61ST CONGRESSl SENATE /DOCUMENT 2d Session j I No. 571 NATIONAL MONETARY COMMISSION The First and Second Banks of the United States By JOHN THOM HOLDSWORTH, Ph. D. and DAVIS R. DEWEY, Ph. D. Washington : Government Printing Office : 1910 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis NATIONAL MONETARY COMMISSION. NELSON W. ALDRICH, Rhode Island, Chairman. EDWARD B. VREELAND, New York, Vice-Chairman. JULIUS C. BURROWS, Michigan. JESSE OVERSTREET, Indiana. EUGENE HALE, Maine. JOHN W. WEEKS, Massachusetts. PHILANDER C. KNOX, Pennsylvania. ROBERT W. BONYNGE, Colorado. THEODORE E. BURTON, Ohio. SYLVESTER C. SMITH, California. JOHN \V. DANIEL, Virginia. LEMUEL P. PADGETT, Tennessee. HENRY M. TELLER, Colorado. GEORGE F\ BURGESS, Texas. HERNANDO D. MONEY, Mississippi. ARSENE P. PUJO, Louisiana. JOSEPH W. BAILEY, Texas. ARTHUR B. SHELTON, Secretary. A. PIATT ANDREW, Special Assistant to Commission. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis TABLE OF CONTENTS. THE FIRST BANK OF THE UNITED STATES. By JOHN THOM HOI^DSWORTH, Ph. D., of the University of Pittsburgh. Page. Hamilton's plan of 1779 9 Hamilton's plan of 1781 . 10 Hamilton's report in 1790 13 Establishment of the bank 17 Charter provisions 19 Subscriptions for stock 22 Organization 25 By-laws and regulations 27 Paying in of capital 29 Paying in of capital by the Government 31 Election of directors 34 Branches 36 Relation of state banks 40 Loans to the Government 42 The government sale of bank stock 48 Circulating notes 49 Counterfeiting of notes 52 Cooperation with the mint 53 The Treasury and the bank—Foreign exchange operations 54 Government deposits 58 Aid to importers 63 Attitude of Democratic administrations toward the bank 66 Gallatin's defense of the bank in 1803 71 Application for recharter 72 Recharter favored by Gallatin 74 Modifications recommended by Gallatin 76 Indecisive action by Congress 78 Second petition for recharter 80 Attitude of banks and trade organizations 83 Memorials and popular discussion 85 Debate on recharter 90 Temporary extension refused 97 3 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis National Monetary Commission Page. State charter refused 98 Charter granted to New York stockholders 100 Girard's bank 102 Fiscal operations after dissolution of bank 105 Liquidation 107 Consequences of dissolution 109 Bank reports in Profits and dividends 119 Taxation 122 Conservatism, a characteristic 123 APPENDICES : A. Act of incorporation 126 B. Ordinance and by-laws of the bank 133 C. Quotations of bank stocks 136 * D. Dividends 137 E. Records and accounts of the bank 138 THE SECOND UNITED STATES BANK. By DAVIS R. DEWEY, Ph. D., of the Massachusetts Institute of Technology. Page. Preface 147 Debate on plans 149 Relation to state banks in resuming specie payments 157 Comparison of charters of First and Second United States banks 163 Payment of capital 175 Friction in transfer of public deposits 181 The conflict over the acceptance of State bank notes 188 Branches 194 Ownership of stock 202 Loans on bank stock 204 Change in character of capital 210 Government deposits 211 Transfer of public funds 216 • Circulation 220 Sale of drafts 230 Exchange 234 Discounts and loans 241 President Jackson's opposition to the bank 248 Charges against the bank—political activity 254 Criticism of branch drafts 258 Criticism of other banking operations 261 4 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis National Monetary Commission APPENDICES : Page. A. Act of incorporation 267 B. Rules and regulations for conducting the business of the Bank of the United States 282 C. Rules and regulations for the government of the offices of discount and deposit established by the Bank of the United States 290 D. The bill to continue the charter, which was vetoed by Presi­ dent Jackson 296 E. Veto message of President Jackson, July 10, 1832 299 F. Balance sheets of bank: 1820, 1825, 1831, 1832 308 5 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis The First Bank of the United States By JOHN THOM HOLDSWORTH, Ph. D. University of Pittsburgh 7 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis THE FIRST BANK OF THE UNITED STATES. The establishment of the Bank of the United States in 1791 was an essential and vital part of the general scheme for the support of public credit proposed by Alexander Hamilton, first Secretary of the Treasury. The institu­ tion of a national bank Hamilton regarded as "an indis­ pensable engine in the administration of the finances/' a HAMILTON'S PLAN OF 1779. This conception of the utility of a bank was not a matter of impulse or sudden exigency. As early as 1779, Hamil­ ton wrote to Robert Morris favoring a bank of issue based on landed security.6 Later, in 1780, when the Revolu­ tionary finances were at low ebb and the currency of the country was demoralized, Hamilton, then serving in the army, wrote to Morris discussing the financial situation thoroughly and proposing measures of relief. "The only plan that can preserve the currency is one that will make it the immediate interest of the moneyed men to cooperate with the Government in its support." He proposed an American bank with a capital of $200,000,000. His project contemplated a foreign loan of $10,000,000 "to be thrown into the bank as a part of its stock.'' The Government was to guarantee one-twentieth of the sub­ scription money to the stockholders, and was itself to share half the stock and profits of the bank. All the a Hamilton's Report on Public Credit, December 13, 1790. b Hamilton's Works (Hamilton), Vol. I, p. 116. 9 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis National Monetary Commission remaining paper was to be called in and bank notes issued in its stead. The bank was to lend Congress £2,000,000 annually at 4 per c£nt. Hamilton ques­ tioned the necessity of so large a capital, but he wished to have it large enough "to engage a sufficient number of the principal moneyed men in the scheme." This "hasty production" of Hamilton's was the result "of some read­ ing on the subjects of commerce and finance," but in the ten years which intervene before Hamilton's great project for a national bank materializes his ideas on the subject undergo considerable change. HAMILTON'S PLAN OF 1781. On April 30, 1781, Hamilton, whose mind ran constantly to questions of government and finance, wrote again to Morris, who had recently been appointed Superintendent of Finance.a Hamilton had great respect for Morris, and he was eager to render him every aid possible. In this letter, discussing ways and means of raising revenue, Hamilton renews his suggestion of a national bank. He proposes a bank with a capital of £3,000,000 (though he thought it would succeed if only half that amount were obtained) founded in part upon landed security. Thus a subscriber of from 6 to 15 shares (£500 each) should pay one-half in specie (or plate or bullion), the other half in good landed security. Subscribers to 16 shares and over should pay one-third in specie, one-sixth in foreign bills of exchange, and one-half in good landed security. Hamilton recognized that to procure so much specie resort would have to be made to foreign assistance, for he esti- <*> Hamilton's Works, Vol. I, p. 223; Dunbar, Economic Essays, pp. 89-90. 10 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis First Bank of the United States mated that in all of the States there was not more than $6,000,000. The United States, or a particular State, or foreigners might subscribe in sums not to exceed one-half the capital. The notes were to be payable in pounds, shillings, and pence "to produce an illusion in the minds of the people favorable to the new paper," or rather to escape by a change of nomenclature the universal preju­ dice against the old continental currency, which was payable in dollars. Notes under 20 shillings were to bear no interest; above that sum they were to bear 4 per cent. This latter device was to give them preference over specie, and prevent a run upon the bank. Gradually the interest was to be reduced to 2 per cent. Some of the notes were to be payable in Europe as well as at home, so as to enable the bank to use its funds there and to increase the demand for bank notes by making them useful in foreign commerce. Loans were to be made at a rate not above 8 per cent. The bank might purchase estates and coin money to the amount of half its capital. This latter provision was necessary because the bank might receive plate or bullion as subscriptions, and profit might result from converting these into coin. The bank was to have the right to contract with the French Government for the supply of its armies and fleets in America and to contract with Congress for the supply of its armies. A loan of £1,200,000 at 8 per cent was to be made to Congress, for the payment of which a sinking fund of £110,400 per year was to be established for twenty years, and the States generally and severally were to pledge themselves for its payment.