Draft of the Second Report on the
Further Provision Necessary for
Establishing Public Credit (Report on a National Bank)124
That from a conviction (as suggested in his Report No. I herewith presented)125 That a National Bank is an Institution
essential to of primary importance to the prosperous administration of the Finances, and would be of the greatest utility in the operations connected with the support of public Credit—his attention has been accordingly occupied in devising the plan of such an institution, upon a scale, which will intitle it to the public Confidence, and which will be likely to render it equal to the exigencies of the Public.
Previous to entering upon the detail of this plan, he entreats the Indulgence of the House, towards some preliminary reflections, naturally arising out of the subject, which he hopes will be deemed neither useless nor out of place. Public Opinion being the ultimate Arbiter of every measure of Government, it can scar[c]ely appear improper, in
reference deference to it to accompany the origination of any new proposition with explanations which the information of those to whom it is immediately addressed, would render superfluous.
It is a fact well understood, that Public Banks have found admission and patronage, among
most commercial Nations. They have successively obtained in Italy, Holland, England and France as well as in the United States. And it is a circumstance, which cannot but have considerable weight, in a candid estimate of their tendency, that after an experience of centuries, there exists not even a question about their utility, in the countries in which they have been established. Theorists and men of business are agreed in the acknowlegment of their value.126
Trade and Industry, wherever they have been tried
are indebted to them for important aid. And Government has been repeatedly under the greatest obligations to them in trying emergencies: That of the United States, as well in some of the most critical conjunctures of the late war, as since the peace, has received assistance from those established among us, with which it could not have dispensed.
With this two fold evidence before us, it might be expected that there would be a perfect union of opinions in their favour. Yet doubts have been entertained;
by many prejudices have been circulated: And though our own Experience the experiment is every day dissipating them within the spheres in which their effects are most visible and best known, yet there are still persons by whom they have not been relinquished. To give a full and accurate view of the subject would be to make a treatise of a Report; but there a few aspects in which may be cursorily presented , which may perhaps conduce to a just impression of its merits. These will involve a comparison of the advantages with the disadvantages real or supposed of such institutions.
The following are among the principal advantages of a Bank—
First The augmentation of the active or productive capital of
the community. Gold and silver, when they are employed merely as the medium of the exchange and transfer of other objects, have been not improperly denominated dead stock; but when deposited in banks as a the basis of a paper circulation, which takes their character or place, as the mere signs or representatives of value, they then acquire life or in other words an active or productive productive quality. This idea which rather appears subtile and abstract. at first may be made sensible or obvious by particulars entering into some
. little detail. . and palpable and by entering into a few particulars.
It is evident, for instance, that the money
of a Merchant, not in vested keeps in chest waiting for a favourable opportunity to employ it produces him nothing ’till that opportunity arrives. If instead of keeping it in his Chest, he invests it in Bank stock, it yields a profit during that interval which he will realize in some future dividend; and when any profitable advantageous speculation presents itself itself occurs he has only to obtain a loan by way of discount from the bank a thing seldom attended with difficulty, when the affairs of the institution are in a prosperous train. either of which which enables him to embrace it. His money placed in the bank is fund upon which he himself and others can borrow to a much larger amount. It is a well a known fact, that Banks in good credit can circulate a much larger sum than the actual amount of their Capital in gold and silver. The extent of the possible excess seems indeterminate; though it has been conjecturally stated at the proportions of two and three for it. This faculty is produced in different ways. A great proportion of the notes, which are issued and pass current as Cash are indefinitely suspended in circulation, upon the confidence, which each holder has, that he can at any moment obtain the gold and silver. for them . Every loan of a Bank is in its first shape a Credit to the borrower on its books, the amount of which it stands ready to pay either in its own notes or in gold or silver at his option. But in a great number of cases no actual payment is made, in either. The party borrower often by an order a Check or order, transfers his credit to some other person, to whom he has a payment to make; who in his turn is often content with a similar Credit, because he can at all times convert it into cash or pass it to some other hand as such; and in this manner the Credit keeps circulating, and answering in every stage the purpose of money, till it is extinguished by a discount with some person who has a payment to make to the Bank for some loan to him. Thus large sums are lent and paid from hand to hand, without the intervention of a single piece of coin. In addition to these circumstances , there is always a large quantity of gold and silver in the Bank vaults of the Bank, besides its own stock, which is deposited there by the dealers and others, partly with a view to partly to its safety and partly to the accommodation of an institution which is itself of a source of such general accommodation. These deposits conspire with the Stock of the Bank to constitute a fund which enables it to answer the demands for Coin arising from the occasional returns of its Notes.
It is easy to perceive in what manner, from these different causes, the ability of a bank to circulate a larger sum, than its actual capital in Coin, is acquired; when confidence in it has once been solidly established.
And as the excess is always bottomed upon good security of some kind or other it follows that that confidence has a rational and substantial foundation. Nor is that confidence without a rational and substantial foundation; the excess being always bottomed upon good security of one kind or another, which the Bank cautiously requires whenever it engages to advance its money or its Credit.
It is not easy to
desire discern from the same view of the subject the truth of the general proposition, that it is one effect of a Bank to augment the active and productive capital of a Country. The money one of one individual, while he is waiting for a call to employ it beneficially, is in a situation to administer to the wants of others; and if he be in a situation and this without being put of his own reach when his occasions press. Whence he can derive in the interval a profit from it; for in the almost infinite competitions and vicissitudes of Mercantile entreprise there can be no danger of an intermission of demand or that the money will remain unemployed in the vaults of the Bank. Nor it is this the only consideration. It is not merely that the money Coin which constitutes the stock of the Bank is thus put into a state of continual and unremitting activity; but the faculty which has been explained of lending and circulating a greater sum than the amount of that stock is to all the purposes of Trade and industry an absolute increase of capital. For whatever answers the the end of money. Purchases and undertakings of every kind can be carried on by any given sum of bank ⟨paper⟩ as effectually as by an equal sum in gold and silver.
And thus it is that Banks serve to enlarge the sphere of enterprise and industry, and, by doing so, become nurseries of national wealth, of which these are the parents. This consequence so easily deducible in theory has been verified in experience by the most striking results.127
Secondly, Greater facility to the government in obtaining pecuniary aids;
particularly in sudden emergencies: This is another and undisputed advantage of public public banks. As already remarked, it has been felt in signal instances by ourselves. The reason is obvious: A large The capitals of a great number of individuals are by this operation brought to one point and placed under one direction. The mass they form is magnified by the credit it produces attached to it: And while it is always ready and can at once be put in motion in aid of the state, & the government, the state, its own interest to afford it independent of a reasonable regard to the public safety and welfare, which it is presumeable the Directors of it will always feel in an equal proportion with other different & respectable Citizens is always a security for its disposition to go as far as the government, in prudence can desired. In the nature of things there is an intimate connection of interest between the Government and a National Bank. The patronage besides the interest it always pays for what it borrows is of not less importance to the Bank than in its aid to the Government.
Thirdly. The facilitating of the payment of taxes: This advantage is produced in two ways: Those who are in a situation to have ready access to the Bank
are enabled by direct loans to answer the calls upon them. This accommodation has been sensibly felt by those in the payment of the duties of the customs heretofore laid, by those who reside where there are establishments of this nature. This however is not an universal benefit. The other way, in which the effect here contemplated is produced, and in which the benefit is rendered general is the increasing of the circulating medium and the quickening of circulation. The manner in which the first happens has been already unfolded: The last may require a brief illustration. When payments are to be made between places at a distance from each other different places which have an intercourse of business, if there happen to be no private bills at Market and there are no bank notes which have a common circulation in both the consequence is that Coin must be remitted. This is attended with trouble expence & risk. and delay. If on the contrary the notes of a pub there are bank notes current in both, the transmission of these by the post or any other speedy or convenient conveyance answers; which very often in the alternations of demand are soon after returned to the place from whence they came: And thus the transportation and retransportation of the metals are prevented; and a more convenient and more expeditious medium of payment is substituted. Nor is this all. The metals instead of being suspended from their usual functions during this process of vibration from one place to another by remaining where they are continue in activity and administer still to the ordinary circulation; which of course suffers no diminution nor stagnation. These circumstances are additional causes of what, in a practical sense or to the purposes of business, may be called greater plenty of money. And, it is evident that whatever increases augments the quantity of circulating money adds to the ease with which every industrious person may acquire that portion of which he stands in need; and this as well for the payment of his taxes as for the answering of an and thence he is better able to pay his taxes as well as to supply any other wants he may have. If even the circulation of the bank paper be not general, it must still have the same effect, though in a less degree. For whatever supplies the chan furnishes new supplies to the channels of circulation in particular places must necessarily contributes to keep the streams fuller elsewhere. This last view of the subject not only serves to illustrate the position, that Banks tend to facilitate the payment of taxes; but exemplifies, in several new lights, their utility to Trade business of every kind, in which money is an Agent.
It would be to intrude too much on the patience of the house to prolong the detail of the advantages of Banks; especially as all those, which might
be particularised, are readily to be inferred as consequences from those which have been stated enumerated. Their disadvantages real or supposed are now to be reviewed. But a satisfactory development of the subject requires that a The summary view should be next taken of these things which have been imputed to Banks as disadvantages. principal of the charges which have been brought against them are— First That they serve to increase usury Secondly That they tend to prevent other kinds of lending. Thirdly That they furnish temptations to overtaking Fourthly That they afford aid to mere adventurers; who disturb the natural and beneficial and beneficial operations of Trade. Fifthly That they uphold bankrupt and fraudulent debtors a fictitious credit by which they are enabled to maintain false appearances and extend their impositions. And lastly Lastly That they have a tendency to banish gold and silver from the Country.
There is great reason to believe that
these several charges will on discovered are without that these charges are either destitute of foundation; a close inspection appear either to be without foundation; or that, as far as the evils they suppose have been found to exist, they have proceeded from other or temporary causes; and are not inherent in the nature and permanent operation of such institutions; or that they are more than counterballanced by opposite advantages. Let this inspection be made in the order in which the charges have been stated. They serve, it is said to increase usury. As it is the truth, so it ought not to be denied, that the method of conducting business, which is essential to Bank Operations, has among us, in some instances in particular instances, given occasion to usurious transactions. The punctuality, in payments, which they necessarily exact sometimes obliged those who adventured beyond their resources and their credit to procure money at any price, and consequently to resort to usurers for aid.
But experience and practice gradually bring a cure to this evil. A general habit of punctuality among traders is the natural consequence of the necessity of
practicing it observing it with the Bank; a circumstance which itself more than compensates for any occasional ill, which may have sprung from that necessity in which the particular under consideration. As far, therefore as they depend on each other for pecuniary supplies they can make their calculations of what they they can calculate their expectations with greater certainty; and are in proportionably less danger of disappointments which might compel them to have recourse to so pernicious an species of aid ; And the mischiefs of doing it (among which the loss of Credit with the Bank is not the least) the mischiefs of which, after a few examples have been exhibitted naturally inspire great caution, in all but men men of desperate circumstances, to avoid the possibility of being subjected to them. One, and not the least of the evils of making use of it, is loss of Credit with the Bank itself; if the fact be known or even strongly suspected, is loss of Credit with the Bank itself.
The Directors of a Bank too, though in order to extend its business and its popularity, in the infancy of
the institution, they may perhaps be tempted to go further in accommodations than the strict rules of prudence will warrant, grow more circumspect of course, as its affairs become better established and as the evils of too great facility are experimentally demonstrated. They become more attentive to the situation and conduct of those with whom they deal; they are observe their operations and pursuits; they œconomise the credit they give to those of suspicious solidity; they refuse it to those whose carreer is more manifestly hazardous. In short, in the course of practice, from the nature of things, the interest of a Bank will render make it its policy, to assist and support the wary and industrious and to discountenance and discredit the rash and unthrifty; usurious lenders and usurious borrowers.
There is a leading view, in which the tendency of Banks will be seen to be, to
restrain rather than to promote usury. This relates to their faculty ( of as has been demonstrated) increasing the quantity and accelerating the circulation of money producing a greater quantity and a more quick circulation of money. It is evident that usury must increase or diminish in proportion as the demand s for borrowing exceeds the quantity of money at market to be lent; and therefore whatever therefore has the effect that whatever has the effect just mentioned, whether it be in the shape of paper or coin, must be of a nature to counteract the progress of usury, by contributing to render the supply more equal to the demand tend to counteract the progress of usury.
But bank-lending it is
alleged served to prevent other kinds of lending; which by confining the the resource of borrowing to a particular class leaves the the rest of the community more necessitous , and a of course more exposed to the extortions of usurers. As the profits of Bank Stock exceed the ordinary rate of interest,128 those who have money prefer, it is affirmed alleged prefer investing it in that article to lending at this rate; to which there is the additional motives that the income from the former of more quick frequent and exact returns pay returns, without trouble or perplexity in the collection. This constitutes the second charge, which has been enumerated.
The fact on which this charge rests is not to be admitted without several qualifications; First the great bulk of the stock of a bank will consist of the funds of men in trade, among ourselves, and
of monied foreigners; neither the former of whom could not afford to put their capitals out of their own reach by investing it in loans in the ordinary mode for long periods on mortgages or personal security; and the latter of whom would not choose to be subjected to the casualties delays and embarrassments of of that method of such a disposition of their money in a distant Country. Secondly. There will always be a considerable proportion of those, who are properly the money lenders, who from a spirit of caution which usually characterises this description of men will incline rather to vest their funds in mortgages on real estate, than in the stock of a Bank, which they will are apt to regard as a more precarious security.
These considerations serve in a
great degree to narrow the foundation of the objection as to the point of fact. But there is a more satisfactory answer to it. The effect supposed, as far as it has existence is, in the nature of the thing, temporary. The reverse of it takes place in the general and permanent operation of the thing.
The Capital of every public Bank will of course be
comprised with restricted to certain defined limit. It is the province of legislative prudence so to adjust this limit, that while it will not be too contracted for the demand which the Course of business may create and for the security which the Public ought to have for the solidity of the paper it will still be within the compass of the pecuniary resources of the community; so that there may be an easy practicability of completing the subscriptions to it. This done, the supposed effect must of necessity ceases. There is no longer room for the investment of any additional capital. Stock may indeed change hands by one person selling and another buying; but the money which one takes out another channel to purchase the stock the other receives to be employed in some other way. Hence the future surplusses, which may accumulate must take their usual course, and lending at interest must go on as if there were no such institution.129
It must indeed flow in a more copious stream. The Bank furnishes an extraordinary supply for borrowers within its immediate sphere. A larger supply consequently remains for borrowers elsewhere. In proportion, as the
operations and circulation of the Bank are extended, there is an augmentation of the aggregate mass of money for answering the aggregate mass of demand—Hence a greater facility in obtaining it for every purpose. That Banks furnish temptations to overtrading is the third of the
It ought not to escape without a remark that as far as the citizens of other countries become adventurers in the Bank, there is a positive increase of the gold and silver of the Country. It is true, that from this a
yearly half yearly rent is drawn back equal to dividends upon the stock. But as this rent arises from the employment of the Capital by our own citizens, it is probable that it is more than replaced by the profits of that employment. It is also likely that a part of their rent is in the course of trade converted into the products of our country. This view of the subject furnishes an answer to an objection which has been started for the circumstance of foreigners deriving a yearly income from the part of the Stock owned by them, which has been represented as tending as tending to drain the country of its specie. In this objection the original investment of the capital and the in constant use of it seem both to have been overlooked.
That Banks furnish temptations to over trading is the third of the enumerated objections.
Nor is it any imputation to them to acknowlege that they does it derogate from their utility. This must mean that by affording additional aids to the mercantile enterprise they induce the merchant sometimes to adventure beyond the salutary point. But the very statement of the position shews that the object of the charge is an occasional ill, incident to a general benefit advantage. The plenty of gold & Credit of every kind (as a species of which only can bank lending have the effect supposed) must be in different degrees chargeable with the same inconvenience. Nay it It is even applicable to gold and silver when they abound in circulation. But would it be wise on this account to decry the precious metals, to root out credit, would even attend Even or to prescribe proscribe the means of that enterprise, which is the main spring of Trade and a principal source of national wealth, because it now and then runs into excesses, of which overtrading is one?
If the abuses of a beneficial thing are to
produce its condemnation, there is scarcely a source of public prosperity which will not speedily be dammed up closed. In every case the ill is to be compared with the good; and in the present, such a comparison which furnish this result that the increased energies energies which commercial enterprise derives from the aid of banks and the additional stock of industry which it serves are a source of profit and advantage, which greatly overballance the partial ills of the overtrading of a few individuals at particular times, or of numbers, in particular conjunctures.
The fourth and fifth charges may be considered . These relate to the aid, which is sometimes
derived from Banks by unskilful adventurers and fraudulent Traders. These charges also have some degree of foundation; though far less than has been pretended, and they are among the instances of partial connected with more extensive and over ballancing benefits.
The practice of giving fictitious credit to improper persons is one of those evils which experience
prompted by interest gradually corrects. The Bank itself is in so much jeopardy of being a sufferer by it, that it has the strongest of all inducements to be on its guard. It may not only be injured directly by the failures of the persons of this description themselves but eventually by the incapacities of others, whom their impositions may have ruined. As the the Bank not only
Nor is there much danger of a Bank’s being
often led into this practice from want of information. The Directors themselves being for the most part taken selected from the class of Traders may be expected to possess individually an general and accurate knowlege of the characters and situations of those who fall within that description. And they have in addition to this the course of dealing of the persons themselves with the Bank to direct them which is itself in most cases a very good index of their situation . The shifts doubtings artifices and shifts, He they are obliged to employ to keep up the countenance, which the rules of the Bank require & the train of their connections are so many prognostics not difficult to be interpreted of the fate which awaits them. to experienced directors very good guides steer clear of them. Hence it not unfrequently happens that Banks are the first to discover the unsoundness of such characters; and by witholding credit to announce to the public that they are unworthy of it. But If some Banks sometimes give a false credit to the persons described, they more frequently enable honest and industrious men of small or perhaps with no capital to undertake and prosecute business with advantage to themselves and the community; and assist Merchants of both capital and Credit, who meet with accidental and unforeseen, which might otherwise prove fatal to them and to others, to make head against their misfortunes and finally to retrieve their affairs: These Circumstances suggest no inconsiderable encomium s on the utility of Banks.
But the last and heaviest charge is still to be examined. This is that Banks tend to banish
the specie of the Country.
The force of this objection rests upon their being an engine of paper Credit, which by furnishing a substitute for the metals, is supposed to promote their exportation. It is an objection, which if it has any foundation, lies not against Banks peculiarly but against every species of paper Credit.
The number and respectability of the patrons of this idea intitle it to particular attention.
The most common answer given to it is that the thing supposed is of little or no consequence: That it is immaterial what serves the purpose of money whether
silver or gold paper or gold and silver: That the effect of both upon industry is the same: And that the intrinsic wealth of a nation is to be estimated not by the abundance of the precious metals contained in it but by the quantity of the productions of its labour and industry.
This answer is not destitute of solidity, though
it is not intirely satisfactory. It is certain, that the vivification of industry by a full circulation, with the aid of a proper and well regulated paper Credit, may more than compensate for the loss of a part of the gold and silver of a Nation; if the consequence of avoiding that loss should be a scanty or defective circulation.
But the positive increase or decrease of the
gold and silver of a Country, unless temporarily unless the latter be temporary can hardly be a matter of indifference. As the commodity taken in lieu of every other it is a species of the most effective wealth; and as the money of the world, it it is of great concern to the state that there be a sufficiency of it to face any external calls which the protection of its external interests may create.
The objection seems to admit of another and a more conclusive answer, which controverts the fact itself. A nation a
which has no mines of its own must derive the precious metals from others; generally speaking generally speaking in exchange for the products of its labour and industry. The quantity it will possess will therefore in the ordinary course of things be regulated by favourable or unfavourable ballance of its Trade; that is, by the proportion between its products and its wants its exportations and its importations. The state therefore of its improve progressive agriculture and manufactures, the general mass of quantity and quality of its labour and industry must influence and in the general course of things the increase or decrease of its gold and silver.
If this be true, the inference
will be that well constituted banks favour the increase of the precious metals. It has been shewn, that they augment in different ways, the active capital of the Country. Tis Capital which gives employed employment; Tis this, which which animates labour and industry. Any addition which is made to it, by putting in motion a greater quantity of both must tends to create a greater quantity of the products of both—And by furnishing more materials to conduces to a favourable ballance of Trade and consequently to the introduction and increase of gold and silver. exchange with foreigners for those which are wanted from them
consequence seems appears to be deduced from solid premisses. There are however objections to be made to it.
may be said, that as Bank paper affords a substitute for specie, it serves to counteract that rigorous necessity for the metals as a medium of circulation, which in the case of a wrong ballance, might restrain in some degree their exportation; and it may be added that from the same cause it may retard those œconomical and parsimonious reforms in the manner of living which the scarcity of money is calculated to produce, and which might be necessary to rectify such wrong ballances.
There is perhaps some truth in these observations; but they appear to be of a nature rather to form exceptions to the
principle of the conclusion which has been drawn than to overthrow it. The state of things in which the exigencies of circulation can be supposed to resist with effect the urgent demand for specie which a wrong ballance of Trade may occasion presents an extreme case. And a situation, in which the too expensive manner of living of a community can stand in need of such a corrective is one, which perhaps can rarely results, but from extradinary and adventitious causes: such as, for example, a national revolution which had unsettled all the habits of a people and inflamed the appetite for extravagance by the illusions of ideal wealth depending on a depreciating currency. There is good reason to believe, that where the laws are wise and well executed, and the inviolability of property and contracts maintained, the œconomy of a people will in the general course of things correspond with its means. The animation of industry is probably,
The support of Industry is probably, in every case, of more consequence towards
rectifying a disadvantageous ballance of Trade and the stagnation of it would be likely to have a worse effect of expence in the expences of families :
its stagnation would be likely to contribute more to prolonging it than such savings in shortening its continuance. Bank circulation serves contributes to prevent that stagnation, which is a natural consequence of the defect of an adequate medium, by coming in aid of the gold and silver which without the aid of Bank circulation would in the cases supposed be severely felt.
is also to be observed that as this circulation is in a compound ratio n to the fund upon which it depends and to the demand for it, and as that fund itself is affected by the exportation of the metals, there is no danger of its being overstocked as in the case of paper is emitt issued at the pleasure of the government; or of its preventing the consequences of any unfavourable ballance from being sufficiently felt to produce the reforms alluded to, as far as circumstances may require and admit.
Nothing can be more fallible than the comparisons which
can sometimes made between different countries to illustrate the truth of the position under consideration. The more or less of Gold and silver in any country depends upon an infinite variety of combinations all of which ought to be known in order to judge whether the existence or non existence of paper currencies has any share in the relative proportions they relatively contain. The comparitive mass and value of the productions of the labour and industry of each compared with the wants; of each the nature of its establishments abroad; the kind of wars in which it is usually engaged; the relations it bears to those countries, which are the original possessors of those metals; the privileges it enjoys in their trade; these and other circumstances are all to be taken into the account, and render the investigation too complex to justify any reliance on the vague and general suggestions, which have been hitherto hazarded on the point.
different views of the subject appear sufficient to impress a conviction, that of the utility of Banks and to demonstrate that they are of great importance not only in relation to administration of the finances, but in the general system of the political Oeconomy.
The judgment of many concerning them has no doubt been perplexed by the misinterpertation of appearances which were to be ascribed to other causes. The general devastation of a property occasionned by the late war naturally produced on the one hand a great demand for money and on the other a great
scarcity to a deficiency of it to answer the demand: Some injudicious laws which grew out of the public distresses by weaking impairing confidence aggravated the evil and causing a part of the inadequate sum in the country to be locked up, aggravated the evil: The dissipated habits contracted by many individuals during the war, which led to expences beyond their resources; the number of adventurers who at that epoch rushed into trade without capital, and many of them without character or information and who were obliged to make any sacrifices to support a transient Credit; and the unsettled state of the public debt: these different circumstances cooperating with those first mentioned necessarily led to usurious borrowing, and produced most of the mischiefs and were the causes of most of the inauspicious appearances; which, where Banks were established, were by some erroneously placed to their account; and which they would not have done if they had turned their eyes toward places where none existed and where, notwithstanding the same evils would have been seen to exist even in a greater degree, than where those institutions had obtained.
These evils have either
intirely ceased or been greatly mitigated. A more perfect cure for them may Their more complete extinction may be looked for, from that security to property which the constitution of the United States happily gives (a circumstance of prodigious moment in the scale of public and private prosperity) from the attraction of foreign capital, under the impression of that security, to be employed upon objects and in enterprises, for which the state of this country opens a wide field and inviting field; from the consistency and stability, which the public debt is fast acquiring, as well in the public opinion as in fact—from the augmentation of capital, which that circumstance and the quarter yearly payment of Interest will afford and from the more copious circulation which will be likely to be created by a well constituted National Bank.
The establishment of Banks in this country seems to be recommended by reasons of a peculiar nature. Previous to the Revolution circulation was in a great measure carried
by on by the paper emissions. In Pensylvania alone the quantity of it was about a million and a half of dollars. This auxiliary may These may be said to be now done away. And it is generally supposed that there has been for some time past and still is a deficiency of circulating medium.
this deficiency is real or imaginary is not susceptible of demonstration, but there are appearances which render its reality probable.131
The circumstances are the vast tracts of waste land, and the little advanced state of manufactures. The progressive settlement of the former, while it promises ample retribution in the generation of future resources diminishes or obstructs in the mean time the active wealth of the Country. It not only draws off a part of the circulating money, and places it in a more passive state, but it diverts
it into its channels a portion of that species of labour and industry which would otherwise be employed in furnishing materials for foreign trade, and which by contributing to a favourable ballance, would assist the introduction of specie. In the early periods of new settlers settlements, the labour of the settlem settlers not only furnish no surplus sses for exportation but they consume a part of that which is produced by the labour of others. The same thing is a cause that manufactures do not advance or advance slowly. And notwithstanding some hypothesis to the contrary there are many things to induce a suspicion that the precious metals will not abound in any country which has not mines or manufactures. The sword may in ancient times have won They were often won in ancient times by the sword but the modern system of war has done away this resource; and it is one upon which it is to be hoped the United States will never be inclined to depend .
The appearances alluded to are a greater prevalency of direct barter in some parts of the Country; and greater difficulty almost every where in the advantageous alienation of improved real estate. The
greater difficulty of getting money, which is a general complaint, is not mentioned , because it is the complaint of all times, and one in which imagination must ever have too great latitude to permit an appeal to it. If these things be true and some aid to circulation is necess. The convenient pay
If these things be true and some aid to circulation be necessary it remains to inquire what ought to be the nature of that aid.
The emitting of paper money is wisely prohibitted to the individual states by the national constitution. And the spirit of that prohibition ought not to be disregarded by the Government of the United States. Though paper emissions under a general authority might have some advantages and be free from some disadvantages, which are applicable, to the like emissions by the states separately; yet they are of a nature so liable to abuse, and it may be affirmed so certain of being abused, that the wisdom of the government will be shewn in never trusting itself with the use of so
baseless treacherous an expedient. In times of tranquillity it might have no ill con[se]quence; it might even perhaps be so regulated as to be productive of good; but in great and trying emergencies, there is almost a moral certainty of its becoming mischievous. The stamping of paper is an operation so much easier than the laying of taxes, that a government, in the practice of paper emissions, would rarely fail in any such emergency to indulge itself too far in the employment of that resour[c]e, to avoid as much as possible one less propitious to present popularity; though more safe and salutary. in itself. If it should not be carried so far as to be rendered an absolute it would at least be likely to be extended to a degree which would occasion an inflated and artificial state of things inconsistent with the regular and prosperous course of the political œconomy.
Among other material differences
been a paper currency issued by the mere authority of government and one issued by a bank is this—That in the first case, there is no standard to which an appeal can be made, as the quantity, which will only satisfy or which will surcharge the circulation; in the last, that standard results from the demand. If more should be issued than is necessary, it will return upon the bank. Its emissions as elsewhere intimated must always be in a compound ratio to the fund and to the demand. Whence it is evident that there is a limitation in the nature of the thing. While the discretion of the government is the only measure of the extent of the emissions by its own authority.
This consideration further illustrates the danger of emissions of that sort, and the preference which is due to Bank paper.
then , as a consequence from what has been said, that a National Bank is a desireable institution two inquiries emerge—Is there no such institution, already in existence , which has a claim to that character, and which supersedes the propriety, or necessity of another? If there be none, what ought to be the principles upon which one ought to be established?
There are at present three
institutions Banks in the United States. That of North America established in this City; that of New York, established in the city of New York, that of Massachusettes established in the City of Boston. Of these three, the first is the only one, which has at any time had a direct relation to the United States.
The Bank of N America originated in a resolution of Congress of the 26 of May 1781 which was afterwards carried into execution by an ordinance of the 31 of December following intitled “An Ordinance to incorporate the subscribers to the Bank of North America,”132 and which was followed by acts of incorporation, grounded upon that Ordinance, by the states of 133☞
The aid afforded to the U States, by this institution during the remaining period of the
late war was of essential consequence; and its conduct since the peace has not weakened its title to their patronage and favour. So far its pretensions to the character in question are respectable; but there are circumstances which appear to invalidate them, and to indicate the propriety of a new establishment, on principles somewhat different.
The directors of this
institution , on behalf of their constituents, have since accepted and acted under a new Charter from the State of Pensylvania134 materially variant from their original one; and which so narrows the foundation of the Bank as to render its funds an impor in incompetent basis for the extensive purposes of a National Bank.
The ordinance of Congress
limits the funds of the Bank is ten Millions of Dollars. The last charter of Pensylvania confines it to two millions. Is there not an a direct repugnancy between two charters so differently circumstanced? Must not the acceptance of the one be deemed a virtual renunciation of the other?
There is nothing in the acts of Congress which imply an exclusive right except during the
continuance of the war. There is therefore nothing, if the public good require s it, which prevents the establishment of another.
It may however be incidentally remarked, that in the general opinion of the United States, the Bank of North America has
acquired the station of a Bank of Pensylvania only, and that the ☞Directors of that Bank seem themselves on various occasions to have viewed it in the same light. One of the proofs of this is in the change of the principle of voting for directors.135
By the plan136 upon which the subscriptions were first made, approved the resolution of the 26 of May137 and organised by the Ordinance of the 31 of December,138 every Stockholder is intitled to as many votes as he holds shares. By a bye law of the Corporation since the last charter, a different ratio of suffrages is established, and has been practiced upon.139
But though the Ordinance of Congress contains no grant of exclusive privileges, there is room to allege that the Government of the United States ought not in point of candour and equity to establish any rival or interfering institution, in prejudice of the one already established; especially as this has, from services rendered,
such well founded claims to protection and favour regard.
The justice of such an observation ought within proper bounds to be admitted. A new establishment of the sort ought not to be made without cogent and sincere
motives of public good. And in the manner of doing it every facility should be given to a consolidation of the old into the new, one upon terms agreeable to the part not injurious to the parties interested . But there is no ground to maintain that in a case in which the government has made no condition restricting its authority that it ought voluntarily to restrict it, in regard to the interests of a particular institution, when those of the state dictate a different course; especially too after such circumstances have intervened as those which characterise the actual situation of the Bank of North America.
The inducements to
a new establishment are now to be considered. It is now proper to examine what are the considerations of public good which render a new establishment adviseable.
The first of them which occurs is, the, at least, ambiguous situation in which the Bank of N America has placed itself by the acceptance
by the acceptance of its last charter. is the first, which occurs. If this has rendered it the mere Bank of a particular state, liable to dissolution at the expiration of the 14 years, to which that charge charter has restricted its duration, it would be neither fit nor expedient to rely on as an equivalent for the Bank of the United States.
The restriction of its capital also, which according to the same supposition
could cannot be extended beyond two Millions of Dollars, is a conclusive reason for another establishment. So small a Capital neither promises the requisite aid to Government nor the requisite security to the community. It may answer very well the purposes of local accommodation but is an inadequate foundation for a circulation coextensive with the United States, which cover embracing the whole of their revenues and affecting every individual into whose hands the paper may come.
And inadequate as such a capital would be to the essential ends of a National Bank, it is liable to being rendered still more so by that principle of the constitution of the Bank of North America, contained equally in its old and in its new Charter, which leaves the increase of the actual capital at any time to the discretion of the Directors or Stockholders. It is naturally to be expected that the allurements of an advanced price of Stock and of large dividends will disincline those who are interested to an extension of capital from which they will be apt to fear a diminution of profits. And from this circumstance the interest and accommodation of the public (as well indiv[id]uals
of it as the state) are made more subordinate to the interest of the Stockholders than they ought to be. It is true that unless the latter be consulted there can be no bank (in the sense at least in which institutions of this kind are worthy of Confidence). But it does not follow that this is alone to be consulted, or that it even ought to be paramount. Public utility is more truly the object of a Public Banks than private profit. But it is the business of government to constitute them on such principles, that while the latter will result in a sufficient degree to offer competent motives to engage in them the former be not made subservient to it. To effect this, a principal object of attention ought to be to give free scope to an ample capital; and in this view to fix the bounds which are deemed safe and not to be exceeded, to leave no discretion either to stop short of them or to overpass them. The want of this precaution in the constitution of the Bank of N America is a further and a powerful consideration for desiring one another differently constituted.
There may be room, at first sight, for a supposition, that as the profits of a bank will bear a proportion to the extent of its operations the interest of the stockholders will
dispose them readily to consent necessary augmentations of Capital there is no cause to apprehend, that they will be indisposed to such augmentations. to all
But men in
cases of this nature will prefer the certainties they enjoy to probabilities depending on untried experiments; especially when these promise rather that they will not be injured than that they will be benefitted. The Directors of a Bank will be more apt to overstrain its faculties, in the attempt to face the demands which the course of business may create, from a desire to enchance its profits, than to set on foot new subscriptions which may hazard a diminution of them and even a temporary reduction of the price of Stock.
Banks are among the best expedients for lowering the rate of Interest in a Country; but
in to have this effect their Capitals ought to be equal until considerable, completely equal to all the demands of business, and such as will tend to remove the idea that the accommodations they afford is any degree favours; an idea very apt to accompany the parsimonious dispensation of contracted funds. In this, as in every other case, the plenty of the commodity ought to lead to a moderation of its price. Latitude in this respect may safely be allowed in this country; as there is no danger
The want of a principle of Rotation in the constitution of the Bank of North America is another
weighty argument for a new establishment. Scarcely one of the reasons, which militate against this principle in the constitution of a country is applicable to that of a Bank; while while there are strong reasons in favour of it, in relation to the latter , which do not apply to the former other. The knowlege to be derived from experience is the only circumstance common to both, which pleads against rotation in the directing officers of a Bank. But the objects of the government of a nation and those of the government of a Bank are so widely different, as greatly to weaken the force of that consideration in relation to the latter. latter. Almost every important case of legislation involve requires towards a right decision a general and accurate knowlege of the affairs of the state and habits of thinking which are not acquired seldom acquired in private life, the offspring for the most part of a familiarity with public concerns. The deta administration of a bank, on the contrary, is regulated by a few simple fixed maxims the application of which cannot be difficult to any man of judgment; especially if acquainted with the principles of Trade. It is in general a constant succession of the same details.140
But though this be the case the idea of the advantages of experience is not to be slighted. Room ought to be left for the regular transmission of official information.
The President or head of the direction ought to be excepted from the principle of rotation. With this exception, the periodical exclusion not extending to the whole body of Directors at the same time, and with the aid of the information of the subordinate officers, there can be no danger of any ill effects from want of experience or knowlege; especially to as the periodical exclusion ought not not to reach the whole of the Directors at one time.
reasons in favour of the principle of rotation are these, the firmly assuring of the public confidence, the le is, this, that it will render the public confidence more firm, stable and unqualified, by lessening the danger of combinations among the directors to make the institution subservient to party views or to the accommodation preferably of any particular set of men, it will render the public confidence more firm stable and unqualified.
When it is considered, that the Directors of a Bank are not elected by the great body of the community, in which a diversity of views will naturally prevail at different conjunctures but by a small and select class of men, among whom it is far more easy to
preserve a systematic pursuit of the same views; and that those Directors have it in their power so directly , to conciliate by obliging, the most influential of this class, it is easy to perceive, that without the principle s changes in that body can rarely happen, but as a concession which they may themselves think fit to make to public opinion. A continual su
constit continual administration of an institution of this kind by the same persons, will never fail, with or without cause to excite distrust and discontent s. The necessary secrecy of the transactions of the Bank gives greater scope to imagination to infer that something is or may be wrong. And this inevitable mystery is a reason in the nature of for inserting in the constitution of a Bank the necessity of a change of men. As neither the mass of the parties interested nor the public in general can be permitted to be witnesses of the interior management of the Directors, it is reasonable, it is essential, that both should have that check upon their conduct and that security against the prevalency of a partial or pernicious system, which will be produced by the certainty of periodical changes. of men. Such too is the delicacy of the Credit of a Bank, that every thing, which can fortify confidence and repel suspicion, without injuring its operations ought carefully to be sought after in its formation. The last consideration, which will be mentioned, as recommend ing a new establishment, is the improper rule by which the right of voting for Directors is regulated in the original plan upon which the Bank of North America was constituted, namely a vote for each share, and the want of a rule in the last Charter; unless the silence of it on that point may signify that every Stockholder is to have an equal and a single vote, which would be a rule in a different extreme not less erroneous. It is of importance that a proper rule should be established on this point head as it is one of those things, which ought not to be left to discretion; and it is consequently of equal importance, that that rule should be a proper one.
A vote for each share renders a combination, between a few principal stockholders, to monopolise the power and benefits of the Bank, too easy. An equal vote to each stockholder, however
large his interest in the institution allows not a due degree of weight to large stockholders, which it is reasonable they should and which perhaps their security and that of the Bank may require. A prudent mean is to be aimed at. A conviction of this has produced a bye law of the corporation of the Bank of North America which evidently aims at such a mean. A reflexion arises here that a like majority with that which enacted this law may at any moment repeal it.
The last inducement which shall be mentioned is the want of precautions to guard against a foreign influence insinuating itself into the direction of the Bank. It seems scarcely
prudent to permit that any but citizens should be eligible as Directors of a National Bank, or that non resident foreigners should be able to influence the appointment of Directors by the votes of their proxies. It is to be considered that such a Bank is not a mere matter of private property, but a political machine of the greatest importance to the state.
There are other variations not of inconsiderable
money moment, which appear desireable, but which are not of magnitude enough to claim a particular remark. These will be seen in the plan which will be submitted. The order of the investigation leads now to enquiry into the principle of upon which
If the objections which have been stated to the constitution of the Bank of North America are admitted to be well founded, they will nevertheless not derogate from the merit of the main design, or of the services
it has rendered, or of the benefits it has produced.
The establishment of such an institution at the time it was
proposed was a measure dictated by wisdom. The Its utility has been amply evinced by its fruits. American Independence owes much to it. And it is very conceivable that reasons of the moment may have rendered those features in it inexpedient which on a revision, with a permanent view are desireable.
The order of the subject leads to an inquiry into the principles upon a National Bank ought to be
The situation of the U States naturally
suggests a wish, that the form of the institution could admit of a plurality of branches. But various considerations discourage from pursuing this idea. The complexity of such a structure would be apt to inspire doubts, which would deter from entering into adventuring in it. And the practicability of a safe and orderly administration, though not to be abandonned as desperate, cannot be made so manifest as to promise the removal of those doubts or to justify the Government in adopting the idea as an original experiment. It The most that would seem adviseable, on this point, is to insert a provision, which may lead to it hereafter; if experience may better demonstrate its utility and the practical observations of those who may have the direction shall render it in their judgment safe that it may be adopted with safety. It is certain that it would have some advantages both peculiar and important. Besides more general accommodation it would lessen the danger of a run upon the bank.
The argument against is that each branch must necessarily be under a distinct, though
a subordinate direction; to which a considerable latitude of discretion must of necessity be entrusted. And as the property of the whole institution would be liable for the engagements of each part, that and its credit would be at stake upon the prudence of every part. The mismanagement of either branch of the institution would hazard disorders. possibly something more possibly to a ruinous extent ruin .141
Another wish dictated by the particular situation of the Country is that the Bank could be so constituted as to be made an immediate instrument of loans to the proprietors of land; but this wish yields to the difficulty of accomplishing it.
Various projects have at different times proposed for the establishment of what has been called a land bank, but none of them can be deemed satisfactory.
Land is alone an
unfit fund for a bank circulation. If the paper emitted by it be not payable in coin it will amount to nothing more than the paper emissions which have heretofore obtained, and which are now exploded by the general voice. If a they are payable in coin the land must first be converted into it by sale or mortgage. neither of which in a sudden emergency could be The difficulty of effecting the former is the very thing which begets the desire of finding another resource, and the former would not be practicable on a sudden emergency but with sacrifices which would make the cure worse than the disease. If it be said that the sub
Neither is the idea of constituting the fund partly of coin and partly of land freer from impediments. These two species of property do not for the most part unite in the same hands. Will the monied men consent to enter
in a partnership with the landholders by which the latter will share in the profits which are made by the money of
Money can be the only Agent in such a case of the profits. which are made. The land can be nothing more than a security. It is easy to see that an union on such terms will not readily be formed. If the land holders are to procure the money by sale or mortgage of a part of their lands, this they can as well do when the stock consists wholly of money, as as if it were to be compounded of money and land. But when is to arise the aid assistance of loans is the great desideratum. of such a plan The aid intended desired for the land holders is the aid of loans. If in order to this the Bank is to ade Supposing other difficulties surmounted, and a fund constituted composed partly of coin & partly of land the benefit could only be obtained, by the Bank’s advancing them its notes for the whole or a part of the lands, they had subscribed to the stock. If this advance was small the relief aimed at would not be obtained; if it was considerable the quantity of notes issued would be a source of diffidence and, if received at all, would be likely to return speedily upon the Bank for payment; which after exhausting its coin would be under a necessity of turning its land into money at any price that could be obtained for them, to the irreparable prejudice of the proprietors. A further wish, which is suggested by considerations of public advantage, is the Bank could be established upon such principles, as that the profits of it would redound to the immediate benefit of the government; and to as an article of revenue. This is contemplated by many, who speak of a national Bank; but the idea seems liable to insuperable objections. To attach the public confidence to an instit[ut]ion of this nature it appears to be an essential ingredient that it shall be under the a private not a public direction, under the guidance of individual influence interest not of public policy; which would be supposed to be, and in certain emergencies, under an administration not possessed of consummate firmness would really be in danger of being too much influenced by public necessity. The suspicion of this would most probably be a canker that would continually corrode the vitals of the Credit of the Bank and would be likely to prove most malignant in those situations in which the public good require d that that credit should be most sound and vigorous. It would indeed be a miracle, if the credit of the Bank should be at the disposition of the government, if in a long series of time there was not experienced a calamitous abuse of it. It is true that it would be the true interest of the government not to abuse it; its genuine policy to husband and cherish it with the most cautious circumspection But what Government ever uniformly consulted its true interest in opposition to momentary temptations ? What Nation was ever blessed with a constant succession of upright and wise Administrators? No office of Government Director
and steady sense, of their own interest, as proprietors, in the Directors of a Bank is the only security that can always be relied upon for a careful and prudent administration. It is therefore the only basis on which an enlightened, unqualified and permanent public confidence can be expected to be erected and maintained.
As far as may concern the aid of the Bank, within the proper limits, a good government has nothing more to wish for, than it will always possess; though the management be in the hands of private individuals.
One reason for it has been already assigned—— the power of the government to reciprocate benefits. This is fortified by others. As the insitution, if rightly constituted, must depend for its renovation from time to time on the pleasure of government it will not be likely to feel a disposition to render itself unworthy of public patronage by its conduct unworthy of patronage. The government also, in conduct of its finances, has it [in] its power to reciprocate benefits to the Bank of not less inportance than those which the Bank affords to the Government, and which are never unattended with an immediate and adequate consideration compensation. Independent of these more particular considerations the natural weight and influence of a good government will always go far towards procuring a compliance with its desires; and as the Directors will usually be composed of some of the most discreet respectable and best informed citizens, it can hardly ever be difficult to make them to sensible of the force of the ease inducements which call for their exertions.
It will not follow from what has been said that the State may not be the holder of a part of the
funds of a Bank and in that capacity a sharer in the profits of it. It will only follow that it ought not to desire any participation in the direction of it and therefore ought not to own too large a proportion of the funds. For if the mass of the property should be in the public and the management of it be in private hands, this would be to commit the interests of the state to persons not interested or not sufficiently interested in their proper management.
There is one thing however, which the government owes to itself and to the community; at least to all that part of it, who are not
proprietors of the Stock of the Bank; that is to stipulate a right of inspecting its proceedings and state of the Bank, excluding every all pretension to controul. This right is made an an article in the primitive constitution of the Bank of North America. And its propriety stands upon the most obvious reasons. If the paper of a Bank is to be permitted to insinuate itself into all the receipts on public revenues and receipts of a country; if it is even to be tolerated as the substitute for gold and silver in all the transactions of business, it becomes in either view a national concern of the first importance. As such the ordinary rules of prudence require that the government should possess the means of ascertaining at all times that so delicate a trust is executed with fidelity and care. An inspection of this sort is not only desireable the government; but it ought to be equally to all those concerned in the Institution, as an additional title to public and private confidence; and as a thing which can only be formadable to practices that shun the light. The presumption must always be that the characters who would be entrusted with the exercise of this right, on behalf of the government, will not be deficient in the discretion, which it may require; at least the admitting of this presumption cannot be deemed too great a return of confidence for that very with a view to to the public safety but as it to considerable portion of it which the government is required to place in the Bank.
things which however desireable are not attainable the following plan is respectfully submitted to the consideration of the House.
I The Stock of the Bank not
to exceed 10.000.000 of Dollars divided into 20.000 shares each share consisting of 500 Dollars; payable one fifth in gold and silver Coin and four fifths in to raise which sum subscriptions shall be opened public Debt bearing which according to the loan proposed by the Act and continue open until the whole shall be subscribed. shall bear an accruing interest at the time of payment of 6 per Centum per annum.
II The amount of each share shall be payable one fifth in gold and silver coin and four fifths in that part of the public debt which according to the loan proposed by the Act making provision for the debt of the United States142 shall bear an accruing interest at the time of payment: of six per Centum per annum.
III The Payments shall be regulated as follows143
IV. When the sum of 400000 Dollars in gold and silver shall have been actually paid the operations of the Bank
to commence in the City of Philadelphia.
V The Subscribers to the Bank and their successers
to be incorporated by the name of The Company of the Bank of the United States; and to continue a corporation until the final redemption of that part of its stock which shall consist of the public debt.
VI The capacity of the Corporation to hold real and personal estate
to be limited to fifteen Millions of Dollars, including the amount of its Capital or original stock. The lands and tenements which it shall be permitted to hold shall be only such as shall be requisite for the immediate accommodation of the institution and such as shall have been mortgaged to it for the security. of money lent
VII The totality of the debts
of the Company, whether by bond bill note or other contract, shall never exceed the amount of its actual capital stock. In case of excess the Directors under whose administration it shall happen shall be liable for it in their private and seperate capacities.144 If any dissent they may excuse themselves from this responsibility by making known publishing the fact and their dissent in two gazettes or news papers printed at the place where the bank is kept.
VII The Company shall trade in nothing but bills of exchange
and gold and silver bullion ; nor shall take more than at the rate of 6 per Centum per annum upon its loans or discounts.
VIII No loan shall be made by the Bank for public use, or on account of the government of the United States, or of any of them, or of any foreign prince or state; unless previously authorised by law of the United States.
IX The Stock of the Bank shall be transferrable according to such rules as shall be instituted by the Company in that behalf.
X The affairs of the Bank shall be under the management of thirteen Directors one of whom shall be President. And there shall be on the first Monday of June in year
an election of Directors by plurality of suffrages of the Stockholders, to serve for one year, commencing on the first of July immediately succeeding each election.
The Directors at their first
full meeting after such election to choose one of their number as President, who shall be the President of the preceding year, if he shall have been reelected. But The President and Directors shall be appointed by the President of the United States and to continue in office until the last of June in the year 1792 inclusively.
XI The number of votes to which each Stockholder shall be intitled shall be according to the number of shares they respectively hold in the proportions following that is to say for one share and not more than two One vote; for every two shares above two and not exceeding ten, one vote; for every four shares above ten and not exceeding
twenty one vote; for [e]very six shares above 30 & not exceeding sixty one vote for every Eight shares above sixty and not exceeding 100 one vote and for every ten shares above 100 one vote; but none shall shall be intitled to a greater number than fifty votes. but after the first election no share or shares shall confer a right of suffrage, which shall not have been holden three calendar months previous to the day of election. Stock holders actually resident within the U States & none other may vote in elections by proxy.
XII Not more than three fourths of the Directors in office,
excluding the President, shall be reeligible for a succeeding year. But the Director who shall be the President at the time of election may always be reelected.
X None but a Stockholder
s , being a citizen s of the United States, shall be eligible as a Director s.
XI Any number of Stockholders who together shall be proprietors of
not less than one hundred shares shall have power at any time to call a general Meeting of Stockholders, for purposes relative to the institution giving at least twenty days notice in two public Gazettes of the place where the Bank is kept; and specifying in such notice the object of the Meeting.
XII In case of the death resignation absence from the U States or removal of a Director by the Stockholders, his place may be filled by a new
election for the remainder of the year.
President or Director shall have any other emolument than such as shall have been allowed by the Stockholders at a general Meeting. But the Directors may allow the President a sum not exceeding 145 per annum for his dayly attendance at the Bank; subject nevertheless to revocation or alteration by the Stockholders.
XIV Not less than seven Directors shall
be competent to the transaction of business.
XV Every Cashier or treasurer before he enters on the duties of his office shall be required to give Bond with
one or more sureties to the satisfaction of the Directors in a sum not less than 20000 Dollars with condition for his good behaviour.
XVI Half yearly dividends shall be made of so much of the Profits of the Bank as shall appear to the Directors adviseable: And once in every three years The Directors shall lay before the Stockholders at a general Meeting an exact statement of the bad Debts which have
been made and of the surplus if any, which remains after deducting losses and dividends. in order that such disposition thereof may be made as shall appear to the Stockholders expedient.146
XVII If any Director or other Officer or servant of the Company shall wilfully wasting or embezzling the money or other property thereof, he shall be deemed guilty of he shall forfeit treble the value shall suffer imprisonment for the term of 147 years and shall be rendered infamous.
XVIII To forge or counterfeit any of the bonds bills or notes of the Company shall be an offence punishable with death.
XIX The bills
or notes of the Bank payable to bearer in coin on demand in gold and silver Coin shall be receiveable in all payments to the United States.
XX The officer at the head of the Treasury Dept of the U States shall have a right at all times to examine into the affairs of the Bank and for that purpose shall have access to all its books and papers; to whom also the Directors shall cause a weekly
state of the Cash account and of the Notes issued and received. to be deliver148
XXI No similar institution shall be established by any future act of the U States during the continuance of the one hereby proposed to be established.
XXII It shall be lawful for the Directors of the Bank to establish
deposits wheresoever they shall think fit in the United States of such portions of their funds as they shall judge expedient for the purpose of making discounts in the same manner as shall be practiced at the pr Bank and to commit the management of the said deposits and the making of the said discounts either to Agents specially appointed by them or to such persons as may be chosen by the Stockholders residing at the place where any such deposit shall be, under such agreements and subject to such regulations as shall be deem e d proper; not being contrary to law or to the constitution of the Bank.
The President of the United States
to be authorised to cause a subscription to be made to the Stock of the said Company, on behalf of the United States, to an amount, not exceeding two Millions of Dollars, to be paid out of the monies which shall be borrowed by virtue of either of the Acts, the one intitled an Act making provision for the Debt of the United States & the other intitled an Act making provision for the reduction of the Public Debt;149 and to borrow of the Bank an equal sum to be applied to be purposes for which the money said monies shall have been procured reimbursable in ten years by equal annual installments.
The reasons for the several provisions contained in the foregoing plan have been
in great part anticipated and will for the most part be so readily suggested by the i r nature of those provisions, that any comments which need further be made will be a neither many nor long.
The combination of a portion of the public debt in the formation of the Capital the principal thing, of which an explanation is requisite.
to enable the creation of a Capital sufficiently large to be the basis of an extensive circulation and The object of it is of operations with the aiding of the government an adequate security for it. As has been elsewhere remarked the original plan of the Bank of North America contemplated a capital of 10.000 000. of dallars; which was certainly not too broad a foundation for the extensive operations to which a National Bank must be destined. But to collect such a sum in this country in gold and silver may without hesitation be pronounced impracticable. Hence the necessity of an auxiliary; which the public debt at once presents.
This part of the fund will be always ready to come in aid of the specie. It will more and more command a
prompt sale; and can therefore readily be turned into coin if an exigency of the Bank should at any time require it. This quality of prompt convertibity into coin renders it an equivalent for that necessary ingredient and distinguishes it from a fund in land of which the sale would generally be far less compendious and at great disadvantage. The quarter yearly payments of interest will also be an actual addition to the specie-fund during the intervals between them and the half yearly divinds of profits. The debt is also The objection to uniting land with money resulting from their not being generally in possession of the same persons does not apply to the debt, which is and will be more and extensively diffus will always be found in considerable proportion among the monied and trading people.
debt composing a part of the Capital, independ besides its collateral effect in extending enabling the Bank to extend its operations & consequently to enlarge its profits will always produce s a sure annual 6 Cent from the government which will enter s into the half yearly dividends received by the Stockholders.
When the present price of the public debt is considered and the
rise probable effect which its incorporation with a spec conversion into Bank Stock, incorporated too with a specie fund, would in all probability have to accelerate its rise to the proper point, it will be readily discerned that the operation presents in its ousett a very considerable advantage to those who may become subscribers: and from the influence, which that rise would have on the general mass of the debt, a proportial a proportional benefit to the public creditors, and, in a sense, which has been more than once adverted to, to the community at lage.
There is an important fact, which exemplifies the fitness of the public debt for a Bank fund and which may serve to remove doubts in some minds on this point. It is this, that the Bank of England,
was at first in its first erection rested wholly on that foundation. The subscribers to a loan to government of 1.200 000 pounds Sterling were incorporated as a Bank; of which the debt created by the loan and the interest upon were the sole fund. The successive augmentations of its capital have been of the same nature.150
The confining the
capacity right of the Bank to contract Debts is to the amount of its capital is an important precaution, which is not to be found in the constitution of the Bank of North America, and while the fund consists wholly of Coin would perhaps be an inconvenient restriction but when a restriction attended with inconveniences, but a free from any when part of it is the composition of the fund should be such as has been proposed. The restriction is to be found in the Charter of the Bank of England, and as a source of security is worthy of imitation. The consequence of exceeding the limit there is that each stockholder is liable for it , in proportion to his interest in the Bank. When it is considered, that the Directors owe their appointments to the choice of the Stockholders that responsibility of this kind on the part of the latter for them does not appear unreasonable. But on the other hand it would might bear hard upon those, who may have dissented from the choice. And here it would perhaps discourage from becoming concerned in the institution. These reasons have induced the placing of the resposibility upon the directors, in office by whom the limit prescribed should be transgressed.151
The interdiction of loans on account of the U States or of any particular state or of any foreign power
is as it relates to the U States conformable to the spirit of will serve as a barrier to executive encroachments and to combinations inauspicious to the safety or contrary to the policy of the Union.
The limitation of the rate of interest
to 6 Cent is dictated by the consideration that different rates prevail in different states parts of the Union; whence the propriety of a ru uniform rule and as the operations of the Bank may extend through the whole it seems expedient some rule seems to be necessary. There is room for a question whether a limitation to five Cent ought not rather to be five per Cent than to six as is proposed. There It may without haz safely be affirmed that the former rate would yield an ample dividend, probably as much as the latter, has heretofore yielded; by the extension which it would give to good business. or in other words to profitable undertakings to which The natural effect of low interest is to increase enterprise and industry; because undertakings of every kind can be prosecuted with greater advantage. The difference of one per Cent may itself constitute It is not easy to imagine This is a truth generally which obtains a general assent, but it is requisite to have analized the subject in all its relations to be able to form an adequate idea of the extent of that effect. Such an analysis will satisfy any intelligent mind that the difference of one per Cent in the rate at which money may be had is capable of making an essential change for the better in the situation of a country or place.
Every thing therefore which tends to lower the rate of interest is peculiarly worthy of the cares of
legislators government. And though laws which violently reduce the rate of interest below the standard which the state of things in the community indicates, are not to be commended, because they are not calculated to answer their end aim; every thing which has a tendency to effect a reduction consistently without violence to the natural course of things ought to be consulted and pursued. Banks are among the means most proper to accomplish this end; and a low rate of bank discount the moderation of the rate, at which its discounts are made would be likely to prove not less beneficial to them than useful to community. is a material ingredient towards it, with which their , viewed on an enlarged and permanent scale does not militate. interest rightly understood
more obv the most obvious ideas are commonly preferred to those which depend on intricate and remote combinations, there would be danger ous that those whose funds must constitute the Bank would be diffident of the sufficiency of the profits, if the rate of loans and discounts were to be placed below the point to which they have been accustomed; and this would be might be indisposed to embarking in the plan. There is, it is true, one reflection, which in regard to men engaged in trade ought to be a security against this danger; it is this, that the accomodations they might derive in the way of their business, at a low rate, would more than indemnify them for any difference in the dividend; supposing even that some diminution of it were to be the consequence. But upon the whole the hazard of contrary reasoning among the mass of monied men is a powerful rew consideration against the experiment. The institutions already existing add to the difficulty of making it. Mature reflection & a large capital may produce what it would be of themselves answer the desired purpose lead to the desired end.
The last thing which will require any explanatory remark is the authority proposed to be given to subscribe to the amount of two millions of dollars on account of the public. The main
object of this is to enlarge the specie fundation of the Bank and to enable it to give an early extension to its operations. Though it is proposed to borrow with one hand what is lent with the other; yet the disbursement of what is borrowed will be progressive and bank notes may be thrown into circulation, instead of the gold and silver. Besides, there is to be an annual reimbusement of a part of the sum borrowed, which will finally operate as an active actual investment of so much specie. In addition to the inducement to this measure which the public will fund results from the general interest of the government to enlarge the sphere of the utility of the Bank, there is this more particular consideration, that as far as the dividend on the stock shall exceed the interest paid on the loan there is a positive profit.
The Secretary begs leave to conclude with this general observation that if the Bank of North America shall come forward with any propositions to the Legislature, which have for object the ingrafting upon that institution the
general principles characteristics which shall appear to the Legislature proper necessary to the due extent and safety of a National Bank, there a will solid reasons for giving every reasonable facility to the measure. Not only the pretensions of that institution from its original relation to the government of the United States and from the services it has rendered are such as a ought to excite a disposition favourable to it; if those who are interested are willing on their part to place it on a footing satisfactory to the government and equal to the purposes of a Bank of the United States: But its cooperation would greatly accelerate the accomplishment of the great object, and the collision which might otherwise arise would be might in a variety of views prove equally disagreeable and injurious. The incorporation or union here contemplated may be effected in different modes under the auspices of an act of the United States, if it shall be desired by the Bank of North America upon terms, which shall appear expedient to the Government.
All which is humbly submitted.
124. ADf, Hamilton Papers, Library of Congress.
126. In the margin opposite this sentence H inserted the words “The speculative theorist & the practical man of business &c.”
127. H’s revision of the two preceding paragraphs appears on a separate sheet of paper which is inserted in the draft at this point. The words within brackets are words which H inserted. The revision reads as follows:
“These different circumstances explain the manner in which the ability of a bank to circulate a greater sum than its actual capital in Coin is acquired. This however must be gradual; and must be preceded by a firm establishment of confidence; a confidence which may be bestowed on the most rational grounds; as the excess in question will always be bottomed on good security of one kind or another; sometimes of a double kind, an auxiliary capital in some other species of property, and which every bank cautiously requires before it consents to advance either its money or its credit; [and which is of a double kind where] When there is an auxiliary capital, as will be the case in the plan plan hereafter submitted; the security is doubled and ought to remove all scruple, an ingredient which when well considered seems capable of removing [calculated to remove] all scruple even in [from] the most cautious minds.
“The same circumstances illustrate the truth of the proposition, [position] that it is one of the properties of Banks to increase the active capital of the [a] Country. This, is in other words [is] the sum of them. The money of one individual while he is waiting for an opportunity to employ it is in a condition to administer to the wants of others, without being put out of his own reach, when occasion presents. This yields an extra profit to him, arising from what is paid for the use of his money by others, when he could not make use of it himself; and keeps the money itself in a state of incessant activity. In the almost infinite meanderings [vicissitudes] and competitions of mercantile enterprise there never can be danger of an intermission of demand, or that the money will remain for a moment idle in the vaults of the Bank. This and the faculty of a bank to lend and circulate a greater sum than the amount of its stock in coin are to all the purposes of trade and industry an absolute increase of Capital. Purchases and undertakings in general can be carried [on] by any given sum of bank paper or credit, as effectually as by an equal sum of gold and silver. And thus by contributing to enlarge the compass mass of industrious and commercial enterprise, banks become nurseries of national wealth; a consequence not more clearly deducible in theory than satisfactorily verified by the most striking results of experience.”
128. In the margin opposite this clause H wrote and crossed out: “and are collected with greater exactness and without trouble.”
129. In the margin opposite the end of this paragraph H wrote and crossed out: “It ought not to escape without a remark.”
130. In MS, “egincenees.”
131. In the margin opposite this paragraph the words “The sum in Pensa. was equal to the Stock of the present Bank” were written in an unknown handwriting and crossed out.
132. JCC description begins Journals of the Continental Congress, 1774–1789 (Washington, 1904–1937). description ends , XX, 545–46; JCC description begins Journals of the Continental Congress, 1774–1789 (Washington, 1904–1937). description ends , XXI, 1187–90.
133. Space left blank in MS.
134. Laws of Pennsylvania description begins Laws Enacted in the Second Sitting of the Ninth General Assembly of the Commonwealth of Pennsylvania, Which commenced at Philadelphia, on the Twentieth Day of February, in the Year of our Lord, One Thousand Seven Hundred and Eighty-seven (Philadelphia, Printed by T. Bradford, n.d.). description ends , 249–53.
135. In the margin opposite this sentence H wrote “Qr.”
139. In the margin opposite this paragraph the following note, possibly in the handwriting of Robert Morris, appears: “only in the Election of directors—in regard to the power of making By laws all were equal—now they are unequal as 20 to 1—a material Variation from the Congress Charter.” On November 9, 1790, H had written to Morris requesting Morris to meet with him and possibly with Thomas FitzSimons in order to discuss plans for the bank. These comments on the draft of H’s Report may have been written by Morris at this meeting.
140. In the margin opposite this paragraph the following question, possibly in the handwriting of Robert Morris, appears: “Qu: are 12 Directors enough for the new-modified instu.”
141. In the margin opposite this paragraph the following note, written in an unidentified handwriting and then crossed out, appears: “yet it would destroy in a great degree the danger of a run.”
143. Space left blank in MS.
144. In the margin opposite this sentence H wrote and crossed out: “Qr: if not Stockholders.”
145. Space left blank in MS.
146. H placed brackets around the section of this article beginning with the words “And once in every three years.” He then wrote and crossed out the following question: “Qr. particularly from the words in order.”
147. Space left blank in MS.
148. The following fragmentary draft of the conclusion of this sentence is located in the Hamilton Papers, Library of Congress: “… and shall have a right to inspect such general accounts in the ordinary books of the bank as shall relate to the said statements provided that this shall not be construed to imply a right of inspecting the account of any private individual or individuals with the Bank.”
149. 1 Stat. description begins The Public Statutes at Large of the United States of America (Boston, 1845). description ends 138–44 (August 4, 1790); and 1 Stat. description begins The Public Statutes at Large of the United States of America (Boston, 1845). description ends 186–87 (August 12, 1790).
150. In the margin opposite this sentence H wrote: “Qr.”
151. In the margin opposite this paragraph H wrote and crossed out: “no loans to foreign powers & not more than 6 Cent Subscription by President.”