public debt might be subscribed into the capital. The purpose of this was "to enable the creation of a capital sufficiently large to be the basis of an extensive circulation, and an adequate security for it." He wanted to make a large issue; he thought it impossible to collect a large amount of specie; he had rejected the notion of an issue based on land security; therefore, taking his model from the Bank of England, he based the issue on debt. The best writers on banking, in the third decade of the nineteenth century, had generally reached the conviction that the capital of a bank ought to be invested in some permanent security, and that the operations should be carried on with the notes. Evidently, if a bank should be formed by an association of capitalists who should buy bonds with the capital and carry on the business with the notes; or if they should be already owners of government bonds, which they subscribed as capital, printing notes for use in banking; or if they should lend their capital to the government as a book debt and obtain the franchise of note issue with which to do banking, as the Bank of England did in the first place; or if they should organize, as our national banks now do, it would all amount to the same thing. When the first Bank of the United States was organized, the government did not need to borrow and did not obtain any loan by the subscription of the public stock into the capital. That arrangement never had any proper cause or excuse, and only served to give occasion for some clamor against the Bank, as a piece of jobbery and favoritism to the bondholder.
The other point which Hamilton felt it necessary to apologize for was that the government was to take shares in the Bank. The government possessed no capital and the Treasury had no surplus. What right had it to take shares in the Bank? Hamilton said: "The main design of this is to enlarge the specie fund of the Bank, and to enable it to give a more early extension to its operations." This is unintelligible. The government put bills of exchange on Holland into the Bank in payment for the stock; then it borrowed the bills of exchange out again, and gave its note at five per cent. for the amount. This was called a "simultaneous transaction;" a phrase of ill-omen for an ill-devised operation. The government had simply given a stock note and set the example, which impecunious and bankrupt individuals adopted and repeated during the next fifty years, in hundreds of cases, with the most disastrous consequences. It was bound to pay $200,000 annually on this note, which, as Hamilton said, would "operate as an actual investment of so much specie." He added another reason for this arrangement, which was the real one: that the government would thus share in the profits of the institution. He had, however, well argued against State banking for profit, in the same document.[1] This arrangement was unnecessary and mischievous. It was right that the government should participate in the profits of the Bank either by a bonus or by taxes, but this device put the government in the wrong on the most fundamental and farreaching difference
- ↑ See p. 25.
