Wednesday, October 9, 2013

The First Bank of the United States

Barry Ritholtz of the Big Picture posted a great read concerning the history of the First Bank of the United States by Ralph Dillion.

The President, Directors and Company, of the Bank of the United States, or the First Bank of the United States, as it is more commonly known, was chartered for a term of twenty years, by the United States Congress on February 25, 1791. The bank was part of Alexander Hamilton’s plan for stabilizing and improving the nation’s credit by establishing a central bank, a mint, and introducing excise taxes.

The Bank of the United States was to have $10 million in capital, of which $2 million would be subscribed by the government. The $8 million in shares sold to the public (20,000 shares at $400) were quickly purchased and the price of the stock initially rose to $600. Of the first $8 million in shares that were sold, one quarter had to be paid in gold or silver. The rest could be paid in bonds, scrip, etc. Shares sold for $400, and to understand how much money this was by today’s standard, the per capita income in the United States in 1791 was only $50 (vs. over $50,000 today), so one share of stock cost the equivalent of $400,000 in today’s dollars, making Berkshire Hathaway Class A stock cheap by comparison.

Hamilton modeled the Bank of the United States on the Bank of England. The bank could be a depository for collected taxes, make short-term loans to the government, and could serve as a holding site for incoming and outgoing money. Nevertheless, Hamilton saw the main goal of the bank as a way of promoting commercial and private interests by making sound loans to the private sector, and most of its activities were commercial, not public.

The rest can be read after the jump

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