Printed Page 225 Chapter Chronology

The First Bank of the United States and the Report on Manufactures. The second and third major elements of Hamilton's economic plan were his proposal to create a national Bank of the United States and his program to encourage domestic manufacturing. Arguing that banks were the "nurseries of national wealth," Hamilton modeled his bank plan on European central banks that used their government's money to invigorate the economy. According to Hamilton's plan, the central bank was to be capitalized at $10 million, a sum larger than all the hard money in the entire nation. The federal government would hold 20 percent of the bank's stock, making the bank in effect the government's fiscal agent, holding its revenues derived from import duties, land sales, and various other taxes. The other 80 percent of the bank's capital would come from private investors, who could buy stock in the bank with either hard money (silver or gold) or the recently funded and thus sound federal securities. Because of its size and the privilege of being the only national bank, the central bank would help stabilize the economy by exerting prudent control over credit, interest rates, and the value of the currency.

Concerned that a few rich bankers might have undue influence over the economy, Madison tried but failed to stop the plan in Congress. Jefferson advised President Washington that the Constitution did not permit Congress to charter banks. Hamilton countered that Congress had explicit powers to regulate commerce and a broad mandate "to make all laws which shall be necessary and proper for carrying into execution the foregoing powers." Washington sided with Hamilton and signed the Bank of the United States into law in February 1791, giving it a twenty-year charter.

When the bank's privately held stock went on sale in Philadelphia, Boston, and New York City in July, it sold out in a few hours, touching off a lively period of speculative trading by hundreds of urban merchants and artisans. A discouraged Madison reported that in New York "the Coffee House is an eternal buzz with the gamblers," and wide swings in the stock's price pained Jefferson: "The spirit of gaming, once it has seized a subject, is incurable. The tailor 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."

The third component of Hamilton's plan was issued in December 1791 in the Report on Manufactures, a proposal to encourage the production of American-made goods. Domestic manufacturing was in its infancy, and Hamilton aimed to mobilize the new powers of the federal government to grant subsidies to manufacturers and to impose moderate tariffs on those same products from overseas. Hamilton's plan targeted manufacturing of iron goods, arms and ammunition, coal, textiles, wood products, and glass. The Report on Manufactures, however, was never approved by Congress, and indeed never even voted on. Many confirmed agriculturalists in Congress feared that manufacturing was a curse rather than a blessing. Madison and Jefferson in particular were alarmed by stretching the "general welfare" clause of the Constitution to include public subsidies to private businesses.