The Bank of the United States and the American Economy

The Bank of the United States and the American Economy

The Bank of the United States and the American Economy

The Bank of the United States and the American Economy


An account of the history, structure, and operation of the First and Second Banks of the United States, this study examines how the banks performed as national and central institutions, and what happened to the economy when the charter of the Second Bank was allowed to expire in 1836. Historians have paid little recent attention to the early history of central banking in the United States, and many Americans believe that the Federal Reserve, created in 1913, was our first central bank. The economic crisis during the American Revolution actually led to the founding of a national bank, called the Bank of North America, during the period of Confederation. Although it became a private bank before the Constitution was ratified in 1788, it proved to be such a success that in 1791 Alexander Hamilton, the first Secretary of the Treasury, was able to convince President Washington that a similar bank should be established.

While the First Bank of the United States performed well during its tenure, its charter was allowed to lapse in 1811. A Second Bank of the United States was created five years later in 1816, and it prospered under the leadership of its third president, Nicholas Biddle, from 1823 to 1830, when central banking was practiced. This success ended with the 1828 election of Andrew Jackson, who refused to recharter the bank and withdrew the government's funds in 1833. Severely weakened, the Bank continued, but its charter finally expired in 1836, much to Biddle's dismay.


This book tells the story of the First and Second Banks of the United States and how they functioned within the American economy. These Banks, acting as national and central banks, helped the government in its early years through wars and economic instability. Their necessity was proven during their absences. When the Congress refused to renew the charter of the First Bank in 1811, enough economic chaos prevailed afterward to cause the chartering of a Second Bank in 1816. When its charter expired in 1836, the country suffered through numerous economic crises, due mostly to an inelastic money supply. This problem was finally resolved with the creation of the Federal Reserve Banking system in 1913.

The seeds of the Bank of the United States were planted during the American Revolution, when the Continental Congress realized that it lacked the funds to finance the war against Great Britain. After much haggling, in 1781, Congress created the country's first national bank, the Bank of North America, under Robert Morris. The bank proved successful in financing the remainder of the war and in helping the confederated government with its finances.

Alexander Hamilton had supported the concept of a national bank as early as the American Revolution. He and Morris had exchanged ideas concerning the role of a national bank in society, and when Morris created the Bank of North America, he found Hamilton to be an enthusiastic supporter. When the Bank of North America became a private bank prior to the Constitutional Convention, Hamilton had pushed for a national bank that would serve the new government.

The chartering of the First Bank of the United States in 1791, for a period of twenty years, created a semipublic institution where the government owned twenty percent of the stock. The Bank acted as a fiscal agent for the government and became a depository for all public money. Hamilton had never meant it to become a central bank, but later it acted as such by imposing restraints on lending. In this role it served the nation's economic welfare. However, it also attracted numerous . . .

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