America’s first central bank, the Bank of North America, was created in 1781 by Continental congressman Robert Morris, who modeled the bank after the Bank of England. The bank was formed before the Constitution was drafted and was wrought with fraud and plagued by inflation caused by the creation of baseless “fiat” currency. The bank lasted for three years. Morris’s former aide, Alexander Hamilton, became secretary of the Treasury and in 1791 headed the next attempt at a central bank by establishing the First Bank of the United States. He was strongly opposed by Jefferson and his followers. In 1811, the charter of the First Bank of the United States was not renewed.
Jefferson knew from British and European history that a central bank trading on interest could quickly become the master of a nation, noting to John Taylor in 1816 that “ . . . the other nations of Europe have tried\ and trodden every path of force or folly in fruitless quest of the same object, yet we still expect to find in juggling tricks and banking dreams, that money can be made out of nothing. . . . [B]anking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.” Jefferson added, “Already they have raised up a money aristocracy. . . . The issuing power should be taken from the banks and restored to the people to whom it properly belongs.” Jefferson believed that instituting a central bank would be unconstitutional.
“I consider the foundation of the Constitution as laid on this ground [enshrined in the Tenth Amendment]: That ‘all powers not delegated to the United States, by the Constitution, nor prohibited by it to the States, are reserved to the States or to the people.’ To take a single step beyond the boundaries thus specially drawn around the powers of Congress, is to take possession of a boundless field of power, no longer susceptible of any definition. The incorporation of a bank, and the powers assumed by this bill, have not, in my opinion, been delegated to the United States, by the Constitution.”
Despite Jefferson’s lobbying, the financial chaos that resulted from the War of 1812 prompted Congress to issue a twenty-year charter to the Second Bank of the United States in 1816. Andrew Jackson, the first president from west of the Appalachian Mountains, denounced the central bank as unconstitutional and as “a curse to a republic; inasmuch as it is calculated to raise around the administration a moneyed aristocracy dangerous to the liberties of the country.” This central bank ended in 1836, after President Jackson vetoed a congressional bill to extend its charter.
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