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Turning (Into) “The Great Regulating Wheel”: The Conversion of the Bank of the United States, 1791–1811

  • Eric Lomazoff (a1)
Abstract

Two volumes have recently challenged the assumption that institutional change either (1) takes the form of gradual adaptation in the service of continuity, or (2) entails the abrupt breakdown of existing arrangements. This scholarship has demonstrated that change can also be simultaneously gradual and transformative. Conversion represents one type of such change; it involves the use of institutional resources for new purposes. I chronicle the conversion of the Bank of the United States (1791–1811) from a fiscal auxiliary of the federal government to an institution with both fiscal and monetary capacities. More generally, I ask whether this change squares with existing understandings of how conversion unfolds. Conversion is thought to occur when (1) new actors assume control, or (2) new challenges prompt the redeployment of resources. I ask whether the Bank's conversion resulted from (3) efforts by institutional elites to invent a rationale for deployment. I find that the change in question resulted from genuine concerns about the supply of bank credit in the Early Republic. With the details of this historical transformation in mind, I briefly digress in order to address repeated claims that the Bank of the United States was or became a “central bank” during this period.

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lomazoff@ou.edu
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1. Timberlake, Richard Jr., “The Specie Standard and Central Banking in the United States Before 1860,” Journal of Economic History 21, no. 3 (September 1961): 320–21.

2. George Cabot to Josiah Quincy, 9 January 1807, copied letter, James O. Wettereau Research Papers (hereafter JOW), Columbia University Rare Book and Manuscript Library, Box 7, Folder 81. The original letter is held at the Massachusetts Historical Society. Cabot, who served as both a U.S. Senator and a Bank of the United States director during the 1790s, was affiliated with the Boston branch of the BUS in 1807. Quincy, who later served as president of Harvard University (1829–1845), was then a member of the House from Massachusetts.

3. Clarke, Matthew St. Clair and Hall, David A., Legislative and Documentary History of the Bank of the United States, Including the Original Bank of North America (Washington, DC: Gales and Seaton, 1832), 142 (quoting Representative William Burwell of Virginia).

4. See, for example, Streeck, Wolfgang and Thelen, Kathleen, eds., Beyond Continuity: Institutional Change in Advanced Political Economies (New York: Oxford University Press, 2005).

5. Perkins, Edwin J., American Public Finance and Financial Services, 1700–1815 (Columbus, OH: Ohio State University Press, 1994), 249. See also Elazar, Daniel, “Banking and Federalism in the Early American Republic,” Huntington Library Quarterly 28, no. 4 (1965): 304, which draws from Shultz, William J. and Cain, M.R., Financial Development of the United States (New York: Prentice Hall, 1937): “Through its branch organization [the BUS] cooperated with and to some extent controlled the newly-created state banks throughout the country.” Though not devoted to the Bank of the United States or to antebellum banking generally, Chase Mooney's biography of Treasury Secretary William H. Crawford provides a comparable gloss; the BUS “acted as a stabilizing influence on the economy and a restraining influence on state banks.” Mooney, William H. Crawford, 1772–1834 (Lexington: University Press of Kentucky, 1974), 20.

6. Hoffmann, Susan, Politics and Banking: Ideas, Public Policy, and the Creation of Financial Institutions (Baltimore: Johns Hopkins University Press, 2001), 41. Stephen Mihm's recent work on antebellum counterfeiting, A Nation of Counterfeiters: Capitalists, Con Men, and the Making of the United States (Cambridge, MA: Harvard University Press, 2007), adopts a similar perspective: “The First Bank of the United States exercised a growing measure of control over the bank notes [state] institutions issued, though this happened more by accident than design” (pp. 108–9). See also Hammond, Bray, Banks and Politics in America: From the Revolution to the Civil War (Princeton: Princeton University Press, 1957): “Neither Alexander Hamilton nor anyone else had foreseen it” (p. 199).

7. Van Fenstermaker, Joseph, The Development of American Commercial Banking: 1782–1837 (Kent, OH: Bureau of Economic and Business Research, 1965), 7. Richard Sylla similarly writes that “[b]y redeeming state banknotes and checks for base-money reserves, the federal banks could discourage the state banks from running down reserves in favor of pursuing profits.” Sylla, , “Reversing Financial Reversals: Government and the Financial System since 1789,” in Government and the American Economy: A New History, Fishback, Price V. et al. (Chicago: University of Chicago Press, 2007), 128. See also Hammond, Banks and Politics, 200–1, and Hoffmann, Politics and Banking, 41.

8. Cowen, David J., The Origins and Economic Impact of the First Bank of the United States, 1791–1797 (New York: Garland Publishing, 2000): 137ff; Bruchey, Stuart, Enterprise: The Dynamic Economy of a Free People (Cambridge, MA: Harvard University Press, 1990), esp. at 171–172. Wettereau's own essay speaking to this development appears unfinished and has never been published; see “The First Bank of the United States: Government Depository and Embryonic Central Bank, 1791–1811,” in JOW, Box 4, Folder 2.

9. Bruchey, Enterprise, 171.

10. Quoted in Cowen, Origins and Economic Impact, 141. The letter from which this quote is drawn, from Willing to John Sergeant, 19 December 1815, is reprinted in James O. Wettereau, Documentary History of the First Bank of the United States [hereafter DHFBUS], in JOW, Box 27, Book “B.”

11. Timberlake, Richard Jr., Monetary Policy in the United States: An Intellectual and Institutional History (Chicago: University of Chicago Press, 1993), 4.

12. Streeck, Wolfgang and Thelen, Kathleen, “Introduction: Institutional Change in Advanced Political Economies,” in Streeck and Thelen, Beyond Continuity, 89.

13. Ibid., 8. See also Thelen, Kathleen, How Institutions Evolve: The Political Economy of Skills in Germany, Britain, the United States and Japan (Cambridge, UK: Cambridge University Press, 2004), 30.

14. Streeck and Thelen, “Introduction,” 31. Their general approach to the analysis of institutional change is extended in Mahoney, James and Thelen, Kathleen, “A Theory of Gradual Institutional Change,” in Explaining Institutional Change: Ambiguity, Agency, and Power, ed. Mahoney, and Thelen, (Cambridge, UK: Cambridge University Press, 2010), 37. The latter text dispenses with “exhaustion” as a type of gradual but transformative institutional change, leaving four possibilities in place of Streeck and Thelen's original five.

15. Streeck and Thelen, “Introduction,” 26.

16. Cowen, Origins and Economic Impact, 142.

17. Streeck and Thelen, “Introduction,” 26. The use of existing structures to deal with emergent problems has some affinity with Hugh Heclo's concept of “classic conditioning.” See Heclo, , Modern Social Politics in Britain and Sweden: From Relief to Income Maintenance (New Haven: Yale University Press, 1974), 315–16.

18. On the Federal Reserve's shift to open-market securities transactions (and away from discount lending) as the “main valve by which the Fed added or withdrew liquidity from the banking system,” see Greider, William, Secrets of the Temple: How the Federal Reserve Runs the Country (New York: Simon and Schuster, 1987), 314.

19. On the development of “capacity” within administrative organizations during the New Deal, see Skocpol, Theda and Feingold, Kenneth, “State Capacity and Economic Intervention in the Early New Deal,” Political Science Quarterly 97, no. 2 (Summer 1982): 255–78, esp. 260–61.

20. Cf. Sylla, Richard, Wright, Robert E., and Cowen, David J., “Alexander Hamilton, Central Banker: Crisis Management During the U.S. Financial Panic of 1792,” Business History Review 83, no. 1 (Spring 2009): 64; see also Redlich, Fritz, The Molding of American Banking: Men and Ideas (New York: Hafner Publishing Company, 1947), 95: “[A] central bank was in the making prior to the turn of the eighteenth century.”

21. Timberlake, Monetary Policy, 6.

22. Freeman, Joanne B. uses the conventional title in Hamilton: Writings, ed. Freeman (New York: Library of America, 2001), 575; cf. the title cited first in the Papers of Alexander Hamilton [hereafter PAH], vol. 7, ed. Syrett, Harold and Cooke, Jacob (New York: Columbia University Press, 1963), 236.

23. The report is reprinted in Hamilton: Writings (see previous note), 531–74.

24. Sylla, Wright, and Cowen, “Alexander Hamilton, Central Banker,” 70.

25. Hamilton, “Report on a National Bank,” 575.

26. Ibid.

27. Cowen, Origins and Economic Impact, 14.

28. Clarke and Hall, Legislative and Documentary History, 37–114.

29. Ibid., 41 and 68.

30. Cowen, Origins and Economic Impact, 83fn162, citing a recurring advertisement in the Gazette of the United States. See also Sylla, Wright, and Cowen, “Alexander Hamilton, Central Banker,” 67; and Hammond, Banks and Politics, 125.

31. Subscription books for the BUS were opened on July 4 at the Bank of North America in Philadelphia, the Massachusetts Bank in Boston, the Bank of New York in New York City, the Bank of Maryland in Baltimore, and the Chamber of Commerce in Charleston (Cowen, Origins and Economic Impact, 36–37). On the first election of directors, see Holdsworth, John Thom, The First Bank of the United States (Washington, DC: National Monetary Commission, 1910), 25.

32. See, e.g., Cowen, Origins and Economic Impact, 35–43; Sylla, Wright, and Cowen, “Alexander Hamilton, Central Banker,” 67; Elkins, Stanley and McKitrick, Eric, The Age of Federalism: The Early American Republic, 1788–1800 (New York: Oxford University Press, 1993), 242–44; and to a lesser extent Wright, Robert E., One Nation Under Debt: Hamilton, Jefferson, and the History of What We Owe (New York: McGraw-Hill, 2008), 149–50.

33. Elkins and McKitrick, Age of Federalism, 242–43; Cowen, Origins and Economic Impact, 35. The precise schedule for payment of the $375 balance ($300 in federal securities and $75 in specie) is printed in Cowen, 37.

34. Myers, Margaret G., A Financial History of the United States (New York: Columbia University Press, 1970), 68, cited in Broz, J. Lawrence, The International Origins of the Federal Reserve System (Ithaca, NY: Cornell University Press, 1997), 231; see also Elkins and McKitrick, Age of Federalism, 242. The interval estimate comes from Wettereau, James O., “New Light on the First Bank of the United States,” Pennsylvania Magazine of History and Biography 61, no. 3 (July 1937): 273.

35. Cowen, Origins and Economic Impact, 38–39 (emphasis added); Elkins and McKitrick, Age of Federalism, 243.

36. Cowen, Origins and Economic Impact, 39 and 41.

37. See, e.g., Davis, Joseph Stancliffe, “William Duer, Entrepreneur, 1747–99,” in Davis, Joseph Stancliffe, Essays in the Earlier History of American Corporations, vol. 1 of 2 (Cambridge, MA: Harvard University Press, 1917), 202–12; Banner, Stuart, Anglo-American Securities Regulation: Cultural and Political Roots, 1690–1860 (Cambridge, UK: Cambridge University Press, 2002), 140–46; and Sobel, Robert, “William Duer and the Panic of 1792,” in Sobel, Robert, Panic on Wall Street: A History of America's Financial Disasters (Washington, DC: Beard Books, 1999), 1721.

38. Elkins and McKitrick, Age of Federalism, 242.

39. Madison to Jefferson, 10 July 1791, in the Papers of James Madison [hereafter PJM], vol. 14, ed. Rutland, Robert and Mason, Thomas A. (Charlottesville: University Press of Virginia, 1983), 43 (emphasis added).

40. Madison to Jefferson, 8 August 1791, in PJM, vol. 14, 69.

41. Jefferson to Edmund Pendleton, 24 July 1791, in Papers of Thomas Jefferson [hereafter PTJ], vol. 20, ed. Boyd, Julian (Princeton: Princeton University Press, 1982), 670.

42. Jefferson to Humphreys, 23 August 1791, in PTJ, vol. 22, 62. See also Jefferson to William Carmichael, 24 August 1791, PTJ, vol. 22, 64; Jefferson to Gouverneur Morris, 30 August 1791, in PTJ, vol. 22, 104: “I have rarely seen a gamester cured even by the disasters of his vocation.” Finally, see Jefferson to Edward Rutledge, 25 August 1791, in PTJ, vol. 22, 74: “The taylor who has made thousands in one day, tho' he has lost them the next, can never again be content with the slow and moderate earnings of his needle.”

Thomas Jefferson was not alone in harping on the popular distraction long after the scrip price had peaked. On this point see Seth Johnson to Andrew Craigie, 20 August 1791, reprinted in Wettereau, DHFBUS: “The best support & surest resource of a nation is in the industry & frugality of its Citizens—whatever in any way tends to lessen or destroy those useful habits must be considered as prejudicial[.] The present rage for speculation by producing in some, a sudden & great acquisition of wealth, allures others, of all ranks, from those regular habits of business thro' which, the acquirement of property tho' slow is certain[.]”

43. Jefferson to Rutledge, 25 August 1791, in PTJ, vol. 22, 74; see also Jefferson to Gouverneur Morris, 30 August 1791, in PTJ, vol. 22, 105: “[T]he abundance of paper has produced a spirit of gambling . . . which has laid up our ships at the wharves as too slow instruments of profit[.]”

Even Federalists (in their own correspondence) acknowledged the effects invoked by Jefferson. Senator Rufus King wrote to Alexander Hamilton in mid-August 1791 of “mechanics deserting their shops, shopkeepers sending their goods to auction, and . . . merchants neglecting their regular and profitable commerce of the city” for the chance to get rich quick. King to Hamilton, 15 August 1791, in PAH, vol. 9, 60. Similarly, Benjamin Rush wrote his wife Julia a few days earlier that “[y]ou hear of nothing but script and of all the numbers between 50 and 300 at every corner. Merchants, grocers, shopkeepers, sea captains, and even prentice boys have embarked in the business.” Benjamin Rush to Julia Rush, 12 August 1791, in the Letters of Benjamin Rush, vol. 1, ed. Butterfield, L.H. (Philadelphia: American Philosophical Society, 1951), 602.

44. Quoted in Cowen, Origins and Economic Impact, 44.

45. Ibid., 44 and 46; Holdsworth, First Bank, 25. On Willing, there is an outdated biography by Konkle, Burton Alva, Thomas Willing and the First American Financial System (Philadelphia: University of Pennsylvania Press, 1937). A more concise but richer portrait comes from Wright, Robert E., “Thomas Willing (1731–1821): Philadelphia Financier and Forgotten Founding Father,” Pennsylvania History 63, no. 4 (October 1996): 525–60; see also Wright, Robert E. and Cowen, David J., “Angels Risen and Fallen: Thomas Willing (1713–1821) & Robert Morris (1735–1806),” in Wright, Robert E. and Cowen, David J., Financial Founding Fathers: The Men Who Made America Rich (Chicago: University of Chicago Press, 2006), 115–40.

Despite Willing's near-decade of experience as head of the BNA, the prospect of his presidency was ill received in some quarters. During the summer of 1791, Representative Fisher Ames of Massachusetts responded to rumors of Willing's impending ascent by writing Alexander Hamilton that “the Pres[iden]t ought to be free from all suspicion of management.” Apparently Ames's fear was that Senator Robert Morris, founder of the BNA, Willing's longtime business partner, and now a major stockholder in the BUS, would prove “a man of talents and intrigue . . . [and] make a property of this man [Willing] & govern him at [his] pleasure.” See Ames to Hamilton, 31 July 1791, reprinted in Wettereau, DHFBUS.

46. Hamilton, “Report on a National Bank,” 599; here and throughout the remainder of the article I employ the Library of America edition, as cited in note 23.

47. Ibid.

48. Perkins, American Public Finance, 242; Hamilton, “Report on a National Bank,” 600. Even years later, President Willing would complain to Oliver Wolcott that officers of the main office in Philadelphia “are at too great a distance from all our [branches] to be able, from personal knowledge to judge of the persons, most fit to fill the station of [branch] Directors.” Willing to Wolcott, 28 November 1805, quoted in Cowen, Origins and Economic Impact, 76fn85.

49. Hamilton, “Report on a National Bank,” 600. Late in the summer of 1791, after the height of scripomania but before the election of the first board of directors, Hamilton commissioned from his deputy (Wolcott) a memorandum on the legality and expediency of establishing branches. Wolcott found that “no restriction in the Law [i.e., charter], forbids the establishment of departments[,]” and argued that if the income resulting from local deposits exceeded the operational expenses of branches, advantages both public (local access to credit) and private (stockholder profit) recommended their establishment. The Wolcott memorandum, likely the direct source of his popularity with stockholders, is also interesting because it appears to be the first internal document to conceive of the cashier, not the president, as the principal operating officer of the bank. The original Wolcott memo, dated September 1791, is held with his other papers at the Connecticut Historical Society; see also Wettereau, DHFBUS.

50. This view is advanced by both Perkins, American Public Finance, 243, and Cowen, Origins and Economic Impact, 75fn84.

51. Perkins, American Public Finance, 243.

52. Joseph Stancliffe Davis, “Eighteenth Century Business Corporations in the United States,” in Davis, vol. 2, 58; Wettereau, James O., “The Branches of the First Bank of the United States,” Journal of Economic History 2, Supplement: The Tasks of Economic History (December 1942): 73.

53. Perkins, American Public Finance, 243; in general, see Schwartz, Anna, “The Beginning of Competitive Banking in Philadelphia, 1782–1809,” Journal of Political Economy 55, no. 5 (October 1947): 417–31. The point is also treated by Cowen, Origins and Economic Impact, 51.

54. Davis, “Eighteenth Century,” 54; see also Cowen, Origins and Economic Impact, 52.

55. This oft-cited letter of August 7 is reprinted in Wettereau's DHFBUS and is drawn from The Life and Correspondence of Rufus King, vol. 1, ed. King, Charles R. (New York: G.P. Putnam's Sons, 1900), 400401. See also Cowen, Origins and Economic Impact, 52, and Davis, “Eighteenth Century,” 55. Representative Fisher Ames of Massachusetts wrote Alexander Hamilton a week later that “this (Massa) Bank is in the best disposition in the world, ready to give up the ghost, and take a chance for a resurrection as a branch[.]” Ames to Hamilton, 15 August 1791, reprinted in Wettereau, DHFBUS.

56. Quoted in Cowen, Origins and Economic Impact, 80fn127.

57. Bruchey, Stuart, “Alexander Hamilton and the State Banks, 1789–1795,” William and Mary Quarterly 27, no. 3 (July 1970): 351. The general spirit of the summer and fall of 1791, which also saw the emergence of scripomania, is nicely captured in Seth Johnson's remark to Andrew Craigie that “[t]here seems to be a diversity of opinion respecting the National Bank ingrafting itself on the established State banks—or of its establishing branches [at all].” Johnson to Craigie, 20 August 1791, reprinted in Wettereau, DHFBUS; see also Davis, “Eighteenth Century,” 56.

58. Cowen, Origins and Economic Impact, 53.

59. This “fact” represents a paraphrase of Hamilton's letter to BONY cashier William Seton not long after the BUS decision to establish branches; see Hamilton to Seton, 25 November 1791, in PAH, vol. 9, 538–39. See also Davis, “Eighteenth Century,” 57.

60. Wettereau, “New Light,” 272.

61. Bruchey, Enterprise, 170. On internally generated behavior as a key source of institutional development, see Streeck and Thelen, “Introduction,” 19.

62. Undated internal BUS memorandum, cited in Cowen, Origins and Economic Impact, 50.

63. Cowen, Origins and Economic Impact, 48 and 107. This underscores the earlier point that a bank cashier, not its president, was considered the principal operating officer.

64. Ibid., 106. See also Wettereau's handwritten notes in JOW, Box 6, Folder 79.

65. Redlich, Molding of American Banking, 96; the BUS became “a controlling bank within a system of banks.”

66. See Mihm, Nation of Counterfeiters, 108: “Banking . . . grew at an exponential rate during the first two decades of the nation's existence.”

67. Davis, “Eighteenth Century,” 80. The Bank of Albany was chartered in April 1792; see Fenstermaker, Development, 159.

68. In general terms, see Dorfman, Joseph, The Economic Mind in American Civilization, 1606–1865 (New York: Viking Press, 1946), 331, and Klebaner, Benjamin J., American Commercial Banking: A History (Boston: Twayne Publishers, 1990), 5.

69. Watson to Wadsworth, 28 January 1792, reprinted in Wettereau, DHFBUS. See also Davis, “Eighteenth Century,” 81–83; Cowen, Origins and Economic Impact, 102; and Bruchey, “Alexander Hamilton,” 358.

70. Walter Rutherford to John Rutherford, 30 January 1792, cited in Davis, “Eighteenth Century,” 83. That these particular ventures were never realized—an outcome of the Panic of 1792—should not be construed as an indictment of the broader claim concerning profit-seeking as a motive for state bank creation. The Panic of 1792, arguably the first “stock market crash” in American history, left the New York legislature leery of granting new corporate charters. See Perkins, 314; he repeatedly invokes but never fully cites Werner, Walter and Smith, Steven T., Wall Street (New York: Columbia University Press, 1991), 3. The Treasury's response to the panic, which included the open-market purchase of depressed federal securities, is chronicled in Sylla, Wright, and Cowen, “Alexander Hamilton, Central Banker,” 77–84.

71. Bodenhorn, Howard, State Banking in Early America: A New Economic History (New York: Oxford University Press, 2003), 12; Joseph Stancliffe Davis suggests that “[i]n considerable measure [the state bank] was the result of the rising tide of commercial and speculative activity which marked the years 1789–92,” in “Eighteenth Century,” 59.

72. Sylla, Richard, Legler, John, and Wallis, John, “Banks and State Public Finance in the New Republic: The United States, 1790–1860,” Journal of Economic History 47, no. 2 (June 1987): 402.

73. Fenstermaker, Development, 19, 23, and 25.

74. Sylla, Legler, and Wallis, “Banks and State Public Finance,” 393–99, with Pennsylvania at 396. On the capital of the Bank of Pennsylvania, see Fenstermaker, Development, 169. On the bank generally, see Bodenhorn, Howard, A History of Banking in Antebellum America: Financial Markets and Economic Development in an Era of Nation-Building (Cambridge, UK: Cambridge University Press, 2000), 3536, and Hartz, Louis, Economic Policy and Democratic Thought: Pennsylvania, 1776–1860 (Chicago: Quadrangle Books, 1968), 82.

75. Lamoreaux, Naomi R., Insider Lending: Banks, Personal Connections, and Economic Development in Industrial New England (Cambridge, UK: Cambridge University Press, 1994). Robert E. Wright has argued that early commercial banks in New York and Pennsylvania, by contrast, “eschewed insider lending practices in favor of a more outsider-oriented model of lending.” Wright, Robert E., “Bank Ownership and Lending Patterns in New York and Pennsylvania, 1781–1831,” Business History Review 73, no. 1 (Spring 1999): 41.

76. Gras, N.S.B., The Massachusetts First National Bank of Boston, 1784–1934 (Cambridge, MA: Harvard University Press, 1937), 61. Gras notes that a single dissenting vote among board members “was enough to prevent a discount from being made.”

77. Lamoreaux, Insider Lending, 13; Handlin, Oscar and Handlin, Mary F., Commonwealth: A Study of the Role of Government in the American Economy: Massachusetts, 1774–1861 (New York: New York University Press, 1947), 121–22. The most prominent critique of the Massachusetts Bank on these grounds appeared in Sullivan, James, The Path to Riches: An Inquiry into the Origin and Use of Money, and into the Principles of Stocks & Banks (Boston: J. Belcher, 1809), 29.

78. Quoted in Handlin and Handlin, Commonwealth, 123.

79. Perkins, American Public Finance, 275.

80. James Cheetham, quoted in Reubens, Beatrice, “Burr, Hamilton, and the Manhattan Company: Part I: Gaining the Charter,” Political Science Quarterly 72, no. 4 (December 1957): 578–79.

81. Ibid., 579.

82. Lamoreaux, Insider Lending, 23.

83. Hammond, Jabez D., The History of Political Parties in the State of New-York, from the Ratification of the Federal Constitution to December 1840, vol. 1 (Buffalo, NY: Phinney and Co., 1850), 325.

84. Quoted in Chernow, Ron, Alexander Hamilton (New York: Penguin Books, 2004), 587. See also Perkins, American Public Finance, 275–76, and more recently Brian P. Murphy, “Empire State Building: Interests, Institutions, and the Formation of States and Parties in New York, 1783–1845,” Ph.D. diss., University of Virginia (History), 2008, 43–99.

85. Quoted in Howard Kemble Stokes, Chartered Banking in Rhode Island, 1791–1900 (Providence, RI: Prestor & Rounds, 1902), 2.

86. Ibid.; see also Sylla, “Reversing Financial Reversals,” 123.

87. Davis, “Eighteenth Century,” 62fn2 (emphasis added).

88. The Providence Gazette appears to offer little guidance here; on August 13, 1791, it published a notice inviting parties interested in establishing a bank to meet and determine “the most eligible Method of obtaining a Branch of the National [bank].” This, of course, fails to distinguish between conversion and supplementation. Quoted in Davis, “Eighteenth Century,” 61.

89. On the mediated appeal, see Representative Richard Bland Lee to Thomas Willing, 18 November 1791, reprinted in Wettereau, DHFBUS; Lee enclosed “a memorial from the Merchants and inhabitants” of Alexandria. That petition appears lost, but a renewed appeal to Willing and his fellow board members is reprinted in The Bank of the United States: Petitions of Virginia Cities and Towns for the Establishment of Branches, 1791,” Virginia Magazine of History and Biography 8, no. 3 (January 1901): 288. On the lost petition, see Crothers, A. Glenn, “Banks and Economic Development in Post-Revolutionary Northern Virginia, 1790–1812,” Business History Review 73, no. 1 (Spring 1999): 13fn19. For the direct appeal to Hamilton in November, see John Fitzgerald to Hamilton, 21 November 1791, reprinted in Wettereau, DHFBUS.

90. Both are reprinted in full in “Petitions of Virginia Cities,” 289–95; the Richmond petition included the signature of future Chief Justice John Marshall. See also Cowen, Origins and Economic Impact, 54–55. Hamilton sought the “confidential opinion” of William Heth, 7 June 1792, in PAH, vol. 11, 493. Heth responded three weeks later and recommended Richmond; see Heth to Hamilton, 28 June 1792, reprinted in Wettereau, DHFBUS.

91. Jefferson to Madison, 3 July 1792, reprinted in Wettereau, DHFBUS. The “bank-mongers” characterization is drawn from Jefferson's later correspondence with John Adams; see Jefferson to Adams, 24 January 1814, quoted in Crothers, 13fn20. On Hamilton's surprise that the BUS board chose so quickly, see Hamilton to Edward Carrington, 25 July 1792, reprinted in Wettereau, DHFBUS.

92. Lee to Madison, 10 September 1792, reprinted in Wettereau, DHFBUS.

93. Cowen, Origins and Economic Impact, 56.

94. “Many republicans believed that chartering a state bank . . . would prevent the creation of a federal branch in Virginia” (Crothers, “Banks and Economic Development,” 14). On opposition to the Alexandria charter within the state legislature, see Cole, David M., The Development of Banking in the District of Columbia (New York: William-Frederick Press, 1959), 7. On the Richmond charter, see Walsh, John J., Early Banks in the District of Columbia (Washington, DC: Catholic University of America Press, 1940), 22.

95. de la Rochefoucault Liancourt, Duke, Travels through the United States of North America, the Country of the Iroquois, and Upper Canada, in the Years 1795, 1796, and 1797, 2nd ed., vol. 3 (London: T. Gillet, 1800), 667.

96. Bryan, Alfred Cookman, History of State Banking in Maryland (Baltimore: Johns Hopkins University Press, 1899), 20.

97. Redlich, Molding of American Banking, 34–35. I take my list of state banks from Fenstermaker's Appendix A, Tables A-2 to A-30, 112–184. More recent scholarship has attempted to improve upon Fenstermaker's data; see Weber, Warren E., “Early State Banks in the United States: How Many Were There and When Did They Exist?Journal of Economic History 66, no. 6 (June 2006): 433455, esp. at 434. I am less interested in discerning the precise number of institutions and more intent on documenting broad patterns of continental proliferation.

98. Redlich, Molding of American Banking, 35.

99. See also Klebaner, Benjamin, “State-Chartered American Commercial Banks, 1781–1801,” Business History Review 53, no. 4 (Winter 1979): 534.

100. Torre, Jose R., The Political Economy of Sentiment: Paper Credit and the Scottish Enlightenment in Early Republic Boston, 1780–1820 (London: Pickering and Chatto, 2007), 6465; Stokes, Howard Kemble, “Public and Private Finance,” in State of Rhode Island and Providence Plantations at the End of the Century: A History, vol. 3 (Boston: Mason Publishing Company, 1902), 271 and 273; Farmer, John and Moore, Jacob, A Gazetteer of the State of New-Hampshire: Embellished with an Accurate Map of the State, and Several Other Engravings (Concord, MA: Jacob Moore, 1823), 4041.

101. Dewey, Davis R., State Banking Before the Civil War (Washington, DC: National Monetary Commission, 1910); Fenstermaker, Development, passim; Redlich, Molding of American Banking, 34–35; Perkins, American Public Finance, 266–81 (“State Banks in the New Nation”).

102. The aforementioned Bank of Alexandria was chartered in late 1792, and thus appears on the map, but technically did not open until early 1793. To his credit, James O. Wettereau prepared (but does not appear to have published) at least one seaboard map documenting the spread of BUS branches over time; no state institutions were included. See JOW, Box 27, Book “A.”

103. The establishment of commercial banking in New Orleans engendered some internal controversy for the Jefferson administration. Because the newly acquired Louisiana Territory was not part of an original or admitted state, Congress needed to independently authorize the extension of the BUS into Louisiana. This it did in an act passed March 23, 1804: “[T]he President and Directors of the Bank of the United States shall be, and they are hereby, authorized to establish offices of discount and deposit in any part of the territories or dependencies of the United States[.]” The problem was that, by this time, territorial governor William C. C. Claiborne had already yielded to intense local pressures for credit facilities and authorized the Louisiana Bank. “The Citizens of New Orleans,” wrote Claiborne to Secretary of State James Madison two weeks earlier, “have exercised uncommon solicitude for [a] Bank” and submitted “a Petition to me on the Subject . . . Signed I believe by almost every respectable man in the City and its Vicinity. I am inclined to indulge the people on this occasion.” Claiborne also expressed “some inquietude” in proceeding without authorization from Washington, but did so regardless. See Official Letter Books of W.C.C. Claiborne, 1801–1816, vol. 2, ed. Rowland, Dunbar (Madison, WI: Democrat Printing Company, 1917), 2123; a handwritten copy appears in JOW, Box 7, Folder 83.

Secretary of the Treasury Albert Gallatin was incensed at Claiborne's conduct, in part because the bank authorized “will probably defeat the establishment of a [BUS] branch bank, which [the Jefferson administration] considered of great importance to the safety of the revenue[.]” President Jefferson wrote directly to Governor Claiborne and declared the latter's institution “a nullity,” citing provisions in the BUS charter, and the governor's correspondence also implies that Secretary Gallatin followed up with a written censure. Gallatin to Jefferson, 12 April 1804, in The Writings of Albert Gallatin [hereafter WAG], vol. 1, ed. Adams, Henry (Philadelphia: J.B. Lippincott, 1879), 184–85; and Claiborne to Madison, 30 May 1804, in Official Letter Books, vol. 2, 187–90. Claiborne for his part claimed no foreknowledge of plans to sanction a BUS branch in the city, and stressed the practical difficulties of unwinding his nascent institution. Ultimately the Louisiana Bank survived with a $600,000 capital, and was joined in New Orleans by a BUS branch. Claiborne to Gallatin, 23 May 1804, and Claiborne to Jefferson, 3 June 1804, both in Official Letter Books, vol. 2, 160–64 and 187–90. Handwritten copies of all of these letters also appear in JOW, Box 7, Folder 83.

104. The latter institution is noteworthy because its stock was once purchased by Andrew Jackson, a self-declared foe of all banks. Biographer Harry Watson notes that Jackson “as a practical matter . . . used their services. He kept his money in banks, he sometimes borrowed from banks, and in 1815 he even purchased a few shares in the Bank of Nashville.” Watson, Andrew Jackson vs. Henry Clay: Democracy and Development in Antebellum America (Boston: Bedford/St. Martin's, 1998), 79fn65. On paper money and banks as an “abomination” to Jackson, see Remini, Robert V., Andrew Jackson: The Course of American Freedom, 1822–1832 (New York: History Book Club, 1998), 18.

105. Wettereau refers to the eight-branch BUS as an “octopus” in “Branches of the First Bank,” 83, perhaps anticipating its later association with nonhuman creatures.

106. At the close of 1791, the BUS held more than 70 percent of all chartered banking capital within the United States. While Hamilton's brainchild commanded $10 million, the five state institutions combined held just $4 million. Almost twenty years later, the capital of the Bank of the United States remained unchanged, but more than one hundred state banks collectively held more than $56 million in capital; the national institution now commanded just 15 percent of the broader industry's basic resources (Fenstermaker, Development, Appendix A; see also Weber, “Early State Banks”). In short, as a provider of financial services, the Bank held steady within a rapidly changing institutional landscape, and consequently drifted from a position of industry dominance. “Drift” of precisely this sort constitutes a second type of gradual but transformative institutional change as defined in recent scholarship (Streeck and Thelen, “Introduction,” 24–25; see also Mahoney and Thelen, “A Theory of Gradual Institutional Change,” 16). I acknowledge this second (and simultaneous) transformation without offering it extended attention here.

107. Orren, Karen and Skowronek, Stephen, “The Study of American Political Development,” in Political Science: The State of the Discipline III, ed. Katznelson, Ira and Milner, Helen (New York: W.W. Norton, 2003), 749.

108. Harry Scheiber has written that “no scholarly studies have been specifically devoted to the analysis of federalism as an institutional variable both influencing the development of enterprise in the private sector and influencing economic policy processes and the substance of public economic policy.” While I contend here that federalism does engender a particular developmental process (i.e., regular contact between independently authorized banking institutions), within the confines of this case study the only fair response to Scheiber would entail assessment of the relevant counterfactual: how American banking would have developed under a unitary system of government. I do not engage in this sort of speculation here. See Scheiber, , “Federalism and the American Economic Order, 1789–1910,” Law and Society Review 10, no. 1 (Autumn 1975): 5758.

109. Orren and Skowronek, “Study of American Political Development,” 753; Orren, and Skowronek, , “Institutions and Intercurrence: Theory Building in the Fullness of Time,” in NOMOS XXXVII: Political Order, ed. Shapiro, Ian and Hardin, Russell (New York: New York University Press, 1996), 138 and 140.

110. Wettereau, “Government Depository,” 11.

111. I have already described internal policy regarding the boards of BUS branches. In early 1792, the branches received a memorandum from the main office in Philadelphia instructing them that discounts (i.e., loans) “shall not at any time exceed five times the amount of Specie Capital apportioned to them respectively.” In addition, each branch was required to submit a copy of its balance sheet to the Philadelphia directors once a week. Outside of these procedural terms and broad portfolio limits, however, the local boards exercised considerable operational autonomy; they made their own lending decisions and “regulated intercourse with local state banks in connection with such matters as the exchange of notes, settlement of accounts, and drafts for specie” (Wettereau, “Branches,” 92 and 96–97).

112. Schwartz, “Beginning of Competitive,” 417.

113. Mason to Craigie, 17 December 1791, reprinted in Wettereau, DHFBUS. A copy also appears in JOW, Box 7, Folder 81.

114. Gras, Massachusetts First National, 36–37; see also Redlich, Molding of American Banking, 16.

115. Schwartz, “Beginning of Competitive,” 422; Seton to Hamilton, 23 July 1792, reprinted in Wettereau, DHFBUS.

116. Gras, Massachusetts First National, 73.

117. Davis, “Eighteenth Century,” 58.

118. Seton to Hamilton, 6 August 1792, reprinted in Wettereau, DHFBUS. A copy also appears in JOW, Box 7, Folder 84, and is cited in Davis, “Eighteenth Century,” 92; Kean to Burrall, 25 August 1792, reprinted in Wettereau, DHFBUS.

119. Seton to Hamilton, 6 August 1792, reprinted in Wettereau, DHFBUS.

120. Seton to Hamilton, 20 December 1792, reprinted in Wettereau, DHFBUS. A copy also appears in JOW, Box 7, Folder 84.

121. Hamilton to Seton, 17 August 1792, and Seton to Hamilton, 20 December 1792, both reprinted in Wettereau, DHFBUS.

122. Albert Gallatin to David Lenox, 5 November 1808, cited in Cowen, Origins and Economic Impact, 146; on President Jackson's orders to Treasury Secretary Taney and others before him, see Galbraith, John Kenneth, Money: Whence It Came, Where It Went (Boston: Houghton Mifflin, 1975), 81.

123. Seton to Hamilton, 5 March 1793, reprinted in Wettereau, DHFBUS.

124. Timberlake, Richard H. Jr., refers to the “currency transactions” of the BUS with other banks in Monetary Policy, 10.

125. Hammond, Banks and Politics, 198.

126. Seton to Hamilton, 20 December 1792, reprinted in Wettereau, DHFBUS.

127. Hoffmann, Politics and Banking, 41.

128. Hammond, Banks and Politics, 198.

129. Broz claims, for example, that “[b]ecause the First Bank was the government's fiscal agent, it received [on deposit] the notes of state banks in payment for taxes. This made it constantly the creditor of the state banks, thereby giving it an immediate claim upon them for specie” (Broz, International Origins, 233). See also Galbraith, Money, 74: “[T]he Bank of the United States was a privileged competitor [of state banks]. It had the deposits of the federal government[.]” For other examples, see Redlich, Molding of American Banking, 78, and Hoffmann, Politics and Banking, 41.

130. Bruchey, “Alexander Hamilton,” 362fn46. Bruchey claims that Hamilton's order that revenue collectors “receive no notes but those of the Bank of the United States” was distributed at different times to collectors in different cities; while the draft circular was dated February 21, 1792, the Providence collector did not receive it until mid-May and the New York City collector was receiving BONY notes until April 1793. This latter fact may help to explain why William Seton could safely report to Alexander Hamilton in May 1793 that “[t]he drain of specie [has] stopt, [and] we [BONY] now go on tolerably smooth, & upon the whole rather get ahead of the [New York] Branch on the Exchange of Notes.” Suffering from BUS-NYC specie calls just sixty days before, the BONY may have faced significantly reduced pressure once the “Custom House refus[ed] to take [its] Bank Notes[.]” Seton to Hamilton, 3 May 1793, and 25 June 1793, both reprinted in Wettereau, DHFBUS.

131. Wettereau, “Government Depository,” 8 (emphasis added).

132. Willing resigned the BUS presidency after a stroke in 1807; Lenox held the post until the institution's dissolution in 1811. Lenox later became president of the Philadelphia Bank (1813–1818). JOW, Box 6, Folder 67; see also Konkle, Thomas Willing, 189.

133. Gallatin to Lenox, 5 November 1808, quoted in Cowen, Origins and Economic Impact, 146.

134. Smith to Gallatin, 2 November 1808, quoted in Cowen, Origins and Economic Impact, 145–146.

135. Timberlake, Monetary Policy, 10.

136. Brutus No. 6, in Hamilton, Alexander, Madison, James, and Jay, John, The Federalist, with Letters of “Brutus,” ed. Ball, Terence (Cambridge, UK: Cambridge University Press, 2003), 472.

137. Hammond, Banks and Politics, 297–98.

138. “Report of a Committee appointed to draft a Circular Letter to the different offices, concerning the present State of Bank Operations,” 27 October 1795, reprinted in Wettereau, DHFBUS. This statement is also discussed at some length in Bruchey, Enterprise, 171.

139. Ibid.

140. Bruchey, Enterprise, 171. I can, however, find no evidence that the term “System of Bank Credit” appears in the directors' October 1795 report.

141. Ibid.; see also Timberlake, Monetary Policy, 4, on the “activities of the First Bank [as] the real beginning of the government's positive monetary control.”

142. Hoffmann, Politics and Banking, 41.

143. Timberlake, Monetary Policy, 10; see also Adams, Donald R. Jr., Finance and Enterprise in Early America: A Study of Stephen Girard's Bank, 1812–1831 (Philadelphia: University of Pennsylvania Press, 1978), 4, and Sylla, “Reversing Financial Reversals,” 128. Alan Greenspan, former chairman of the Federal Reserve, noted in a 1996 speech that the early BUS “endeavored to restrict state bank credit when it appeared inordinate, by gathering bank notes and tendering them for specie” (quoted in Cowen, Origins and Economic Impact, 141).

144. Hammond, Banks and Politics, 197.

145. Streeck and Thelen, “Introduction,” 26.

146. Mooney, William H. Crawford, 20; Wettereau, “Government Depository,” 1.

147. Draft letter to BUS-Baltimore, 28 January 1800, quoted in Wettereau, “Branches,” 97fn130.

148. George Cabot to Josiah Quincy, 9 January 1807; a handwritten copy appears in JOW, Box 7, Folder 81; a fragment of the letter is also quoted in Cowen, 142.

149. Thelen, How Institutions Evolve, 25.

150. Jefferson to Gallatin, 19 June 1802, in Writings of Thomas Jefferson [hereafter WTJ], vol. 8, ed. Ford, Paul Leicester (New York: G.P. Putnam's Sons, 1897), 158; see also Konkle, Thomas Willing, 180.

151. Jefferson to Gallatin, 13 December 1803, in WTJ, vol. 8, 284–85.

152. Jefferson to Gallatin, 7 October 1802, in WAG, vol. 1, 102. On the idea of “sharing deposits among [state banks] in proportion to dispositions they show,” see also Jefferson to Gallatin, 12 July 1803, in WTJ, vol. 8, 252.

153. Pierson, Paul, Politics in Time: History, Institutions, and Social Analysis (Princeton: Princeton University Press, 2004), 136.

154. Ibid., 162ff., esp. at 163–64. William H. Riker argued, for example, that the intended relationship between the U.S. Senate and state governments (the former representing the latter) was stronger than the one that ultimately emerged (the former representing the respective populations of the latter). The failure of state legislatures to bind U.S. senators with their instructions was for Riker a “crucial constitutional development,” one that initiated (but did not complete) a fundamental change in the chamber's character. Riker, , “The Senate and American Federalism,” American Political Science Review 49, no. 2 (June 1955): 455.

155. Oliver Wolcott, Jr., to Matthew Clarkson, 25 March 1795, quoted in Cowen, Origins and Economic Impact, 77fn100.

156. Upon the dissolution of the BUS, George Simpson became cashier of Stephen Girard's Bank, which occupied the former home of the national bank near Third and Chestnut Streets in Philadelphia. Adams, Finance and Enterprise, 91–92.

157. Cowen, Origins and Economic Impact, 48.

158. “Report of a Committee,” 27 October 1795, reprinted in Wettereau, DHFBUS.

159. For example, Richard Timberlake has argued with respect to the early BUS that “[f]or such an institution to have been in this strategic position [i.e., regular creditor of state banks] and then to have adopted an attitude of ‘no policy’ would have denied the utility of human management and the very human notion that positive intervention could make a good thing work better” (Timberlake, Monetary Policy, 10).

160. I rely here upon data presented in Table Cc1-2 (“Consumer price indexes, for all items: 1774–2003”) of Carter, Susan B. et al. , eds., Historical Statistics of the United States: Millennial Edition Online (Cambridge, UK: Cambridge University Press, 2006). According to Paul David and Peter Solar's consumer price index, which uses 1860 as its base year (100), costs in the early years of the postratification United States were as follows:

161. Constable to William Rogers, 7 July 1795, quoted in Cowen, Origins and Economic Impact, 201.

162. The 1795 policy statement recommended “an extreme degree of Caution” in light of aggregate “Bank Credits far [in excess of] the Sum that is necessary” to carry on trade. “Report of a Committee,” 27 October 1795, reprinted in Wettereau, DHFBUS.

163. Constable to Rogers, 7 July 1795, quoted in Cowen, Origins and Economic Impact, 201.

164. Wettereau, “Government Depository,” 1; Cowen, Origins and Economic Impact, 165fn3. See also Redlich, Molding of American Banking, 96: “Professor [Friedrich von] Hayek has recently drawn attention to the fact that the term was probably used in Europe around 1830 by Saint Simon for the depository of all wealth in a socialist community.”

165. Galbraith, Money, 71; Cowen, Origins and Economic Impact, 141; Timberlake, Monetary Policy, 4; Redlich, Molding of American Banking, 96.

166. Galbraith, Money, 71; Cowen, Origins and Economic Impact, 143; Timberlake, Monetary Policy, 4, Redlich, Origins and Economic Impact, 96.

167. Galbraith is the lone outlier here, though his discussion of central banks (p. 71) is restricted to their relationships with banking institutions. As such, direct service provision may be assumed. Cowen distinguishes between functions associated with a bank as a “fiscal agent” (p. 138) of the state and a fund transfer service offered by the same institution (p. 139); I collapse that distinction here.

168. Timberlake, Monetary Policy, 4.

169. Cowen, Origins and Economic Impact, 143.

170. Perkins, American Public Finance, 393fn9.

171. Cowen, Origins and Economic Impact, 143ff.

172. John Mason to William Crawford, 7 February 1823, reprinted in Wettereau, DHFBUS and cited in Cowen, 154. Wettereau's Documentary History includes evidence, culled from the American State Papers (Finance), that between December 1800 and December 1801 the Treasury ordered at least eight distinct deposits in the Bank of Columbia totaling no less than $275,000. An amount of $10,000 appears to have been drawn from a federal deposit in the Bank of Alexandria, $50,000 from funds at the BUS-Baltimore (previously moved there from the Philadelphia office), and $105,000 from funds held in Philadelphia. An additional $110,000 was sent in the form of Treasury funds of uncertain origin. See, for example, multiple letters from Albert Gallatin to U.S. Treasurer Samuel Meredith, March 1801-December 1801, all reprinted in Wettereau, DHFBUS.

173. Cowen, Origins and Economic Impact, 148ff., but especially at 157.

174. This borrows from Cowen's metaphor, Origins and Economic Impact, 150–51.

175. Timberlake, Monetary Policy, 4.

176. Cowen, Origins and Economic Impact, 143.

177. Ibid., 137.

178. Redlich, Molding of American Banking, 97.

179. Clarke and Hall, Legislative and Documentary History, 137–448, but see especially the speeches of Representatives William Burwell (138–49) and Alexander McKim (219–23).

180. On opposition to state bank regulation in the 1811 debate, see Broz, International Origins, 233–37.

181. Hammond, Banks and Politics, 233–41.

182. Streeck and Thelen, “Introduction,” passim; Mahoney and Thelen, “A Theory of Gradual Institutional Change,” passim.

Helpful feedback on prior versions of this article was provided (sometimes more than once) by Daniel Carpenter, Nancy Rosenblum, Stephen Skowronek, Kathleen Thelen, and Robert E. Wright. Two anonymous reviewers for Studies also deserve recognition for their invaluable suggestions on a previous draft. Funding for this research was generously provided by the Center for American Political Studies (Harvard University) and the Miller Center of Public Affairs (University of Virginia).

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Studies in American Political Development
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