Sign Massachusetts Banking IOU Fast

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[Music] modern Americans take the Constitution of the United States so much for granted that it becomes difficult to appreciate the sense of suspicion and apprehension with which it was greeted when the government it created finally began to operate in the spring of 1789 support for the constitution of 1787 had almost literally to be bought with promises that in exchange for ratifying the Constitution the new Congress that it created would pass amendments which would placate the interests of the states so almost its first business when Congress assembled in New York City in the spring of 1789 was to quickly pass ten amendments to the Constitution which promised the states that the federal government first of all would do nothing to establish a national state Church and that simultaneously pleased states which had no officially designated religious establishment and it also pleased those who did have one but who feared what might happen if Congress established a different Church as the official National Church of the United States secondly these amendments would also promise that the federal government would do nothing to restrain freedom of speech or freedom of the press and the federal government was supposed to do nothing to restrain the cherished Republican independence of the citizens of the states by such potential outrages as restricting the creation of armed state militias imposing search and seizure policies quartering federal troops on private property or in fact doing anything else which the Federal Constitution did not precisely specify as a power of the federal government the last of these ten amendments which became known among the ranks of those who mistrust at the new constitution as the Bill of Rights the last of these amendments summed up its own promises of Republican strained by declaring that the powers not delegated to the United States by the Constitution nor prohibited by it to the states are reserved to the States respectively or to the people there was restraint which could make all of the states happy in December of 1790 the new President George Washington and Congress uprooted themselves from New York City and set up operations in the old Pennsylvania State House in Philadelphia hardly had Congress convened on the first Monday in December before President Washington found it necessary to circumvent what some of those amendments had promised a few of the ways in which Washington and the Congress in Philadelphia inched around the promises of the amendments were simply matters of necessary procedural arrangements without which the new government could hardly a function at all the Constitution for instance made no provision for the creation of an official presidential staff of advisors and administrators but the SAC experience of government under the Articles of Confederation had shown that some kind of administrative staff was a necessity for the executive so Congress authorized Washington to create for administrative departments Department of War Treasury Department of State and an Attorney General and to fill those offices at his discretion which Washington did by appointing Alexander Hamilton to the Secretariat of the Treasury Thomas Jefferson to the Department of State and his old wartime artillery chief Henry Knox to the department of war with Edmund Randolph of Virginia to serve as Attorney General the Constitution also created a federal judicial system to balance the legislative powers of Congress and the president the problem was that having brought a federal judiciary into existence the Constitution did nothing to spell out its structure or its response beyond providing for a federal Supreme Court and leaving such inferior courts as might be necessary to be created by Congress and then there were problems which required even more dramatic end runs around the prohibitions in the Tenth Amendment the new federal government inherited from the Continental Congress and from the Articles of Confederation a burden of war indebtedness from the Revolution which amounted to over 75 million dollars 42 million of which was owed by the federal government to its own citizens Americans who had bought government bonds or government securities or who had accepted continental io u--'s for goods or services during the revolution nothing in the constitution spelled out how the federal government was to deal with this problem and nothing in the experience of the Continental Congress or the Articles of Confederation gave much hope that the states and then the state's mind you had their own war debt to pay off and the states were not going to welcome our arrival in settling those debts in the form of the federal government in Philadelphia there there was no sign that the states were going to permit much leeway to the federal government in dealing with this problem of indebtedness but Alexander Hamilton saw in the federal debt crisis not only an opportunity to serve the nation and prove himself as the secretary of the Treasury but also a means for pushing the shape of the New Republic into the mold of his own particular sense of what a republic should be for Hamilton the survival of the American Republic depended on keeping the jealous interests of the individual states at bay and in balance while the Independence of the United States was linked to how successfully the Republic could develop its own systems of foreign commerce manufacturers and credit in January of 1790 in response to a directive from Congress for proposals on dealing with the debt crisis Hamilton sent to Congress the first in a series of three reports all of which outlined his plan a secretary of the Treasury not only for dealing with the problem of federal government debt but in effect what he did was to sketch out the financial future of the United States the first of these three reports the report on the public credit which Hamilton sent to Congress in January of 1790 in this Hamilton addressed the debt crisis head-on he rejected outright the coy suggestions from the states that the federal government simply repudiate all responsibility for the war debt now the grounds on which they suggested this was that well you know the war debt had been contracted under two previous American governments the Continental Congress and then the Confederation Congress and therefore the ward that was not the responsibility of the new constitution government and therefore it could be repudiated entirely and if you happen to hold Continental IOUs or if you happen to hold securities issued by the Confederation Congress too bad for you we're sorry but that's the necessary sacrifice you get to make for America to be what it is or else the states suggested let's offer to redeem the Continental securities but let's offer to redeem them at a few pennies on the dollar or or even let's allow the individual states to divide up the national debt among themselves and pay it off out of their own state tax revenues not only would these suggestions hurt directly American citizens and war veterans who had bought these securities or taken these IOUs in good faith but Hamilton argued to do any of those things would irreparably damage the trustworthiness of the new American government on the markets of the world hardly before it had begun operating on the other hand Hamilton was aware that there were many people in the states who welcomed precisely these conclusions on the grounds that first of all dealing in securities was a phony form of wealth dealing and securities was a little better than gambling it deserved no public respect and if anybody lost money because they bought government securities or invested in continental io u--'s well it served them right they should never have been dealing in phony forms of wealth like that in the first place and then there were voices that in the states believed that anything which weakened the federal government or kept it weak necessarily strengthened the individual states so with those objections in mind Hamilton insisted to Congress the Congress must not only fund the existing war debt but it must also assume in other words it must take over the war debts owed by the states as well now to deal with this added burden Hamilton proposed three immediate solutions first of all raise federal taxes in the form of tariffs on imports then impose and it and this horrified the agricultural interests impose a 25 percent excise tax on whiskey they might wonder why whiskey well whiskey because whiskey was a major agricultural by-product and he then proposed the creation of a daring scheme of national banking which leads us to his second report on December 13th 1790 funding and managing the national debt was actually a procedural matter Hamilton could have handled all that solely through the Treasury but Hamilton doubted that merely raising taxes would bring in enough revenue to pay off the debt in anyway Hamilton was pursuing bigger political quarry if the report on the public credit was truly a mechanism for putting the states in their proper places then this second report which was technically an extension of the report on public credit but is usually better known simply as his report on a National Bank this second report was an even bigger mechanism for creating not just a means of funding the war debt by creating a national Republican economy before 1776 no banks of any description had existed in British North America and the reasons for this strange absence although somewhat opaque to modernize we're used to a bank on every corner it's hard for us to imagine a world in which there aren't any the the reasons seem opaque to us but they were very clear to Anglo Americans in the 18th century after all banks are fundamentally a legal means by which groups of individuals pool their private wealth and then make it available to large-scale entrepreneurs to borrow and when they've borrowed it create large-scale enterprises and in the end the bank receives large-scale profits from the proceeds of those particular enterprises the British government in the colonial days was suspicious of anything which would permit big concentrations of wealth in the colonies because that might be a threat to the home islands it might start making the colonies self-sufficient and as we all know terrible things might happen to Parliament as a result of that so if great concentrations of wealth and the colonies are a threat to the authority of Parliament then you should not have banks in the colonies but it wasn't just the British who who adopted this attitude on a pragmatic basis there were also American thinkers American Republicans like Thomas Jefferson who feared that banking infected people with a speculative fever a desire to deposit money into banking pools and for hope of obtaining unreal wealth now what made banking even more suspicious to both the British and a Thomas Jefferson was the balance that banks struck between specie and paper now in theory banks make their money by having depositors lend them real money in hard gold and silver coin or specie but the bank then lends out not the depositors specie but bank notes in other words paper certificates which promise payment in specie upon demand by the holder and the banks notes thus become the circulating currency of commercial enterprise now this of course if it had happened in the colonies would have raised British suspicions that the colonists were attempting to create their own currencies their own domestic economies and it did raise Jefferson's suspicions that banks were dealing only in illusory and artificial forms of wealth why don't me what else was paper money just paper it's not real the fact that banks would take gold and silver and then turn around and start dealing out to people paper money struck Jefferson as odd and suspicious but the fact was that without the kind of large-scale pooling of capital which banking makes possible no kind of major economic growth could happen in America which ironically satisfied both agricultural purists like Jefferson and British colonial administrators it did not satisfy Alexander Hamilton and now that the United States no longer operated under the restraint of British law Hamilton now proposed to provide for precisely the concentrations of capital which he believed were the only way toward a American Economic vigor and independence the report on a National Bank sketched out for Congress the creation of a joint public sector private sector venture a Bank of the United States in which both the federal government and private investors would pool funds the federal government would provide one-fifth of the capitalization from its own revenues and in return the federal government would use the Bank of the United States as its instrument as its agency for receipt and disbursement of funds and what was even more the federal government would use the bank's paper notes as the national paper currency the federal government's involvement in the Bank of the United States would guarantee its soundness for private investors and the remaining four-fifths of the bank's capitalization which private investors contributed would then be available for lending out to entrepreneurs and to business to fuel economic development the profits which the bank then earned from those entrepreneurs would not only enrich the private depositors the four-fifths of the capitalization but would also then help pay off the remaining federal debt in proportion to the federal government's one-fifth holding of the bank now the most obvious question which the creation of a bank posed was in whose interest is this National Bank going to operate Hamilton answered that question in the last of his three reports at the end of 1791 the report on the subject of manufactures here Hamilton plainly declared his intention to build American manufacturing up to a par with American agriculture and he argued against the glorification of agricultural labor and agricultural land holding which play so large a role in Jefferson's thinking Jefferson had been born to landholding Hamilton of course had not and so it seemed to Hamilton that Jefferson's worship of Agriculture was peculiar and out of place so Hamilton writes in this third report the foregoing considerations seemed sufficient to establish as general propositions that it is the interest of nations to diversify the industrious pursuits of the individuals who compose them in other words let's not have the United States put all its chips on agriculture economically speaking the establishment of manufacturers is calculated not only to increase the general stock of useful and productive labor but even to improve the state of agriculture in particular certainly to advance the interests of those who are engaged in it Hamilton's main devices for the establishment of manufacturers in the American Republic were first of all the Bank of the United States that he had proposed in the second report because the Bank of the United States would make a tremendous pool of government and private investment capital available for entrepreneurs to borrow from and build a system of manufacturers but also Hamilton proposed to juggle the new tariff system so that the tariff system would increase the cost to Americans of importing foreign manufactured goods and make the purchase of american-made goods more attractive at home he also encouraged lifting barriers to immigration why because that would permit the recruitment of a cheap labor force for manufacturing again remember as I'd said earlier in this series the great dilemma of the American landscape was that there was so much landscape and so little labor and this is still a problem that Hamilton is dealing with when he talks about manufacturing so therefore let's relieve the restrictions on immigration because that is where the labor force is going to come from Hamilton's proposals in these three reports were to put it mildly politically daring but they were also financially risky because there were no guarantees that any of this was going to work and Hamilton had to deal with the combined opposition of Thomas Jefferson in the cabinet and most of the southern agriculturalists in Congress Jefferson saw at once that Hamilton's program was heavily biased in favor of urban fin ncial interests and that roused in Jefferson's mind the specter of the Republic soiling its hands in merchandising and shuffling paper banknotes the taxation scheme which Hamilton asked for was seen by Jefferson as a dagger at the security and independence of the Republican farmer and the merchants who had become the primary beneficiaries of a bank of the United States and a new American manufacturing movement they they would quickly turn their artificial phony economic power in the direction of bribery and political corruption and everything would become the same Whig nightmare it had been in the 1760s Jefferson announced that banks exist only to enrich swindlers at the expense of the honest and industrious Nathaniel Macon of North Carolina sneered at banks as gaming shops where cunning projectors schemed to live off the labors of others in any case Jefferson argued even if banks didn't do those terrible things the Constitution had still given Congress no authority to create a National Bank and under the provisions of the Bill of Rights the entire proposal for the establishment of a National Bank was unconstitutional from the start as for encouraging domestic manufacturing the acerbic John Randolph of Roanoke together with Jefferson could only snarl that agriculture and not manufacturing was what made the Republic what it was Randolph wrote the agriculturalists not the bankers not manufacturers the agriculturalists bear the whole brunt of taxation and remain poor while the others run in the ring of pleasure and fatten upon them the manufacturer is the citizen of no place or any place and parenthetically therefore is not to be trusted the agriculturalists has his property his land his all while the commercial speculators live in opulence whirling in coaches and indulging in palaces alert vigilant enterprising and active the manufacturing interests are collected in masses and ready to associate at a moment's warning for the many purposes of general interest to their body do but ring the fire bell and you can assemble all the manufacturing interests of Philadelphia in 15 minutes hey for that matter they are always assembled and compare notes and lay plans and possess in trick and intelligence what in the goodness of God to them the others can never possess but despite the opposition in both the cabinet and in Congress Hamilton eventually negotiated the recommendations of all three reports through Congress and largely on the basis of two important assets one of these assets was a large group of congressmen in both the House and the Senate who had made substantial investments in government securities during and after the Revolution and who stood quite frankly to lose badly if Hamilton's funding and assumption proposals were not endorsed as a result even though the assumption proposals went down to defeat in April of 1790 the funding proposals passed through Congress in June then over the summer Hamilton swung a remarkably unvirtuous and Unruh publican deal with Thomas Jefferson offering to swap Jefferson's support for assumption for Hamilton's support for a scheme to relocate the national capital from Philadelphia to a site on the Virginia Maryland border a month later a resurrected assumption bill glided through the Senate Hamilton's other major asset in this process was George Washington who had learned to trust Hamilton as a staff officer during the revolution and who trusted him now that trust was tested in February of 1791 when a 20-year charter for the Bank of the United States was passed by the house and sent to Washington for his signature within the cabinet Jefferson and Edmund Randolph appealed to Washington to veto the bank charter on the grounds that Congress had no authority under the Constitution to charter corporations of any sort where they asked where in the Constitution does it explicitly state that Congress has the power to charter corporations much less Bank corporations therefore the bank's charter would violate the Bill of Rights Hamilton argued back to Washington that the Bill of Rights did not mean to do away with certain implied powers which are simply by common sense necessary to normal government in the Constitution clearly unambiguously granted the federal government the right to regulate commerce on the other hand at nowhere specified that Congress should establish lighthouses and docks and buoys and fund a Coast Guard yet Congress had gone ahead and enacted legislation for providing for all of these why because these facilities and these services were reasonable means toward the end of regulating Commerce now just so with the bank yes Congress had no Express power to charter a National Bank but it did have a constitutional responsibility to regulate currency and bankruptcy and it is so specified in section 8 of the Constitution hence the authority to charter a National Bank was implied in the Constitution when the Constitution designates the end it also implies the means to achieve that end Washington listened and then signed the bank bill on February 25th 1791 in frustration Jefferson waited until the end of 1793 and then resigned from Washington's cabinet Hamilton did not actually remain within the cabinet for much longer he stepped down as secretary of the Treasury at the end of January 1795 but by then his work was really done in 1791 and in 1792 40 new corporations were chartered in the United States nine of them for banks and the rest for public works canals and Turnpike's and all of them capitalized in large measure by the banknotes and the securities issued through the Bank of the United States by 1815 state legislators had copied this by chartering over 200 banks abroad the value of American bonds and American securities received the highest ratings on the amsterdam financial markets with the result that european silver and gold specie now began to flow into the vaults of the bank of the United States because American securities were now worth owning in Europe but Jefferson was not placated by a success which appeared to him to be concocted out of fiscal mirages and in western Pennsylvania Restless farmers greeted the collect years of the whiskey excise with coats of tar and feathers and when in 1796 Washington announced his permanent retirement from political life the ensuing presidential election created a riot of political confusion when the dust had finally settled Washington's vice president and hand-picked successor John Adams of Massachusetts only barely squeaked past Thomas Jefferson who now by an unlooked-for freak in the Constitution's electoral provisions became Adams vice president a 1790s the first decade of the new American Constitution clearly belonged to Alexander Hamilton but even before the decade was over confusion and hostility to Hamilton's program was mounting and as it turned out Hamilton's friends even more than Hamilton's enemies would come within an ace of undoing Hamilton's Republic