March 28: The Role Of Congress In Creation & Constitutionality Of The National Bank, Part 2 – Guest Essayist: Tony Williams

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Hamilton v. Jefferson: Taking the Constitution Seriously 

The First Congress was deeply divided over policies at the very start of the new nation. The debates generally centered around the economic policies and financial plans of Secretary of the Treasury Alexander Hamilton. The contention about the National Bank in particular generally revealed a sectional and increasing partisan divide between the Hamiltonians and Jeffersonians. While the debates revealed the tensions in the new nation, they also properly took place regarding interpretation of the Constitution.

In August 1790, Hamilton was preparing to move the treasury department to the new capital at Philadelphia. He had recently won the battle over the federal assumption of state debts and helped establish the soundness of the public credit. That month, Congress asked him to prepare a report on a National Bank. In December, he submitted a masterful blueprint for the National Bank and focused on its contribution to the growth of the American economy.

The National Bank would provide a means of taking deposits and lending out money for investment in business ventures, which would in turn stimulate the economy. Hamilton wrote, “By contributing to enlarge the mass of industrious and commercial enterprise, banks become nurseries of national wealth.” Hamilton believed that a bank was necessary not only to economic growth but to national security by funding armies in times of war.

The proposed bank encountered immediate opposition in both houses of Congress. Opponents were primarily southerners and those who feared centralized power and aristocracy—those who would become Jeffersonian Republicans. One member of Congress predicted, “This bank will raise in this country a moneyed interest at the devotion of government; it may bribe both states and individuals.” James Jackson of Georgia argued the bank was “calculated to benefit a small part of the United States, the mercantile interest.” Senator William Maclay predicted it would become “an aristocratic engine” and a “machine for the mischievous purposes of bad ministers.”

Despite the fierce opposition, the Senate easily passed the bill on January 20, 1791. James Madison led the opposition to the bank in the House. On February 2, Madison delivered a lengthy speech questioning the constitutionality of the proposed bank. Madison objected that it was not an enumerated power of Congress, nor was it a power Congress could legitimately exercise under the Necessary and Proper Clause in Article I, section 8. Madison’s arguments were to no avail. The House passed the bill by an overwhelming margin of 39 to 20.

President George Washington was a firm advocate of a stronger national government and economy, and usually sided on policy with Hamilton. However, the objections of Madison, and Thomas Jefferson and Edmund Randolph in the cabinet, troubled the president. He also took the Constitution seriously when considering signing bills into law, and he was concerned about the absence of a specific constitutional clause allowing Congress to create a National Bank. Therefore, he solicited opinions from the members of his cabinet to help him decide whether to sign the bill into law.

Jefferson produced a stronger paper arguing against the bank than Randolph’s rambling opinions. Jefferson argued for limited government when he stated that to “take a single step beyond the boundaries thus specially drawn around the powers of Congress, is to take possession of a boundless field of power, no longer susceptible of any definition.” The power to establish a bank was not one of the delegated powers of Congress, nor did the Necessary and Proper Clause apply because he thought the powers of the bank were unrelated to any other powers in Article I, Section 8. Jefferson argued that it was neither strictly necessary nor proper: “A bank therefore is not necessary, and consequently not authorized by this phrase.” He advised Washington to veto the bill because it was an “invasion of the legislature.”

On February 16, Washington weighed the arguments contained in the papers and then forwarded them to Hamilton for consideration while composing his paper. Five days later, Hamilton produced a brilliantly-crafted tour de force, burying his opponents in an avalanche of words and logic. Hamilton argued that the federal government had implied powers based upon having the means to execute the ends of its authority under enumerated powers. Moreover, Hamilton articulated numerous powers that Congress had that were related to the powers of a National Bank and therefore it was a constitutional exercise of power under the Necessary and Proper Clause. President Washington agreed with Hamilton’s constitutional reasoning and signed the bill into law on February 25.

The debate over the National Bank would be one of the disputes that helped create the Democratic-Republican and Federalist political parties. The differing perspectives on constitutional interpretation divided the Democratic-Republicans who had a strict construction of the Constitution from the Federalists who had a loose construction of the Constitution.  The 1790s were consequently characterized by a wide partisan divide over economic policies, constitutional interpretation, and foreign policy.

Whatever the divisions caused by the debate over the National Bank, the quarrel was ultimately rooted in the Constitution. Members of Congress considered the constitutionality of the bank bill during its passage. President Washington carefully weighed the Constitution when deciding to sign the bill, and its supporters and opponents made constitutional arguments for their rival views. The politicians and statesmen of the early republic took the Constitution seriously.

Tony Williams is a Constituting America fellow, a Senior Teaching Fellow at the Bill of Rights Institute, and the author of six books including Hamilton: An American Biography and Washington and Hamilton: The Alliance that Forged America.

 

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3 replies
  1. Publius Senex Dassault
    Publius Senex Dassault says:

    Having read much about the Federal conventions and debates over the Bill or Rights I find this essay particularly interesting. Anti-Rats had many arguments and fears not come fruition, such as the Executive office would devolve into a Monarchy or Dictatorship. But one consistent and cogent theme was the Constitution needed a BoRs before being ratified. The Rats, notably Madison, argued that The Federal government could and would not exercise powers not enumerated in the Constitution. Yet in the very first Congress the issue of what powers can and cannot be exercised comes to the fore.

    It is interesting that fellow Rats were aligned on different side of the enumerated powers debate. Madison had been convinced by fellow Virginians that a BoRs was needed and a proper amendment to the Constitution. He quickly and tirelessly worked to make the BoRs highest priority in the 1st Congress. I would be surprised that this debate did not stiffen his resolve and solidify his revised position on the need for BoRs to protect the citizenry from Federal encroachment on their rights under natural law.

    PSD

    Reply
    • Ralph Thomas Howarth
      Ralph Thomas Howarth says:

      Madison originally was a “rat” who wanted more powers for the federal government. He flipped to the anti-rat camp when he saw how quickly other statesman professed what powers the federal government was not going to have during the state ratifying conventions and then broke the rules to grab more federal power beyond imagination.

      Prof. Kevin Gutzman, a guest essayist elsewhere here on Constituting America, in his book The Politically Incorrect Guide to the Constitution, or PIG to the Constitution to go along with the anti-rats, described the nationalists as monarchists. What does a monarch do?  Holds office practically for life and exercises two distinct powers that the constitution was beset to ban: 

      1)  The Dispensation Power that allows the monarch to waive binding law on his favorites …aka, for me but not for thee, otherwise known as License;
      2)  The Perogative Power that allows the monarch to arbitrarily bind some people that the law does not …aka, not for me but is for thee, otherwise known as Fiat.

      When you recognize monarchic power, then you will find that much of what the anti-rats feared has come true in the form of the Administrative State.

      Reply

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