56 UNITED STATES - CREDIT 



found study and the resultant minute " knowledge of the country's real 

 needs and political necessities, seem at last to have led the government of 

 the States to institute a new organization of banking, grafted on the sur- 

 viving trading organization and aiming at providing remedies for the crises 

 which may eventually threaten the equilibrium of the money market. 



The law of 23 December 1913, which created the Federal Reserve 

 Banks, gives its bases to the new system and is modified and amplified 

 by a law of 7 September 1916, which is connected at several points with the 

 law on agricultural credit of 17 July 191 6. 



The new organization represents, as we shall show in examining its 

 outstanding features, a measured compromise between two political and 

 economic principles — complete centralization and localization — which 

 in turn have left their mark on the law and administration of the North 

 American republic since first it was formed, and wliich the force of exper- 

 ience and of a union of social forces tend more and more to merge. 



In order justly to appreciate the reforms introduced into the mone- 

 tary and banking system of the States b}^ the Federal Reserve Act, and the 

 possibilities of economic growth which the new system offers to the various 

 States, we must realize the successive stages through which American fi- 

 nance has passed, and — maintaining a balance amongst fluctuating opin- 

 ions — arrive at the equilibrum established by one or more of the regula- 

 ting institutions. 



§ I. GENERAI, view of the DEVEI.OPMENT OF THE FINANCIAI< SYSTEM 

 OF THE UNITED STATES. 



a) The Two First Federal Banks. 



After the first confused and precaiious years of provisional measures 

 and multifarious difficulty Congress had to consider the national credit's 

 lack of stability. In the revolutionary period three institutions had been 

 founded — the Bank of North America, the Bank of New York in 1781 

 and the Massachusetts Bank in 1784. Alexander Hamilton, first secre- 

 tary of the Treasurj^ considered that they did not suffice and proposed 

 to form a federal bank. In support of his proposal he argued i) that ca- 

 pital would thus become available because the trust circulation would 

 increase, 2) that the government would be able to borrow more easily, 

 and 3) that the citizens would be able to pay taxes more easilj', because 

 they would have less difficulty in procuring credit, which would lead to a 

 larger and more rapid circulation of money. After various discussions 

 Congiess finally approved the formation of the proposed bank, and it was 

 constituted in 1791 under the name of Bank of the United States, with a 

 capital of Sio,ooo,ooo of which one fifth was to be subscribed by the 

 government and the rest by the pubhc. The offices were at Philadelphia. 

 This was the first federal bank. It did good service to the government but 

 aroused the opposition of the anti-federahst or republican party which 

 under Jefferson soon rose to power and did not renew the privilege which 



