The Mystery of Banking

Part of the Morris scheme was to organize and head a central
bank, to provide cheap credit and expanded money for himself
and his allies. The new privately owned Bank of North America
was deliberately modeled after the Bank of England. Its money
liabilities were to be grounded upon specie, with a controlled
monetary inflation pyramiding credit upon a reserve of specie. 
The Bank of North America received a federal charter very
quickly in a Congress dominated by its founder and major owner.
Like the Bank of England, the Bank of North America was
granted the monopoly privilege of its notes being receivable in all
duties and taxes to state and federal governments, and at par with
specie. Furthermore, no other banks were allowed to operate in
the country. In return for this monopoly license to issue paper
money, the Bank graciously agreed to lend most of its newly cre-
ated money to the federal government. In return for this agree-
ment, of course, the hapless taxpayers would have to pay the
Bank principal and interest.
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The Mystery of Banking
2
When he failed to raise the legally required specie capital to launch the
Bank of North America, Robert Morris, in an act tantamount to embezzle-
ment, simply appropriated specie loaned to the U.S. by France and invested
it on behalf of the government in his own bank. In this way, Morris appro-
priated the bulk of specie capital for his bank out of government funds. A
multiple of these funds was then borrowed back from Morris’s bank by
Morris as government financier for the pecuniary benefit of Morris as
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Despite the monopoly privileges conferred upon the Bank of
North America and its nominal redeemability in specie, the mar-
ket’s lack of confidence in the inflated notes led to their depreci-
ation outside the Bank’s home base in Philadelphia. The Bank
even tried to bolster the value of its notes by hiring people to urge
redeemers of its notes not to insist on specie—a move scarcely
calculated to improve long-run confidence in the Bank. 
After a year of operation, Morris’s political power slipped,
and he moved quickly to shift the Bank of North America from a
central bank to a purely commercial bank chartered by the state
of Pennsylvania. By the end of 1783, all the federal government’s
stock in the Bank, amounting to 5/8 of its capital, had been sold
into private hands, and all U.S. government debt to the Bank
repaid. The first experiment with a central bank in the United
States had ended. 
But the U.S. was not to be allowed to be without a central
bank for very long. In 1787–88, the Nationalist forces pushed
through a new Constitution replacing the decentralist Articles of
Confederation. The Nationalists were on their way to re-estab-
lishing the mercantilist and statist British model, even though they
were grudgingly forced to accept the libertarian Bill of Rights as
the price for the Anti-Federalists—who commanded the support
of the majority of Americans—not insisting on a second constitu-
tional convention to return to something very like the decentral-
ized Articles. 
The successful Federalists (the term the Nationalists called
themselves) proceeded to put through their cherished program:
high tariffs, domestic taxes, public works, and a high public debt.
A crucial part of their program was put through in 1791 by their
leader, Secretary of the Treasury, Alexander Hamilton, a disciple
of Robert Morris. Hamilton put through Congress the First Bank
Central Banking in the United States I
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banker; and finally, Morris channeled most of the money into war contracts
for his friends and business associates. See Murray N. Rothbard,