental debt as a result of the Revolutionary War. Prior to the creation of the bank and the implementation of its charter, coins and paper currency were actually issued by state banks, and these individual currencies combined to form the national currency. For obvious reasons, if the Union was going to succeed, they had to nationalize its monetary system. The charter for the First Bank of the United States was actually written in 1791 by the Congress at that time. It was subsequently signed into existence by George Washington. As will be discussed, the Bank itself did have some flaws and the original charter and bank was actually abandoned in 1811. There is still much to be learned, however, from the banking system inherent in America’s first two decades of existence. Hamilton’s Plan It is important to understand the economic policy and mindset that formed the basis for the charter of the First Bank of the United States. Dubbed Hamilton’s Plan, it was proposed that First Congress of the United States set aside funding for the Bank of the United States to be financed primarily by the sale of $10 million worth of stock. The federal government would actually buy the first $2 million of these shares, even though the country did not actually have that much money at the time. Hamilton’s Plan actually covered this detail however, as he proposed that one of the first actions taken by the First Bank of the United States would be to lend America the $2 million it needed to purchase the stock. That loan would then be paid back by the government in ten equal installments, on an annual basis. The other $8 million in stock would be put of for sale and any individual could purchase it, both domestically and abroad. Because the nation needed specific access to hard currency, however, Hamilton proposed one major stipulation to any person purchasing the stock. Twenty-five percent of the total purchase price must have been paid for in gold or silver, with the remaining 75% to be paid in another acceptable form of currency, such as bonds. Hamilton felt that this was a logical way to infuse the First Bank of the United States with the financial capital it needed to get started. One the $8 million dollars wort of stock was sold to private individuals, the nation would have a minimum of $500,000 in hard and real money that it could then use to loan out to other interests, such as nations, up to its charter limit of $10 million. Separating itself from the Bank of England, Hamilton’s Plan stipulated that the First Bank of the United States would have as its core objective to be credit that was issued to various interests related to the government and private individuals. Another core objective would be to provide financial for internal improvements related to infrastructure that the nation was in desperate need of after years of war with England. Overall, Hamilton’s Plan focused on economic development by way of issuing public credit. It would also provide America with a mechanism to collect taxes, make short terms loans that the government needed to make up for any budgetary short falls, and to serve as a depository for money, both coming and going. Hamlton’s Plan also contained several other provisions that he felt were essential to the potential success of the bank. The bank itself, for example, was to be a private company and have limited interference from the government. The banks charter was to be set at 20 years in order to give the plan enough time to work and accomplish its core objectives. During this time, no other federal banking system could be established, while states would be permitted to establish any interstate bank that they felt was necessary. Hamilton, in an attempt to sway naysayers to believe in his plan also forbid the Bank from buying any government bonds. The bank would also have a mandatory rotation of directors, and it would not be permitted to incur any debts beyond that which it was capitalized to take on. Non-US citizens, no matter where they resided, would be permitted to own stock in the bank, but they would not be permitted to have any vote in matters related to the First Bank of the United States. Finally, it should be noted that Hamilton’s Plan allowed the Secretary of the Treasury to remove government deposits, look at the books associated with the bank, and require statement related to the performance of the bank as frequently as once per week if he so desired (Hamilton, 1961). Opposition As could be expected with any radical economic plan, particularly one that would be a first for the country, there was staunch opposition to Hamilton’s Plan. Two of the main objectives of the bank, that of having it act as the country’s official source of currency and the actual issuing of a charter to the First Bank of the United States, were opposed by most members of Congress that came from the Southern states. This is primarily because the South, while desiring to be a part of the Union at that time, was still increasingly concerned about granting the federal government too much power and authority, particularly when it came to issues of economics (Westley, 2010). In addition, individuals such as Thomas Jefferson and James Madison, felt that Hamilton’s Plan favored the industrial interests of the North, while not giving adequate consideration to the agricultural interests of the South. Another criticism of the Plan was that is actually violated the Constitution which was specifically written with a provision that Congress itself was to maintain the right to govern issues related to coined money. Presidential Approval The President of the United States at the time of chartering the First Bank of the United States was George Washington. Even though the bill passed through Congress, President Washington was at first hesitant to sign it into law. This was primarily based on staunch objections from some members of his own cabinet that expressed their reservations that the Bank was actually legal according to the Constitution. As such, Washington asked for advice from Hamilton and other members of his cabinet. The Attorney General at the tame actually agreed with the Secretary of Stated (Thomas Jefferson) in that the bill was unconstitutional. In the end, Hamilton issued a brilliantly worded rebuttal to all such opposition, covering each and every objection that was raised, to the satisfaction of President Washington (Bailey & Cohen, 2006). The so-call ‘Bank Bill’ was signed into law of February 25, 1791 and the first three Commissioners for the bank were appointed by President Washington on March 19, 1791. Bank Building As mentioned from the outset, the physical First Bank of the United States was built in Philadelphia, Pennsylvania. This location was chosen because it served as the nation’s capital until 1800. The bank itself was included as a National Historical Landmark on May 4, 1987 and still served as a place of work for individuals affiliated with Independence National Historical Park until the dawn of the 21st century. There is a plan to use the building to serve as the national Park Serve Archaeology lab at some point in the future. Purchase by Girard The First Bank of the United States was issued an initial 20 year charter that expired in 1811. That first charter was not renewed, so it did expire in 1811 and Stephen Girard subsequently purchased nearly all of the stock in the bank, in addition to its building and furnishings. He then opted to open his own bank which he aptly called ‘Girard Bank’. He was the sole owner in the bank, so he did not violate existing Pennsylvania state law at the time that prohibited a group of people associated with one another from opening a bank. To do so would have required a charter to be issued by the legislature for the purpose of establishing a banking corporation. Opening the bank, Girard hired George Simpson as his first cashier, along with seven other employees. That bank opened in May of 1812. It should be noted that Girard did permit the Trustees from the First Bank of the United States to continue to utilize some of the office in the bank, in addition to providing them with some of the vaults in the bank. This was to allow them time to continue to finalize the business of bank and wrap up any resolved financial matters, it that in and of itself was a time and labor intensive effort (Wilson, 1995). Conclusion In the end, the First Bank of the United States accomplished many of its objectives, while failing in others, but it was a positive move forward for the country. It also was a good test of Constitutionality for the nation, as the Constitution had just replaced the Articles of Confederation months prior to the creation of the First Bank of the United States. It was a good litmus test to determine how objections to various pieces of legislation should be handled. At that time, there was no Supreme Court, so President Washington did the best he could by soliciting advice from various individuals in his inner circle, with differing opinions, before finally deciding on a course of action. Once the charter was signed into existence, the states obliged by its creation and it proceeded forward. The physical bank itself remains to this day as a testament to the resolve of this who fully believed in Hamilton’s Plan and worked tirelessly to help it achieve its core objectives and vision. The banking system has changed numerous times since then to morph into what America has today, which is considered to be one of the most solid and reliable in the world. References Bailey, D. and Cohen, T. (2006). The American pageant: A history of the Republic (13th ed.). Boston: Houghton Mifflin Co. Hamilton, A. (1961). Papers of the Alexander Hamilton. Vol VII 1781-July, 1791. New York: Columbia University Press. Westley, C. (2010). The debate over money manipulations: A short history. Intercollegiate Review, 45(1/2), 3-11. Wilson, G. (1995). Stephen Girard. Conshonhocken: Combined Books. Read More