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Alexander Hamilton’s Initial Steps to Create a National Banking System
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On his 11th day as Secretary of the Treasury, Hamilton orders Customs Collectors to accept Bank of North America and Bank of New York notes as the equivalent of gold or silver, and hints at forthcoming procedures to guard against counterfeit currency.

“In consequence of arrangements lately taken with the Bank of North America, and the Bank of New York for the accommodation of the Government, I am to inform you that it is my desire that the Notes of those Banks payable either on demand, or at no longer period than Thirty days after their respective dates should be received in payment of the duties, as equivalent to Gold and Silver . . .”

Alexander Hamilton. Circular Letter Signed as Secretary of the Treasury, “Alexr Hamilton/Secy of the Treasury,” to Stephen Smith Esq., Collector of the Customs for the Port of Machias, Massachusetts [Maine], September 22, 1789, New York, New York. 2 pp., 7¾ in. x 9¼ in.

Inventory #26524       Price: $70,000

On September 13, 1789, two days after his appointment by Washington and confirmation by the Senate, Hamilton wrote to Thomas Willing, the president of the Bank of North America, detailing the need for $80,000 to meet the “present exigency.” The Bank of New York, which had already advanced the nation $20,000 “for another purpose,” agreed to lend another $30,000. Hamilton requested a loan of $50,000 from the Bank of North America which agreed.[1]

As those two banks were financing the government, Hamilton instructedcollectors of customs to accept the bank’s notes in payment of duties. Three weeks later, on October 14, Hamilton sent the promised follow-up letter with details guarding against counterfeits and the procedures for remitting them to Samuel Meredith, Treasurer of the United States.[2]

Historic Background 
Distrust of government was practically a religious doctrine for Jeffersonians, but Hamilton and the federalists believed in technology (by definition, the application of scientific knowledge for practical purposes). Focusing on the future, his Assumption Plan would counterintuitively pay off Revolutionary War debts in full. The opposition said the nascent government couldn’t afford to fund itself and pay prior debts, or that doing so would betray those who had sacrificed everything to purchase our independence. While admitting that default or “discrimination” (between speculators and original holders, many of whom were poor patriot farmers and merchants who had no choice but to sell their government promises for pennies on the dollar) would feel like economic justice, Hamilton argued it couldn’t be done. Every state had a different system, with different banks and currencies and record keeping. By 1789, no one could tell where, when, how much, and under what circumstances those debts had been discounted. Hamilton also presciently saw that honoring the prior debt would help to quickly establish the creditworthiness of the new nation, lessening the total cost that citizens would ultimately have to bear.

The Bank of North America served as the country’s first de facto central bank. Chartered by the Congress of the Confederation on May 26, 1781, and opened in Philadelphia on January 7, 1782, it was based upon a plan presented by US Superintendent of Finance Robert Morris on May 17, 1781, itself based on a plan proposed by Hamilton. Although it was necessary to serve the general war effort, the Pennsylvania government objected to its privileges and reincorporated it under state law, making it unsuitable as a national bank under the federal Constitution. Instead, Congress chartered a new First Bank of the United States, in 1791.

The Bank of New York was founded in 1784 by Alexander Hamilton and chartered under the Federal government in 1791. It was instrumental in securing the first loan obtained by the United States. Later loans contributed to the construction of the Erie Canal and the New York City subway system. The Bank of New York is still in business, mainly overseeing commercial banking and trust and investment services for other banks, corporations, institutions, and high-net-worth individuals. In 2006, it swapped its retail and middle-market banking business for JPMorgan Chase’s corporate trust business, and acquired the Mellon Financial Corporation of Pittsburgh.

The recipient of this letter,Stephen Smith (1739-1806) was born in Sandwich, Massachusetts, and moved to Machias, Massachusetts, in 1772. There, he became a privateer and militia leader. He participated in the Raid on St. John, Nova Scotia, in August 1775, to interrupt the shipment of supplies destined for the British forces in Boston. In 1776, the Provincial Congress appointed Smith as truck master to the Native Americans to ensure their support. In August 1777, Smith participated in the Battle of Machias, in which local militia and Native American allies successfully prevented the British from capturing the town. On August 3, 1789, before the Treasury Department was fully established, George Washington nominated Smith as the Collector of Customs at Machias, and the Senate approved his nomination the same day.

Alexander Hamilton (1757-1804) was nominated by George Washington on September 11, and confirmed by the Senate that same day, as the first U.S. Secretary of the Treasury. He authored the brilliantly counter-intuitive Assumption Plan, the Report on Public Credit, and Report on Manufactures, and pushed for the charter of the First Bank of the United States and the U.S. Mint. He served until 1795. Upon retiring to practice law, he represented the U.S. in the first Supreme Court judicial review case, Hylton v United States, where he successfully defended the carriage tax law that he had established. He was killed by Vice President Aaron Burr in a duel in 1804.

Complete Transcript

            (Circular)                                            Treasury Department
                                                                       New York 22d Septr 1789


            In consequence of arrangements lately taken with the Bank of North America, and the Bank of New York for the accommodation of the Government, I am to inform you that it is my desire that the Notes of those Banks payable either on demand, or at no longer period than Thirty days after their respective dates should be received in payment of the duties, as equivalent to Gold and Silver, and that they will be received from you as such by the Treasurer of the United States. This measure besides the immediate accommodation to which it has reference, will facilitate remittances from the several States, without drawing away their Specie; an advantage in every view important. I shall cause you shortly to be furnished with such indications of the genuine Notes, as will <2> serve to guard you against Counterfeits, and shall direct the manner of remitting them. In the mean time, and untill further orders, you will please to receive them; transmitting to me a weekly amount of your receipts and payments.

            The Treasurer of the United States will probably have occasion to draw upon you for part of the compensation of the Members of Congress from your State. These drafts you will also receive in payment of the duties, or in Exchange for any Specie arising from them, which shall have come to your hands.                            I am Sir / Your Obedt Servt

                  Alexr Hamilton
                 Secy of the Treasury

Stephen Smith Esqr
Collector of the Customs for Machias, Massachusetts

Condition: Folds from mailing. Minor separation and a very small amount of paper loss at the edge.  

[1]Alexander Hamilton to Thomas Willing, September 13, 1789, Sparks Transcript, Harvard College Library, Cambridge, MA.

[2]Alexander Hamilton to Collectors of the Customs, October 14, 1789, Circulars of the Treasury Department, 1789-1814, Library of Congress, Washington, DC.

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