The First National Bank Hamilton’s Shaping of the American Financial and Economic System and America’s Response

What’s a ? What is the purpose of a bank? Why do we have them? How many of you have bank accounts of some sort (checking or savings)? What is the purpose of a bank? Why do we have them? How many of you have bank accounts of some sort (checking or savings)?

Financial Programs James Madison’s Plan: The Tariff of 1789 James Madison’s Plan: The Tariff of 1789 Raise money by taxing imports Raise money by taxing imports Tonnage  tax based on how much cargo a ship carried Tonnage  tax based on how much cargo a ship carried Foreign nations increased the prices of their goods to compensate for the new tariff and tonnage tax Foreign nations increased the prices of their goods to compensate for the new tariff and tonnage tax Southerners would also pay tonnage for the cotton and tobacco they sent to Europe Southerners would also pay tonnage for the cotton and tobacco they sent to Europe Southern states felt government was biased against them Southern states felt government was biased against them

Financial Programs Alexander Hamilton Alexander Hamilton The Report on Public Credit (1790) The Report on Public Credit (1790) Hamilton believed the Federal Government should assume the debt of all states Hamilton believed the Federal Government should assume the debt of all states States owed $40 million to its citizens States owed $40 million to its citizens States owed nearly $12 million to foreign countries States owed nearly $12 million to foreign countries South again upset since most southern states had already paid off their debts South again upset since most southern states had already paid off their debts Hamilton believed the Federal Government should borrow money to pay off the original $62 million debt Hamilton believed the Federal Government should borrow money to pay off the original $62 million debt

Financial Programs How does a government borrow money? How does a government borrow money? Bonds  paper notes promising to repay money after a set period of time with interest Bonds  paper notes promising to repay money after a set period of time with interest Who buys bonds? Who buys bonds? Wealthy merchants and speculators Wealthy merchants and speculators Who would oppose this? Who would oppose this? Veterans, farmers, anti-federalists, southerners Veterans, farmers, anti-federalists, southerners

Financial Programs The House rejected Hamilton’s plan, while the Senate adopted it The House rejected Hamilton’s plan, while the Senate adopted it The Compromise The Compromise Hamilton and Jefferson have dinner Hamilton and Jefferson have dinner Jefferson assured Hamilton his assumption bill would be adopted by both houses if the national capital was moved from New York to a plot of land on the Potomac River, which becomes the District of Columbia Jefferson assured Hamilton his assumption bill would be adopted by both houses if the national capital was moved from New York to a plot of land on the Potomac River, which becomes the District of Columbia

The First National Bank Hamilton had the idea to create a national bank Hamilton had the idea to create a national bank It could manage the government’s debts It could manage the government’s debts Pay out interest Pay out interest Lend money to the government Lend money to the government Provide a national currency Provide a national currency Give the U.S. economy credibility in the world market Give the U.S. economy credibility in the world market

The First National Bank Opposition Opposition Constitution does not delegate the power to create a bank to the federal government Constitution does not delegate the power to create a bank to the federal government In fact such an enumerated power was rejected during the Constitutional Convention In fact such an enumerated power was rejected during the Constitutional Convention 80% of the bank would be funded by private investors (only 20% by the government). 80% of the bank would be funded by private investors (only 20% by the government).

The First National Bank Hamilton responded that the elastic clause (Article I, Section 8 of the Constitution) gave the federal government the power “to make all laws which shall be necessary and proper.” Hamilton responded that the elastic clause (Article I, Section 8 of the Constitution) gave the federal government the power “to make all laws which shall be necessary and proper.” Jefferson claimed the elastic clause was meant for absolute necessities and the bank did not fall under the clause. Jefferson claimed the elastic clause was meant for absolute necessities and the bank did not fall under the clause.

The First National Bank Washington’s Decision Washington’s Decision Washington has to decide whether or not to veto the legislation creating the national bank Washington has to decide whether or not to veto the legislation creating the national bank His cabinet says it is unconstitutional, but… His cabinet says it is unconstitutional, but… Hamilton’s Defense of the Constitutionality of the Bank convinces Washington to sign the bill into law Hamilton’s Defense of the Constitutionality of the Bank convinces Washington to sign the bill into law Jefferson resigns as secretary of state Jefferson resigns as secretary of state Hamilton and Jefferson become political rivals Hamilton and Jefferson become political rivals Leads to the development of political parties Leads to the development of political parties

The Whiskey Rebellion In the 1794 the average American drank 5 gallons of whiskey per year In the 1794 the average American drank 5 gallons of whiskey per year Hamilton proposes an excise tax on whiskey to raise additional revenue Hamilton proposes an excise tax on whiskey to raise additional revenue Riots break out in PA, VA, & MD Riots break out in PA, VA, & MD Attack tax collectors, federal marshals, and plan to burn Pittsburgh to the ground Attack tax collectors, federal marshals, and plan to burn Pittsburgh to the ground

The Whiskey Rebellion Washington sends 13,000 militia to put down the rebellion Washington sends 13,000 militia to put down the rebellion Did not want another Shay’s Rebellion Did not want another Shay’s Rebellion Washington often led the troops as they marched to Pennsylvania Washington often led the troops as they marched to Pennsylvania Riots cease Riots cease Two non-prominent leaders of the rebellion were arrested, convicted of treason, but later pardoned by Washington Two non-prominent leaders of the rebellion were arrested, convicted of treason, but later pardoned by Washington Why would Washington do that? Why would Washington do that?

The Whiskey Rebellion Importance of the Whiskey Rebellion Importance of the Whiskey Rebellion Federal government would not allow violent resistance to its laws Federal government would not allow violent resistance to its laws Citizens would have to protest peacefully to change laws Citizens would have to protest peacefully to change laws The federal government would enforce federal laws The federal government would enforce federal laws

Homework Read the mock article “To Bank, or Not to Bank?” Then write a letter to the editor of the New York Post explaining whether or not you support the creation of a national bank. Your explanation should included whether or not you believe the creation of such a bank is constitutional or unconstitutional. Use arguments from the article and class. Letter should be roughly 1 page written or 2/3 page typed. Read the mock article “To Bank, or Not to Bank?” Then write a letter to the editor of the New York Post explaining whether or not you support the creation of a national bank. Your explanation should included whether or not you believe the creation of such a bank is constitutional or unconstitutional. Use arguments from the article and class. Letter should be roughly 1 page written or 2/3 page typed.