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The Bank of the United States
Cross-Curricular Connection
Challenges for a New Nation
Imagine that you are on a hiking trip. You hike for miles up a rocky path in the
rain and cold weather to reach your campsite. When you finally arrive, however,
you see that your tent has a hole in it and your flashlight is broken. The ground
is wet and you cannot seem to build a fire. You realize that even though you
have reached your destination, you are still facing many challenges.
The United States was
in a similar situation in
1790 after the
Revolutionary War. At
that point in the
nation’s history, the
economy was broken.
Winning the war had
come with a big price
tag. The nation and
many of its citizens were
in debt. Some states
The First Bank of the United States was headquartered in an
were bankrupt, which
impressive classical-style building in Philadelphia. This brickmeans they did not have
and-marble structure still stands on Third Street.
enough money to pay
their bills. The
Continental Congress had issued paper money during the war, which had
seemed like a good idea at the time. But that had caused inflation, which means
that prices rose sharply and money was worth less and less. In 1790, money was
basically worthless.
Even though the Revolutionary War had ended, the nation faced a whole new
set of challenges. Other nations looked upon the United States with scorn. With
all its economic and other problems, the new United States was not taken
seriously in the international community.
When the new federal government formed under the Constitution, President
George Washington looked to Alexander Hamilton to find solutions to some of
the nation’s problems. Hamilton was named Secretary of the Treasury. His job
was to handle the nation’s financial situation. Many people would have been
overwhelmed by such a difficult task, but not Hamilton. He proved that he had
the knowledge and skills to overcome some of the country’s toughest
challenges.
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The Bank of the United States
Cross-Curricular Connection
Hamilton went to work studying the best way to solve the nation’s economic
troubles. He looked at what other nations had done and thought about how to
adapt their systems so they would work for the United States. He read and read
and then he wrote report after report. Sometimes he stayed up all night
working.
Hamilton’s hard work paid off. Many doubted he could do it, but he came up
with a brilliant plan that strengthened the country’s finances. At the time, not
everyone liked Hamilton’s ideas. Now, however, most historians agree that
Hamilton’s ideas were effective.
A Bank to Power the Economy
One of the key parts of Hamilton’s plan was to
set up a national bank. First, he had to
convince members of Congress to pass the
plan. Thomas Jefferson and James Madison
both opposed it. They thought it gave the
federal government too much power. Once
Hamilton got his plan through Congress, he
had to convince President Washington to sign
the bill. After much discussion and hard work,
the bank was created in 1791. The government
sold shares in the bank. People who owned
bank shares owned part of the bank. They
earned some of the profits of the bank’s
business. The day the shares went on sale,
investors snatched them up within hours.
Business owners, landowners, manufacturers,
and politicians purchased shares. The federal
government even bought some itself!
Painting by Constantino
Brumidi. Secretary of the
Treasury Alexander Hamilton
(1755–1804) was the
mastermind behind the Bank of
the United States. His bold plan
addressed some of the nation’s
financial problems.
The new Bank of the United States
accomplished even more than Hamilton had
hoped. To begin with, the bank provided a stable currency, or paper money.
That made it easier to do business. The bank also took over the states’ debts
from the Revolutionary War. As the federal government started paying back
those loans, both the American people and other nations started to have more
confidence in the United States and its government. In addition, to fix the
problem of inflation, the Bank of the United States began to control the supply
of money in the economy.
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The Bank of the United States
Cross-Curricular Connection
Long-Term Impact of the Bank
Those who opposed the creation of the bank, including Thomas Jefferson,
believed that the Constitution did not authorize Congress to have so much
control over the nation’s money. They favored a strict reading of the
Constitution. Hamilton and his supporters, on the other hand, believed that the
Constitution gave Congress this power and pointed to the Necessary and Proper
clause in Article I as justification. This clause gives Congress the power to make
all laws that are “necessary and proper” to carry out the other powers listed in
the Constitution.
By the time George Washington left office, the two sides had come up with
names for themselves. Hamilton and his supporters started calling themselves
Federalists. Jefferson and his supporters called themselves DemocraticRepublicans. This was the start of the nation’s two-party political system.
Although the Federalist Party eventually ended, many of its members went on
to join the Republican Party, which still exists today. Jefferson’s DemocraticRepublicans are called Democrats today.
The Bank of the United States was the right medicine for an ailing economy in
the late 1700s. Twenty years later, however, its detractors, or the people who
disliked the idea, saw it as a threat. They believed that the bank favored the
wealthy rather than ordinary American people. By 1811, those who opposed the
bank won the dispute, and the bank stopped operating as a national bank. Just
a few years later, however, the whole bank issue would surface again and with
just as much controversy.
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The Bank of the United States
Cross-Curricular Connection
After reading the passage, answer the following questions:
1. Why did Thomas Jefferson oppose the chartering of a national bank?
A. He worried that it would cause inflation.
B. He thought it gave the federal government too much power.
C. He believed it gave too much preference to farmers.
D. He did not think it was the job of the Secretary of the Treasury.
2. Which was the first step taken by Hamilton to solve the nation’s
financial problems?
A. convince Congress to charter a national bank
B. persuade President Washington to sign the bill creating the
bank
C. sell shares in a new national bank
D. research the economies of other nations
3. The creation of a national bank contributed to which of the following
situations?
A. the bankruptcy of some of the states
B. the poor opinion of other nations toward the United States
C. the formation of political parties
D. the addition of the Necessary and Proper clause to the
Constitution
4. What arguments might a supporter of Hamilton in 1790 have made to
defend the idea of a national bank? Use evidence from the text to
support your answer.
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