The Bank of the United States A Financial and Philosophical Crisis

Directions: Create a schematic using the following terms. Be prepared to deliver a 2-3 minute oral presentation.

Thomas JeffersonAlexander Hamilton

The First Bank of the United States: Hamilton wanted to create a powerful central bank which would govern the financial activities of the entire nation. This Bank of the United States would be the depository for all federal funds which it would use to stimulate business by investing those monies back into the national economy in the form of loans to businessmen. The government would be the major stockholder of this bank, but it would be privately run by its own institutional leadership. The Bank would print paper money and govern its use to insure a stable national currency.

STRICT CONSTRUCTION INTERPRETATION OF CONSTITUTION: Jefferson immediately stood up in opposition to the Bank of the United States because he feared such an institution could grow into a powerful threat to individual rights. Champions of states' rights opposed this measure because they expected that their state-chartered banks could not survive competition with a national monster back by the power of a monopoly over federal funds. Jefferson was asked to submit a written opinion by Washington on the issue of a national bank.

He argued that there was no specific authorization in the Constitution for the government to establish a national bank; therefore, since powers not specifically granted to the federal government were reserved to the states, then the power to charter banks was a state power. Jefferson was arguing for the literal interpretation of the Constitution - a states' rights position.

IMPLIED POWERS INTERPRETATION: Hamilton was also asked to submit a written opinion on the issue of the Bank for Washington's consideration. Hamilton invoked the clause of the Constitution which stipulates that Congress may pass any laws "necessary and proper" to carry out its duties or authority under the Constitution.

Since the Constitution empowered the government to regulate trade and to collect taxes, and since a national bank would be necessary for these functions, it was well within the scope of the Constitution according to Hamilton. Hamilton was using the liberal interpretation of the Constitution - also known as the "implied powers concept", "loose construction", or the "elastic clause" of the Constitution. This established the precedent for enormous federal powers.

Hamilton's logic won the day and Washington reluctantly signed the bank measure into law (Congress having already passed it). The Bank of the U.S. was charter in 1791 by Congress for 20 years. It was to be located in Philadelphia with capital of $10 million dollars, 1/5th owned by the federal government. Stock in the bank proved so popular that the bank was oversubscribed by investors within two hours of the beginning of the public sale.

The First Bank of the United States Philadelphia, Pennsylvania

Controversy over the Bank of the U.S. would last for the next several decades. Opposition to the bank was centered generally in the South and on the western frontier, while support was principally in urban areas of the North.

The Emergence of Political Parties Hamiltonians = Federalists Jeffersonians = Democratic-Republicans For Reference in the Pageant : Evolution of Major Parties (pg. 197) The Two Political Parties, (pg. 208)