History

After the American Revolution, the new nation began the difficult task of building a national government. Alexander Hamilton, the first Secretary of the Treasury, conceived the idea of a central bank for the new nation. After the Constitution was adopted in 1789, Congress established The First Bank of the United States, giving it power to operate until 1811 and authorizing it to issue paper bank notes. The First Bank of the United States also served as the U.S. Treasury's fiscal agent, thus performing the first central bank functions in the United States.

The Second Bank of the United States functioned from 1816 to 1836. Both central banks were unpopular with those wanting easy credit--primarily the western agrarian interests--and in 1832, President Andrew Jackson vetoed the recharter of the Second Bank.

The Free Banking Era followed the demise of the First and Second Banks of the United States, marking a quarter century in which American banking was a hodgepodge of state-chartered banks without federal regulation. Had you lived between 1836 and 1866, during the Free Banking Era, your wallet would have been filled with State Bank notes of different sizes, shapes, and designs. Notes of the same denomination had different values, depending on what backed the currency. Some notes were counterfeited. Lax federal and state banking laws allowed almost anyone--states, private banks, railroads, stores, and individuals--to issue currency. A dollar issued by the "City of Atlanta" wasn't necessarily worth as much as a dollar printed by the "City of New York."

By 1860, an estimated 8,000 different state banks were circulating worthless currency called "wildcat" or "broken" bank notes, so called because many of these banks were located in remote regions and frequently failed or "went broke." The era ended in 1863 with the passage of the National Bank Act.