Andrew Wiley
4/7/04
The Bank of North America, like the later Bank of the United States, generated heated debate between competing interests in America in the late 1700’s. While being regarded as vital to the American economy by some, the Bank of North America was seen as a profiteering scheme concocted by wealthy elites by others. The disparity in perspective was not limited, however, to the typically harped upon differences of class and region. It is true that merchants were usually in favor of the Bank and that farmers were often against it, but rival groups within these classifications sparred with each other as well. Within Philadelphia, for example, the merchant class was unmistakably divided between “insiders” who had access to the funds of the Bank of North America, and “outsiders” who were excluded. In this paper, I will discuss the history of the Bank of North America, the various views held by people who had some connection with the Bank, in particular those who lived in Pennsylvania, and possible reasons for the views that those people had.
Like the later Bank of the United States, the Bank of North America has its roots in the financial scheming of Alexander Hamilton. Hamilton initially proposed a national bank in 1779, citing continued depreciation in the value of continental currency during the Revolution. He believed that the government would need credit from wealthy individuals in order to finance the remainder of the war, and that a bank was necessary to organize and secure those investments. Fortunately for Hamilton, his friend Robert Morris, a prosperous businessman in Philadelphia, established the Bank of Pennsylvania in 1780; Morris was a strong supporter of the Revolution, and used the bank as a means of supplying American troops with equipment they otherwise wouldn’t have had.1
Though Morris eventually profited from the Bank of Philadelphia when it became the Bank of North America, letters that he sent to Benjamin Franklin and the governors of the states show that ensuring the future success of American commerce was also one of his main considerations. As a Federalist, Morris appears to have believed strongly that financial considerations would be a source of unity among the regions of America. In writing to Franklin, he echoed the words of Adam Smith by implying that Americans engaged in business with each other would strengthen the nation as a whole. In his letter to the governors, he claimed that a national bank would help support transactions, both between the states and between private individuals.2 3
Having proven himself in equipping George Washington’s army, Morris was elected by Congress to be superintendent of finance, and within days of taking office he proposed his own, smaller version of Hamilton’s national bank. In spite of the worries of some members of Congress that a national bank would be too powerful, a resolution was eventually passed facilitating the creation of the Bank of North America. Being the superintendent of finance, Morris was responsible for finding capital for the new bank, and he ultimately used stock from the Bank of Pennsylvania as a source of startup funds; thus, the Bank of North America officially replaced the Bank of Pennsylvania.4
Needing leadership for the new bank, Morris and the other stockholders of the Bank met to elect 12 directors and a president. Unsurprisingly, Thomas Willing, a longtime friend and business partner of Morris, was elected president of the Bank; later, Willing would serve as president of the First Bank of the United States. Also unsurprisingly, Willing’s actions as president seemed to be directed by what he believed would most benefit his friends, the stockholders. While this seems like an obvious goal for the president of a corporation, Willing often went out of his way to ensure the continued prosperity of the Bank at the expense of the public.
A striking example of this occurred when Quaker businessmen from the Philadelphia area became frustrated with being excluded from owning shares of the Bank. The dividends being declared by the Bank appeared very lucrative to outside merchants such as the Quakers, who could see that their exclusion from the bank was greatly benefiting the Bank’s shareholders. The Quakers were further frustrated when they were routinely declined for loans for serious business enterprises, while insiders of the Bank were given loans for speculative investments. One such incident arose when James Wilson, lawyer for the Bank, was lent $100,000 for land speculation. Yet, when the Quakers proposed creating their own bank, Wilson objected, arguing that the Bank of North America should be the only bank in Philadelphia.5 6
The Quakers pressed on in their pursuit of a new bank, and it soon became clear to the directors of the Bank of North America that the state of Pennsylvania was giving serious consideration to the Quakers’ proposal; ironically, the Quakers planned to name their bank The Bank of Pennsylvania. If the Quakers were granted a charter to begin their own bank, the Bank of North America would, for the first time, have to deal with competition. In response, the directors of the Bank of North America made preparations for issuing new shares of stock that Quaker merchants could purchase in order to stave off the Quakers’ bank plans. Willing wrote to William Bingham, a stockholder in the Bank and Willing’s son in-law, indicating that for six months after the issuance of the new stock, only “outsiders” could purchase the recently created shares. However, Willing also implied that Bingham could hire a third party to purchase shares for him. Such an outright disregard for “non-insiders” shows the degree to which members of the Bank wished to keep profits from the Philadelphia bank market to themselves.7
In the end the Bank decided it would not even resort to this sort of scheming, and the Bank dispensed with plans for third party share purchasing. They decided to allow former shareholders, the “insiders,” to purchase the latest shares at the same time the “outsiders” purchasing shares for the first time were buying them. The Quakers were naturally unsatisfied with this, and continued in their effort to establish a new bank in Philadelphia. As the vote came near in the Pennsylvania legislature regarding the Quakers’ charter, the directors of the Bank of North America held an emergency meeting to find a way to put a stop to the Quaker bank proposal. They ultimately decided it was best to appease the group of “outsider” merchants, and reissued the new stock, this time at a lower price. The Quakers were also given full opportunity to buy as many shares as they wished. The Quakers were content with the new offer and dropped their plans for establishing their own bank.8
The dealings with the Quakers were exemplary of the Bank of North America’s desire to retain monopoly power in the Philadelphia area. Even more substantiating of the suspicion that the shareholders and directors were acting exclusively out of self-interest is the way in which Willing reacted when sponsors of a proposed bank in Boston approached him for advice. Rather than impeding the Bostonians as he tried to do with the Quakers, and rather than trying to get them to merge with the Bank of North America so that the shareholders might reap a greater profit, he readily recounted his experiences as president of the Bank so that the Boston merchants might benefit from what he had learned. The two polar-opposite responses to the Quaker bank proposal and the Boston bank proposal are indicative of Willing’s fear that a second bank in Philadelphia could severely harm the Bank of North America.9
Even Robert Morris was skeptical about a second bank being economically feasible in Philadelphia. He asserted that there was simply not enough capital to support more than one bank, and that having competing banks would be detrimental to the economy as a whole. Whether he actually believed this or not is open to debate. An important thing to consider is that it would have been easy for Morris to take note of the fact that the amount of capital in the Bank of North America doubled when Quaker merchants were allowed to purchase stock.10
A respected economist and political commentator from Philadelphia, Pelatiah Webster, seemed to be in agreement with Morris and Willing when he anonymously published a pamphlet entitled “To the Stockholders of the Bank of North America on the Old and New Banks.” Webster, who had previously maintained that two rival banks in one city would eventually destroy each other, suggested in his pamphlet that it would be impossible for a national bank, presumably the First Bank of the United States, which was then being debated, to be managed efficiently if too many of the stockholders lived outside of Philadelphia.11
At that time, Hamilton was considering how he would create a national bank to facilitate the transactions of the government and stimulate the economy, as he had just been given his position as Secretary of the Treasury under the recently ratified Constitution in1791. Webster had advocated that when such a national bank came about, it should follow the lead of how the Bank of North America operated under the Articles of Confederation. Bingham, the previously mentioned stockholder in the Bank of North America, had access to Hamilton by being a prominent Philadelphia businessman. He recommended to Hamilton that the Bank of North America, now a completely private operation, be expanded into a national bank, with partial ownership being given to the government. Bingham, of course, realized that if such a thing were to happen, the profits the Bank would potentially receive were tremendous. As with Willing, he was eager to cement the Bank’s position as the primary bank in the United States.12
There were others in Pennsylvania, however, who were not nearly as pleased with the Bank of North America’s practices. Farmers and other rural people commonly viewed banks in general, and large banks in particular, as being vehicles for the rich and powerful to make money at the expense of the common man. As early as 1781, the year the Bank of Philadelphia became the Bank of North America, farmers across the state objected to the monopoly power that the Bank was enjoying. They complained that as the only lending source in the area, the Bank could charge extremely high interest rates which they could not afford. They believed that if other banks were created, those banks would be a means of generating competition to the Bank of North America, thus driving down interest rates.13
In defense of the Bank of North America, James Wilson insisted that one large, central bank was a far better solution for the economy than creating new banks. Several smaller banks, he argued, would prove inefficient in comparison to having only the Bank of North America. Like Webster before him, Wilson held to the belief, at least publicly, that more than one bank in the same city would lead the banks into a battle that neither would survive. His motivation in making this claim is obviously suspect, given that the Bank would stand to lose market share to any newly created banks.14
Agreeing with the farmers was Pennsylvania senator William Maclay. Maclay kept a daily journal during his tenure in the Senate, and it was during his years in Congress that adopting the Constitution and creating a national bank were debated. In summing up the beliefs of agrarian farmers and artisans toward a national bank, Maclay remarked:
Maclay, believing in the type of republicanism that Jefferson supported, was from rural Chester County, and was symbolic of rural citizens who opposed a national bank. Many of these citizens, often feeling taken advantage of by the upper class, would later participate in the Whiskey Rebellion. Although Maclay seemed to believe that a national bank was inevitable, he hoped for future legislators to prevent the Bank of the United States from becoming a creation which solely benefited wealthy individuals.16
In later entries, Maclay noted the ferocity with which the subject of a national bank was debated. On different occasions, he noted that when the time came for supporters of a national bank to show how the public as a whole would benefit, they were unable to do so. He further remarked that if the speeches made by members of Congress in support of a bank were published in the next day’s newspapers, those Senators would be embarrassed at what they had said; Maclay was appalled at the resolve the Senators showed in, what he believed was, ensuring that their own pockets were lined by the public’s investment. Maclay insisted that any profits from a national bank be shared by the public, if not wholly then at least partially; his efforts, however, were in vain, and after the bank bill was passed he concluded that Hamilton was nothing but a villain looting the public for the profit of the elites.17
While the supporters of a national bank could certainly argue that having a central banking center helped in facilitating transactions between individuals, the states, and the federal government, one must question their motives as they supported and defended the institutions they created. Furthermore, it seems to me that they showed little regard for people who were not within their circle when divvying up the spoils of the system. To ensure the survival and progress of American commerce is commendable, as Robert Morris set out to do; yet, his later actions seem indicative of the Federalist attitude, most infamously possessed by Alexander Hamilton, that it is perfectly acceptable for the upper class to make a profit while looking past the concerns of the rest of society.
What’s most arresting are the comments in Maclay’s journal when he proposed that at least some of the profits from the Bank of the United States be shared with the people, in the form of being directly distributed to the federal government, or perhaps more likely, the states. His proposal was met with adamant rejection by the Bank’s supporters, who knew very well the benefits they stood to collect.
The rural struggle against a national bank would continue for the next several decades; it was during the 1780’s however, with the Bank of North America, that the intentions of the Federalists were borne out. The rancor from Pennsylvania, and the in-fighting between the merchant class, would only escalate as other states began to be interested in the central banking system. History has shown, however, that Hamilton and Morris’ view has won, and that the hopes of Maclay and Jefferson for an agrarian society vanished.
1.
Edward S. Kaplan, The Bank of the United States and the American Economy, (Westport, CT: Greenwood Press, 1999), 7-11. Provides a good history of the early relationship between Morris and Hamilton, including the principles of a central bank that they seem to have adopted from Adam Smith.
2.
The letter to Franklin. Francis Wharton, ed., The Revolutionary Diplomatic Correspondence of the United States, (Washington D.C.: Government Printing Office, 1889), 568-571. From a compilation of letters, published by an act of Congress in six volumes; this letter is found in volume 4.
3.
The letter to the governors. Francis Wharton, ed., The Revolutionary Diplomatic Correspondence of the United States, (Washington D.C.: Government Printing Office, 1889), 94-95. From the same compilation as noted above, in volume 5.
Kaplan, 11-12.
4.
Kaplan, 11-12.
5.
Concerning the frustrations of the Quakers: Anna Jacobsen Schwartz, “The Beginning of Competitive Banking in Philadelphia,” The Journal of Political Economy 55, no. 5 (Oct. 1947): 419. Dividends from the bank can be found in Kaplan, 13.
6.
In regard to Wilson: H. Wayne Morgan, “The Origins and Establishment of the First Bank of the United States,” Business History Review 30, no. 4 (Dec. 1956): 477. Originally in the Pennsylvania Gazette, March 3, 1784.
7.
Schwartz, 419.
8.
Schwartz, 419-420.
9.
James O. Wettereau, “The Branches of the First Bank of the United States,” The Journal of Economic History 2, Supplement (Dec. 1942): 68. Willing again obliged in aiding a bank outside of Philadelphia gain footing in 1802, when Savannah applied to open a branch of the Bank of the United States. Here, his motives seem directed by potential profit, as found in Wettereau 83-84.
10.
Schwartz, 420-421. It is interesting to note that when Morris was president of the Bank of North America, he paid off Congress’ ownership in the Bank as quickly as possible. Whether this was to ensure that profits reaped by private parties were greater or because he simply believed the government shouldn’t be involved isn’t clear. Kaplan, 13.
11.
Wettereau, 72.
12.
Stuart Bruchey, “Alexander Hamilton and the State Banks, 1789 to 1795,” The William and Mary Quarterly 27, no. 3 (July 1970): 350.
13.
Morgan, 477.
14.
Morgan, 477, concerning Wilson’s claim.
15.
Edgar S. Maclay, ed., The Journal of William Maclay (New York: D.A. Appleton and Company, 1890), 355.
16.
Maclay, 355.
17.
Maclay, 368-372.
Yesterday…Hamilton’s report on the subject of a national bank was handed to us, and I can readily find that a bank will be the consequence. Considered as an aristocratic engine, I have no predilection for banks. They may be considered, in some measure, as operating like a tax in favor of the rich, against the poor, tending to the accumulating in a few hands; and under this view may be regarded as opposed to republicanism.15