The Birth, Death and Rebirth of the American Banking System

A Philosophical Clash with Economic Ramifications
Hamilton vs Jefferson and Madison and the Bank of The United States

Following the Revolution there existed no formal banking system in the young Republic. In the last decade of the eighteenth century the United States had just three banks and more than fifty different currencies in circulation: English, Spanish, French, Portuguese coinage, local money issued by states, cities, and businesses. White the national currencies were more stable than the local ones and more broadly traded, overall the currency values were very unstable creating a climate where currency speculators were thriving on that uncertainty.

Supporters of a national bank argued that if the nation were to grow and to prosper, it needed a universally accepted standard coinage and this would best be provided by a United States Mint, aided and supported by a national bank and an excise tax. Detractors were suspicious of such a venture being controlled by the government, particularly the Federal Government.


In 1791, the original Bank of the United States, sometimes referred to as "The First Bank of the United States", was proposed and brought into being under the support of the first Secretary of the Treasury Alexander Hamilton.

Along with establishing a mint and an excise tax, the purpose of Hamilton's proposed bank was to:

• Establish financial order, clarity and precedence in and of the newly formed United States.
• Establish credit—both in country and overseas—for the new nation.
• To resolve the issue of the fiat currency, issued by the Continental Congress immediately prior to and during the United States Revolutionary War—the "Continental".

The Bank of the United States(Wikipedia)
Alexander Hamilton on the Constitutionality of the Bank of the United States

For a look at the areas of general agreement between Madison and Hamilton as well as some indications about where there were emerging differences it is useful to read Federalist #9 (written by Hamilton) and Federalist #10 (written by Madison).

The History of Central Banking in the United States (Wikipedia)
http://en.wikipedia.org/wiki/History_of_central_banking_in_the_United_States

A more comprehensive look at the history of centralized banking can be found in Edward Flaherty's web-based analysis of this process beginning with the formation of the first central bank and extending up to the first act creating the Federal Reserve in 1913.
Click here

Federal Reserve - History of Banking

The Debate
Opinions Against the Bank - based on Constitutionality: Jefferson
Hamilton's Opinion For the Bank on Constitutional issues