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328 THE CREATURE FROM JEKYLL ISLAND
how privately-issued bank notes could serve precisely the same
purpose as printing-press money—with precisely the same disastrous
results. That being the case, the monetary and political
scientists decided to end run the Constitution. Their plan was to
establish a bank, to give that bank the power to create money, to
lend most of that money to the government, and then to make sure
the IOUs are accepted as money by the public. Congress, therefore,
would not be emitting bills of credit. The bank would do that.
Thus, the First Bank of the United States was conceived.
The proposal was submitted to Congress in 1790 by Alexander
Hamilton who, at that time, was Secretary of the Treasury.
Hamilton, incidentally, was a former aide to Robert Morris, founder
of the Bank of North America, so in that sense his role in this
matter is not surprising. What is surprising is the fact that Hamilton
had been a staunch supporter of a sound currency during the
Constitutional Convention. This is hard to reconcile, and one must
suspect that, even the most well intentioned of men can become
corrupted by the temptations of wealth and power. It is possible
that Hamilton, Morris, and other Federalist leaders had hoped to
keep the government out of the money-making business, not
because it was the constitutional thing to do, but because that
would leave the field clear for a central-bank mechanism which,
because it was further from public view and political control, could
become their own private engine of profit. It would appear that the
only other explanation is that these men were fickle in their views
and did not really understand the implications of their acts. In view
of their brilliance in all other matters, however, it is difficult to
muster enthusiasm for that interpretation.
THE HAMILTON-JEFFERSON CONFLICT
Hamilton's proposal was strongly opposed by Thomas
Jefferson, then Secretary of State, and this was the beginning of a
heated political debate that would preoccupy Congress for many
decades to come. In fact, it was one of the central issues that led to
the creation of our first political parties. The Federalists gathered
around the ideas of Hamilton. The anti-Federalists, later called the
Republicans, were attracted to the ideas of Jefferson. 1
1. Curiously, the present Democratic Party traces its origin to Jefferson's Republi-
THE CREATURE COMES TO AMERICA 329
Jefferson pointed out that the Constitution did not grant to
Congress the power to create a bank or anything similar. That
means such power is reserved to the states or to the people. In a
rebuttal to Hamilton's proposal, he said: "To take a single step
beyond the boundaries thus specially drawn around the powers of
Congress, is to take possession of a boundless field of power, no
Furthermore, he said, even if
longer susceptible of any definition."
the Constitution had granted such power, it would be an extremely
unwise thing to do, because allowing banks to create money could
only lead to national ruin.
Hamilton, on the other hand, argued that debt was a good
thing, if kept within reason, and that the nation needed more
money in circulation to keep up with expanding commerce. Only
the Bank, he said, would be able to provide that. Furthermore,
while it is true the Constitution did not specifically grant the power
to create such a bank, it was, nevertheless, an implied power,
because it was needed to accomplish other functions which were
granted in the Constitution.
That was the end run.
Nothing could be more polarized than the opposing ideas of
these two men:
JEFFERSON: "A private central bank issuing the public currency is a
greater menace to the liberties of the people than a standing army."
"We must not let our rulers load us with perpetual debt"
HAMILTON: "No society could succeed which did not unite the
interest and credit of rich individuals with those of the state." "A
national debt, if it is not excessive, will be to us a national blessing."
AMERICA'S SECOND CENTRAL BANK IS CREATED
After a year of intense debate, Hamilton's views prevailed and,
in 1791, Congress granted a twenty-year charter to the Bank of the
:
I- "Opinion of Thomas Jefferson, Secretary of State/' February 15, 1791, quoted by
Krooss, pp. 147-48.
2. The comparison between private banks and standing armies can be found in
many of Jefferson's letters and public utterances. For example, see The Writings of
Thomas Jefferson (New York: G.P. Putnam & Sons, 1899), Vol. X, p. 31.
©. The Basic Writings of Thomas Jefferson (Willey Book Company, 1944), p. 749.
|k Quoted by Arthur M. Schlesinger, Jr., The Age of Jackson (New York: Mentor
Books, 1945), pp. 6-7.
5. Written on April 30, 1781, to his mentor, Robert Morris. Quoted by John H.
Makin, The Global Debt Crisis: America's Growing Involvement (New York: Basic
Books, 1984), p. 246.