Banking in the United States developed ôconcurrently with the growth in population, agriculture and manufacturing output, and transportation facilitiesö in the country (Fenstermaker, 1965, p. 4). Prior to 1791, there existed little need for commercial banks in the United States, because of the relatively low-level of overall economic activity in the country (Fenstermaker, 1965, p. 4).
Paper money and bonds were created by both the Congress and the several states during the Revolutionary War (Beard, Beard, & Beard, 1960, p. 119). The financial system thus created was characterized by a high level of disorder, in which the $210 million in Continental money, state notes, and bonds dropped rapidly in value.
When the Constitution was ratified, the states were stripped of their powers to coin money, issue bills of credit, and make anything but gold and silver coin legal tender for the payment of debts (Beard, Beard, & Beard, 1960, p. 135). The states could continue, however, to issue paper money. Alexander Hamilton wanted to reserve to the federal government the right to issue paper money. Although Hamilton did not attain this goal, he did persuade the Congress to establish the United States Bank in 1791 (Beard, Beard, & Beard, 1960, p. 160). The bank was part government owned and part owned by private investors, and competed with state owned banks and state chartered banks in all activities, including the issue of paper money, or bank notes. The United States Bank was not popular, and it died when its charter expired in 1811 (Beard, Beard, & Beard, 1960, p. 172). The death of the United States Bank created a chaotic currency condition in the country, because of the 88 state banks that had been chartered, only those in New England and New York State were prohibited from issuing bank notes in excess of their capital reserves (Parkes, 1953, p. 175).
Many people in the country were also dissatisfied with the state r...