The History of Banking in the United States Research Paper

The History of Banking in the United States - Research Paper Example At its core, a bank, no matter at what place in history or where it is located, does the same thing: it deals with taking in, recording, and giving out money. It is ironic to note that, upon the celebration of the United States of America gaining their independence from England, there was no bank in existence in the former colonies. As colonies of England, they had fallen under the Bank of England, and used the British forms of money, as their legal tender (Rothbard 47). Far more common, however, was trade in the form of barter of items, such as beaver fur and wampum, as well as tobacco and rice (Rothbard 48). Called â€Å"commodity money†, it served the needs of the colonists during trade with each other, especially in outlying rural areas; however, an actual legal tender was needed, it was found, when trading in cities or in a foreign market with other countries. Thus the newly-formed states were forced to bring in money from other countries to act as their own currency; before long, Spanish doubloons competed alongside French, Portuguese, and Brazilian coins for tender (Rothbard 49). This controversy was solved when, in 1781, the Bank of North America was founded by Roger Morris in Philadelphia (Foster 176). As the first bank established on the new soil, its primary aim was to finance the American Revolution, as well as economize the use of cash. Its primary aim was to do this by using the money that it was paid by depositors as loans to others, often at two or three times the amount of cash on hand (Foster 176). It succeeded admirably in both areas, making loans to not only the government but private citizens, and was quickly followed by more banks. To stay out of the limelight of the raging debate of whether or not Congress had the power, under the Articles of Confederation, it procured a charter from the State of Pennsylvania, which was continuously renewed until the bank entered the national banking system (Foster 178). This bank was quickly followed by other banks, including the Bank of Massachusetts, established in 1784, the Bank of New York, also founded i n 1784, and the Bank of the Manhattan Company, founded by Aaron Burr under the disguise of a company that was to supply pure water to New York City (Foster 179). While all of this was going on, a debate was raging in the new Congress. Alexander Hamilton, Secretary of the Treasury, called for a national bank, stating it was needed to manage the government money and to regulate the credit of the nation (Johnson 7). Thomas Jefferson argued that there was no provision for a national bank in the U.S. Constitution, therefore it was not within the power of Congress to create one (Johnson 7). Hamilton, after lengthy discussions on the fact that the new government had created fiscal powers in the past, and therefore owed it to the people to exercise some control over them, won the argument and the First Bank of the United States was