The American Banking System from 1800-1810

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The American Banking System from 1800-1810

Looking back to the outset of the 19th century, it is impossible to say that any real banking system had really been developed in the US. This is to say that, though there were roughly 120 private commercial banks that had been chartered by new state governments, the so-called system was scarcely organized. It was ad hoc in nature and directly linked to the merchant banking practices of the pre-independence period. The years preceding the turn of the century were important because they brought a central banking authority onto the scene. In 1789 the new federal government established a position for the Secretary of the Treasury. As we know, the first to hold this prestigious title was Alexander Hamilton. He accomplished a great deal in the 11 years leading up to the year 1800. Most notably his actions were largely responsible for the creation of the First Bank of the United States, which was given a charter in 1791. This thrust towards central banking was only to last 20 years, however. Up for review in 1811, the bank’s charter was not renewed.

This paper will argue that the failure to renew the First Bank of the United State’s charter was a direct result of the strong ideological differences between state centered and federalist politics. Many were very skeptical about a strong centralized banking system, while others believed that the only way to create unity in the country was through a highly focused central banking system. Despite the relative efficiency of the First Bank of the United States, and despite the fact that it is widely considered to be a success by economic historians, the general suspicion of banking led to its demise. In other words, this paper will argue that the 1800-1810 period was one of exhaustive tension between centralists and de-centralists. This had important and lasting effects on the banking system, the most obvious being that, in the following century, state banks proliferated to the point where they were chartered with abandon. As John K. Galbraith noted, “every location large enough to have a church, a tavern, or a blacksmith shop was deemed a suitable place for setting up a bank. These banks issued notes, and other, more surprising enterprises, imitating the banks, did likewise. Even barbers and bartenders competed with banks in this respect” (Flaherty, 1997: http://odur.let...

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...institution, and based on the bitter conflicts between Madison and Hamilton over state vs. federal power, the bank itself became politicized. As state-led forces increased their popularity, it is wholly unsurprising that the First Bank of the US was one of the first things to go.

References

DeCarolis, Lisa Marie. The Precipice of Power <http://financeservices.miningco.com/business/financeservices/gi/dynamic/offsite.htm?site=http://www.jmu.edu/polisci/madison/hamil19.htm%23Origins>(accessed 12-12-99)

Del Mar, Alexander. “History Of Monetary Systems: Chapter XVII: Bank Suspension Since The Era Of Private Coinage” History of the World, 01-01-1992

Foner, Eric., Garraty, John A (eds) “Banking” The Reader’s Companion to American History, Houghton Mifflin: New York, 1991., pg. 191

Flaherty, Edward. 1997. A Brief History of Banking in the United States <http://odur.let.rug.nl/~usa/E/usbank/bank03.htm> (accessed 12-12-99)

“James Madison Debates the Constitutionality of a National Bank” <http://financeservices.miningco.com/business/financeservices/gi/dynamic/offsite.htm?site=http://www.jmu.edu/polisci/madison/hamil19.htm%23Origins> (accessed 12-12-99)

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