The History of the The History of the American BankAmerican Bank

Economics 2Economics 2

Before the Civil WarBefore the Civil War Banks were informal Banks were informal

businesses that businesses that merchants managed merchants managed – Not always safe if the Not always safe if the

merchant went out of merchant went out of businessbusiness

After the RevolutionAfter the Revolution– Leaders agreed that a Leaders agreed that a

main goal must be to main goal must be to establish a safe and establish a safe and stable banking systemstable banking system

– Needed for trade with Needed for trade with other nationsother nations

Two Views of BanksTwo Views of Banks

FederalistsFederalists– Believed that the country needed a strong Believed that the country needed a strong

central government to establish economic and central government to establish economic and social ordersocial order

– Centralized banking system was necessary for Centralized banking system was necessary for the U.S. to develop industry and tradethe U.S. to develop industry and trade

AntifederalistsAntifederalists– Wanted to leave power in the hands of the Wanted to leave power in the hands of the

statesstates– Decentralized banking system, regulated Decentralized banking system, regulated

individually by the statesindividually by the states

Hamilton vs. JeffersonHamilton vs. Jefferson Hamilton=FederalistHamilton=Federalist

– Washington appointed Washington appointed him Sec. of Treasuryhim Sec. of Treasury

– Proposed a National Bank Proposed a National Bank (a bank licensed by the (a bank licensed by the national government)national government)

– Would issue a single Would issue a single currency; monitor banks; currency; monitor banks; manage federal fundsmanage federal funds

Jefferson=AntifederalistJefferson=Antifederalist– Wanted it to be left to the Wanted it to be left to the

statesstates– States rightsStates rights

First Bank of the U.S.First Bank of the U.S. Federalists successful=strong central bankFederalists successful=strong central bank

– Hold tax moneyHold tax money– Help government carry out power to tax, borrow Help government carry out power to tax, borrow

money, regulate commercemoney, regulate commerce– Issue bank notesIssue bank notes– Make sure bank notes were backed by gold or Make sure bank notes were backed by gold or

silversilver Opponents argued that a national bank was Opponents argued that a national bank was

unconstitutionalunconstitutional First Bank only functioned until 1811, when First Bank only functioned until 1811, when

it’s 20 year charter ran out (Hamilton’s it’s 20 year charter ran out (Hamilton’s death)death)

Chaos…Chaos…

When the charter When the charter expired, state banks expired, state banks began issuing bank began issuing bank notes that they could notes that they could not back with gold or not back with gold or silversilver

Banks were not stableBanks were not stable Prices rose rapidlyPrices rose rapidly Bankers printed more Bankers printed more

money than they money than they could backcould back

Second Bank of the U.S.Second Bank of the U.S. President Andrew President Andrew

Jackson opposed the Jackson opposed the national banknational bank

Failed and led to the Failed and led to the Free Banking Era Free Banking Era – States created and States created and

ran their own ran their own currenciescurrencies

– Bank runs and panicsBank runs and panics– FraudFraud– Wildcat banks-Wildcat banks-

wildernesswilderness

Later 1800’sLater 1800’s

Civil WarCivil War– Union produced “greenbacks”Union produced “greenbacks”– Confederate issued money backed by cottonConfederate issued money backed by cotton

National Banking Acts of 1863 and 1864National Banking Acts of 1863 and 1864– Gave the federal government powerGave the federal government power– Power to charter banksPower to charter banks– Power to require banks to hold adequate gold Power to require banks to hold adequate gold

and silver reserves to cover bank notesand silver reserves to cover bank notes– Power to issue a single national currencyPower to issue a single national currency

Ended state currenciesEnded state currencies

Gold StandardGold Standard A monetary system in A monetary system in

which paper money which paper money and coins are equal to and coins are equal to the value of a certain the value of a certain amount of goldamount of gold– Definite value for the Definite value for the

dollardollar– Gov’t could issue Gov’t could issue

currency only if it had currency only if it had gold in the treasury to gold in the treasury to back notesback notes

– We do not use this We do not use this anymore! (1. No gold anymore! (1. No gold 2. Our economy/dollar 2. Our economy/dollar is self sustainable)is self sustainable)

Comparing Early U.S. to the Comparing Early U.S. to the Euro!Euro!

After watching “The formation of the After watching “The formation of the Euro,” create a list of comparisons Euro,” create a list of comparisons and contrasts between the struggles and contrasts between the struggles described in the video and the described in the video and the currency problems that occurred in currency problems that occurred in the early United States!the early United States!

Use your notes, text Ch. 10 Sec. 2, Use your notes, text Ch. 10 Sec. 2, Euro video clipEuro video clip