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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. Discovery Education Techbook © Discovery Communications, LLC 1 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. Discovery Education Techbook © Discovery Communications, LLC 2 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. Discovery Education Techbook © Discovery Communications, LLC 3 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. Discovery Education Techbook © Discovery Communications, LLC 4