The 2008 financial crisis rekindled America’s interest in the 1929 bank failures, but it could also revive interest in the debates that accompanied the founding of the American bank system in 1791. At that time New York Physican David Hosack warned that eventually banks would own individual Americans.
It was an unusual position for a friend and personal physician of Alexander Hamilton, the father of the American banking system. In the Public Broadcasting System’s (PBS) classic "American Experience" television series, Hosack is shown saying:
"The evil of a bank is not at first obvious. It is one of those sly and subtle movements that marches slowly to its goal. One morning, Americans will wake to find not that they own the bank, but that the bank owns them."
In 2008, many heavily-mortaged home owners may have been able to relate to Hosack’s prediction.
PBS American Experience
The establishment of the American bank system was one of the major political issues of the late 18th Century and is well chronicled in the PBS American Experience series. It depicts how Hamilton and his Federalist colleagues, most from the northeastern states, fought Thomas Jefferson and his Southern Republican party over the constitutionality, morality and justification of a national bank.
The Federalists wanted a national bank system to strengthen the federal government and to support their blossoming manufacturing industry in the Northeast. Hamilton and Jefferson philosophies were not only separated by geography but also by their thoughts on how people should make a living.
"A nation of mere farmers lacks a spirit of enterprise," Hamilton said. "A nation of manufacturers and merchants gives energy to a people. The most intelligent minds are wasted if they are confined to menial pursuits."
"The Destruction of Morality"
Jefferson said Hamilton’s promotion of bank stocks and government bonds "has caused our citizens to withdraw from useful industry and busy themselves with gambling in the destruction of morality"
In The American Experience, Historian Carol Berkin says Hamilton argued that individual Americans did not have sufficient money "to engage in risky entrepreneurial activities" and needed "some way to collect a lot of money in one place and make it available to entrepreneurs." That "some way" was a national banking system.
Jefferson’s Southern colleagues in the Republican party argued that the constitution did not specifically authorize a national bank and therefore the federal government had no right to create one. The fact that Hamilton was trying to copy the British banking system made it even more repugnant to Jefferson and his Southern colleagues.
General Henry "Light Horse Harry" Lee
"I would no more be caught going into a bank, then entering a house of prostitution," said Major General Henry "Light Horse Harry" Lee, who was later to become governor of Virginia. Ironically, Lee went bankrupt in 1810 and had to sell his belongings to avoid debtor's prison.
Despite the Republican opposition Congress approved Hamilton’s proposal for a national bank. President George Washington signed it into law after Hamilton presented him a 15,000-word argument for it. The new bank helped the nation grow and prosper during Washington’s presidency. And it eventually won Hamilton a picture on the U.S. $10 bill.
The bank law expired in 1811 and Congress refused to revive it until 1816. Congress tried to extend its charter in 1832, but President Andrew Jackson vetoed the bill. The current national banking system was not established until 1914.
References: PBS "American Experience" series website
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