Notes on the Advantages of a National Bank3
[Philadelphia, March 27, 1791]
The Report to the House of representatives proposing the plan of a Bank,4 enters fully into the advantages attending institutions of this nature. They are summarily these.
1. They tend to increase the active or productive capital of a country by keeping it in more constant employment and by adding to the real, an artificial capital in the credit of the Bank which answers equally with specie the purpose of money.
2. They increase and quicken circulation from the foregoing cause from the introduction of Bank notes as money, from the greater facility of remittances in notes than in money, from their obviateing the necessity in a great number of cases of transporting specie backwards and forwards, from their rendering it unnecessary to lock up specie for the periodical payments of interest &c. whence a greater plenty of specie is left in circulation and an additional medium is furnished. And thence
3. They assist industry and Trade. This they also do by facilitating loans to individuals within the spheres of their immediate operation. Accordingly whereever they have been established they have given a new spring to Agriculture, Manufactures & Commerce. This has been most remarkably exemplified of late years in Scotland & Ireland; and has been confirmed by the experience of the United States.
4. They facilitate the payment of taxes by keeping the circulation more full and active every where, and by direct loans to the Merchants to pay their duties.
5. They aid the Government in ordinary, by facilitating the Collection of taxes; by rendering remittances to and from the Treasury more easy, safe, and free from expence, and lastly, in extraordinary cases by being an instrument of loans in sudden emergencies. The drawing a large capital to a point, and the vast credit annexed to it enable Banks to come at once to the aid of the Government in a manner that no individual resources are equal to. This was felt during the latter periods of the late war in the most important operations; and even at this moment it is the only resort for whatever pecuniary aids may be found necessary for carrying into execution the measures taken for the defence of the frontier.
But it is said admitting the utility of Banks in general, why establish a new one, since there are such institutions already in being? The answers to this are,
1. That all these institutions now rest on state foundations and may cease to exist if the State Legislatures shou’d not be inclined to continue. That of Pennsylvania has virtually surrendered its old charter5 by accepting a new one incompatible with it. It is therefore neither compatible with the dignity nor interest of the United States to suffer so important an engine of its administration to depend on so precarious a tenure & one so foreign from itself.
2. By being mere local institutions they cannot serve as engines of a general circulation. For this they have neither sufficient capital nor have they enough of the confidence of all parts of the Union. As local institutions they are rather objects of jealousy.
3. They would be improper foundations on which to rest the security of the Public revenue by suffering their paper to be receivable in all payments to the public.
1. Because they have not adequate capital.
2. Because their continuance or discontinuance does not depend on the will of the U. States.
3. Because the Government of the Union can have no inspection of their proceedings, consequently no security for their prudent administration of their affairs.
4. They are too limitted in their capital to afford such extensive aid to the United States as they may require in future emergencies. They may answer well enough for an Indian War; but in a War with an European power they could do nothing adequate to the public necessities.
5. Their constitutions have not those precautions which are calculated to guard against the abuses to which such institutions are subject. They are therefore in this light also insecure reliances for national circulation.
But admitting a National Bank ought to be instituted, the Duration is said to be too long, and contrary to precedent; too long because the affairs of this country from its peculiar situation must change so rapidly as to render it questionable, whether a good thing now will continue to be a good thing for twenty Years. With regard to precedent it is presumed that the matter is mistaken. The Banks of Venice, Genoa, Hamburgh & Amsterdam are understood to be indefinite in point of duration. The Bank of England indeed has been limitted to different periods under different circumstances: the assertion that it was in its first creation limited to 11 years is not founded. It was incorporated for an indefinite period; but there was a right reserved to the Government at the end of eleven Years to pay off the Debt which constituted its Capital and thereby to dissolve the corporation. But it could not be dissolved nor was it to cease in any other way.
With regard to the argument drawn from the changing situation of the Country, the answer is, that Banks are not novel institutions. They have been long tried, and in different Countries. They had eleven6 years experience in their favour in this Country: their effects therefore can now be perfectly judged of and pronounced upon with certainty. They are necessary in Countries little advanced in wealth; they have been found very useful in Countries greatly advanced in wealth.
In a Country like this, which having vast tracts of vacant land and few manufactures, can have no great abundance of specie; the auxiliary circulation of Banks must be peculiarly useful. Though the Country may advance in manufactures & in wealth considerably in the course of twenty years, yet very obvious causes must leave it, during all that period, in a condition to stand in need of the same auxiliary. Besides as has been remarked, Banks are at this day found useful in the wealthiest Countries—Holland, England, France.
If the nature of the institution is attended to, it must be perceived that its relations to the future are as easy to be comprehended and pronounced upon, as its relations to the present. Its operation must be always of the same tendency, and there is no more difficulty in pronouncing that it will be good for twenty Years to come, as easily as that it is good at the present moment.
How far one place or another may be the proper seat of it, may be a thing variable by time: but the time which can vary this must evidently be more than twenty years. It is manifest that a large commercial City with a great deal of capital and business must be the fittest seat of the Bank. It is morally certain that for twenty years to come Philadelphia will continue to have as good pretensions as any of the principal trading Cities now established. And with regard to the future seat of the Government, it is morrally impossible that it can become in less than twenty years a place of sufficient trade and capital to be the principal scene of the operations of the National Bank. Governments must always act upon reasonable probabilities and in doing so, they can hardly fail to do right.
The motives to a considerable duration to the Charter of the Bank were these—to strengthen the inducement to men of property throughout the United States to embark in it, and to enhance the value of the public stock by a prospect of greater advantage.
This last idea is of great moment. All those acquainted with the operation of the thing will admit that the institution in question has been a main cause of the rise of the public Debt. It operated upon it like a charm. Now it is evident that its effect in this way must have been greater or less in proportion to the prospect of advantage which a long or short duration afforded.
The raising of the public Debt is a circumstance of immense importance in the affairs of the Country. It is tantamount to the establishment of public credit. No man can be in credit whose Bonds are selling for one third or one half their value: the same thing in respect to a Government. Besides, while the Debt is low, foreigners become possessed of the property of the Citizens of this Country greatly below its true value. And every shilling which they pay less for the Debt than its true value is so much loss to the Country. The distress to this Country would have been prodigious in time to come if it had had to pay millions to foreigners for which they had given little or no value. And the existence of a public Debt would have been truly a curse.
As far as this essential object might have been made to give way to the speculative possibility of a better arrangement of the Bank in reference to future changes in the situation of the Country, it would have been to sacrifice substance to shadow, reality to supposition.
Objection. The advantages of the Bank will not be equal in all the States.
This is hardly even an objection to a measure of Government, because there is scarcely one to which it may not be objected. Is there a law for the advancement of Navigation? It will benefit most those states which have most aptitudes for Navigation. Is there a Law for the encouragement of manufactures? The same thing may be observed—Is there one for the encouragement of particular objects of Agriculture? The same observation applies. What is the duty upon foreign Cotton? As far as its operation may correspond with its intention it will be a direct bounty upon the Industry of a few of the States. For there are only particular states adapted to the raising of Cotton.
In short such is the state of human affairs that public measures unavoidably benefit or injure some part more than others. Consequently, that must be a good public measure which benefits all the parts of a Country, though some more than others. If all gain, the general mass of public prosperity is promoted, though some gain more than others.
It is certain the operations of the proposed Bank will be most directly useful to the spot upon which they are carried on; but by aiding general circulation, and establishing a convenient medium of remittance & exchange between the States, all will be benefitted in different degrees.
If branches are established the immediate benefit will be diffused still more extensively.
Objection. It will interfere with the several State Banks. This cannot happen, unless branches are established in the same States. If this is done no inconvenience to the community can accrue. Either the State Bank and the branch of the National Bank can go on together, and then Trade, & Industry will be promoted by larger supplies, or the one will subvert the other. If the state Bank subverts the branch the injury is at least temporary. If the Branch subverts the State Bank, it furnishes to the commerce & industry of the place a better substitute; one which, to all the common advantages, will add this peculiar one, the affording a medium of circulation which is useful in all the States and not merely on the spot, and can of course be employed in the intercourse with other States.
But in fact all this is exaggerated supposition. It is not probable, except at the immediate seat of the Bank, where the competition will be compensated by obvious advantages, that there will be any interference. It can never be the interest of the National Bank to quarrel with the local institutions. The local Institutions will in all likelihood either be adopted by the national Bank or establishments where they exist will be foreborne.
Lastly an attentive consideration of the tendency of an institution, immediately connected with the national Government which will interweave itself into the monied interest of every State, which will by its notes insinuate itself into every branch of industry and will affect the interests of all classes of the community; ought to produce strong prepossessions in its favor in all who consider the firm establishment of the National Government as necessary to the safety & happiness of the Country, and who at the same time believe that it stands in need of additional props.
3. LC, George Washington Papers, Library of Congress.
5. The charter of 1787.
6. In MS “even.” Presumably this is a reference to the fact that the Bank of North America had been established in 1781.