Although the U. To avoid inflation and the appearance of impropriety, the Bank was forbidden from buying U. In addition to its activities on behalf of the government, the Bank of the United States also operated as a commercial bank, which meant it accepted deposits from the public and made loans to private citizens and businesses.
Its banknotes paper currency most commonly entered circulation through the loan process. It extended more loans and issued more currency than any other bank in the nation because it was the largest financial institution in the United States and the only institution holding federal government deposits and possessing branches throughout the nation.
Banknotes issued by the Bank of the United States were widely accepted throughout the country. And unlike notes issued by state banks, Bank of the United States notes were the only ones accepted as payment of federal taxes.
Unlike modern central banks, the Bank of the United States did not set monetary policy as we know it today. It did not regulate or act as a lender of last resort for other financial institutions, and it did not hold their reserves. By managing its lending policies and the flow of funds through its accounts, the bank could — and did — alter the supply of money and credit in the economy and hence the level of interest rates charged to borrowers.
In the course of business, the Bank would accumulate the notes of the state banks and hold them in its vault. This made it easier for the federal government to collect tax revenues, most of which came from customs duties.
Congress let the matter languish until January While a victory for Hamilton, it marked an ominous note of division in Congress. Fisher Ames, the representative from Massachusetts, astutely observed in a letter to a friend that an invisible line had formed between members of Congress through the ordeal, settling into something of a North-South divide:.
Shays confirmed our habits and opinions. The men of sense and property, even a little above the multitude, wish to keep the government in force enough to govern. At the southward… A debt-compelling government is no remedy to men who have lands and negroes, and debts and luxury, but neither trade nor credit, nor cash, nor the habits of industry, or of submission to a rigid execution of law. They have continued antis , and have assiduously nursed the embryos of faction, which the adoption of the Constitution did not destroy.
It soon gave popularity to the antis with a grumbling multitude. It made two parties. One of the most important of Alexander Hamilton's many contributions to the emerging American economy was his successful advocacy for the creation of a national bank.
But the Bank of the United States, like many of Hamilton's other projects, would generate controversy. Financial Footing for a New Nation Hamilton had long believed in the need for banks to provide credit and stimulate the economy. As early as , he wrote a letter describing central banks in Europe and wondered, "And why cannot we have an American bank? Soon after he became the nation's first Treasury Secretary, he was already proposing a national equivalent.
On December 15, , Hamilton submitted a report to Congress making the case. It would be based in Philadelphia and chartered for 20 years. The federal government would have a minority stake in the Bank, but its board of directors would be private individuals, thus ensuring a mix of public oversight and private enterprise.
The Bank would be able to lend the government money and safely hold its deposits, give Americans a uniform currency, and promote business and industry by extending credit. Together with Hamilton's other financial programs, it would help place the United States on an equal financial footing with the nations of Europe. Jefferson begins first: " If New York's in debt, why should Virginia bear it? We plant seeds in the ground, we create.
You just want to move our money around. Through these lyrics it becomes apparent that the debate isn't truly about banking, but is more concerned with the power of the federal government in America. Hamilton and the Federalists want a national bank because they believe a strong federal government will benefit all the states financially, even as it regulates their freedom to print money.
Conversely, Jefferson and the Democratic Republicans, leery of seeing another King George , believe individual states should have the freedom to do as they please.
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