This flat piece of cast iron (Figure 1) was once part of a coin bank produced around 1872 by J. & E. Stevens of Cromwell, Connecticut. Known as a still bank (to distinguish them from mechanical banks, which had moving parts), this little repository was a bank shaped like a bank building (Figure 2). To make matters even more interesting, this artifact was recovered from an archaeological excavation in Baltimore at the future site of the Federal Reserve Bank of Richmond, on Sharp Street.
This archaeological artifact thus seems like a good entry into an exploration of our nation’s early central banking history. Today’s Federal Reserve Bank is the country’s third central banking system. The first—the First Bank of the United States—operated from 1791 to 1811 and was the brainchild of our nation’s first Treasury Secretary, Alexander Hamilton (Figure 3).
The newly-formed United States was left facing a sizable public debt at the end of the Revolutionary War. Hamilton’s voracious reading habits, coupled with his experience as a clerk for a Caribbean merchant, left him with a sound understanding of economic systems. Prior to proposing a national bank, he helped found the Bank of New York in 1784 (PBS 2019). He envisioned the formation of a central bank that would stimulate the economy and provide much-needed credit for building the new nation. Hamilton’s 1790 proposal to Congress for a national bank was passed into law in early 1791. Hamilton’s other fiscal achievements included establishment of the U. S. Mint, consolidating the states’ debts into a national debt handled by the US Treasury and creating taxes on domestic production to help fund the military (Federal Reserve 2019).
The First Bank of the United States, located in Philadelphia (Figure 4), was chartered for twenty years. The Federal Government held twenty percent ownership in its ten million dollars of capital. The bank fulfilled numerous financial/fiscal roles: tax collection, credit extension, issuing standard currency, making commercial loans, handling foreign exchange and serving as a depository for government funds. In addition to rapidly stabilizing the national economy, the bank helped position the United States on equal financial footing with European nations.
From its beginning, centralized banking met with opposition. The agrarian southern states, as represented by politicians like Thomas Jefferson and James Madison, were against the bank, while the more industrialized northern states were in favor. The split eventually helped lead to the formation of our nation’s first two political parties – the pro-bank Federalist party and the anti-bank Democratic-Republicans. Opponents saw the central bank as an overreach of executive branch power—similar to the opposition by state-chartered banks, who felt central financial control was an insult to state’s rights and unwanted competition.
Republican control of the executive branch, beginning at the turn of the 19th century, led to the bank’s charter not being renewed at the end of its initial twenty-year term. Due to the dissolution of the First Central Bank in 1811, the United States was faced with economic difficulty during the War of 1812, when there was no central bank to fund the military (PBS 2019). James Madison, initially an opponent to centralized banking, supported the creation of the second centralized banking system in 1817. Andrew Jackson did not renew the charter for the Second Bank of the United States in 1836 and it was not until 1913 that the third iteration of central banking – the Federal Reserve—was created (Britannica 2019).
Britannica Online Encyclopedia. 2019 Bank of the United States. Encyclopaedia Britannica. Website accessed December 17, 2019 at https://www.britannica.com/topic/Bank-of-the-United-States.
Federal Reserve. 2019 Alexander Hamilton. Federal Reserve History. Website accessed December 17, 2019 at https://www.federalreservehistory.org/people/alexander_hamilton.
Public Broadcasting Service (PBS). 2019 Alexander Hamilton; Establishing a National Bank. American Experience. Website accessed December 17, 2019 at https://www.pbs.org/wgbh/americanexperience/features/establishing-national-bank/.