LAUSR

The most sophisticated monetary and banking policy advice available in the decades after 1776 was found in Adam Smith's Wealth of Nations. Smith recommended free competition among nationwide banks of issue with minimal legal restrictions and no legal privileges. Yet neither Alexander Hamilton nor Thomas Jefferson accepted Smith's recommendation, despite their familiarity with his arguments, and despite Scotland's positive experience while following it. We spell out Hamilton's and Jefferson's theoretical disagreements, and explain how Smith's advice did not serve either founder's political agenda. For Hamilton, competitive banking without a single privileged national bank would not do enough to strengthen the federal government. For Jefferson, any federal chartering of banks would strengthen the federal government too much at the expense of the states.