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Report on a National Bank

Hamilton's Report on a National Bank was a projection from the first Report on the Public Credit. Although Hamilton had been forming ideas of a national bank as early as 1779, he had gathered ideas in various ways over the past eleven years. These included theories from Adam Smith, extensive studies on the Bank of England, the blunders of the Bank of North America and his experience in establishing the Bank of New York. He also used American records from James Wilson, Pelatiah Webster, Gouverneur Morris, and from his assistant treasury secretary Tench Coxe. He thought that this plan for a National Bank could help in any sort of financial crisis.

Hamilton suggested that Congress should charter the national bank with a capitalization of $10 million, one-fifth of which would be handled by the government. Since the government did not have the money, it would borrow the money from the bank itself, and repay the loan in ten even annual installments. The rest was to be available to individual investors. The bank was to be governed by a twenty-five-member board of directors that was to represent a large majority of the private shareholders, which Hamilton considered essential for his being under a private direction. Hamilton's bank model had many similarities to that of the Bank of England, except Hamilton wanted to exclude the government from being involved in public debt, but provide a large, firm, and elastic money supply for the functioning of normal businesses and usual economic development, among other differences. The tax revenue to initiate the bank was the same as he had previously proposed, increases on imported spirits: rum, liquor, and whiskey.

The bill passed through the Senate practically without a problem, but objections to the proposal increased by the time it reached the House of Representatives. It was generally held by critics that Hamilton was serving the interests of the Northeast by means of the bank, and those of the agrarian lifestyle would not benefit from it. Among those critics was James Jackson of Georgia, who also attempted to refute the report by quoting from The Federalist Papers. Madison and Jefferson also opposed the bank bill. The potential of the capital not being moved to the Potomac if the bank was to have a firm establishment in Philadelphia was a more significant reason, and actions that Pennsylvania members of Congress took to keep the capital there made both men anxious. The Whiskey Rebellion also showed how in other financial plans, there was a distance between the classes as the wealthy profited from the taxes.

Madison warned the Pennsylvania congress members that he would attack the bill as unconstitutional in the House, and followed up on his threat. Madison argued his case of where the power of a bank could be established within the Constitution, but he failed to sway members of the House, and his authority on the constitution was questioned by a few members. The bill eventually passed in an overwhelming fashion 39 to 20, on February 8, 1791.

Washington hesitated to sign the bill, as he received suggestions from Attorney General Edmund Randolph and Thomas Jefferson. Jefferson dismissed the Necessary and Proper Clause as reasoning for the creation of a national bank, stating that the enumerated powers "can all be carried into execution without a bank." Along with Randolph and Jefferson's objections, Washington's involvement in the movement of the capital from Philadelphia is also thought to be a reason for his hesitation. In response to the objection of the clause, Hamilton stated that "Necessary often means no more than needful, requisite, incidental, useful, or conductive to", and the bank was a "convenient species of medium in which are to be paid." Washington would eventually sign the bill into law.