The Setting: The First Bank of the United States

When the government of the United States of America, under the newly ratified Constitution, came to power in 1789, there was much to be apprehensive about. After a bloody war for independence that officially dragged on for eight years, the American experiment had floundered and nearly capsized under the Articles of Confederation. Now, the experiment had recieved a new lease under the Constitution, but the fate of the nation was anything but certain.

Among the many concerns confronting the new government was the difficulty of developing a stable financial plan that could move the nation forward and solidify the legitimacy of the government. Enter Alaxander Hamilton. Having served as a colonel on George Washington's staff during the war, and having attended the Constitutional Convention in 1787 of which Washington was the appointed president, Hamilton now recived the vital seat of Secretary of the Treasury in the President's cabinet. Washington trusted Hamilton's judgement in general, but particularly with regards to finance. The President knew how to delegate, and he saw fit to place the financial future of the young republic in hands more able (in this regard) than his own. He was not to be disappointed.

Hamilton soon introduced to the Congress an extensive and meticulously laid out financial plan to set the nation on firm footing. Through the government imposition of tariffs and excise taxes, the repayment of war bonds to veterans, and the federal assumption of the states' debts, Hamilton sought to raise revenue, establish credit, and unify the nation. A final aspect of the plan called for the chartering of a national bank, the Bank of the United States.

The Bank of the United States was based upon the Bank of England. Hamilton proposed the bank for a number of solidly logical reasons. It would serve as a means to secure the federal government's tax revenue; provide additional revenue through the issuing of government bonds; increase capital by way of security deposits both foreign and domestic; provide a ready source of funds to the government in the event of an emergency (such as a war or natural disaster). Where it differed for the Bank of England was in the area of management; the Bank of the United States would be largely a private enterprise carried on for the good of the government and the national welfare. Only one fifth of the bank's capital would be provided directly by the government; as a predominantly private venture, the bank was thus partially hedged away from the possibility of government corruption or ineffeciency.

The bank, along with the rest of Hamilton's plan, was wisely approved by Congress and the President, though not without a bitter struggle. The opposition came from the emerging Republican party, headed ably (and duplicitously) by the Secretary of State, Thomas Jefferson.

Despite the obvious (from Hamilton's viewpoint) merits of a national bank, Jefferson was staunchly opposed to the idea. Although some aspects of his argument may be viewed as legitimate (e.g. the national bank would disproportionately benefit the more industrial north), one is inclined to view his opposition as largely emotionally charged and grounded more in prejudice than firm logic. Jefferson, like most wealthy Southerners, hated banks. Being perpetually in debt due to the cost of maintaining the lifestyle expected of the Virginia gentry, Jefferson could see nothing but oppression in any bank, but the idea of a national Bank of the United States was particularly horrifying.

As absurd as Jefferson's opinion may sound to modern ears (and to the ears of Hamilton and his Federalist collegues), it must be realized that it sprang from his vision of America. As a vision of a nation of "yeomen farmers" sustained by a seemingly infinate opportunity for land, it was vastly different from Hamilton's vision of a land supporting not merely agriculture, but industry, commerce, and economic growth. Ultimately, Jefferson's vision proved to be an idealistic dream; Hamilton's vision has prevailed.

Hamilton's argument that the bank would be indispensible in the event of a national crisis such as a war proved to be most pertinent; ironically, just at the time when it was most needed, it was unavailable. In 1811, Congress had decided not to renew the bank's 20-year charter. By this time, Hamilton was gone, and a Republican, Jefferson's long-time ally James Madison, was in the White House. Without an adequate means of funding the war, and with a grossly insufficient army and navy (Hamilton had also pushed for a strong standing army, ultimately without success), the War of 1812 with Britain was disastrous; thankfully, the emerging republic weathered the storm.