First Bank of The United States - Hamilton's Plan

Hamilton's Plan

" national bank ... was not essential to the work of the Federal Government ... This was ... only a measure for carrying out the interests of wealthy men with those of the government."

"The tendency of a national bank is to increase public and private credit. The former gives power to the state for the protection of its rights and interests, and the latter facilitates and extends the operations of commerce amongst individuals."

According to the plan put before the first session of the First Congress, Hamilton proposed establishing the initial funding for the Bank of the United States through the sale of $10 million in stock of which the United States government would purchase the first $2 million in shares. Hamilton, foreseeing the objection that this could not be done since the U.S. government didn't have $2 million, proposed that the government make the stock purchase using money lent to it by the Bank; the loan to be paid back in ten equal annual installments. The remaining $8 million of stock would be available to the public, both in the United States and overseas. The chief requirement of these non-government purchases was that one-quarter of the purchase price had to be paid in gold or silver; the remaining balance could be paid in bonds, acceptable scrip, etc.

By continuously insisting on these conditions, the Bank of the United States might technically possess $500,000 in "real" money that it could, and would, use as security to make loans up to its capitalized limit of $10 million. However, unlike the Bank of England from which Hamilton drew much of his inspiration, the primary function of the Bank would be commercial and private interests. The business it would be involved in on behalf of the federal government—a depository for collected taxes, making short term loans to the government to cover real or potential temporary income gaps, serving as a holding site for both incoming and outgoing monies—was considered highly important but still secondary in nature.

There were other, nonnegotiable conditions for the establishment of the Bank of the United States. Among these were:

• That the Bank was to be a private company.
• That the Bank would have a twenty year charter running from 1791 to 1811, after which time it would be up to the Congress to renew or deny renewal of the bank and its charter; however, during that time no other federal bank would be authorized; states, for their part, would be free to charter however many intrastate banks they wished.
• That the Bank, to avoid any appearance of impropriety, would:

1. be forbidden to buy government bonds.
2. have a mandatory rotation of directors.
3. neither issue notes nor incur debts beyond its actual capitalization.

• That foreigners, whether overseas or residing in the United States, would be allowed to be Bank of the United States stockholders, but would not be allowed to vote.
• That the Secretary of the Treasury would be free to remove government deposits, inspect the books, and require statements regarding the bank's condition as frequently as once a week.

To ensure that the government could meet both the current and future demands of its governmental accounts, an additional source of funding was required, "for interest payments on the assumed state debts would begin to fall due at the end of 1791...those payments would require $788,333 annually, and... an additional $38,291 was needed to cover deficiencies in the funds that had been appropriated for existing commitments." To achieve this, Hamilton repeated a suggestion he had made nearly a year before—increase the duty on imported spirits, plus raise the excise tax on domestically distilled whiskey and other liquors. Local opposition to the tax led to the Whiskey Rebellion.