Why Alexander Hamilton Wanted To Create A National Bank (& Why Jefferson Opposed It)

In Lin Manuel Miranda’s brilliant musical Hamilton, Jefferson and Hamilton spend several verses sparring over whether the United States should create a national bank – but what was this argument really about? Hamilton isn’t always historically accurate, but while it mostly sticks to the facts when touching on the national bank, a casual viewer might need a bit more context to understand the importance of the argument to the underpinnings of the United States – both historically and in modern times.

In Hamilton, the clash about creating a national bank takes place almost entirely in a single musical number: “Cabinet Battle #1.” Both in Hamilton and in real life, this battle showed the growing enmity between Hamilton and Jefferson as well as their respective factions, the Federalists and the Democratic Republicans. In between trading personal insults, a few key lyrics from “Cabinet Battle #1” give hints as to what’s truly at stake. Jefferson begins first: “If New York’s in debt, why should Virginia bear it?… We plant seeds in the ground, we create. You just want to move our money around.” Hamilton responds: “If we assume the debts, the union gets, a new line of credit, a financial diuretic, how do you not get it?” 

Through these lyrics it becomes apparent that the debate isn’t truly about banking, but is more concerned with the power of the federal government in America. Hamilton and the Federalists want a national bank because they believe a strong federal government will benefit all the states financially, even as it regulates their freedom to print money. Conversely, Jefferson and the Democratic Republicans, leery of seeing another King George, believe individual states should have the freedom to do as they please.

In real life, both sides turned to the newly ratified constitution of 1788 to make their point. Jefferson, looking to the 10th Amendment, held to the idea that federal authority would remain carefully circumscribed by the enumerated delegated powers in the constitution. Because the Constitution doesn’t authorize Congress to charter corporations, much less a national bank, Jefferson argued that it was an unconstitutional act. Hamilton, inspired by the preamble, justified the bank by the unwritten doctrine of implied powers because the bank would be “necessary” for the “betterment of the nation and a more perfect union.”

Ultimately, as alluded to in “The Room Where It Happens,” Hamilton would win the argument and the First National Bank would be chartered by Congress. However, while Hamilton moves on, the real story of Alexander Hamilton is more complex. Although Hamilton’s First National Bank was largely successful, Congress decided not to renew the charter 20 years later. The reasons for the non-renewal are complex, but one reason concerns another lyric from “Cabinet Battle #1.” Early on, Jefferson says, “Now, place your bets as to who [the national bank] benefits — The very seat of government where Hamilton sits.” Today, there is evidence of insider trading on the part of Alexander Hamilton and other government officials in regards to state debt, proving that Jefferson’s charge was at least partially correct.

While there is no United States national bank in the present day like the one Alexander Hamilton envisioned, the Federal Reserve, which sprung into being in 1913, fulfills many of the same duties. The Fed manages nationwide monetary policy, serves as a central repository and lender for banks, and oversees banks throughout the United States. Ultimately, the long arc of American history has leaned towards Hamilton’s interpretation of implied rights, but the push-and-pull between federal and states rights continues all over America today. So to quote Hamilton, in one of its numerous references, one last time: “And if you don’t know, now you know.”

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