Why Neither Hamilton nor Jefferson followed Adam Smith on Banking Policy

The most sophisticated monetary and banking policy advice available in the decades after 1776was found in Adam Smith’s Wealth of Nations. Smith recommended free competition amongnationwide banks of issue with only minimal legal restrictions and no legal privileges. Yetneither Alexander Hamilton nor Thomas Jefferson accepted Smith’s recommendation, despitetheir familiarity with his arguments, and despite Scotland’s positive experience while followingit.. We critically assess Hamilton’s and Jefferson’s theoretical disagreements, and explain howSmith’s advice did not serve either founder’s political agenda. For Hamilton, competitivebanking without a single privileged national bank would not do enough to strengthen the federalgovernment. For Jefferson, any federal chartering of banks would strengthen the federalgovernment too much at the expense of the states