Evolution of Paper Money & Commercial Banking in U.S.

The introduction of paper money in England accompanies the transition of the economy from feudalism to capitalism. The move away from the manorial production system was brought about in part because of a recognition that some goods could be bought from town sources more cheaply and in better quality than similar goods could be produced on the manors. This recognition led to a desire to produce more efficiently on the manor, so that something of exchange value would be available to acquire these outside goods. Eventually, this recognition led to a system in which more permanent stores of value, such as money, were exchanged, as opposed to exchanging perishable or quickly consumable goods. The increased use of money led to a development of a banking system in England. The needs of a growing industrial sector, together with the availability of money, led to the development of credit markets. Credit markets were highly dependent upon paper documents to represent monetary value. Eventually, paper money per se evolved.

Paper money, bonds, and other paper representations of monetary value were brought to the American Colonies from England. Prior to the American Revolution, the money and banking system in the American Colonies generally reflected English systems and practices.

Subsequent to the American Revolution, banking in the United States developed "concur

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in 1811 and its rebirth as the Second United States Bank in 1816, the number of state chartered banks in the country had increased from 88 to 246, and the value of their bank notes had increased from $50 million to $100 million (Beard and Beard, 1927, p. 429). Between 1819 and the death of the Second United States Bank in 1837, a speculative bubble had been created and had burst in the developing Western states (Parkes, 1953, p. 178). The crash occurred in 1837 (Parkes, 1953, p. 248). The policies and actions of the Second United States Bank were widely blamed for these problems. Westerners in particular became hostile to money power, and supported the control of banking by the states (Parkes, 1953, p. 236). The death of the Second United States Bank left the country with only state chartered banks (Klise, 1987, p. 176). Resentment against the existing state banking systems was, however, also strong (McFaul, 1972, p. 102). Demands for changes to the existing banking system were especially strong in New York State, where the Whigs charged that the Democrats were "the pro- bank party in the state" (McFaul, 1972, p. 102). At the same time, New York Jacksonian Democrats were "denouncing all monsters in a mo
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Approximate Word count = 1823
Approximate Pages = 7 (250 words per page)

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