8. BANKING IN THE UNITED STATES. Prior to the adoption of the Con stitution in 1787 there was but little banking done, because one of the chief elements of that business—a sound and stable monetary system — was lacking, the Continental currency having depreciated to the point of practical worth lessness. With the enactment of the law of 2 April 1792, establishing a mint and regulating the coins of the United States, a new situation was created. The Constitution itself prohibited the States from coining money, emitting bills of credit and from making anything but gold and silver coin a tender in payment of debts. Upon Congress was conferred, by the same in strument, sole authority to coin money and to regulate the value thereof.
Early Banking in the United States.— The first banks in the United States owed their origin to Robert Morris and Alexander Hamilton. As early as 1763 Morris had con ceived the plan for establishing a bank to as sist in developing American trade, and in 1779 Hamilton had proposed the organization of "The Company of the Bank of the United States) Before their plans were put into execution, however, a bank was organized, con ceived in a patriotic spirit, but destined to be short-lived.
In 1780, moved by the distressing situation in which Washington's army was then placed, Thomas Paine, who was a clerk in the assem bly of Pennsylvania, wrote to Mr. Blair Mc Clenachan, suggesting a subscription to support the army with necessaries, and enclosed $500. At a meeting in Philadelphia on 7 June 1780 subscriptions amounting to i400 in specie and i103,360 in Continental money were raised. On 17 June another meeting was held, and it was resolved to increase the subscription to #300,000 Pennsylvania currency, and the full amount was soon subscribed by 92 persons, Robert Morris and Blair McClenachan each subscribing f10,000. This association was called the Pennsylvania Bank. In the preamble to the resolutions of Congress accepting this patriotic offer of assistance it was recited that the subscribers had ((established a bank for the sole purpose of obtaining and transporting the said supplies with the greater facility and des patch. And, whereas, on the one hand, the associators, animated to this laudable exertion by a desire to relieve the public necessities, mean not to derive from it the least pecuniary etc.
The directors were authorized to borrow money on the credit of the bank and to issue notes bearing 6 per cent interest. All the money borrowed or received from Congress was to be used for purchasing supplies for the Continental army and otherwise aiding the patriots. Congress, it was expected, would reimburse the bank for these expenditures. The bank commenced business 17 July 1780 and continued open for about a year and a half. Its affairs were finally wound up in the latter part of 1784. This bank was of great assist ance in procuring supplies for the army that could not have been procured otherwise with out the greatest difficulty. It furnished the army 3,000,000 rations and 300 barrels of rum.
The first bank, as we have seen, had its origin in patriotic impulses, and its establish ment appears to have been due to the sugges tion of Thomas Paine.
This institution was not a modern commer cial bank, however, and it was reserved for Morris and Hamilton to become the founders of the bank whose career was to be perpetuated and that was to live in the history of the coun try as the first regularly incorporated commer cial bank. Like its predecessor, it was estab lished to' aid the cause of American independ ence. Years after its president, writing to the Comptroller of the Currency, referred to this fact by saying: ((This bank was created avow edly to aid the United States?' Early in 1780 Hamilton wrote to Morris strongly urging the establishment of a national bank as one of the steps necessary to put the country on a sound financial footing and to aid in carrying on the war. Hamilton was then
but 23 years old, but his views revealed the possession of unusual financial talents which were to win him distinction in later years. His purpose in forming the bank was to unite the moneyed classes in the support of the govern ment credit. The bank was to be a great trad ing and banking corporation in private hands, but backed and partly controlled by the gov ernment. Hamilton's suggestions were re newed in later letters to James Duane, a mem ber of Congress from New York, and to Isaac Sears of New York. To the latter Hamihon wrote: "We must have a bank on the true principles of a bank." In the spring of 1781 he again wrote to Robert Morris renewing his suggestions for a national bank. Morris was then Superintendent of Finance, having been elected to that position 20 Feb. 1781. Hamilton favored a bank with a capital of not less than $3,000,000. Morris, while coinciding with his views in the main, thought a more modestly capitalized institution would better meet the requirements of the times. He accordingly drew up a plan whith he presented to Con gress on 17 May 1781. It provided for the establishment of the Bank of North America, for which a subscription of $400,000 was to be raised, payable in gold or silver. Its bank notes, payable on demand, were to be receivable for duties and taxes in every State. The plan having been approved by Congress, the Super intendent of Finance published it on 28 May, accompanied by an address, in which he said: "A depreciating paper currency has unhap pily been the sonrce of infinite private mischief, numberless frauds and the greatest distress. The national calamities have moved with an equal pace, and the public credit has received the deepest injury. The exigencies of the United States require an anticipation of our revenue; while at the same time, there is not such confidence established as will call out, for that purpose, the funds of individual citizens. The use, then, of a bank, is to aid the Gov ernment by- their moneys and credit, for which they will have every proper reward and secu rity, to gain from individuals that credit which property, abilities and integrity never failed to command, to supply the last of that paper money which, becoining more and more useless, calls every day more loudly for its final re demption, and to give a new spring to com merce, in the moment when, on the removal of all its restrictions, the citizens of America shall enjoy and possess that freedom for which they contend." The facts above referred to in regard to the depreciation of the paper currency are sub stantiated from the following extracts from a newspaper of that period: "The Congress is finally bankrupt. Last night a large body of the inhabitants, with paper dollars in their hats, by way of cocicades, paraded the streets of Philadelphia, carrying colors flying, with a dog tarred, and instead of the usual appendage and ornaments of feath ers, his back was covered with the Congress paper dollars. This eicample was directly fol lowed by the jailer, who refused accepting the bills in purchase of a glass of rum, and after wards by the traders of the city, who shut up their shops, declining to sell any more goods but for gold and silver." The purchasing power of government paper was at an end, and Congress turned to a bank, organized on a specie basis, for relief from the evils of a depreciated currency.