Alexander Hamilton debuts his idea for a bank of the United States.

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Hello and welcome to the political history of the United States.

Episode 5.26, the bank of the United States.

The funding plan put forward by Alexander Hamilton had opened up many of those old wounds that had existed prior to the sighting of the Constitution.

It put on display the very real sectional differences present within the country.

It reignited that battle between states rights and national rights and had begun to usher in a new era of what would become bitterly partisan fighting.

Before we can start to look at the fallout from these battles and considering everybody's next steps, we must first step back.

During our last episode, I left out a major event that had occurred during the spring.

I did this because I wanted to keep the narrative together and by the time we reached the end of the episode, it was already much longer than I liked.

So I've decided to save it until this week.

You may recall that I had mentioned during our last episode that in March, amongst the groups that had called for ending the slave trade immediately had been the Pennsylvania Society for Promoting the Abolition of Slavery, a group that was presided over by Benjamin Franklin.

I had likewise mentioned that this petition would be the final public act of the now 84 year old Franklin.

It is hard to eulogize Franklin because he was something of a singular entity.

He has been in our story since way back in episode 3.18 when we talked about his relationship towards the Great Awakening.

We have watched him be the renowned scientist, the international celebrity, the founder of a number of civic organizations, the drafter of the Albany Plan of Union, the American agent in London, the diplomat of Paris that secured America's most important alliance, a signer of both the Declaration of Independence and later the Constitution, and finally as an abolitionist.

The H.W.

Brand's biography of Franklin that I had used so much is titled the First American.

It is a title that I believe is completely fitting of a man of Franklin's importance and the image that he conveyed to the world.

With the exception of George Washington, nobody in the United States was more well known.

One of the concerns with the presidency was that nobody would ever be known well enough throughout the entire country to hold the office.

Other than Washington, the only other person that people thought had the necessary name recognition was Franklin, whom everybody at the time recognized that at 81 years old was well past the point where anybody would want him to become the President.

I will conclude here by reading a longer than normal passage, but it is the speech that James Madison delivered to Congress on April 22, as we have been informed, not only through the channel of the newspaper, but by a more direct communication of the decease of an illustrious character whose native genius has rendered distinguished service to the cause of science and of mankind in general, and whose patriotic exertions have contributed in a high degree to the independence and prosperity of this country in particular.

The occasion seems to call upon us to pay some tribute to his memory, expressive of the tender veneration that his country feels for such a distinguished merit.

I therefore move the following resolution.

The House being informed of the decease of Benjamin Franklin, a citizen whose native genius was not more an ornament to human nature than his various exertions of it, have been precious to science, to freedom, and to his country, do resolve as a mark of the veneration due to his memory, that the members wear the customary badge of mourning for one month.

While the loss of Franklin is something that would be acutely felt by all, it came at a moment fraught with tension.

Madison's address to Congress regarding Franklin came just a few days before the debate over assumption in the House, at least temporarily, came to a screeching halt.

Of course, we know that the pause was temporary and ultimately an agreement would be reached with Madison and Hamilton agreeing in effect to trade assumption for a capital along the Potomac.

This momentary respite, however, was just that, a brief interlude in a growing political divide that would soon lead to the creation of a party system that continues to define American politics to this day.

Now, to this point in our story, most of the partisan fights had been between Hamilton and Madison.

However, as we are going to see, and you may well know, the most vitriolic battles are going to come between Hamilton and Jefferson.

Yet so far, Thomas Jefferson has been notably absent from our story, at least up until the end of our last episode when he hosted that maybe, but probably not critical dinner party with Madison and Hamilton.

Part of the reason for this is that Jefferson had indeed been a bit late to the party.

Recall that Jefferson was just getting back from an extended time in France where he was the American minister.

Ideologically, Jefferson was in so many ways the polar opposite of Alexander Hamilton.

Whereas Hamilton sought to emulate the commercial and banking empire that had risen up in Great Britain, Jefferson dreamed of a republic of hard working yeoman that would be roughly based upon the Virginia upper class.

He wasn't interested in bankers or speculation or a funded debt.

What Jefferson's utopian dream revolved around was a nation made up of gentlemen farmers, which he Believed to be far less corruptible than whatever this thing that Hamilton was scheming up.

It is perhaps then not surprising that Jefferson would find himself so opposed to the British system.

Whereas Hamilton spied the British system as the best in the world, one presenting the young United States with almost unlimited growth potential, Jefferson viewed that same system as being deeply corrupt.

Even now he bristled at the British treatment of the Americans.

And to this, Jefferson does have a point.

The British were failing to comply with the treaty of Paris.

They still held forts in the west.

They were preventing u. S. Ships from entering into the west Indies.

They continued to refuse American reimbursements for the enslaved peoples American they took and freed.

What Jefferson wanted was for the United States to move forward with those discriminatory trade rates and force British acquiescence.

Eventually it would hurt them bad enough that they would cave into American demands.

This is to say nothing of the fact that Jefferson had also just spent the last several years living in Paris.

During that time, his primary focus had been to lessen the United States reliance on British trade and increasing French trade.

Now, originally, Jefferson had hoped for some broad scale free trade alliance with everybody in Europe not named great Britain.

However, as it turned out, Jefferson was just about the only person anywhere that wanted that.

So the idea fell flat with his focus now solely on France.

Jefferson's main selling point with the French was very simple.

If the French were to trade more with the United States, the United States would trade less with Great Britain, thus harming the bottom line of France's eternal enemy.

It was a win win situation.

As historians Stanley Elkins and Eric McKittrick point out.

During this time, Jefferson closely befriended a number of liberal nobles in France.

Men who were much like our old friend Lafayette.

These men who Jefferson so admired were not part of the banking or the manufacturing clique, but rather they existed, as in Jefferson's eyes, a far more trustworthy landed nobility.

Jefferson personally saw these men lead France into a revolution, because in the early days of the revolution, it was these liberal nobles who would emerge as the leadership.

He had no way to know the direction that things would go and that in a few short years these liberal nobles would be on the outside of the revolution looking in, assuming that they could even make it to the outside with their heads still firmly attached to their necks.

Jefferson's plan to expand the trade with France mostly did fall flat.

Despite this failure, however, it would prove to long influence Jefferson's own views on government.

He would remain a francophile long into the future, which meant an inevitable clash with the decidedly anglophile Hamilton.

In the short term, this means that Jefferson, unlike Hamilton, was not interested in reaching an accord with Great Britain.

What Jefferson wanted to do was to expose Great Britain and illustrate the simple fact that the British, despite what they might wish, were dependent upon American trade.

Through Madison's proposed tonnage discrimination, Jefferson fully believed that if the United States could just make trade painful enough on the British that they would be forced back to the bargaining table in a position that would require them to acquiesce to American demands.

The British, for their part, were not exactly eager to make concessions to the Americans.

Was the relationship between the two nations strained?

Yeah, it sure was.

Did the British particularly care that the relationship was strained?

Well, if they did, they didn't exactly show it.

Under the leadership of William Pitt the Younger, the British were just fine keeping the status quo when it came to their relationship with the United States.

We had talked some previously about the fact that Washington had not actually named a new minister to Great Britain after taking office.

This was in large part because the British had mostly just ignored John Adams while he was serving in that role.

Adams had, of course, tried to convince the British to live up to the terms of the Treaty of Paris.

However, Adams often seemed to lack the grace, that subtle touch that a good diplomat requires, Much as had been the case in France so many years before, Adams came off heavy handed and made few friends in London, Although it probably did not matter all that much, because even if Adams had come across as the second coming of Benjamin Franklin, the British would not have been any more eager to deal.

Washington, as we talked about during our last episode, wasn't exactly itching to send a new minister, considering how the British had treated Adams.

It was a matter of national respect.

However, understanding that there probably needed to be somebody in London advocating for the United States, he sent over Gouverneur Morris to act as a special envoy.

Not exactly an official minister, but somebody who could at least maintain an American presence.

The problem, as you may well have surmised, is that if the British were not interested in playing ball, and they most definitely were not, Morris would find just about as much success as Adams had before him.

Washington had at least hoped that the British might be more receptive to Morris than they had been to Adams, if for no other reason than the game had changed since Adams had left London, the United States had a new and seemingly more stable government.

Perhaps now they would be willing to more meaningfully work with Morris.

The British did hear Morris out.

They shook their heads positively and let him know that of course we want good relations with the United States.

That all sounds great.

And then promptly went right back to ignoring him.

There was a brief moment where it seemed like there might be a breakthrough.

This came in response to a war scare between Britain and Spain, which, although only barely involving the United States, it did at least cause the British a little bit of concern.

The threat came out of the Spanish seizure of two British ships near modern day Vancouver.

The Spanish were annoyed over the British attempt to settle in Vancouver, a territory that was actively being claimed by the Spanish.

The British response was that they had literally built up the entire settlement and they had been trading all throughout the area.

The Spanish claim was tied to the Treaty of Tordesillas, which, as I'm sure you all recall, we discussed back in episode 1.1, the very first episode of this podcast.

If you do need a brief reminder, this was the treaty that basically gave the Spanish a claim over the vast majority of the New World.

Now, although the Spanish liked to trumpet this treaty as being the law of the land, pretty much nobody else paid any attention to it.

Further fanning the flames of conflict was accusations that the British sailors that had been captured were being treated poorly by the Spanish.

Now, neither the Spanish nor the British were exactly itching for a war over the present incident, however, nor could either side just back down.

Where this would all affect.

The United States was in the British plan to deal with the crisis, although this was seemingly between the British and the Spanish.

Pittsburgh, whom, if you hear me refer to Pitt going forward, just know that I'm talking about Pitt the Younger, from this point recognized that the United States might prove to be an uncomfortable pebble in his shoe should a war with Spain come to fruition.

The concern was that the United States might decide to do something crazy and side with the Spanish in the war.

The British likewise were nervous over a military buildup taking place in the United States over fears that the Americans might be tempted to seize western forts by force.

In reality, this military buildup was Washington preparing to take action against Indian tribes in the Ohio country.

Although this was enough to get Morris a meaningful conversation with the British.

That was basically as Far as things would go, Morris himself felt pretty good about the prospect of war and assured Washington that the British were prepared to deal in exchange for American neutrality.

And that was about as far as it went.

Some empty conversations.

The crisis between the British and the Spanish was settled through a series of conventions which, although generally more beneficial to the British, allowed for open trade in the region.

It also meant that the British were able to slip right back into their position of status quo when it came to the United States, much to the chagrin of Gouverneur Morris.

Not that the British really ever considered the United States to be that much of a player in this entire affair.

Sure, they had to be cognizant of the Americans, but really they were always a secondary thought to the British.

This point was made all the more obvious by the fact that following Morris's conversation with the British, they never provided a meaningful response back to Morris and indeed mostly just ignored him.

During this time, Hamilton, with Washington's knowledge, kept his communications with Bethwick back in the United States.

However, even here, Washington was now encouraging Hamilton to proceed with caution and not treat Beckwith as a minister, as he certainly was no such thing.

Turning back to Stanley Elkins and Eric McKittrick, they postulate that Hamilton was actually working against the interests of the United States.

Here, Hamilton was crucial in assuring Beckwith that the military ramp up by Washington was to deal with an Indian problem in the Ohio Valley.

In other words, telling the British that they did not need to worry about US aggression towards them or any kind of alliance with the Spanish.

Although they do acknowledge that other historians credit Hamilton with keeping relations with the British from moving towards a more combative stance.

This entire ordeal would bring up questions for Washington of national sovereignty, questions which he would be forced to deal with more and more in the years to come.

Despite British concerns, the United States had their share of problems with the Spanish.

The entire question over the navigation rights of the Mississippi remained a problem as the Spanish continued to claim exclusive dominion over the important waterway.

In the event of war, should the United States strike a deal with the British short of an alliance, would they allow the British army to march across their territory to attack the Spanish?

Washington, turning to his cabinet for advice, quickly discovered that growing rift between Hamilton and Jefferson firsthand.

Jefferson was steadfast that it was a terrible idea to allow the British to march through the United States.

Did everybody just forget that a war between them had just ended a decade before?

And now you want to invite the British army back into the country?

Do you not recall how Hard it was to get them to leave the first time.

Hamilton, on the other hand, proved to be far more accommodating.

In his view.

He argued that denying the British access would essentially be to trigger an unwanted war with the British, and that working with their former overlords made far more sense.

This, of course, all reinforced Jefferson's feelings that Hamilton was doing everything in his power to form a dangerous alliance with Great Britain.

However, with the British and Spanish never actually coming to war, it never forced the issue further than that.

These questions did, however, serve to further drive that wedge between Jefferson and Hamilton.

The need for a national bank.

The bank was at the very core of Hamilton's plan for the future of the United States.

The plan for the bank was to provide the United States with an agency that could handle the day to day money aspects for the government.

This included everything from the collection of taxes, making payments for the country, giving loans and issuing banknotes that could be used as paper currency.

There is a whole lot to unpack when it comes to the bank of the United States.

So for the rest of today, that is what I want to work on.

During our next episode, we are going to spend more time looking at the response to the bank as we are going to see a whole lot of people who would completely lose their minds over the idea.

For Alexander Hamilton himself, he viewed the bank as being the backbone of the entire project.

It was not just that it was going to issue those notes that could act as a dependable currency for a country that seriously was lacking an actual specie, but it would also provide a critical asset in giving much needed credit to the Americans.

Hamilton fully believed that through this credit, it would allow American business and their manufacturing to expand and become far more competitive to their European rivals.

The bank that Hamilton was proposing would begin with $10 million in capital, with the United States government buying the first 5,000 shares for $2 million.

From there, it would be up to the private sector to invest the remainder.

To further shore up American finances, Hamilton only required that a quarter of each share be paid out in actual Specie, the remainder being payable with government bonds.

Since first being proposed as a method of funding, government bonds had taken a bit of a hit and were indeed trading at only around 70% of their value.

On the eve of Hamilton's speech, part of what he was hoping was that by accepting these bonds as legal tender for investments in the bank, it would increase demand and as a result, help pull the value back up.

And this is exactly what happened.

By the end of the year, the bonds were trading at 90% of their face value.

Hamilton believed that the national bank as an institution would prove to be an invaluable aid to the young government and would provide the vehicle for which growth could be meaningfully supported.

More than that, though, Hamilton believed that the bank could fill those critical roles for the government that the treasury alone could not.

At the end of the day, the government needed an institution to conduct the basic financial duties of the government.

In that sense, the bank would be tasked with those jobs of handling tax payments, holding federal funds and the distribution of money to individuals and between governmental departments.

Today, these are many of the basic functions that are handled by the Federal Reserve.

Although I do want to make clear here that although they do share some of the same functions, the Federal Reserve and the bank of the United States are not analogous to each other.

Both institutions have similar roles in processing money.

However.

For example, the Federal Reserve is far more involved in monetary policy and banking regulations than the bank of the United States would have ever envisioned as being possible.

On the other hand, the bank of the United States provided commercial loans, whereas the Federal Reserve does not operate at the level of individuals.

On the subject of the bank as an institution of credit, Hamilton had very specific views on that as well.

The bank of the United States was not looking to hand out long term mortgages to farmers looking to either establish a plantation or expand an existing one.

Rather, Hamilton's plan was that credit would only be available to the large merchant class.

This was inherent in the system because these loans were being offered for terms not to exceed 90 days, a period of time far shorter than most individuals could swing repayment.

Ironically, it was this demand for long term credit that would prove to prevent the consolidation of banks.

Something which some in the Federalist ranks were hoping for.

There were those who had hoped that the bank of the United States would end up monopolizing the American banking system and that it would end up swallowing up the state banks.

Although it is impossible to say if this could have ever happened had the bank of the United States been more open to long term lending.

What we do know is that state banks were saved in part because farmers forced their state's hands and made them create state level banks to offer such long term mortgages.

Especially among Southerners, the bank was largely distrusted.

The United States had a species shortage, something that everybody knew and indeed had known about for years.

At this point, using currency coming from the bank that was not fully backed by hard gold and silver meant that the money was essentially imaginary.

As historian Gordon Wood writes, these feelings led many to believe that the bank was there, but mainly to support large scale speculators whom most often came from the North.

Although these feelings were prevalent largely in the south, it was not wholly contained there.

John Adams complained that as the bank issued notes that were not backed in hard specie, it was surely cheating somebody.

I do want to take a brief aside here and mention that Gordon Wood, a historian that we have cited extensively here on this show, did pass away a couple weeks ago.

He is an absolute giant of American history and his loss will be acutely felt.

Getting back to our story, based on what we talked about earlier today in regards to Thomas Jefferson and his view of the United States, it is easy to understand why he would have absolutely despised the idea of the bank of the United States.

Remember that Jefferson wanted a population made up of those noble yeoman farmers, men who worked and cultivated the land.

In Jefferson's agrarian utopia, there was little space for the large British system of banking that Hamilton was now proposing.

If Jefferson was pining over his noble yeomanry leading the nation into the future, Hamilton almost completely ignored their existence and consequently their importance.

As initially presented, the plan for the bank of the United States was widely supported in Congress, with both large majorities in the House and the Senate backing the idea.

Hamilton's proposals quickly flew through the Senate, then were sent down to the House where no amendments were offered, and then by early February, it was opened up to debate.

Now I'm going to hold off on the debates over the national bank for this week because we really do need to give an entire episode over to that question.

These debates are going to help define politics in the United States for years to come, and it's going to remain a hotly partisan issue well into the first several decades of the 19th century.

Perhaps most interesting out of this entire ordeal is that in the coming weeks we are going to see a serious recalibration by James Madison.

Remember that Madison, when we were talking about the drafting of the Virginia plan was a big proponent of an energetic national government.

Hamilton's planned bank was designed to be just that.

What he wanted to do was tie the wealth of the nation directly to the government of the nation.

He fully believed that if these two things could be intermingled, it would give the government the ability to act in the economic self interest of the country.

The exact kind of thing that an energetic and involved government should be able to do.

During their time writing the Federalist Papers, Madison and Hamilton were aligned on the issue.

However, now Madison had drifted away from the Hamiltonian camp, fearing the power and extent of the influence that the national government was attempting to obtain.

The bank legislation would again see the economic question merge the question of foreign relations.

It was abundantly clear to anybody who looked at it that the bank was modeled after the British bank.

Yet another sign that Hamilton was designing to recreate British society within the United States, just years after the United States had spent so much blood and energy evicting the British.

If Madison had just a few years earlier favored an energetic national government, he now feared a national government that was becoming dangerously concentrated in the hands of a few wealthy big city northern creditors.

Part of the issue here is that large cities were still a rare thing overall in the United states.

And only one of those, Charleston, was in the south compared to London, which was approaching a population of 1 million by this point, or Paris, which had over 500,000 people.

Even the biggest American cities were paltry in comparison.

Still, though, the wealthy creditors tended to live in these cities which were largely concentrated in the north.

Thus Madison's argument that the bank would benefit the northern states far more than the South.

Madison would end up arguing at one point that the country would be better served by a diverse collection of smaller state level banks.

He pointed out that a national bank favored a monarchical system because it encouraged the concentration of wealth and influence at the metropolis level.

Although this would not prove to be Madison's main argument, I think it clearly touches on the true fear of men like James Madison and Thomas Jefferson.

Hamilton of course, was not wholly unaware of the optics of his bank.

He did go out of his way to avoid comparisons to the British system of banking, despite clearly drawing on them as an example.

As historians Stanley Elkins and Eric McKittrick write in their book the Age of Federalism, Hamilton was drawing very heavily from William Pitt.

Following the war with the United States, the British found themselves deeply in debt.

It at so deep that some believed that the nation was on the brink of bankruptcy.

Pitt, serving as the prime minister, managed to finance the public debt via economic reforms that would, within a decade, completely remake the British economy in a way that was far stronger than it was before the war.

So many of these elements, from Pitt's focus on customs to his use of a sinking fund to pay down debt, would appear in Hamilton's own efforts in his role as the Secretary of the Treasury.

Although Hamilton avoided outright crediting Pitt with his plan to reform the American economy, it was pretty on the nose.

Would a rural farmer in Virginia know that Hamilton was designing to recreate the British banking system in the United States?

Probably not.

At least without being explicitly told, would men like Madison and Jefferson pick up on the fact that you had better believe it.

And once they were aware of that fact, they were more than happy to shout it from the rooftops to ensure that the rural Virginia farmer did, in fact, know of the distressing direction that things were moving in.

Next time.

Despite its apparent popularity in both the House and the Senate, Madison and Jefferson had no plans to let the bank through without a battle.

This battle would expose all of those problems that had plagued the country for years, from sectionalism to questions of foreign affairs, and finally to the question of urban versus rural.

Until then, I hope you all have a wonderful two weeks.

I hope that you are staying healthy and that you are staying safe, and I will see you back here next time.

As we turn to the battle over the bank of the United States States.