Financial History Issue 119 (Fall 2016) | Page 20

“We may therefore by means of this establishment carry on the war three years,” Hamilton noted.4 A public authority would review the bank’s books, and Congress wouldn’t grant it exclusive privileges that might “fetter the spirit of enterprise and competition on which the prosperity of commerce depends.” Significantly, this new bank — really a central banking corporation — wouldn’t have monopoly privileges, leaving the door open to form more banks and a fully fledged banking system. The only financial pillar that Hamilton didn’t mention was a securities market to trade the bank’s stock and government debt to increase the liquidity of both, an idea that became part of his grand plan a decade later. • • • ‘‘ ‘‘ Hamilton had figured out why the war had dragged on for so long. First he estimated the revenue capacity of the country, comparing it with an estimate of necessary civil and military expenses. No great shock: The latter greatly exceeded the former, leaving a deficit. Foreign loans might help, but they certainly couldn’t heal the shortfall. Hamilton’s solution once again was a national bank. He discussed the pros and cons of national banks in theory and in history, including how banking development and the expansion of credit promoted both state power and economic growth: Pennsylvania Academy of Fine Arts, Philadelphia/Bridgeman Images Then it happened. The Continental currency collapsed. In response, Congress appointed Robert Morris, one of the country’s leading merchants and patriots, as Superintendent of Finance. Shortly thereafter, Hamilton sent an essay to Morris in April 1781. Hamilton wrote the letter as he was transitioning from Washington’s aide to his field command in the Army. He stressed the importance of finance to the revolution: “’Tis by introducing order into our finances—by restoring public credit— not by gaining battles, that we are finally to gain our object.”5 Then he shared some ideas he had on financial administration. Robert Morris, the Superintendent of Finance for Cong ress. The tendency of a national bank is to increase public and private credit. The former gives power to the state for the protection of its rights and interests, and the latter facilitates and extends the operations of commerce among individuals. Industry is increased, commodities are multiplied, agriculture and manufactures flourish, and herein consist the true wealth and prosperity of a state. Most commercial nations have found it necessary to institute banks and they have proved to be the happiest engines that ever were invented for advancing trade. Venice, Genoa, Hamburgh, Holland and England are examples of their utility. They owe their riches, commerce, and the figure they have 18    FINANCIAL HISTORY  |  Fall 2016  | www.MoAF.org made at different periods in a great measure to this source. Great Britain is indebted for the immense efforts she has been able to make in so many illustrious and successful wars essentially to that vast fabric of credit raise on this foundation. ’Tis by this alone she now menaces our independence.6 In this letter, Hamilton had figured out why the war had dragged on for so long: The British were better financed and had better credit. This point underscored his plan to make better finance and a creditbased economy one of the cornerstones of American power. The rest of Hamilton’s letter consists mostly of articles that comprise the national bank’s charter and a discussion of same. The bank would be a corporation,