Alexander Hamilton: Founding Father of Finance – Building America’s First Bank
The United States has the largest economy in the world today. However, the planning of how the country’s economy would be managed began in the 18th century. One of the founding fathers of the United States, Alexander Hamilton, made a major contribution to this.
Hamilton initiated the establishment of the first central bank of the United States. He was the country’s first revenue secretary. He was skilled in law. He established himself as a lawyer by studying himself.
He also demanded an end to the international slave trade.
He also had a major contribution in drafting the first constitution of the United States. Since the founding of the country, Hamilton has taken many important decisions regarding diplomacy and foreign policy.
But how was his childhood and growing up? How was his thinking about the economy of the United States during his lifetime? When establishing the country’s first central bank, why was he criticized? How did the bank contribute to the US economy and why did it disappear?
The answer to these questions can be found in the success story of Alexander Hamilton.
Childhood
Alexander Hamilton was born in an island called Nevis in January 1755 or 1757. The island in the Caribbean was then a British colony.
As a child, Hamilton and his younger brother were tutored at home. There were about 34 books in their family library. Those books were Hamilton’s childhood companions.
Hamilton and his brother had a hard time in their childhood. Their stepfather left their mother. Their mother died of yellow fever within a few years.
Two orphaned brothers took shelter in a relative’s house. But that relative also died within a few months. After that, the fate of Hamilton and his younger brother’s life changed. The younger brother began an apprenticeship with a local carpenter and Hamilton found shelter in the home of a merchant in Nevis.
By living in a merchant’s house, Hamilton got a job in an import-export company. The company did business in the US states of New York and New England. He gradually became a trusted employee who is skilled in the work of the organization.
In 1771, the company’s owners left full charge of the business to Hamilton for 5 months before setting sail. Hamilton was admired by many for carrying out that duty with devotion and skill.
Meanwhile, Hamilton had a lot of reading and writing habits. In 1772, Hamilton described a hurricane that hit the Caribbean island of ‘St. Kitts’ in one of his essays. The essay caught the attention of local dignitaries, who decided to send Hamilton to the North American colonies (present-day United States) for higher education.
Traveling to America and participating in the war
In October 1772, Hamilton set foot on a ship in Boston, America. From there he moved to New York. Hamilton attended King’s College in New York City, which is now known as Columbia University.
The United States was still a British colony. And before the American War of Independence, Hamilton wrote a lot for the independence of the country.
Hamilton joined the army in 1775 after the outbreak of the War of Independence. During the war, he met Elizabeth Skyler, the daughter of a US Army general. They married in 1780.
Hamilton and Skyler had 8 children.
Meanwhile, Hamilton became close to George Washington during the war. He drafted many of Washington’s orders and letters during the war. Hamilton also signed many directives issued by Washington.
Established as a lawyer and joined the Congress
After the war, Hamilton was licensed as an attorney in the New York Supreme Court in 1782. In the same year he was appointed to the independent American government as a representative of New York.
The independent American system of government was then run by Congress. And Hamilton had many objections and criticisms of the rules of Congress. But he nevertheless joined Congress and played a major role in the drafting of the American Constitution.
He resigned from Congress in 1783 and founded the Bank of New York in 1784.
Meanwhile, Hamilton continued to express his opinion, write and campaign on various legal and constitutional issues of independent America.
In 1789, he became the Secretary of the Treasury.
Establishment of central bank
The newly independent America was faced with various economic crises. The United States faced various challenges such as establishing trade and industry, paying off wartime debts, raising the value of the currency or reducing inflation.
America’s politicians and leaders were at odds over how to overcome these crises. But the then ‘Secretary of Treasury’ Alexander Hamilton had a different kind of thinking.
One of the plans to boost America’s economy was the establishment of a national or central bank.
Hamilton submitted a report to Congress in December 1790. In that report he outlined his proposal for the establishment of a central bank. Hamilton used the Charter of the Bank of England as the basis for his plan.
Hamilton argued that if America had a central bank like the Bank of England, it would be possible to print paper currency or banknotes and create a safe place for public funds. A central bank will also provide banking facilities for commercial transactions and will also be able to perform government revenue functions such as tax collection.
But not everyone agreed with Hamilton’s plan.
One of the critics was Thomas Jefferson, another of America’s founding fathers. Jefferson’s fear was that the central bank would monopolize the US economy. His idea was to weaken the central bank established in various states and adopt policies favorable to investors and traders.
Jefferson also argued that, under the Constitution, the government could not establish a corporation like a central bank.
However, despite much criticism and debate, his proposal was passed in 1791.
As the first central bank of the United States, the first branch of ‘The Bank of the United States’ was opened in Philadelphia. The charter period of this central bank was 20 years.
By 1792, the Central Bank had opened branches in Boston, New York, Charleston, and Baltimore. Later, branches of the bank were established in some other areas including Washington DC. A Board of Directors of 25 members is appointed to manage the bank.
The bank started with a capital of $10 million, of which $2 million was from the government and the remaining $8 million was raised from private investment.
The central bank at that time became not only the largest financial institution in the United States, but also the largest corporation. Apart from America, traders from other parts of the world invest in this bank.
According to Hamilton’s plan, the bank began to regulate the economic activities of the central government. Various activities like collecting income tax or revenue, keeping government funds safe, giving loans to the government, transferring government deposits through different branches of the bank or paying government bills are started through the central bank.
In addition, the central bank was also used to provide profits to European investors or to pay bank dividends to the US government.
Meanwhile, the central bank was prohibited from buying US government bonds to prevent inflation and manage economic activity properly.
Apart from government activities, commercial activities were conducted in this bank. That is, this bank accepted deposits from the public and gave loans to ordinary citizens and businessmen. Banknotes printed by the central bank started trading in the US market as debt securities.
Of course, there were banknotes of other banks at that time. However, the central bank notes could be used anywhere in America and only these notes could be used to pay income tax.
The first central bank of the United States did not formulate any major laws or policies as the term “monetary policy” means in modern times. The bank introduced some basic policies as per the need to run the work.
A stable monetary system was introduced for the first time in the country due to sufficient gold reserves against central bank notes. Also, as bank branches were established in major port areas of the United States at the time, the government’s task of collecting revenue became much easier.
Despite all this, the first central bank could not survive for long. In the pages of history, the bank is known as ‘First Bank of the United States’ (First Bank of the United States).
Hamilton’s death and the abolition of the central bank
Alexander Hamilton was actively involved in American politics. As an important person of the country, his words were valued by the people.
After the second president of America, John Adams, two of the leading contenders for the presidency were Aaron Burr and Thomas Jefferson.
In addition to the central bank, Hamilton had disagreements with Jefferson on several issues. But he still supported Jefferson and declared Aaron Burr unscrupulous and incompetent.
Aaron Barry was outraged and challenged Hamilton to a duel.
Dueling was a socially acceptable method of settling differences at that time. Originally two men engaged in a duel had the same deadly weapon (usually a gun or pistol). And before the duel begins some rules are agreed upon by both sides.
Dueling involved the social status of the challenger rather than killing the opponent. In that sense, Aaron Bayer challenged Hamilton to a duel, claiming that his honor had been defamed, and Hamilton accepted the challenge.
This historic duel took place on July 11, 1804, and Hamilton was mortally wounded. He died the next day from the injuries sustained in the duel.
Meanwhile, the charter of the central bank established by Hamilton was due to expire in 1811. But before that, since 1808, the debate started in the American Parliament about whether to renew this charter.
The US Congress was divided equally on the central bank question. And until 1811 the debate over the extension of the Central Bank’s charter continued.
In 1809, after the anti-central banker Thomas Jefferson stepped down from the presidency, his confidant James Madison came to power in the United States. And he was also opposed to central banks.
Meanwhile, since Hamilton had died by then, there was no competent person to argue for the central bank. As a result, the renewal of the charter of the central bank was canceled in 1811 by only 1 vote, despite the opposition of many members of parliament. As a result, according to the decision of the Congress, the first central bank of the United States was abolished.
Although the bank operated for only 20 years, it left a deep impression on the US economy. America’s economic decision-making has been modeled on this bank’s activities for many years.
Meanwhile, the founder of the bank, Alexander Hamilton, was also a shrewd and brilliant administrator and politician. Many of Hamilton’s ideas and thoughts have shaped the course of the US government and economy.
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