Page 5 - Demo

The first bank in and he also doubted the charter’s
this country was
the Bank of North America chartered by the Congress of the
Confederation in 1781. Robert Morris, then superintendent
of finance, with the support
of Alexander Hamilton, had recommended the bank in the hope that it would function as
a central bank to improve the currency and credit situation at the time. There were no banks
per se in the colonies prior to the Revolution. In 1784 state-chartered banks opened in Boston and New York. Others followed seven years later in Baltimore and Providence.
The first central bank under the new constitutional government was the Bank of the United States chartered by Congress in 1791, headquartered in Philadelphia, to run for twenty years.
Taking the Bank of England as his model, Alexander Hamilton, then Washington’s secretary of the treasury, proposed such a bank to serve as a depository for federal funds, to issue notes that would fill a critical need for sound paper currency, and to provide credit for economic development.
When a bill for chartering
the bank reached the House of Representatives, the leader of
the opposition turned out to be James Madison who doubted
the constitutionality of the
charter. Despite the strength
of the opposition, both houses
of Congress passed the bill.
Still harboring some doubts, Washington invited members of his cabinet to submit their opinions
in writing. He asked Madison to prepare a veto message for use, if it came to that.
Jefferson opposed the charter as favoring manufacturers and traders over agriculturists. He foresaw a domination over the state banks,
constitutionality. Jefferson had submitted his opinion through the secretary of the treasury since it was a financial matter, and this gave Hamilton a chance to prepare his own brief as an effective rebuttal against Jefferson. It was enough to persuade Washington
to sign it. The bank was essentially a private corporation, though the government owned one-fifth of
its capital stock, and the secretary of the treasury might require it to give an account of its status at any time.
When the charter expired in 1811, Albert Gallatin, who had served all eight years as secretary of the treasury under Jefferson and then continued in that role under Madison, recommended renewal. But Congress, still under the Jeffersonian tradition, refused.
By 1815 the number of state banks in the country had grown to 208 from 88 in 1811. All except those in New York and New England, often referred to as “wildcat banks,” could issue their own notes as paper currency far beyond their capital reserves. This led to near financial chaos.
Then in his annual message
to Congress in 1815, President Madison conceded that a national bank might be considered. With little opposition the bill passed both houses, and in April 1816 Madison signed it. Again the charter was to run for twenty years.
After a slow start, the Bank
of the United States, under
the leadership of its president, Nicholas Biddle, grew even more into the giant monopoly that its opponents feared. With a severe panic in 1819, westerners more and more regarded the bank as an instrument of eastern moneyed interests and foreign investors.
While the bank did perform its functions well, there were
When Andrew Jackson entered the White House in 1829, he immediately declared war on the Bank of the United States.
evidences of corruption and conflicts of interest. Many members of Congress had loans from the bank, and Daniel Webster, a leading spokesman for the bank in the United States Senate, was
at the same time a director of the bank and was receiving a salary as its attorney.
When Andrew Jackson entered the White House in 1829, he immediately declared war on the bank. From this point the bank became a political football. Jackson attacked it in his very first message to Congress and followed up in his next two annual messages.
As the election of 1832 approached, Henry Clay, former speaker of the house but now leader of the opposition in the Senate, and a leading candidate for the presidency as Jackson sought a second term, persuaded Nicholas Biddle to apply for renewal of the bank’s charter four years early. Clay figured that if he could get
Fall/Winter 2005/2006 3