William Gouge,
A Short History

Of the Bank of North America.

It is a common opinion that the Bank of North America rendered essential service during our revolutionary struggle – that, without it, the achievement of independence would have been difficult, if not impossible.  Assertions to this effect have been made with so much confidence that we once believed them to be well-founded;  but on examination we find–

First.  That the capture of Cornwallis, which is described by historians as the closing scene of the Revolutionary War, took place on the 9th of October, 1781, and that the Bank did not go into operation till January 7th, 1782.

Secondly.  That the whole amount of expenditures of the U.S. Government in the year 1782, was only three million six hundred thousand dollars, and in 1783 only three million two hundred thousand dollars.  Large loans were negotiated in Europe in these years; "and such a conviction of the necessities of public supplies generally took place through the States, that considerable sums were obtained by a tax on polls and real estates." –P. Webster

Thirdly.  The whole amount subscribed by individuals to the Bank did not, as appears from the concurrent testimony of Mr. Robert Morris and Mr. Gouverneur Morris, exceed 70,000 dollars.

Fourthly.  From statements made by Mr. Robert Morris, in public debate in the Legislature of Pennsylvania, in the year 1786, it appears that the advances made by the Bank to the Government, above the amount of silver money actually paid in by the Government, never did exceed 165,000 dollars, and for a part of the time did not amount to 50,000 dollars.[13]

The reader, on duly considering these facts, will probably be convinced that the services rendered by the Bank of North America, during our revolutionary struggle, have been grossly exaggerated.

From the beginning of the year 1780, till the close of the war, hard money was very plenty.  This "was occasioned by large sums, by various means, coming from the English army at New York, and spreading through the States; also by large sums remitted by France to their army and navy here; also by large importations of hard money from the Havanna and other places abroad; so that hard money was never more plenty nor more easily collected than at that time."  In a note to an essay of later date, Mr. Webster says, "the States were really overrun with abundance of cash: the French and English armies, our foreign loans, Havanna trade &c., had filled the country with money."

"It has been asked," says Lord Sheffield, "what has become of the money which we have sent during the war to America ? Some is come back – a considerable part is the circulating cash within our lines.  Many British subjects in New York have very large sums in their possession.  The Dutch and Germans, whose number is not inconsiderable, have hoarded up – and it is believed considerable sums are concealed.

"France sent (not included in the debt) above 600,000 pounds sterling in specie to America, being obliged to send cash."[14]

The operations of the war caused such a drain of specie from Europe, that the Bank of England was brought into jeopardy, and the Caisse d'Escompte at Paris actually suspended payment in 1783: and such a flux of specie into the United States, that, as Mr. Webster observes, "hard money was never more plenty or more easily collected."

Such being the state of the money market, it is difficult to believe that the Government might not, if the Bank had not been established, have obtained a loan of 50,000 to 165,000 dollars from some other source.  It does not appear that the Bank ever made advances to the Government, except on the best security.  For at least 80,000 dollars of the amount, the State of Pennsylvania was guarantee.  For the residue of the amount, the Government might have pledged the proceeds of the taxes, or bills on Europe: and on the same security, it is probable, individuals would have made the advances, especially as money was so abundant, and the news of peace confidently expected.

The truth is, that the project of establishing a Bank in Philadelphia had been conceived by Mr. Robert Morris, before the commencement of the war, as appears from his own declaration:[15] and he had entered into negociations in Europe with a view to effect this object.  But a project for a Bank about the year 1763, had been vigorously opposed on the ground that it would give a few men a monopoly of trade: and it is probable that Mr. Robert Morris's project would have encountered severe opposition, if it had not been brought forward as a fiscal measure, and at a time when neither the Legislature nor the people could give it that consideration it deserved.

He submitted his plan to Congress in May, 1780, and on the 26th of the same month it was approved by that body.  "Yet," he says, "until the month of September or October following, there were not more subscriptions in the whole, than amounted to about 70,000 dollars.  During the time, one of his most Christian Majesty's frigates arrived at Boston, and brought a remittance in specie of about 470,000 dollars.  The sum was brought to Philadelphia and deposited in the vaults of the Bank.  I determined from the moment of its arrival, to subscribe on behalf of the United States, for those shares in the Bank which remained vacant: but such was the amount of the public expenditures, that notwithstanding the utmost care and caution to keep this money, nearly one-half of the sum was exhausted before the institution could be organized.  In November, 1781, the president and directors of the Bank were elected: they obtained a charter of incorporation from Congress – and opened the Bank for transacting business in January, 1782.  I subscribed the sum then remaining in the treasury, being about 254,000 dollars, into the Bank stock, per account of the United States, which became thereby the principal stockholder."[16]

As is remarked by Mr. Gouverneur Morris, the sum subscribed by Government may be said to have been paid in with one hand, and borrowed with the other, leaving the Bank but 70,000 dollars at most for its proper operations.  On this amount it undertook to make advances to the Government and to individuals; but as the experience of the evils of continental money was fresh in the minds of the people, some difficulty was encountered in giving currency to the notes of the Bank.  To remove this "prejudice" the gentlemen who were interested in the institution, were, as we have learned from undoubted private authority, in the practice of requesting people from the country and laboring men about town, to go to the Bank and get silver in exchange for notes.  When they went on this errand of neighborly kindness, as they thought it, they found a display of silver on the counter, and men employed in raising boxes containing silver, or supposed to contain silver, from the cellar into the Banking room, or lowering then from the Banking room into the cellar.  By contrivances like these, the Bank obtained the reputation of possessing immense wealth; but its hollowness was several times nearly made apparent, especially on one occasion, when one of the co-partners withdrew a deposit of some five or six thousand dollars, when the whole specie stock of the Bank did not probably exceed twenty thousand.

By these means, and by the assistance of the United States Government, the notes of the Bank became current; and so profitable was the business that the early dividends were at the rate of from 12 to 16 per cent. per annum.  This naturally created a desire in others to share in so very lucrative a trade.  A project was therefrom formed for establishing a second Bank, to be called the Bank of Pennsylvania.  This, they who were interested in the Bank of North America strenuously opposed, fearing the effect of a rival institution in Philadelphia.  To prevent its being established, they opened their books for additional subscriptions; but not without murmuring loudly at the hardship of receiving new partners.[17]

In the year 1784, the Bank did a very extensive business; and by the beginning of 1785, the effects of its operations began to be very apparent.  They are such as Banking has always produced – a temporary plentifulness of money, followed by great scarcity, usury, ruin to the many, riches to the few.  These effects were ably set forth in petitions to the Assembly, from the inhabitants of Philadelphia, and those of the counties of Chester and Bucks, presented on the 21st and 23d of March, praying for a repeal of the charter of the Bank.  Those petitions were referred to a committee, who in a report of the 25th of the same month, fully sustained the allegations of the petitioners, and recommended a repeal of the charter.  This recommendation was carried into effect, at the ensuing session, on the 13th of September, 1785.

Thus we find that the first Bank established in this country produced so much evil, that its charter was taken from it in less than four years after it had commenced operations.

The Bank, however, claiming the right of prosecuting its business under the act of Congress, continued its operations, though on a more moderate scale.  In 1786, an attempt was made by its friends to obtain a renewal of the charter from the State of Pennsylvania, but it was successfully opposed by Wm. Findlay of Westmoreland, Mr. Smilie of the same county, and other leading democrats.  It is difficult, however, for the people long to withstand the efforts of a powerful monied interest: and it being pleaded, with some show of reason, that the forms of the Constitution had not been properly regarded in taking away the charter, and many persons fearing a return of the old paper money system, the Bank was re-incorporated on the 17th of March, 1787, with limited powers, and for fourteen years.  By successive acts of the Legislature, it has been continued in existence to the present day.

Minutes of the Assembly [of Pennsylvania], March 21, 1785.  Petitions from a considerable number of the inhabitants of Chester County were read, representing that the Bank established at Philadelphia has fatal effects upon the community; that while men are enabled, by means of the Bank, to receive nearly three times the rate of common interest, and, at the same time, to receive their money at very short warning, whenever they have occasion for it, it will be impossible for the husbandman and the mechanic to borrow on the former terms of legal interest and distant payment of the principal; that the best security will not enable the person to borrow; that experience clearly demonstrates the mischievous consequences of this institution to the fair trader; that impostors have been enabled to support themselves in a fictitious credit, by means of a temporary punctuality at the Bank, until they have drawn in their honest neighbors to trust them with their property, or pledge their credit as securities, and have been finally involved in ruin and distress; that they have repeatedly seen the stopping of discounts at the Bank operate on the trading part of the community, with a degree of violence scarcely inferior to that of the stagnation of the blood in the human body, hurrying the wretched merchant who hath debts to pay into the hands of griping usurers; that the Directors of the Bank may give such preferences in trade, by advances of money, to their particular favorites, as to destroy the equality which ought to prevail in a commercial country; that paper money has often proved beneficial to the State, but the Bank forbids it, and the people must acquiesce: therefore, in order to restore public confidence and private security, they pray that a bill may be brought in and passed into a law for repealing the law for incorporating the Bank.

March 28.– The report of the committee, read March 25, on the petitions from the counties of Chester and Berks, and the city of Philadelphia and its vicinity, praying the Act of Assembly whereby the Bank was established at Philadelphia, may be repealed, was read a second time as follows, viz:

The committee to whom were referred the petitions concerning the Bank established at Philadelphia, and who were instructed to inquire whether the said Bank be compatible with the public safety, and that equality which ought always to prevail between the individuals of a republic, beg leave to report, that it is the opinion of this committee, that the said Bank, as at present established, is in every view incompatible with the public safety; that in the present state of our trade, the said Bank has a direct tendency to banish a great part of the specie from the country, so as to produce a scarcity of money, and to collect into the hands of the stockholders of the said Bank almost the whole of the money which remains amongst us.  That the accumulation of enormous wealth in the hands of a society who claim perpetual duration, will necessarily produce a degree of influence and power; which cannot be entrusted in the hands of any set of men whatsoever, without endangering the public safety.  That the said Bank in its corporate capacity, is empowered to hold estates to the amount of ten mil lions of dollars, and by the tenor of the present charter is to exist forever, without being obliged to yield any emolument to the Government, or to be at all dependent upon it.  That the great profits of the Bank, which will daily increase as money grows scarcer, and which already far exceed the profits of European Banks, have tempted foreigners to vest their money in this Bank, and thus to draw from us large sums of interest.

That foreigners will doubtless be more and more induced to become stockholders, until the time may arrive when this enormous engine of power may become subject to foreign influence; this country may be agitated with the politics of European courts, and the good people of America reduced once more to a state of subordination, and dependence upon some one or other of the European Powers.  That at best, if it were even confined to the hands of Americans, it would be totally destructive of that equality which ought to prevail in a republic.  We have nothing in our free and equal Government capable of balancing the influence the Bank must create: and we see nothing which, in the course of a few years, can prevent the directors of the Bank from governing Pennsylvania.  Already we have felt its influence directly interfering in the measures of the Legislature.  Already the House of Assembly, the representatives of the people, have been threatened that the credit of our paper currency will be blasted by the Bank; and if this growing evil continues, we fear the time is not very distant when the Bank will be able to dictate to the Legislature, what laws to pass and what to forbear.

Your committee therefore beg leave further to report the following resolution to be adopted by the House, viz:

Resolved, That a committee be appointed to bring in a bill to repeal the Act of Assembly, passed the first day of April 1782, entitled, "An Act to incorporate the subscribers to the Bank of North America;" and also to repeal one other Act of Assembly, passed the 18th of March 1782, entitled, "An Act for preventing and punishing the counterfeiting of the common seal, Bank bills, and Bank notes of the President, Directors, and Company, of the Bank of North America, and for the other purposes therein mentioned."

The opinion the Legislature of 1786 had of grants to corporations, may be judged of by the following extract from a speech by Mr. Smilie.

"There are charters so sacred that they cannot be revoked.  But there is a material distinction between charters, and the opinions of many have been very wrong on that head.  When once an error is taken up, men go on a long time in delusion.  There are many things which we now consider as absurd, which were formerly venerated, for want of being properly considered.  The doctrine of hereditary right, which is now held odious, was once deemed sacred.  There is a strong reason why persons from Europe are so highly prejudiced in favor of charters.  In the twelfth and thirteenth centuries, Europe was in the lowest state of vassalage – the people were in some measure rooted to the soil, and sold with it.  While affairs were in that situation, the kings and powerful barons granted charters of incorporation to towns and cities, thereby exempting them from the common vassalage of the state, and bestowing on them particular immunities; thus giving them political existence.  These charters were sacred, because they secured to the persons on whom they were bestowed their natural rights and privileges.  But, there are, sir, charters of a very different nature.  And here it is necessary to fix the point of distinction.  Charters are rendered sacred, not because they are given by the Assembly or by the Parliament, but by the objects for which they are given.  If a charter is given in favor of a monopoly, whereby the natural and legal rights of mankind are invaded, to benefit certain individuals, it would be a dangerous doctrine to hold that it cannot be annulled.  All the natural rights of the people, as far as is consistent with the welfare of mankind, are secured by the Constitution.  All charters granting exclusive rights, are a monopoly on the great charter of mankind."

Mr. Lollar said, "the House which granted it (the charter) entertained no idea of its being for a perpetuity, or of its being out of the power of the Assembly to alter or new-model it, as they might see fit."  In support of this, Mr. Lollar quoted the minutes of that House, where it appeared that a clause had been introduced as a rider to the bill, for the purpose of empowering the Assembly that should sit in 1789, to alter or amend the charter as might be necessary.  This was rejected by twenty-seven to twenty-four, and the express reason assigned for the rejection was, that the charter of the Bank must necessarily be always in the power of the House.

"What is all this to us?" said Mr. Morris in reply.  "Are we to regulate our conduct by the private opinions of former members of Assembly?"

The friends of the Bank maintained, that the Legislature had no power over a charter once granted, and that the courts of law alone had power to declare a charter forfeited.  There are traces of a Bank in Virginia, previous to the establishment of the Bank of North America, but we have not been able to learn any thing satisfactory concerning its character


From the statements of Mr. Robert Morris, the accounts of the Government with the Bank were as follows:
April 2d, –– 1782 –– 252,918 –– 300,000 –– 47,082
July –– 1782 –– 252,918 –– 400,000 –– 147,082
October –– 1782 –– 253,394 –– 400,000 –– 146,606
January –– 1783 –– 53,394 –– 100,000 –– 46,606
April –– 1783 –– 53,394 –– 100,000 –– 46,606
July –– 1783 –– 129,800 –– 129,800
October –– 1783 –– 164,781 –– 164,781
January 1st. 1784, the debt was discharged.
The last column shows the amount in which the Government was in debt to the Bank, at the different periods mentioned.

14   Observations on the Commerce of the American States.  June 21st 1783.

15   Carey's "Debates and Proceedings of the General Assembly of Pennsylvania, on the memorials praying a repeal or suspension of the law annulling the charter of the Bank."  Philadelphia 1786.

16   It may be made a question, whether the whole of the original capital of the Bank was not advanced by Government.  Thomas Paine says, in one of his tracts, it is well known "that the Bank originated in another Bank called the Bank of Pennsylvania, which was formed in the spring of 1780.  On the 17th of June, it was resolved to open a security subscription to the amount of 300,000 pounds Pennsylvania currency, in real money, the subscribers to execute bonds for file amount of their subscription, and to form a Bank for supplying the army." He afterwards speaks of some of these subscriptions being transferred to the Bank of North America.
      From the journals of Congress, it appears that the Board of Treasury was directed to deposite in this Pennsylvania Bond-Bank, "bills of exchange, in favor of the directors thereof, on the Ministers of the United anted States in Europe, or any of them, and in such sums as shall be thought convenient, but not to exceed in the whole £150,000 sterling."
      Were the 70,000 dollars which were subscribed by individuals to the Bank of North America, paid in bonds or in money ?  Was a part of the 470,000 dollars received by the French frigate, used in redeeming some of these bonds: and was it in this way subscriptions were transferred from the old Bond Bank to the Bank of North America: or were the 70,000 dollars paid in by individuals without any trafficking with Government ?  These questions are, perhaps, rather curious than useful: but our knowledge of the contrivances for forming Bank stock in our own day, makes us desire to see an explanation of the 70,000 dollars subscription by individuals.

17   The following is an extract from a pamphlet, published in 1785, entitled an "Address to the General Assembly of Pennsylvania, on the abolition of the Bank Charter."
      "After the peace, when the advantages of the Bank had been felt, and the property of the stock had become secure, an opposition was raised by some of the same persons who are now the opposers, but on grounds somewhat different.  For then, instead of considering the Bank as pernicious, it was considered to be so highly beneficial that they must needs have two.  They did indeed complain of the old Bank.  But for what ?  Not because the capital was so large as to threaten general ruin: but because the directors would not open a subscription to make it larger.  And what was the modest request of that day? Why, truly, such an extension of the capital as might enable those who had waited for events in perfect ease and safety, to enjoy the same advantages with those who had borne the burden, and run the risk of the contest.  It was, indeed, a hard case that many worthy gentlemen who would not have given a shilling to save the State, should be obliged to pay either $500 for a share in Bank which had cost but four, or to lend their money on bond and mortgage to the farmers of Pennsylvania.  A very hard case.  And so loudly did they complain of it, that at last many sensible members of Assembly were prevailed on to believe it would be a good thing to have two Banks.  Two shops to go to, for that was the fashionable phrase.  And they were the more easily led into this opinion, because it was laid down by some in high stations, for whose sentiments they had acquired a habitual respect.
      "The consequence of the noise made at the time, must be well remembered.  The Assembly were plagued with long arguments on both sides which might have been spared, and then, all at once, the thing was hushed up and accommodated.  Because, such of the promoters of the new Bank as had money, found out their new friends had none.  Because they all found out the scheme did not promise so much either of security or profit, as was imagined.  And because they had not too much confidence in each other, being (like Nebuchadnezar's image) composed of discordant materials.  They agreed, therefore, to abandon their project, on certain conditions acceded to by the old Bank, one of which was to extend the subscription, and this it is which has converted all the surplus money of the State into Bank stock.  For otherwise, let the price of a share have risen ever so high, nay, had it gone to 4000 instead of 400 dollars, not one penny would have been added to the Bank capital.  But in proportion as stock rose, the dividends would have been less valuable.
      "It is notorious that if the Directors had not been under compulsion, they would not have extended the subscriptions beyond the first 400,000 dollars.  It is notorious that any addition to the number of shares lessens the value of each."