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The '''The First Bank of the United States''' ("BUS") was the nation's most important business and financial institution during its twenty-year lifetime, 1791-1811. It was a central bank that gave the nation a a solid, conservative financial system.  The BUS was supported by the business community, especially merchants and financiers, but opposed by the agrarian Jeffersonians in the [[Democratic-Republican Party]]. The Jeffersonians refused to renew its charter in 1811 and the bank was closed.

The '''The First Bank of the United States''' ("BUS") was the nation's most important business and financial institution during its twenty-year lifetime, 1791-1811. It was a central bank that gave the nation a a solid, conservative financial system.  The BUS was supported by the business community, especially merchants and financiers, but opposed by the agrarian Jeffersonians in the [[Democratic-Republican Party]]. The Jeffersonians refused to renew its charter in 1811 and the bank was closed.

==Origins==

==Origins==

After a bitter fight in Congress between Treasury Secretary [[Alexander Hamilton]] and a coalition led by [[Thomas Jefferson]] the bank supporters won over President [[George Washington]] and chartered the BUS for 20 years on Feb. 25, 1791. The BUS was always a privately owned and operated corporation, but it worked closely with the Treasury department. Its opponents feared it would be a patronage machine and would be an engine of political corruption. The opponents generally feared cities, factories and money managers ("speculators") and instead said that true virtue could only be found among landowning "yeomen" farmers.

After a bitter fight in Congress between Treasury Secretary [[Alexander Hamilton]] and a coalition led by [[Thomas Jefferson]] the bank supporters won over President [[George Washington]] and chartered the BUS for 20 years on Feb. 25, 1791.  

 

The BUS, headquartered in Philadelphia, was always a privately owned and operated corporation, but it worked closely with the Treasury department. Its opponents feared it would be a patronage machine and would be an engine of political corruption. The opponents generally feared cities, factories and money managers ("speculators") and instead said that true virtue could only be found among landowning "yeomen" farmers.

The BUS was modeled after the older and larger [[Bank of England]] in London. The role of the BUS was to handle routine government transactions, like tariff payments, taxes, and spending, as well as private business. There were only a dozen or so private banks in the U.S. (all in major cities) and the BUS, was the only one with branches.  A major role was to be a stabilizing and regulatory influence upon the circulation of banknotes issued by private banks, which made the BUS a central bank something like the later Federal Reserve System. In addition to providing some central banking  functions, the first Bank of the United States was to provide business with  capital for growth and for every other type of commercial banking service.  

The BUS was modeled after the older and larger [[Bank of England]] in London. The role of the BUS was to handle routine government transactions, like tariff payments, taxes, and spending, as well as private business. There were only a dozen or so private banks in the U.S. (all in major cities) and the BUS, was the only one with branches.  A major role was to be a stabilizing and regulatory influence upon the circulation of banknotes issued by private banks, which made the BUS a central bank something like the later Federal Reserve System. In addition to providing some central banking  functions, the first Bank of the United States was to provide business with  capital for growth and for every other type of commercial banking service.  

The Jeffersonian cries of corruption hurt the BUS; some people denounced it a device that clever financiers used to take away the hard-earned money of farmers and workers.  Strict constructionists of the Constitution opposed it as a dangerous and  unconstitutional extension of the power of the federal government.  

The Jeffersonian cries of corruption hurt the BUS; some people denounced it a device that clever financiers used to take away the hard-earned money of farmers and workers.  Strict constructionists of the Constitution opposed it as a dangerous and  unconstitutional extension of the power of the federal government.  

==Closing==

==Closing==

The bank's charter came up for renewal in 1811 when the [[Federalist Party]] was in low repute and Britain was hated and under economic attack through the [[Embargo of 1807]] and similar laws. Everyone knew the bank controlled by Federalists and much of its stock was by 1811  held in Britain and Europe, further damaging its credibility among Jeffersonians. In January and February 1811, by close votes in Congress its charter was not renewed and the BUS was forced to wind up its business affairs.  

The bank's charter came up for renewal in 1811 when the [[Federalist Party]] was in low repute and Britain was hated and under economic attack through the [[Embargo of 1807]] and similar laws. Everyone knew the bank controlled by Federalists and much of its stock was by 1811  held in Britain and Europe, further damaging its credibility among Jeffersonians. In January and February 1811, by close votes in Congress its charter was not renewed and the BUS was forced to wind up its business affairs.<ref> Its records were destroyed by fire at the Treasury department in 1833 and little has been written on the First BUS.</ref>

The  mistake became clear as the [[War of 1812]] began and the Treasury had to finance an expensive war t without the help the BUS had always provided.  The number of new private banks increased from 88 in 1811 to  246 in 1816, and the number of banknotes in circulation during these same years soared from $28 million to $68 million. With no central bank to regulate the volume of banknotes, prices soared. Many new banks had  too little specie (gold and silver) reserves to support their level of business. Rumors of trouble frightened holders of banknotes into simultaneous demands for specie--that is, a run on the bank. All banks, with the exception of those in New England, ceased to pay out specie during the panicky month of August 1814, when the British raided and burned Washington and threatened to do the same to Baltimore and perhaps other cities.<ref>The British were repulsed at Baltimore, then turned their attention to New Orleans.</ref>. Lack of confidence in banknotes caused people to accept them at a 5%, 10% or higher discount.  That is, people treated a $10 bank note as worth only $8 in gold. After years of financial disorganization and monetary chaos, President James Madison reversed course and Congress approved in April 1816, a [[Second Bank of the United States]], with a charter of 20 years. It had an even stormier history.

The  mistake became clear as the [[War of 1812]] began and the Treasury had to finance an expensive war t without the help the BUS had always provided.  The number of new private banks increased from 88 in 1811 to  246 in 1816, and the number of banknotes in circulation during these same years soared from $28 million to $68 million. With no central bank to regulate the volume of banknotes, prices soared. Many new banks had  too little specie (gold and silver) reserves to support their level of business. Rumors of trouble frightened holders of banknotes into simultaneous demands for specie--that is, a run on the bank. All banks, with the exception of those in New England, ceased to pay out specie during the panicky month of August 1814, when the British raided and burned Washington and threatened to do the same to Baltimore and perhaps other cities.<ref>The British were repulsed at Baltimore, then turned their attention to New Orleans.</ref>. Lack of confidence in banknotes caused people to accept them at a 5%, 10% or higher discount.  That is, people treated a $10 bank note as worth only $8 in gold. After years of financial disorganization and monetary chaos, President James Madison reversed course and Congress approved in April 1816, a [[Second Bank of the United States]], with a charter of 20 years. It had an even stormier history.

==Bibliography==

==Bibliography==

* Myers, Margaret G. ''A Financial History of the United States,'' (1970) [http://www.questia.com/read/99507536?title=A%20Financial%20History%20of%20the%20United%20States online edition]  

* Myers, Margaret G. ''A Financial History of the United States,'' (1970) [http://www.questia.com/read/99507536?title=A%20Financial%20History%20of%20the%20United%20States online edition]  

* Nettels, Curtis. ''The Emergence of a National Economy, 1775-1815'' (1962)

* Nettels, Curtis. ''The Emergence of a National Economy, 1775-1815'' (1962)

* Walters, Raymond. ''Albert Gallatin: Jeffersonian Financier and Diplomat,'' (1957) [http://www.questia.com/read/8550269?title=Albert%20Gallatin%3a%20Jeffersonian%20Financier%20and%20Diplomat online edition]

* Walters, Raymond. ''Albert Gallatin: Jeffersonian Financier and Diplomat,'' (1957) [http://www.questia.com/read/8550269?title=Albert%20Gallatin%3a%20Jeffersonian%20Financier%20and%20Diplomat online edition]

[[Category:United States History]]

[[Category:United States History]]

[[Category:Finance]]

[[Category:Finance]]