I was impressed with the ideas of Alexander Hamilton, so Seeking a well constituted Banking system I decided to see what Hamilton thought of the subject. I've been wading through his volumous writings as published on the internet and I stumbled on his first attempt at creating a bank. As usual I found his analysis interesting and worth analyzing. It turns out his proposal for a bank when he was Washington's Treasury Secretary wasn't the first time he'd proposed one.
Hamilton's 1781 Bank proposal
His first attempt to create a National Bank was sent to Robert Morris in 1781 as a proposal to Congress aimed at funding the Revolutionary war. At the time the country was in severe arrears. It was living on printed notes that were also being counterfeited by the Brits and so were heavily inflated and nearly worthless.
The following is part of his proposal at that time. For the full account you can read it at http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3.
"The plan I propose requires a stock of three millions of pounds, lawful money; but if one half the sum could be obtained, I should entertain no doubt of its full success. It now remains to submit my plan, which I rather offer as an outline, than as a finished plan. It contains, however, the general principles. To each article I shall affix an explanatory remark." [Page 367 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
It's those general principles I want to focus on. Because they were the seeds of why the country needed a National Bank and also were seeds for why a National Bank would be a contentious tool. He was certain that, as an institution, a National bank would easily succeed. By "lawful money" he seems to have meant Gold, Silver, foreign coin, and he would have included Treasury Coinage had we had a viable treasury under the articles of Confederation. He wanted the initial Public Offering to be in terms of bank shares:
"Art. I. A bank to be erected with a stock of three millions of pounds, lawful money, at the rate of six shillings to a dollar, divided into thirty thousand shares. This stock to be exempted from all public taxes and impositions whatsoever." [Page 368 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
Exempting the bank from taxes would benefit the country by enabling it to focus on it's borrowing, lending and funding mission. As an agent of the (Future) Federal Government that would make sense. It also made sense from his Point of View as a member of the Landed Gentry and a friend and ally of powerful families and interests.
"Remark 1. By the second Article, a part of the stock is to be in landed security; by this, the whole is to be exempted from taxes. Here will be a considerable saving to the proprietor, which is to be estimated among the clear profits of the bank. This will indeed be a small reduction of the public revenue; but the loss will be of little consequence, compared with the advantages to be derived from the bank." [Page 368 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
It might be "objectively" a small loss of revenue. It might be objectively, in the short run at least, for the "general welfare" to make the bank non-taxable. But in practice it would this effort to exempt a National Bank from local control and taxation that would be among the reasons leading to the banks being contentious to States and Counties outside of the control of the "Eastern Elites" as they would come to be called. Legally the issue would be settled in "McCulloch verus Maryland", but that legal case only moved the battle to the legislature. And Each of the National Banks created under Hamilton's vision would be contentious, and eventually almost all of them were shut down until we finally got the current one, the "Federal Reserve" which essentially was created bottom up by the same "monied interests" (primarily J.P. Morgan's empire) which used to be known as the "Eastern Elite" but by the 20th century were dominant in local empires all over the country. Those local Empires are memorialized to this day in the Federal Reserve's member banks. The National Bank as envisioned by Hamilton would have been a mostly private bank:
"Art. II. A subscription to be opened for the amount of the stock. A subscriber of from one share to five, to advance the whole in specie. A subscriber of six shares to fifteen, to advance one half in specie, the other half in good landed security. A subscriber of sixteen shares, and upwards, to advance two sixths in specie, one sixth in bills of securities on good European funds, and three sixths in good landed security. In either case of specie, plate or bullion, at a given value, proportioned to its quality, may be substituted; and in either case of landed security, specie, good bills, or securities on European funds, to be admissible in their stead." [Page 368 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
Hamilton puts a footnote at the end of Article II in which he makes a number of suggestions for where to get the founding gold for the bank, including deals with the Spanish where the USA would hold Gold for them. I think the people who built Fort Knox were inspired by Hamilton.
"Remark 2. By admitting landed security as a part of the bank stock, while we establish solid funds for the money emitted, we at the same time supply the defect of specie, and we give a strong inducement to moneyed men to advance their money; because, not only the money actually deposited is to be employed for their benefit, but, on the credit of their landed security, by the seventh Article, may be raised an equal amount in cash, to be also employed for their benefit; by which artifice they have the use of their land (exempted, too, from taxes), and the use of the value of it in a representative cash. [Page 369 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
When he talks of Founding the American Bank on "Landed Security" he's talking about giving it trusteeship over land properties not yet given out to private individuals and mortgage instruments. Already in 1781 we see how our founders wanted to fund the United States on frontier properties that would often be seized from American Indians. At the same time the "landed security" he sought would also be available as mortgage type instruments for property owners as he explains next:
He Continues:
"In this consists a capital advantage of the bank to the proprietors. A, for instance, advances six hundred pounds in specie, and as much more in landed security. By the establishment he may draw bank-notes for the whole of his stock, that is, for twelve hundred pounds, when he only advances half the sum in money. These bank-notes operating as cash, his land (continuing as we observed above, in his own use, with the privilege besides of an exemption from taxes) is converted into cash; which he may employ in loans, in profitable contracts, in beneficial purchases, in discounting bills of exchange, and in the other methods permitted in the subsequent Articles. Besides all this, when the bank-notes have once acquired a fixed credit, he is not obliged to keep his six hundred pounds, deposited in specie, idle; he may lend or otherwise improve, a part of that also. These advantages will not exist in their full extent at first, but they will soon succeed each other." [Page 369 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
In the context of the land and resource rich American Colonies of the late 18th century this was a brilliant idea if executed equitably. But Hamilton was trying to attract, and benefit the "monied men". Essentially he was setting the vision for a system of monied banks and private corporations that would dominate the country for hundreds of years. Centered on Banks:
"Art. III. The bank to be erected into a legal corporation; to have all the powers and immunities requisite to its security, to the recovery of its debts, and to the disposal of its property." [Page 369 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
Hamilton didn't think this needed any explanation.
"Art. IV. The stock of the bank not to be liable to any attachment or seizure whatsoever; but, on refusal of payment, the holders of bank-notes, or bonds, may enter suit against any member, or members, of the corporation; and, as far as their respective shares in the bank extend, recover the debt, with cost and damages, out of their private property." [Page 369 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
Imagine if corporate CEOs could be sued for damages? The idea of a corporation polluting waters, poisoning people or producing things that kill people hadn't yet even entered the consciousness of people a the time of this writing.
Hamilton notes in "Remark 4" that
"This regulation is necessary to engage foreigners to trust their property in the bank; the latter part to give an idea of security to the holders of bank-notes."
Imagine that! It also would have allowed foreigners to invest indirectly in land in the United States, which would have saved them from the embarrassment of getting caught, as they would do so illegally anyway.
But being able to sue the officers of the bank wasn't the only confidence building measure he had in mind.
"Art. V. The United States, or any particular States, or foreigners, may become subscribers to the bank, and participate in its profits, for any sums not exceeding the whole half the stock." [Page 369 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
Making the United States a part owner in it's bank seems only common sense to us know, but in the Aristocratic and Royalist attitudes of the time it was still a relatively novel idea. In his notes he writes about this:
"Remark 5. This will link the interests of the public more intimately with the bank, and be an easy method of acquiring revenue. It will also facilitate the making up its stock by the loans which Congress may obtain abroad; without which it would be more difficult to raise so large a sum. It is essential the stock should be large, because, in proportion to it, will be the credit of the bank, and of course its ability to lend and enlarge its paper emissions. The admission of foreigners will also assist the completing the stock; and it is probable many may be induced to enter into the plan, especially after it has made some progress among ourselves, and obtained a degree of consistency."[Page 370 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
By making the United States and the states subscribers to the bank, he was grasping towards a concept not really thought of at the time. He was looking for the idea of a membership organization. A concept he would more fully develop when he helped write the US Constitution. If the States and the Federal Government own a portion of the bank they have a say in how it's run and they draw profits from the bank for the general Good. At the same time Hamilton's own biases ultimately limited his exploring and developing this idea:
"The sum is limited to one half the stock, because it is of primary importance that the moneyed men among ourselves should be deeply interested in the plan." [Page 370 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
Hamilton was biased towards the "monied men" and saw them as naturally more important to our country than the farmers, laborers, soldiers and ordinary citizens of the country. So he naturally saw a National bank as their creature. A Point of View that is why the bank would be an instrument of oppression and tyranny. But he had no problem with saddling the Government with responsibility:
"Art. VI. The United States, collectively and particularly, to become responsible for all the transactions of the bank, conjointly with the private proprietors." [Page 370 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
This too represents the point of view of the "monied class" over the general welfare. It would make sense if the "monied class" were indeed virtuous, generous and high minded. But for those in the monied class anxiety over their security trumps any such virtues. So he was looking for foreign funding and favor for the "right people". Not for the general welfare of all the people. Hamilton's vision was supremely conservative.
"Remark 6. This mode of pledging the public faith makes it as difficult to be infringed as could possibly be devised. In our situation it is expedient to offer every appearance of security. Foreigners are more firmly persuaded of the establishment of our independence than of the continuance of our union; and will, therefore, have more confidence in the States bound separately than collectively. Individuals among ourselves will be influenced by similar considerations." [Page 370 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
And yes we need security. And we need currency. Which was to be a primary purpose of the bank:
"Art. VII. The bank to issue notes payable at sight in pounds, shillings, and pence, lawful; all of twenty shillings, and under, to bear no interest; all above, to bear an interest not exceeding four per cent. The notes to be of so many denominations as may be judged convenient for circulation, and of two kinds; one payable only in America, the other payable either in America or in any part of Europe where the bank may have funds. The aggregate of these notes never to exceed the bank stock." [Page 370 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
The notes would be secured by bank stock that would include notes and mortgages. In that sense it would have been superior to the Fractional Reserve System which pretends notes can be issued against deposits and only a percentage kept as a "reserve" for when the depositors want their money bank. By issuing notes against mortgages a run on the bank could be avoided by simply printing money.
And Hamilton was not adverse to sleight of hand:
"Remark 7. The reason of having them payable at sight is to inspire the greater confidence and give them a readier currency; nor do I apprehend there would be any danger from it. In the beginning some may be carried to the bank for payment, but finding they are punctually discharged, the applications will cease. The notes are payable in pounds, shillings, and pence, rather than in dollars, to produce an illusion in the minds of the people favorable to the new paper; or rather to prevent their transferring to that their prejudices against the old. Paper credit depends much on opinion, and opinion is often guided by outside appearances. A circumstance trivial as this may seem, might have no small influence on the popular imagination. And if twenty shillings, and under, are without interest, because such small sums will be diffused in the lesser transactions of daily circulation, there will be less probability of their being carried to the bank for payment." [Page 371 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
At the same time the notion of "smaller sums" without interest was a good idea. Because it turns out that credit money with interest is a tool of wealth transfer to the bank. He at least realized that.
"The interest on the larger notes is calculated to give them a preference to specie, and prevent a run upon the bank. The notes, however, must be introduced by degrees, so as not to inundate the public at once. Those bearing no interest ought not to be multiplied too much at first; but as the interest is an abridgment of the profits of the bank, after the notes have gained an unequivocal credit, it will be advantageous to issue a large proportion of the smaller ones. At first, the interest had best be at four per cent., to operate the more effectually as a motive; afterward, on the new notes, it may be gradually diminished; but it will always be expedient to let them bear an interest not less than two per cent." [Page 371 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
Here he wasn't really talking about issuing money, so much as credit notes and funding the country.
"The making some of the notes payable in Europe as well as in America, is necessary to enable the bank to avail itself of its funds there; it will also serve to raise the demand for bank-notes, by rendering them useful in foreign commerce, the promoting which is a further inducement." [Page 372 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
Here he is envisioning what the Federal Reserve Note's role would be. And not even with interest on the actual note!
"The limiting the aggregate of the notes to the amount of the stock, is necessary to obviate a suspicion of their being multiplied beyond the means of redemption." [Page 372 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
Good thinking.
"Art. VIII. The bank to lend money to the public, or to individuals, at an interest not exceeding eight per cent." [Page 372 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
Of course this loaning of printed money to the public at interest makes the bank an instrument of redistributing wealth from the poor and the debtor to the wealthy and the investor.
"Remark 8. In the beginning it will be for the advantage of the bank to require high interest, because the money is in great demand, and the bank itself will want the principal part of its cash for the loans stipulated in Article XIII., and for performing the contracts authorized by Article XII.; so that the profits will not, for some time, turn materially on the principle of loans, except that to the public. But when the contracts cease, the bank will find its advantage in lending, at a moderate interest, to secure a preference from borrowers, which will, at the same time, promote commerce; and by a kind of mutual reaction, the bank will assist commerce, and commerce will assist the bank." [Page 372 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
And of course also for the investors in the bank.
"Art. IX. The bank to have liberty of borrowing, on the best terms it can, to the amount of one half of its stock." [Page 372 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
Borrowing against stock. printing out notes on the entire of the stock.... etc... His bank would have functioned and maybe failed the way most do.
"Remark 9. This is a precaution against a sudden run. It may borrow in proportion to what it pays. It has another advantage: at particular conjunctures the bank may borrow at a low interest, and lend, at others, at a higher." [Page 372 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
Oh yes.
"Art. X. The bank to have liberty of purchasing estates by principal, or by annuities; the power of coining to the amount of half its stock, the quantity of alloy, etc., being determined by Congress; also the power of discounting bills of exchange." [Page 373 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
Oh and he was ambitious. His bank would have issued coin!
"Remark 10. This privilege of purchasing estates will be a very valuable one. By watching favorable opportunities, with so large a capital, vast property may be acquired in this way. There will be a fine opening at the conclusion of the war. Many persons disaffected to our independence, who have rendered themselves odious without becoming obnoxious to the laws, will be disposed to sell their estates here, either for their whole value, or for annuities in Europe. The power of coining1 is necessary, as plate, or bullion, is admitted instead of specie; and it may be, on particular occasions, expedient to coin them; this will be a small resource to the bank. The power of discounting bills of exchange will be a considerable one. Its advantages will consist in purchasing, or taking up for the honor of the drawer, when the security is good, bills of exchange at so much per cent. discount. A large profit might be now made in this way on the bills drawn on France; and hereafter, in times of peace, when commerce comes to flourish, this practice will promote the transactions of the several States with each other, and with Europe, and will be very profitable to the bank." [Page 373 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
Real estate speculation by an agency of the Federal Government.
"Art. XI. The bank to receive from individuals deposits of any sums of money, to be repaid when called for, or passed, by order, to the credit of others; or deposits of plate, paying a certain annual rate for safe-keeping. Whatever is deposited in the bank, to be exempt from taxes." [Page 374 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
Tax Free deposits!
"Remark 11. This is in imitation of the Bank of Amsterdam. If individuals once get into the practice of depositing their money in bank, it will give credit to the bank, and assist trade. In time, a premium may be required at repayment as in Holland. A small profit may be immediately gained on plate, as the States begin to tax this article; and many persons will dispense at this time with the use of their plate, if they can deposit it in a place of safety, and pay less for keeping it than the tax. Whatever serves to increase the apparent wealth of the bank, will enhance its credit! It may even be useful to let the owners of the plate have credit in bank for the value of the plate, estimated on a scale that would make it for the advantage of the bank to purchase." [Page 374 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
This is all true. We are used to our money being essentially debits and credits from some local bank. For Hamilton's vision to work it would have had to have the ability for being replicated around the country. He would have needed, not just one bank, but banks in every town and dale. It was actually a vision of modern banking. But his structure was to have one bank.
"Art. XII. The bank to have a right to contract with the French Government for the supply of its fleets and armies in America, and to contract with Congress for the supply of their armies." [Page 374 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
The French would have loved this. We'd have become their neo-colonial colony.
"Remark 12. It will be of great importance to the success of the subscriptions, that a previous assurance of these contracts should take place: the profits of them would be no trifling inducement to adventures; it would have the air of employing the money subscribed in trade. As soon, therefore, as the plan should be resolved upon, negotiations should be begun for the purpose. It is so clearly the interest of the French Government to enter into these contracts, that they must be blind not to do it, especially when it is proposed under the aspect of a method of re-establishing our finances. The present loss on their bills is enormous. The bank may engage to receive them at a moderate discount, and to supply on better terms than they now make. Their business is at this time trusted to a variety of hands, some of which are neither very skilful nor very honest: competitions, frauds, and additional expense, are the consequences." [Page 375 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
On the other hand such a bank might have prevented the French Revolution. Which after all was partly started when Louis the XVI tried to raise revenues to compensate for what they lost in their war on our behalf.
"Congress could not hesitate on their part, as the amount of the contracts would be a part of the loan required in Article XIII." [Page 375 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
So he would have made congress subordinant to the bank!
"Art. XIII. The bank to lend Congress one million two hundred thousand pounds, lawful, at eight per cent. interest; for the payment of which, with its interest, a certain unalienable fund of one hundred and ten thousand four hundred pounds per annum, to be established for twenty years. The States, generally and severally, to pledge themselves for this sum, and for the due appropriation of the fund. Congress to have a right, at any intermediate period, to pay off the debt, with the interest to the time of payment. The same rule to govern in all future loans." [Page 375 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
So, Hamilton would have created a Bank with United States money and then made our legislature borrow it's own money from that bank at 8% interest. No wonder this bank proposal fell down!
"Remark 13. This loan will enable Congress to get through the expenses of the year. There may be a small deficiency, but this will be easily supplied. The credit of the bank once established, it may increase its stock, and lend an equal sum every year during the war. This loan may be advanced, partly in a contract for provisions, clothing, etc., and partly in cash, at periodical payments, to avoid a too quick multiplication of bank-notes." [Page 375 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
"Small Deficiency!"
"Art. XIV. The bank to become responsible for the redemption of all the paper now emitted; the old, at forty for one in thirty years, the new at par, with gold and silver, according to the terms promised by Congress in their resolution of March, ’80. One third of the first to be redeemed at the end of every ten years; and the whole of the last to be redeemed at the expiration of the six years specified by Congress, with the interest of five per cent. The United States, in compensation for this responsibility, to establish certain funds for an annuity, payable to the bank, equal to the discharge of the whole amount of the paper currency in thirty years, with an interest of two per cent. per annum." [Page 376 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
The National Bank he envisioned would have put our finances on track if it didn't enslave every man woman and child at 8 percent interest. A bank is a powerful instrument, but charging the Government 8% interest and giving the bank the power to coin money was an incredibly dangerous idea.
"Remark 14. It is of the greatest importance that the old currency should be fixed at a certain value, or there will be danger of its infecting the future paper; besides, we want to raise it to a point that will make it approach nearer to an adequate medium. I have chosen the resolution of March, ’80, as a standard. We ought not, on any account, to raise the value of the old paper higher than forty to one, for this will give it about the degree of value that is most salutary; at the same time that it will avoid a second breach of faith, which would cause a violent death to all future credit. A stable currency is an idea fundamental to all practicable schemes of finance. It is the duty and interest of the public to give stability to that which now exists; and it will be the interest of the bank, which alone can effect it, to co-operate. I have not mentioned the amount of the annuity to be paid by Congress, because I have not materials to judge what quantity of paper money now exists; since it will be necessary to take all the State emissions into the calculation. I suppose (including State emissions) there may be about four hundred millions of dollars of the old standard, and about four millions of the new.1 This will give us, in specie-value, about fourteen millions of dollars. This is what the bank is to become answerable for, and what the public is to pay, by an annuity of thirty years, with two per cent. interest. This annuity would amount to six hundred and eleven thousand three hundred and thirty-three and one third dollars, for which funds are to be provided." [Page 377 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
A stable currency is important to the wealth and fortunes of everyone.
"By a rough calculation, I find that the bank would gain, in the thirty years, about three millions of dollars, on the simple footing of interest; and that it will, at different periods, have more public money in its possession than it will be in advance at others; so that, upon the whole, the sum it will gain in interest will be for the loan of its credit to the public, not of any specific sum of cash. Besides, the interest of the bank may gain a very considerable sum by the purchases it may make of the old paper at its current value, before the influence of this plan has time to bring it back to the point at which it is intended to be fixed.1 It is the obvious interest of the United States to concur in this plan, because, by paying three millions of dollars in interest to the bank, more than it would have to pay to the money-holders, agreeably to its present engagements, it would avoid a new breach of faith, fix its circulating medium increased in value more than one half, render the taxes more productive, and introduce order into its finances, without which our independence is lost. It will also have only about two thirds of the funds to establish for this plan that are required by the act of March, ’80, to discharge the new bills; it will, of course, reserve a large balance toward the current expenses, which is no insignificant consideration." [Page 377 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
Circulating money does all this. For it to have worked the bank could not have been an instrument of the "monied men." Could not be loaning at interest. And should have been setup in collaborative fashion so that it reached to plantation as well as city and had citizen controls over it's functions so that they wouldn't become an instrument for creating incredible wealth for a few. Which is what Hamilton apparently really seems to be proposing here.
"Perhaps it may be imagined that the same funds [378]established for the redemption of the money in the same time, without passing through the bank, would have an equal effect upon its credit, and then we should save the interest of two per cent. Experience proves the contrary. We find the new notes depreciating in the States which have provided good funds. The truth is, there is not confidence enough in any funds merely public. The responsibility of the bank would beget a much stronger persuasion of the paper being redeemed, and have incomparably more efficacy in raising and confirming its credit. Besides, the bank might immediately reduce the quantity by purchase, which the public could not do." [Page 378 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
Here he's talking about Open Market Operations similar to what the Fed does now. By buying back notes the bank can improve the quality of the remaining notes.
And one thing that has been consistent in our country is the demand for revenues to accomplish anything, and the resistance of congress to actually funding it's projects:
"It will be observed that of the six millions of dollars which constitute our annual revenue, I require nine hundred and seventy-nine thousand three hundred and thirty-three and one third dollars, in funds, to reimburse the loan for the first year, and pay off the annuity for the redemption of the old paper. It may be asked, where these funds are to be procured in the present impotence of our Federal Government. I answer, there are ample means for them, and they must be had. Congress must deal plainly with their constituents. They must tell them that power without revenue is a bubble; that unless they give them substantial resources of the latter, they will not have enough of the former either to prosecute the war or to maintain the Union in peace; that, in short, they must, in justice to the public and to their own honor, renounce the vain attempt of carrying on the war without either, a perseverance in which, can only deceive the people, and betray their safety. They must demand an instant, positive, and perpetual investiture of an impost on trade; a land tax and a poll tax, to be collected by their own agents. This act to become a part of the Confederation." [Page 378 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
Of course Congress wasn't going to do any of that. Which is why eventually we needed a new Charter.
"It has ever been my opinion that Congress ought to have complete sovereignty in all but the mere municipal law of each State; and I wish to see a convention of all the States, with full power to alter and amend, finally and irrevocably, the present futile and senseless Confederation." [Page 379 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
Which we did a few years later. And as we can see from this proposal. Hamilton's plan was to create a bank modeled on the ones in Europe and to make that bank powerful and in some senses supreme over the rest of the Federal Government. Meantime he had to work within the Articles of Confederation and beg for cooperation from the States:
"The taxes specified may be made to amount to three millions of dollars; the other three millions to be raised by requisition, as heretofore." [Page 379 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
Going on about how to leverage taxes into circulation and production, he'd have "monetized" state debt:
"Art. XV. The bank-notes to be received in payment of all public customs and taxes, at an equivalent with gold and silver." [Page 379 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
All this would be in his proposals for the Constitution a few years later.
Remark 15. It is essential that all taxes should be raised, throughout the United States, in specie, or bank-notes at par, or the old paper at its current value at the time of payment. This will serve to increase the circulation and credit of the bank-notes; but no person should be obliged to receive them in private dealings. Their credit must depend on opinion; and this opinion would be injured by legislative interposition." [Page 379 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
When hamilton talks of "opinion" he's referring to what his descendents call "the market." Which is really just the collective opinion of monied folks. What they call 'the market' is a collective thing.
"Art. XVI. The bank to dissolve itself whenever it thinks proper, making effectual provision for the payment of its debts; and a proprietor of bank stock to have the privilege of selling out whenever he pleases." [Page 379 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
This of course also shows how Hamilton wanted the Bankers to have ultimate veto over the system as a whole with profit as the primary consideration and things like "general welfare" or sustainability, secondary.
"Remark 16. This permission to dissolve or sell at pleasure will encourage men to adventure; and, when once engaged, the profits will make them willing to continue." [Page 379 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
"Adventure. We see the privateering spirit at work.
"Art. XVII. The bank to be established for thirty years by way of experiment." [Page 379 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
Thirty years. And again the orientation is towards the monied class:
"Remark 17. This is chiefly to prevent some speculative men being alarmed, who, upon the whole, may think a paper credit detrimental and dangerous, though they would be willing, from necessity, to encourage it for a limited time. Experience, too, may show the defects of this plan, and give rise to alterations for the better." [Page 380 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
And lest anyone be confused that this is a 'free-enterprise' vision. He wanted the bank to have monopoly:
"Art. XVIII. No other bank, public or private, to be permitted during that period." [Page 380 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
The trouble is that unless such a bank could be replicated around the country this would have focused development on the few centers where bank branches could be established. And pitted the remainder of the country against those. Which is what actually happened with our banking system until J.P. Morgans vision with the Federal Reserve.
"Remark 18. Other banks might excite a competition prejudicial to the interests of this, and multiply and diversify paper credit too much." [Page 380 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
Again we see the monied class bias, as he feared paper inflation more than he feared such centralization. The banks he envisioned, even if they put branches everywhere would have vacuumed wealth from everywhere to the monied men.
"Art. XIX. Three banks to be erected in Massachusetts, Pennsylvania, and Virginia, to facilitate the circulation and payment of the bank-notes." [Page 380 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
So his vision would have created just three banks.
"Remark 19. These banks ought to be in the interior of the country, remote from danger, with every precaution for their security in every way. Their distance from the capital trading points will be an advantage, as it will make applications for the payment of bank-notes less convenient." [Page 380 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
Again the bias towards the monied men. But at least his vision would have had direct input from the elected government:
"Art. XX. The affairs of the bank to be managed by twelve general directors, men of reputation and fortune; eight of them to be chosen by the private proprietors, and four by Congress. The Minister of Finance to have the privilege of inspecting all their proceedings." [Page 380 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
He understood the concept of public oversight:
"Remark 20. It is necessary, for reciprocal security of the public, the proprietors, and the people, that the affairs of the bank should be conducted under a joint direction." [Page 380 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
Explicitly modeled on European Banking:
"These, as has been already observed, are only intended as outlines; the form of administration for the bank, and all other matters, may be easily determined, if the leading principles are once approved. We shall find good models in the different European banks, which we can accommodate to our circumstances." [Page 381 http://oll.libertyfund.org/titles/hamilton-the-works-of-alexander-hamilton-federal-edition-vol-3]
Notes
We are all standing on the shoulders of others. Some seeming solitary Geniuses like Marx who can act like an oracle on subjects only because they stand on nearby ivory towers outside the fray. Others like Hamilton who were in the fray and whose efforts were bounded by what could be accomplished at the time. We stand on the shoulders of many giants. Some Great, some not-so-great. Some perverse, some used by perverse people later on. I'm looking at the Giants and trying to piece together a puzzle from their work. It's easier to stand on the shoulder's of Giants than to take on the weight of the world by oneself. A lot of people have tried to shoulder the world. The result is often cynicism or delusion. Or worse, someone making promises they can't keep. When you can't keep promises that results in dropping the ball and then claiming it was "Atlas" who "shrugged." Hamilton was one of these Giants. I can critique him from my POV, but within his own context he was a man of his times and a man with a vision that was ahead of it.
Modern Con Artists use the "constitution" to justify their own cons. At the same time while claiming it sets limits convenient to their own opinions on others. I've found that reading the originals in both their own context and my own, is the first step to refuting the cons, swindles and misrepresentations. The founders were no more saintly and sagacious than we are. We should read them critically.
Thus in trying to come up with an argument to the Con Artists who treat the Founders as Biblical Figures and a selected parsed subset of their writings as a "New New Testament." I find I need to read Alexander Hamilton writings critically. I can both admire his ideas and note where he may have gotten things wrong. He's no exception. We are all humans.
