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The Constitution and the National Bank - Lance Banning, Liberty and Order: The First American Party Struggle 
Liberty and Order: The First American Party Struggle, ed. and with a Preface by Lance Banning (Indianapolis: Liberty Fund, 2004).
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The Constitution and the National Bank
Hamilton’s Second Report on Public Credit, delivered to the third session of the First Congress, recommended the creation of a national bank. A semipublic institution, modeled on the Bank of England (one-fifth of its stock would be held by the federal government, which would appoint a minority of its directors), the Bank of the United States would hold an exclusive charter from Congress and act as an adjunct to the Treasury in several respects. It would hold the government’s funds, shift them around the country on request, and serve as a ready source of short-term loans. In exchange for these services, it would be authorized, as well, to make private loans in notes that were to be receivable for taxes and payable in specie on demand. With an initial fund of $10 million—four times the capital of America’s three existing banks, a sum exceeding all the country’s coin, and an amount sufficient to permit some regulation of the country’s other lenders—the bank would concentrate the capital required for major commercial ventures. Circulating through the country, its notes would be a valuable resource for merchants, providing the nation, for the first time in its history, with an ample, stable substitute for cash. Starting with only $500,000 in specie, it would be capable quite safely of extending its commitments to the limits of its capitalization. The private holders of the bank stock were to pay in four installments: one-fourth in specie, three-fourths in government certificates of debt. They would be nearly guaranteed a good return on their investment, both from private loans and from the interest payments on the government’s bonds. This proposal, though, provoked an even fiercer resistance than had funding and assumption, since opponents saw it not only as objectionable in itself, but as a violation of the new Constitution.
alexander hamilton Notes on the Advantages of a National Bank 27 March 1791
Hamilton’s Report on a National Bank is inconveniently long and too detailed to be offered here. A memorandum to President Washington, however, nicely summarized the secretary’s objects and thinking.
The report to the House of Representatives proposing the plan of a Bank enters fully into the advantages attending institutions of this nature. They are summarily these:
1. They tend to increase the active or productive capital of a country by keeping it in more constant employment and by adding to the real an artificial capital in the credit of the Bank which answers equally with specie the purpose of money.
2. They increase and quicken circulation from the foregoing cause from the introduction of bank notes as money, from the greater facility of remittances in notes than in money, from their obviating the necessity in a great number of cases of transporting specie backwards and forwards, from their rendering it unnecessary to lock up specie for the periodical payments of interest, etc., whence a greater plenty of specie is left in circulation and an additional medium is furnished. And thence
3. They assist industry and trade. This they also do by facilitating loans to individuals within the spheres of their immediate operation. Accordingly, wherever they have been established they have given a new spring to agriculture, manufactures, & commerce. This has been most remarkably exemplified of late years in Scotland & Ireland and has been confirmed by the experience of the United States.
4. They facilitate the payment of taxes by keeping the circulation more full and active everywhere and by direct loans to the merchants to pay their duties.
5. They aid the Government in ordinary [cases] by facilitating the collection of taxes, by rendering remittances to and from the Treasury more easy, safe, and free from expence, and lastly, in extraordinary cases, by being an instrument of loans in sudden emergencies. The drawing a large capital to a point and the vast credit annexed to it enable banks to come at once to the aid of the Government in a manner that no individual resources are equal to. This was felt during the latter periods of the late war in the most important operations; and even at this moment it is the only resort for whatever pecuniary aids may be found necessary for carrying into execution the measures taken for the defence of the frontier.
But it is said, admitting the utility of banks in general, why establish a new one, since there are such institutions already in being? The answers to this are:
1. That all these institutions now rest on state foundations and may cease to exist if the state legislatures should not be inclined to continue. That of Pennsylvania has virtually surrendered its old charter by accepting a new one incompatible with it. It is therefore neither compatible with the dignity nor interest of the United States to suffer so important an engine of its administration to depend on so precarious a tenure & one so foreign from itself.
2. By being mere local institutions they cannot serve as engines of a general circulation. For this they have neither sufficient capital nor have they enough of the confidence of all parts of the Union. As local institutions they are rather objects of jealousy.
3. They would be improper foundations on which to rest the security of the public revenue by suffering their paper to be receivable in all payments to the public.
1. Because they have not adequate capital.
2. Because their continuance or discontinuance does not depend on the will of the U. States.
3. Because the Government of the Union can have no inspection of their proceedings, consequently no security for their prudent administration of their affairs.
4. They are too limited in their capital to afford such extensive aid to the United States as they may require in future emergencies. They may answer well enough for an Indian war; but in a war with a European power they could do nothing adequate to the public necessities.
5. Their constitutions have not those precautions which are calculated to guard against the abuses to which such institutions are subject. They are therefore in this light also insecure reliances for national circulation.
But admitting a National Bank ought to be instituted, the duration is said to be too long and contrary to precedent; too long because the affairs of this country from its peculiar situation must change so rapidly as to render it questionable whether a good thing now will continue to be a good thing for twenty years. With regard to precedent it is presumed that the matter is mistaken. The Banks of Venice, Genoa, Hamburgh & Amsterdam are understood to be indefinite in point of duration. The Bank of England indeed has been limited to different periods under different circumstances [but] the assertion that it was in its first creation limited to 11 years is not founded. It was incorporated for an indefinite period; but there was a right reserved to the government at the end of eleven years to pay off the debt which constituted its capital and thereby to dissolve the corporation. But it could not be dissolved nor was it to cease in any other way.
With regard to the argument drawn from the changing situation of the country, the answer is that banks are not novel institutions. They have been long tried, and in different countries. They had eleven years experience in their favour in this country. Their effects therefore can now be perfectly judged of and pronounced upon with certainty. They are necessary in countries little advanced in wealth; they have been found very useful in countries greatly advanced in wealth.
In a country like this, which having vast tracts of vacant land and few manufactures, can have no great abundance of specie, the auxiliary circulation of banks must be peculiarly useful. Though the country may advance in manufactures & in wealth considerably in the course of twenty years, yet very obvious causes must leave it during all that period in a condition to stand in need of the same auxiliary. Besides, as has been remarked, banks are at this day found useful in the wealthiest countries—Holland, England, France.
If the nature of the institution is attended to, it must be perceived that its relations to the future are as easy to be comprehended and pronounced upon as its relations to the present. Its operation must be always of the same tendency, and there is no more difficulty in pronouncing that it will be good for twenty years to come as easily as that it is good at the present moment.
How far one place or another may be the proper seat of it may be a thing variable by time; but the time which can vary this must evidently be more than twenty years. It is manifest that a large commercial city with a great deal of capital and business must be the fittest seat of the Bank. It is morally certain that for twenty years to come Philadelphia will continue to have as good pretensions as any of the principal trading cities now established. And with regard to the future seat of the Government, it is morally impossible that it can become in less than twenty years a place of sufficient trade and capital to be the principal scene of the operations of the National Bank. Governments must always act upon reasonable probabilities and, in doing so, they can hardly fail to do right.
The motives to a considerable duration to the charter of the Bank were these—to strengthen the inducement to men of property throughout the United States to embark in it, and to enhance the value of the public stock by a prospect of greater advantage.
This last idea is of great moment. All those acquainted with the operation of the thing will admit that the institution in question has been a main cause of the rise [in value] of the public debt. It operated upon it like a charm. Now it is evident that its effect in this way must have been greater or less in proportion to the prospect of advantage which a long or short duration afforded.
The raising of the public debt is a circumstance of immense importance in the affairs of the country. It is tantamount to the establishment of public credit. No man can be in credit whose bonds are selling for one third or one half their value: the same thing in respect to a Government. Besides, while the debt is low, foreigners become possessed of the property of the citizens of this country greatly below its true value. And every shilling which they pay less for the debt than its true value is so much loss to the country. The distress to this country would have been prodigious in time to come if it had had to pay millions to foreigners for which they had given little or no value. And the existence of a public debt would have been truly a curse.
As far as this essential object might have been made to give way to the speculative possibility of a better arrangement of the Bank in reference to future changes in the situation of the country, it would have been to sacrifice substance to shadow, reality to supposition.
Objection. The advantages of the Bank will not be equal in all the States.
This is hardly even an objection to a measure of Government, because there is scarcely one to which it may not be objected. Is there a law for the advancement of navigation? It will benefit most those states which have most aptitudes for navigation. Is there a law for the encouragement of manufactures? The same thing may be observed—Is there one for the encouragement of particular objects of agriculture? The same observation applies. What is the duty upon foreign cotton? As far as its operation may correspond with its intention it will be a direct bounty upon the industry of a few of the states. For there are only particular states adapted to the raising of cotton.
In short such is the state of human affairs that public measures unavoidably benefit or injure some part more than others. Consequently, that must be a good public measure which benefits all the parts of a country, though some more than others. If all gain, the general mass of public prosperity is promoted, though some gain more than others.
It is certain the operations of the proposed Bank will be most directly useful to the spot upon which they are carried on; but by aiding general circulation, and establishing a convenient medium of remittance & exchange between the states, all will be benefitted in different degrees.
If branches are established the immediate benefit will be diffused still more extensively.
Objection. It will interfere with the several state banks. This cannot happen, unless branches are established in the same states. If this is done no inconvenience to the community can accrue. Either the State Bank and the branch of the National Bank can go on together, and then trade & industry will be promoted by larger supplies, or the one will subvert the other. If the state bank subverts the branch, the injury is at least temporary. If the branch subverts the state bank, it furnishes to the commerce & industry of the place a better substitute; one which, to all the common advantages, will add this peculiar one, the affording a medium of circulation which is useful in all the states and not merely on the spot, and can of course be employed in the intercourse with other states.
But in fact all this is exaggerated supposition. It is not probable, except at the immediate seat of the Bank, where the competition will be compensated by obvious advantages, that there will be any interference. It can never be the interest of the National Bank to quarrel with the local institutions. The local institutions will in all likelihood either be adopted by the National Bank or establishments where they exist will be foreborne.
Lastly an attentive consideration of the tendency of an institution immediately connected with the national government which will interweave itself into the monied interest of every state, which will by its notes insinuate itself into every branch of industry and will affect the interests of all classes of the community, ought to produce strong prepossessions in its favor in all who consider the firm establishment of the national government as necessary to the safety & happiness of the country, and who at the same time believe that it stands in need of additional props.
James Madison’s Speech on the Bank Bill 2 February 1791
Mr. Madison began with a general review of the advantages and disadvantages of banks. The former he stated to consist in, first, the aids they afford to merchants who can thereby push their mercantile operations farther with the same capital. 2d. The aids to merchants in paying punctually the customs. 3d. Aids to the government in complying punctually with its engagements, when deficiencies or delays happen in the revenue. 4th. In diminishing usury. 5th. In saving the wear of the gold and silver kept in the vaults and represented by notes. 6th. In facilitating occasional remittances from different places where notes happen to circulate. The effect of the proposed bank, in raising the value of stock, he thought, had been greatly overrated. It would no doubt raise that of the stock subscribed into the bank; but could have little effect on stock in general, as the interest on it would remain the same, and the quantity taken out of the market would be replaced by bank stock.
The principal disadvantages consisted in, 1st. banishing the precious metals, by substituting another medium to perform their office: This effect was inevitable. It was admitted by the most enlightened patrons of banks, particularly by Smith on The Wealth of Nations. The common answer to the objection was, that the money banished was only an exchange for something equally valuable that would be imported in return. He admitted the weight of this observation in general, but doubted whether, in the present habits of this country, the returns would not be in articles of no permanent use to it. 2d. Exposing the public and individuals to all the evils of a run on the bank, which would be particularly calamitous in so great a country as this, and might happen from various causes, as false rumours, bad management of the institution, an unfavorable balance of trade from short crops, etc.
It was proper to be considered also that the most important of the advantages would be better obtained by several banks properly distributed than by a single one. The aids to commerce could only be afforded at or very near the seat of the bank. The same was true of aids to merchants in the payment of customs. Anticipations of the government would also be most convenient at the different places where the interest of the debt was to be paid. The case in America was different from that in England: the interest there was all due at one place, and the genius of the monarchy favored the concentration of wealth and influence at the metropolis.
He thought the plan liable to other objections: It did not make so good a bargain for the public as was due to its interests. The charter to the bank of England had been granted for 11 years only, and was paid for by a loan to the government on terms better than could be elsewhere got. Every renewal of the charter had in like manner been purchased; in some instances at a very high price. The same had been done by the banks of Genoa, Naples, and other like banks of circulation. The plan was unequal to the public creditors—it gave an undue preference to the holders of a particular denomination of the public debt and to those at and within reach of the seat of government. If the subscriptions should be rapid, the distant holders of paper would be excluded altogether.
In making these remarks on the merits of the bill, he had reserved to himself, he said, the right to deny the authority of Congress to pass it. He had entertained this opinion from the date of the Constitution. His impression might perhaps be the stronger because he well recollected that a power to grant charters of incorporation had been proposed in the general convention and rejected.
Is the power of establishing an incorporated bank among the powers vested by the Constitution in the legislature of the United States? This is the question to be examined.
After some general remarks on the limitations of all political power, he took notice of the peculiar manner in which the federal government is limited. It is not a general grant, out of which particular powers are excepted—it is a grant of particular powers only, leaving the general mass in other hands. So it had been understood by its friends and its foes, and so it was to be interpreted.
As preliminaries to a right interpretation, he laid down the following rules:
An interpretation that destroys the very characteristic of the government cannot be just.
Where a meaning is clear, the consequences, whatever they may be, are to be admitted—where doubtful, it is fairly triable by its consequences.
In controverted cases, the meaning of the parties to the instrument, if to be collected by reasonable evidence, is a proper guide.
Cotemporary and concurrent expositions are reasonable evidence of the meaning of the parties.
In admitting or rejecting a constructive authority, not only the degree of its incidentality to an express authority is to be regarded, but the degree of its importance also, since on this will depend the probability or improbability of its being left to construction.
Reviewing the Constitution with an eye to these positions, it was not possible to discover in it the power to incorporate a Bank. The only clauses under which such a power could be pretended, are either—
1. The power to lay and collect taxes to pay the debts and provide for the common defence and general welfare; Or,
2. The power to borrow money on the credit of the United States; Or,
3. The power to pass all laws necessary and proper to carry into execution those powers.
The bill did not come within the first power. It laid no tax to pay the debts, or provide for the general welfare. It laid no tax whatever. It was altogether foreign to the subject.
No argument could be drawn from the terms “common defence and general welfare.” The power as to these general purposes was limited to acts laying taxes for them; and the general purposes themselves were limited and explained by the particular enumeration subjoined. To understand these terms in any sense that would justify the power in question would give to Congress an unlimited power; would render nugatory the enumeration of particular powers; would supercede all the powers reserved to the state governments. These terms are copied from the Articles of Confederation; had it ever been pretended that they were to be understood otherwise than as here explained?
It had been said that “general welfare” meant cases in which a general power might be exercised by Congress without interfering with the powers of the States; and that the establishment of a National Bank was of this sort. There were, he said, several answers to this novel doctrine.
1. The proposed Bank would interfere so as indirectly to defeat a State Bank at the same place. 2. It would directly interfere with the rights of the states to prohibit as well as to establish banks and the circulation of bank notes. He mentioned a law of Virginia, actually prohibiting the circulation of notes payable to bearer. 3. Interference with the power of the states was no constitutional criterion of the power of Congress. If the power was not given, Congress could not exercise it; if given, they might exercise it, altho it should interfere with the laws or even the constitution of the states. 4. If Congress could incorporate a Bank, merely because the act would leave the states free to establish banks also, any other incorporations might be made by Congress. They could incorporate companies of manufacturers, or companies for cutting canals, or even religious societies, leaving similar incorporations by the states, like state banks, to themselves. Congress might even establish religious teachers in every parish and pay them out of the Treasury of the United States, leaving other teachers unmolested in their functions. These inadmissible consequences condemned the controverted principle.
The case of the Bank established by the former Congress had been cited as a precedent. This was known, he said, to have been the child of necessity. It never could be justified by the regular powers of the Articles of Confederation. Congress betrayed a consciousness of this in recommending to the states to incorporate the Bank also. They did not attempt to protect the Bank Notes by penalties against counterfeiters. These were reserved wholly to the authority of the states.
The second clause to be examined is that which empowers Congress to borrow money.
Is this a bill to borrow money? It does not borrow a shilling. Is there any fair construction by which the bill can be deemed an exercise of the power to borrow money? The obvious meaning of the power to borrow money is that of accepting it from and stipulating payments to those who are able and willing to lend.
To say that the power to borrow involves a power of creating the ability, where there may be the will, to lend is not only establishing a dangerous principle, as will be immediately shewn, but is as forced a construction as to say that it involves the power of compelling the will, where there may be the ability, to lend.
The third clause is that which gives the power to pass all laws necessary and proper to execute the specified powers.
Whatever meaning this clause may have, none can be admitted that would give an unlimited discretion to Congress.
Its meaning must, according to the natural and obvious force of the terms and the context, be limited to means necessary to the end and incident to the nature of the specified powers.
The clause is in fact merely declaratory of what would have resulted by unavoidable implication, as the appropriate, and as it were, technical means of executing those powers. In this sense it had been explained by the friends of the Constitution and ratified by the state conventions.
The essential characteristic of the government, as composed of limited and enumerated powers, would be destroyed: If instead of direct and incidental means, any means could be used which, in the language of the preamble to the bill, “might be conceived to be conducive to the successful conducting of the finances; or might be conceived to tend to give facility to the obtaining of loans.” He urged an attention to the diffuse and ductile terms which had been found requisite to cover the stretch of power contained in the bill. He compared them with the terms necessary and proper, used in the Constitution, and asked whether it was possible to view the two descriptions as synonimous, or the one as a fair and safe commentary on the other.
If, proceeded he, Congress, by virtue of the power to borrow, can create the means of lending, and in pursuance of these means, can incorporate a Bank, they may do any thing whatever creative of like means.
The East-India Company has been a lender to the British government, as well as the Bank, and the South-Sea Company is a greater creditor than either. Congress then may incorporate similar companies in the United States, and that too not under the idea of regulating trade, but under that of borrowing money.
Private capitals are the chief resources for loans to the British government. Whatever then may be conceived to favor the accumulation of capitals may be done by Congress. They may incorporate manufactures. They may give monopolies in every branch of domestic industry.
If, again, Congress by virtue of the power to borrow money can create the ability to lend, they may by virtue of the power to levy money create the ability to pay it. The ability to pay taxes depends on the general wealth of the society, and this on the general prosperity of agriculture, manufactures and commerce. Congress then may give bounties and make regulations on all of these objects.
The states have, it is allowed on all hands, a concurrent right to lay and collect taxes. This power is secured to them not by its being expressly reserved, but by its not being ceded by the Constitution. The reasons for the bill cannot be admitted because they would invalidate that right; why may it not be conceived by Congress that a uniform and exclusive imposition of taxes would, not less than the proposed Banks, be conducive to the successful conducting of the national finances, and tend to give facility to the obtaining of revenue, for the use of the government?
The doctrine of implication is always a tender one. The danger of it has been felt in other governments. The delicacy was felt in the adoption of our own; the danger may also be felt, if we do not keep close to our chartered authorities.
Mark the reasoning on which the validity of the bill depends. To borrow money is made the end and the accumulation of capitals implied as the means. The accumulation of capitals is then the end and a bank implied as the means. The bank is then the end and a charter of incorporation, a monopoly, capital punishments, etc. implied as the means.
If implications thus remote and thus multiplied can be linked together, a chain may be formed that will reach every object of legislation, every object within the whole compass of political economy.
The latitude of interpretation required by the bill is condemned by the rule furnished by the constitution itself.
Congress have power “to regulate the value of money”; yet it is expressly added, not left to be implied, that counterfeitors may be punished.
They have the power “to declare war,” to which armies are more incident than incorporated Banks to borrowing; yet is expressly added, the power “to raise and support armies”; and to this again, the express power “to make rules and regulations for the government of armies”; a like remark is applicable to the powers as to a navy.
The regulation and calling out of the militia are more appurtenant to war than the proposed bank to borrowing; yet the former is not left to construction.
The very power to borrow money is a less remote implication from the power of war than an incorporated monopoly bank from the power of borrowing—yet the power to borrow is not left to implication.
It is not pretended that every insertion or omission in the constitution is the effect of systematic attention. This is not the character of any human work, particularly the work of a body of men. The examples cited, with others that might be added, sufficiently inculcate nevertheless a rule of interpretation very different from that on which the bill rests. They condemn the exercise of any power, particularly a great and important power, which is not evidently and necessarily involved in an express power.
It cannot be denied that the power proposed to be exercised is an important power.
As a charter of incorporation the bill creates an artificial person previously not existing in law. It confers important civil rights and attributes which could not otherwise be claimed. It is, though not precisely similar, at least equivalent to the naturalization of an alien, by which certain new civil characters are acquired by him. Would Congress have had the power to naturalize if it had not been expressly given?
In the power to make bylaws, the bill delegated a sort of legislative power, which is unquestionably an act of a high and important nature. He took notice of the only restraint on the bylaws, that they were not to be contrary to the law and the constitution of the bank; and asked what law was intended; if the law of the United States, the scantiness of their code would give a power never before given to a corporation—and obnoxious to the states, whose laws would then be superceded not only by the laws of Congress, but by the bylaws of a corporation within their own jurisdiction. If the law intended was the law of the state, then the state might make laws that would destroy an institution of the United States.
The bill gives a power to purchase and hold lands; Congress themselves could not purchase lands within a state “without the consent of its legislature.” How could they delegate a power to others which they did not possess themselves?
It takes from our successors, who have equal rights with ourselves, and with the aid of experience will be more capable of deciding on the subject, an opportunity of exercising that right for an immoderate term.
It takes from our constituents the opportunity of deliberating on the untried measure, although their hands are also to be tied by it for the same term.
It involves a monopoly, which affects the equal rights of every citizen.
It leads to a penal regulation, perhaps capital punishments, one of the most solemn acts of sovereign authority.
From this view of the power of incorporation exercised in the bill, it could never be deemed an accessary or subaltern power, to be deduced by implication, as a means of executing another power; it was in its nature a distinct, an independent and substantive prerogative, which not being enumerated in the Constitution could never have been meant to be included in it, and not being included could never be rightfully exercised.
He here adverted to a distinction which he said had not been sufficiently kept in view, between a power necessary and proper for the government or union and a power necessary and proper for executing the enumerated powers. In the latter case, the powers included in each of the enumerated powers were not expressed, but to be drawn from the nature of each. In the former, the powers composing the government were expressly enumerated. This constituted the peculiar nature of the government; no power therefore not enumerated could be inferred from the general nature of government. Had the power of making treaties, for example, been omitted, however necessary it might have been, the defect could only have been lamented or supplied by an amendment of the Constitution.
But the proposed bank could not even be called necessary to the government; at most it could be but convenient. Its uses to the government could be supplied by keeping the taxes a little in advance—by loans from individuals—by the other banks over which the government would have equal command, nay greater, as it may grant or refuse to these the privilege, made a free and irrevocable gift to the proposed bank, of using their notes in the federal revenue.
He proceeded next to the cotemporary expositions given to the Constitution.
The defence against the charge founded on the want of a bill of rights presupposed, he said, that the powers not given were retained and that those given were not to be extended by remote implications. On any other supposition, the power of Congress to abridge the freedom of the press, or the rights of conscience, etc. could not have been disproved.
The explanations in the state conventions all turned on the same fundamental principle, and on the principle that the terms necessary and proper gave no additional powers to those enumerated. (Here he read sundry passages from the debates of the Pennsylvania, Virginia and North-Carolina conventions, shewing the grounds on which the Constitution had been vindicated by its principal advocates against a dangerous latitude of its powers, charged on it by its opponents.) He did not undertake to vouch for the accuracy or authenticity of the publications which he quoted—he thought it probable that the sentiments delivered might in many instances have been mistaken or imperfectly noted; but the complexion of the whole, with what he himself and many others must recollect, fully justified the use he had made of them.
The explanatory declarations and amendments accompanying the ratifications of the several states formed a striking evidence wearing the same complexion. He referred those who might doubt on the subject to the several acts of ratification.
The explanatory amendments proposed by Congress themselves, at least, would be good authority with them; all these renunciations of power proceeded on a rule of construction excluding the latitude now contended for. These explanations were the more to be respected, as they had not only been proposed by Congress, but ratified by nearly three-fourths of the states. He read several of the articles proposed, remarking particularly on the 11th and 12th: the former, as guarding against a latitude of interpretation—the latter, as excluding every source of power not within the constitution itself.
With all this evidence of the sense in which the Constitution was understood and adopted, will it not be said, if the bill should pass, that its adoption was brought about by one set of arguments and that it is now administered under the influence of another set; and this reproach will have the keener sting, because it is applicable to so many individuals concerned in both the adoption and administration.
In fine, if the power were in the Constitution, the immediate exercise of it cannot be essential—if not there, the exercise of it involves the guilt of usurpation, and establishes a precedent of interpretation leveling all the barriers which limit the powers of the general government and protect those of the state governments. If the point be doubtful only, respect for ourselves, who ought to shun the appearance of precipitancy and ambition; respect for our successors, who ought not lightly to be deprived of the opportunity of exercising the rights of legislation; respect for our constituents who have had no opportunity of making known their sentiments and who are themselves to be bound down to the measure for so long a period: all these considerations require that the irrevocable decision should at least be suspended until another session.
It appeared on the whole, he concluded, that the power exercised by the bill was condemned by the silence of the Constitution; was condemned by the rule of interpretation arising out of the Constitution; was condemned by its tendency to destroy the main characteristic of the Constitution; was condemned by the expositions of the friends of the Constitution whilst depending before the public; was condemned by the apparent intention of the parties which ratified the Constitution; was condemned by the explanatory amendments proposed by Congress themselves to the Constitution; and he hoped it would receive its final condemnation, by the vote of this house.
thomas jefferson Opinion on the Constitutionality of a National Bank 15 February 1791
At the outset of the new administration, Madison, the most important architect of constitutional reform, had been the president’s most regular advisor and the draftsman of his most important messages to Congress. Believing that the presidential veto should be used to guard the Constitution, Washington asked Madison to draft a veto message and called on his cabinet for their opinions on Madison’s views. Jefferson’s and Hamilton’s responses are among the most famous of the early expositions of strict and broad constructions of the Constitution, although neither was publicized at the time. In the end, of course, Washington accepted Hamilton’s opinion, which would also be adopted by the Marshall court in its decision in the celebrated case of M’Culloch v. Maryland (1819).
The bill for establishing a National Bank undertakes among other things:
1. To form the subscribers into a corporation.
2. To enable them in their corporate capacities to receive grants of land; and so far is against the laws of Mortmain.
3. To make alien subscribers capable of holding lands; and so far is against the laws of Alienage.
4. To transmit these lands, on the death of a proprietor, to a certain line of successors; and so far changes the course of Descents.
5. To put the lands out of the reach of forfeiture or escheat; and so far is against the laws of Forfeiture and Escheat.
6. To transmit personal chattels to successors in a certain line; and so far is against the laws of Distribution.
7. To give them the sole and exclusive right of banking under the national authority; and so far is against the laws of Monopoly.
8. To communicate to them a power to make laws paramount to the laws of the States: for so they must be construed, to protect the institution from the control of the State legislatures; and so, probably, they will be construed.
I consider the foundation of the Constitution as laid on this ground: That “all powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States or to the people.” [XIIth amendment.] 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 incorporation of a bank, and the powers assumed by this bill, have not, in my opinion, been delegated to the United States by the Constitution.
I. They are not among the powers specially enumerated: for these are: 1st. A power to lay taxes for the purpose of paying the debts of the United States; but no debt is paid by this bill, nor any tax laid. Were it a bill to raise money, its origination in the Senate would condemn it by the Constitution.
2d. “To borrow money.” But this bill neither borrows money nor ensures the borrowing it. The proprietors of the bank will be just as free as any other money holders to lend or not to lend their money to the public. The operation proposed in the bill, first to lend them two millions, and then to borrow them back again, cannot change the nature of the latter act, which will still be a payment, and not a loan, call it by what name you please.
3. To “regulate commerce with foreign nations, and among the States, and with the Indian tribes.” To erect a bank, and to regulate commerce, are very different acts. He who erects a bank, creates a subject of commerce in its bills; so does he who makes a bushel of wheat, or digs a dollar out of the mines; yet neither of these persons regulates commerce thereby. To make a thing which may be bought and sold, is not to prescribe regulations for buying and selling. Besides, if this was an exercise of the power of regulating commerce, it would be void, as extending as much to the internal commerce of every State as to its external. For the power given to Congress by the Constitution does not extend to the internal regulation of the commerce of a state (that is to say of the commerce between citizen and citizen), which remain exclusively with its own legislature; but to its external commerce only, that is to say, its commerce with another state, or with foreign nations, or with the Indian tribes. Accordingly the bill does not propose the measure as a regulation of trade, but as “productive of considerable advantages to trade.” Still less are these powers covered by any other of the special enumerations.
II. Nor are they within either of the general phrases, which are the two following:—
1. To lay taxes to provide for the general welfare of the United States, that is to say, “to lay taxes for the purpose of providing for the general welfare.” For the laying of taxes is the power and the general welfare the purpose for which the power is to be exercised. They are not to lay taxes ad libitum for any purpose they please; but only to pay the debts or provide for the welfare of the Union. In like manner, they are not to do anything they please to provide for the general welfare, but only to lay taxes for that purpose. To consider the latter phrase, not as describing the purpose of the first, but as giving a distinct and independent power to do any act they please, which might be for the good of the Union, would render all the preceding and subsequent enumerations of power completely useless.
It would reduce the whole instrument to a single phrase, that of instituting a Congress with power to do whatever would be for the good of the United States; and, as they would be the sole judges of the good or evil, it would be also a power to do whatever evil they please.
It is an established rule of construction where a phrase will bear either of two meanings, to give it that which will allow some meaning to the other parts of the instrument, and not that which would render all the others useless. Certainly no such universal power was meant to be given them. It was intended to lace them up straitly within the enumerated powers, and those without which, as means, these powers could not be carried into effect. It is knownthat the very power now proposed as a means was rejected as an end by the Convention which formed the Constitution. A proposition was made to them to authorize Congress to open canals, and an amendatory one to empower them to incorporate. But the whole was rejected, and one of the reasons for rejection urged in debate was, that then they would have a power to erect a bank, which would render the great cities, where there were prejudices and jealousies on the subject, adverse to the reception of the Constitution.
2. The second general phrase is “to make all laws necessary and proper for carrying into execution the enumerated powers.” But they can all be carried into execution without a bank. A bank therefore is not necessary, and consequently not authorized by this phrase.
It has been urged that a bank will give great facility or convenience in the collection of taxes. Suppose this were true: yet the Constitution allows only the means which are “necessary,” not those which are merely “convenient” for effecting the enumerated powers. If such a latitude of construction be allowed to this phrase as to give any non-enumerated power, it will go to every one, for there is not one which ingenuity may not torture into a convenience in some instance or other to some one of so long a list of enumerated powers. It would swallow up all the delegated powers, and reduce the whole to one power, as before observed. Therefore it was that the Constitution restrained them to the necessary means, that is to say, to those means without which the grant of power would be nugatory.
But let us examine this convenience and see what it is. The report on this subject, page 3, states the only general convenience to be the preventing the transportation and re-transportation of money between the states and the treasury (for I pass over the increase of circulating medium, ascribed to it as a want, and which, according to my ideas of paper money, is clearly a demerit). Every state will have to pay a sum of tax money into the treasury; and the treasury will have to pay, in every state, a part of the interest on the public debt and salaries to the officers of government resident in that state. In most of the states there will still be a surplus of tax money to come up to the seat of government for the officers residing there. The payments of interest and salary in each state may be made by treasury orders on the state collector. This will take up the greater part of the money he has collected in his state, and consequently prevent the great mass of it from being drawn out of the state. If there be a balance of commerce in favor of that state against the one in which the government resides, the surplus of taxes will be remitted by the bills of exchange drawn for that commercial balance. And so it must be if there was a bank. But if there be no balance of commerce, either direct or circuitous, all the banks in the world could not bring up the surplus of taxes but in the form of money. Treasury orders then, and bills of exchange may prevent the displacement of the main mass of the money collected without the aid of any bank; and where these fail, it cannot be prevented even with that aid.
Perhaps, indeed, bank bills may be a more convenient vehicle than treasury orders. But a little difference in the degree of convenience, cannot constitute the necessity which the constitution makes the ground for assuming any non-enumerated power.
Besides, the existing banks will, without a doubt, enter into arrangements for lending their agency, and the more favorable, as there will be a competition among them for it; whereas the bill delivers us up bound to the national bank, who are free to refuse all arrangement, but on their own terms, and the public not free, on such refusal, to employ any other bank. That of Philadelphia, I believe, now does this business, by their post-notes, which, by an arrangement with the treasury, are paid by any state collector to whom they are presented. This expedient alone suffices to prevent the existence of that necessity which may justify the assumption of a non-enumerated power as a means for carrying into effect an enumerated one. The thing may be done, and has been done, and well done, without this assumption; therefore, it does not stand on that degree of necessity which can honestly justify it.
It may be said that a bank whose bills would have a currency all over the states, would be more convenient than one whose currency is limited to a single State. So it would be still more convenient that there should be a bank, whose bills should have a currency all over the world. But it does not follow from this superior conveniency, that there exists anywhere a power to establish such a bank; or that the world may not go on very well without it.
Can it be thought that the Constitution intended that for a shade or two of convenience, more or less, Congress should be authorized to break down the most ancient and fundamental laws of the several states, such as those against Mortmain, the laws of Alienage, the rules of descent, the acts of distribution, the laws of escheat and forfeiture, the laws of monopoly? Nothing but a necessity invincible by any other means, can justify such a prostitution of laws which constitute the pillars of our whole system of jurisprudence. Will Congress be too straight-laced to carry the Constitution into honest effect, unless they may pass over the foundation-laws of the state government for the slightest convenience of theirs?
The negative of the President is the shield provided by the Constitution to protect against the invasions of the legislature: 1. The right of the Executive. 2. Of the Judiciary. 3. Of the States and state legislatures. The present is the case of a right remaining exclusively with the states, and consequently one of those intended by the Constitution to be placed under its protection.
It must be added, however, that unless the President’s mind on a view of everything which is urged for and against this bill is tolerably clear that it is unauthorized by the Constitution; if the pro and the con hang so even as to balance his judgment, a just respect for the wisdom of the legislature would naturally decide the balance in favor of their opinion. It is chiefly for cases where they are clearly misled by error, ambition, or interest, that the Constitution has placed a check in the negative of the President.
alexander hamilton Opinion on the Constitutionality of a National Bank 15 February 1791
The Secretary of the Treasury having perused with attention the papers containing the opinions of the Secretary of State and Attorney General concerning the constitutionality of the bill for establishing a National Bank proceeds according to the order of the President to submit the reasons which have induced him to entertain a different opinion.
It will naturally have been anticipated that, in performing this task, he would feel uncommon solicitude. Personal considerations alone arising from the reflection that the measure originated with him would be sufficient to produce it. The sense which he has manifested of the great importance of such an institution to the successful administration of the department under his particular care, and an expectation of serious ill consequences to result from a failure of the measure, do not permit him to be without anxiety on public accounts. But the chief solicitude arises from a firm persuasion that principles of construction like those espoused by the Secretary of State and the Attorney General would be fatal to the just & indispensable authority of the United States.
In entering upon the argument it ought to be premised that the objections of the Secretary of State and Attorney General are founded on a general denial of the authority of the United States to erect corporations. The latter indeed expressly admits that if there be anything in the bill which is not warranted by the Constitution, it is the clause of incorporation.
Now it appears to the Secretary of the Treasury that this general principle is inherent in the very definition of Government and essential to every step of the progress to be made by that of the United States: namely—that every power vested in a Government is in its nature sovereign and includes by force of the term a right to employ all the means requisite and fairly applicable to the attainment of the ends of such power; and which are not precluded by restrictions & exceptions specified in the Constitution, or not immoral, or not contrary to the essential ends of political society.
This principle in its application to Government in general would be admitted as an axiom. And it will be incumbent upon those who may incline to deny it to prove a distinction; and to shew that a rule which in the general system of things is essential to the preservation of the social order is inapplicable to the United States.
The circumstances that the powers of sovereignty are in this country divided between the national and state governments does not afford the distinction required. It does not follow from this that each of the portions of powers delegated to the one or to the other is not sovereign with regard to its proper objects. It will only follow from it that each has sovereign power as to certain things, and not as to other things. To deny that the Government of the United States has sovereign power as to its declared purposes & trusts, because its power does not extend to all cases, would be equally to deny that the state governments have sovereign power in any case, because their power does not extend to every case. The tenth section of the first article of the Constitution exhibits a long list of very important things which they may not do. And thus the United States would furnish the singular spectacle of a political society without sovereignty, or of a people governed without government.
If it would be necessary to bring proof to a proposition so clear as that which affirms that the powers of the federal government, as to its objects, are sovereign, there is a clause of its Constitution which would be decisive. It is that which declares that the Constitution and the laws of the United States made in pursuance of it, and all treaties made or which shall be made under their authority shall be the supreme law of the land. The power which can create the Supreme law of the land, in any case, is doubtless sovereign as to such case.
This general & indisputable principle puts at once an end to the abstract question—Whether the United States have power to erect a corporation? that is to say, to give a legal or artificial capacity to one or more persons, distinct from the natural. For it is unquestionably incident to sovereign power to erect corporations, and consequently to that of the United States, in relation to the objects intrusted to the management of the government. The difference is this—where the authority of the government is general, it can create corporations in all cases; where it is confined to certain branches of legislation, it can create corporations only in those cases.
Here then as far as concerns the reasoning of the Secretary of State & the Attorney General, the affirmative of the constitutionality of the bill might be permitted to rest. It will occur to the President that the principle here advanced has been untouched by either of them.
For a more complete elucidation of the point nevertheless, the arguments which they have used against the power of the government to erect corporations, however foreign they are to the great & fundamental rule which has been stated, shall be particularly examined. And after shewing that they do not tend to impair its force, it shall also be shewn that the power of incorporation incident to the government in certain cases does fairly extend to the particular case which is the object of the bill.
The first of these arguments is that the foundation of the Constitution is laid on this ground “that all powers not delegated to the United States by the Constitution nor prohibited to it by the States are reserved to the States or to the people,” whence it is meant to be inferred that Congress can in no case exercise any power not included in those enumerated in the Constitution. And it is affirmed that the power of erecting a corporation is not included in any of the enumerated powers.
The main proposition here laid down, in its true signification, is not to be questioned. It is nothing more than a consequence of this republican maxim, that all government is a delegation of power. But how much is delegated in each case is a question of fact to be made out by fair reasoning & construction upon the particular provisions of the Constitution—taking as guides the general principles & general ends of government.
It is not denied that there are implied as well as express powers, and that the former are as effectually delegated as the latter. And for the sake of accuracy it shall be mentioned that there is another class of powers which may be properly denominated resulting powers. It will not be doubted that if the United States should make a conquest of any of the territories of its neighbors, they would possess sovereign jurisdiction over the conquered territory. This would rather be a result from the whole mass of the powers of the government & from the nature of political society, than a consequence of either of the powers specially enumerated.
But be this as it may, it furnishes a striking illustration of the general doctrine contended for. It shews an extensive case in which a power of erecting corporations is either implied in or would result from some or all of the powers vested in the National Government. The jurisdiction acquired over such conquered territory would certainly be competent to every species of legislation.
To return—It is conceded, that implied powers are to be considered as delegated equally with express ones.
Then it follows that as a power of erecting a corporation may as well be implied as any other thing; it may as well be employed as an instrument or mean of carrying into execution any of the specified powers as any other instrument or mean whatever. The only question must be, in this as in every other case, whether the mean to be employed, or in this instance the corporation to be erected, has a natural relation to any of the acknowledged objects or lawful ends of the government. Thus a corporation may not be erected by Congress for superintending the police of the city of Philadelphia because they are not authorized to regulate the police of that city; but one may be erected in relation to the collection of the taxes, or to the trade with foreign countries, or to the trade between the states, or with the Indian Tribes, because it is the province of the federal government to regulate those objects & because it is incident to a general sovereign or legislative power to regulate a thing to employ all the means which relate to its regulation to the best & greatest advantage.
A strange fallacy seems to have crept into the manner of thinking & reasoning upon the subject. Imagination appears to have been unusually busy concerning it. An incorporation seems to have been regarded as some great, independent, substantive thing—as a political end of peculiar magnitude & moment; whereas it is truly to be considered as a quality, capacity, or mean to an end. Thus a mercantile company is formed with a certain capital for the purpose of carrying on a particular branch of business. Here the business to be prosecuted is the end; the association in order to form the requisite capital is the primary mean. Suppose that an incorporation were added to this; it would only be to add a new quality to that association; to give it an artificial capacity by which it would be enabled to prosecute the business with more safety & convenience.
That the importance of the power of incorporation has been exaggerated, leading to erroneous conclusions, will further appear from tracing it to its origin. The Roman law is the source of it, according to which a voluntary association of individuals at any time or for any purpose was capable of producing it. In England, whence our notions of it are immediately borrowed, it forms a part of the executive authority, & the exercise of it has been often delegated by that authority. Whence, therefore, the ground of the supposition that it lies beyond the reach of all those very important portions of sovereign power, legislative as well as executive, which belong to the government of the United States?
To this mode of reasoning respecting the right of employing all the means requisite to the execution of the specified powers of the government, it is objected that none but necessary & proper means are to be employed, & the Secretary of State maintains that no means are to be considered as necessary but those without which the grant of the power would be nugatory. Nay so far does he go in his restrictive interpretation of the word as even to make the case of necessity which shall warrant the constitutional exercise of the power to depend on casual & temporary circumstances, an idea which alone refutes the construction. The expediency of exercising a particular power, at a particular time, must indeed depend on circumstances; but the constitutional right of exercising it must be uniform & invariable—the same today as tomorrow.
All the arguments therefore against the constitutionality of the bill derived from the accidental existence of certain state-banks, institutions which happen to exist today, & for ought that concerns the government of the United States, may disappear tomorrow, must not only be rejected as fallacious, but must be viewed as demonstrative that there is a radical source of error in the reasoning.
It is essential to the being of the national government that so erroneous a conception of the meaning of the word necessary should be exploded.
It is certain that neither the grammatical nor popular sense of the term requires that construction. According to both, necessary often means no more than needful, requisite, incidental, useful, or conducive to. It is a common mode of expression to say that it is necessary for a government or a person to do this or that thing when nothing more is intended or understood than that the interests of the government or person require, or will be promoted, by the doing of this or that thing. The imagination can be at no loss for exemplification of the use of the word in this sense.
And it is the true one in which it is to be understood as used in the Constitution. The whole turn of the clause containing it indicates that it was the intent of the convention by that clause to give a liberal latitude to the exercise of the specified powers. The expressions have peculiar comprehensiveness. They are—“to make all laws, necessary and proper for carrying into execution the foregoing powers & all other powers vested by the constitution in the government of the United States, or in any department or officer thereof.” To understand the word as the Secretary of State does would be to depart from its obvious & popular sense, and to give it a restrictive operation; an idea never before entertained. It would be to give it the same force as if the word absolutely or indispensably had been prefixed to it.
Such a construction would beget endless uncertainty & embarassment. The cases must be palpable & extreme in which it could be pronounced with certainty that a measure was absolutely necessary, or one without which the exercise of a given power would be nugatory. There are few measures of any government which would stand so severe a test. To insist upon it would be to make the criterion of the exercise of any implied power a case of extreme necessity; which is rather a rule to justify the overleaping of the bounds of constitutional authority than to govern the ordinary exercise of it.
It may be truly said of every government, as well as of that of the United States, that it has only a right to pass such laws as are necessary & proper to accomplish the objects intrusted to it. For no government has a right to do merely what it pleases. Hence by a process of reasoning similar to that of the Secretary of State, it might be proved that neither of the state governments has a right to incorporate a bank. It might be shewn that all the public business of the state could be performed without a bank, and inferring thence that it was unnecessary it might be argued that it could not be done, because it is against the rule which has been just mentioned. A like mode of reasoning would prove that there was no power to incorporate the inhabitants of a town, with a view to a more perfect police: For it is certain that an incorporation may be dispensed with, though it is better to have one. It is to be remembered that there is no express power in any state constitution to erect corporations.
The degree in which a measure is necessary can never be a test of the legal right to adopt it. That must ever be a matter of opinion; and can only be a test of expediency. The relation between the measure and the end, between the nature of the mean employed towards the execution of a power and the object of that power, must be the criterion of constitutionality, not the more or less of necessity or utility.
The practice of the government is against the rule of construction advocated by the Secretary of State. Of this the act concerning light houses, beacons, buoys & public piers is a decisive example. This doubtless must be referred to the power of regulating trade, and is fairly relative to it. But it cannot be affirmed that the exercise of that power, in this instance, was strictly necessary; or that the power itself would be nugatory without that of regulating establishments of this nature.
This restrictive interpretation of the word necessary is also contrary to this sound maxim of construction: namely, that the powers contained in a constitution of government, especially those which concern the general administration of the affairs of a country, its finances, trade, defence, etc. ought to be construed liberally in advancement of the public good. This rule does not depend on the particular form of a government or on the particular demarkation of the boundaries of its powers, but on the nature and objects of government itself. The means by which national exigencies are to be provided for, national inconveniencies obviated, national prosperity promoted, are of such infinite variety, extent and complexity, that there must, of necessity, be great latitude of discretion in the selection & application of those means. Hence, consequently, the necessity & propriety of exercising the authorities intrusted to a government on principles of liberal construction… .
But while, on the one hand, the construction of the Secretary of State is deemed inadmissible, it will not be contended on the other that the clause in question gives any new or independent power. But it gives an explicit sanction to the doctrine of implied powers, and is equivalent to an admission of the proposition that the government, as to its specified powers and objects, has plenary & sovereign authority, in some cases paramount to that of the states, in others coordinate with it. For such is the plain import of the declaration that it may pass all laws necessary & proper to carry into execution those powers.
It is no valid objection to the doctrine to say that it is calculated to extend the powers of the general government throughout the entire sphere of state legislation. The same thing has been said and may be said with regard to every exercise of power by implication or construction. The moment the literal meaning is departed from, there is a chance of error and abuse. And yet an adherence to the letter of its powers would at once arrest the motions of the government. It is not only agreed, on all hands, that the exercise of constructive powers is indispensable, but every act which has been passed is more or less an exemplification of it. One has been already mentioned, that relating to light houses, etc. That which declares the power of the President to remove officers at pleasure acknowledges the same truth in another and a signal instance.
The truth is that difficulties on this point are inherent in the nature of the federal constitution. They result inevitably from a division of the legislative power. The consequence of this division is that there will be cases clearly within the power of the National Government; others clearly without its power; and a third class, which will leave room for controversy & difference of opinion, & concerning which a reasonable latitude of judgment must be allowed.
But this doctrine which is contended for is not chargeable with the consequence imputed to it. It does not affirm that the national government is sovereign in all respects, but that it is sovereign to a certain extent: that is, to the extent of the objects of its specified powers.
It leaves therefore a criterion of what is constitutional and of what is not so. This criterion is the end to which the measure relates as a mean. If the end be clearly comprehended within any of the specified powers, & if the measure have an obvious relation to that end, and is not forbidden by any particular provision of the constitution—it may safely be deemed to come within the compass of the national authority. There is also this further criterion which may materially assist the decision. Does the proposed measure abridge a preexisting right of any state, or of any individual? If it does not, there is a strong presumption in favour of its constitutionality; & slighter relations to any declared object of the Constitution may be permitted to turn the scale… .
There are two points in the suggestions of the Secretary of State which have been noted that are peculiarly incorrect. One is that the proposed incorporation is against the laws of monopoly, because it stipulates an exclusive right of banking under the national authority. The other that it gives power to the institution to make laws paramount to those of the states.
But with regard to the first point, the bill neither prohibits any state from erecting as many banks as they please, nor any number of individuals from associating to carry on the business, & consequently is free from the charge of establishing a monopoly: for monopoly implies a legal impediment to the carrying on of the trade by others than those to whom it is granted.
And with regard to the second point, there is still less foundation. The bylaws of such an institution as a bank can operate only upon its own members; can only concern the disposition of its own property; and must essentially resemble the rules of a private mercantile partnership. They are expressly not to be contrary to law; and law must here mean the law of a state as well as of the United States. There never can be a doubt that a law of the corporation, if contrary to a law of a state, must be overruled as void; unless the law of the state is contrary to that of the United States; and then the question will not be between the law of the state and that of the corporation, but between the law of the state and that of the United States.
Another argument made use of by the Secretary of State is the rejection of a proposition by the convention to empower Congress to make corporations, either generally, or for some special purpose.
What was the precise nature or extent of this proposition, or what the reasons for refusing it, is not ascertained by any authentic document, or even by accurate recollection. As far as any such document exists, it specifies only canals. If this was the amount of it, it would at most only prove that it was thought inexpedient to give a power to incorporate for the purpose of opening canals, for which purpose a special power would have been necessary; except with regard to the Western Territory, there being nothing in any part of the Constitution respecting the regulation of canals. It must be confessed, however, that very different accounts are given of the import of the proposition and of the motives for rejecting it. Some affirm that it was confined to the opening of canals and obstructions in rivers; others, that it embraced banks; and others, that it extended to the power of incorporating generally. Some again alledge that it was disagreed to because it was thought improper to vest in Congress a power of erecting corporations—others, because it was thought unnecessary to specify the power, and inexpedient to furnish an additional topic of objection to the Constitution. In this state of the matter, no inference whatever can be drawn from it.
But whatever may have been the nature of the proposition or the reasons for rejecting it concludes nothing in respect to the real merits of the question. The Secretary of State will not deny that whatever may have been the intention of the framers of a constitution, or of a law, that intention is to be sought for in the instrument itself, according to the usual & established rules of construction. Nothing is more common than for laws to express and effect more or less than was intended. If then a power to erect a corporation, in any case, be deducible by fair inference from the whole or any part of the numerous provisions of the Constitution of the United States, arguments drawn from extrinsic circumstances, regarding the intention of the convention, must be rejected… .
It is presumed to have been satisfactorily shewn in the course of the preceding observations
1. That the power of the government as to the objects intrusted to its management is in its nature sovereign.
2. That the right of erecting corporations is one inherent in & inseparable from the idea of sovereign power.
3. That the position that the government of the United States can exercise no power but such as is delegated to it by its constitution does not militate against this principle.
4. That the word necessary in the general clause can have no restrictive operation, derogating from the force of this principle, indeed, that the degree in which a measure is or is not necessary cannot be a test of constitutional right, but of expediency only.
5. That the power to erect corporations is not to be considered as an independent & substantive power but as an incidental & auxiliary one; and was therefore more properly left to implication than expressly granted.
6. That the principle in question does not extend the power of the government beyond the prescribed limits, because it only affirms a power to incorporate for purposes within the sphere of the specified powers.
And lastly that the right to exercise such a power, in certain cases, is unequivocally granted in the most positive & comprehensive terms.
To all which it only remains to be added that such a power has actually been exercised in two very eminent instances: namely in the erection of two governments, One, northwest of the river Ohio, and the other southwest—the last, independent of any antecedent compact.
And there results a full & complete demonstration that the Secretary of State & Attorney General are mistaken when they deny generally the power of the national government to erect corporations.
It shall now be endeavored to be shewn that there is a power to erect one of the kind proposed by the bill. This will be done by tracing a natural & obvious relation between the institution of a bank and the objects of several of the enumerated powers of the government; and by shewing that, politically speaking, it is necessary to the effectual execution of one or more of those powers. In the course of this investigation, various instances will be stated by way of illustration of a right to erect corporations under those powers.
Some preliminary observations may be proper.
The proposed bank is to consist of an association of persons for the purpose of creating a joint capital to be employed, chiefly and essentially, in loans. So far the object is not only lawful, but it is the mere exercise of a right which the law allows to every individual. The Bank of New York, which is not incorporated, is an example of such an association. The bill proposes in addition that the government shall become a joint proprietor in this undertaking, and that it shall permit the bills of the company payable on demand to be receivable in its revenues, & stipulates that it shall not grant privileges similar to those which are to be allowed to this company to any others. All this is incontrovertibly within the compass of the discretion of the government. The only question is, whether it has a right to incorporate this company in order to enable it the more effectually to accomplish ends which are in themselves lawful.
To establish such a right, it remains to shew the relation of such an institution to one or more of the specified powers of the government.
Accordingly it is affirmed that it has a relation more or less direct to the power of collecting taxes; to that of borrowing money; to that of regulating trade between the states; and to those of raising, supporting & maintaining fleets & armies. To the two former, the relation may be said to be immediate.
And, in the last place, it will be argued that it is, clearly, within the provision which authorizes the making of all needful rules & regulations concerning the property of the United States, as the same has been practiced upon by the government.
A Bank relates to the collection of taxes in two ways; indirectly, by increasing the quantity of circulating medium & quickening circulation, which facilitates the means of paying—directly, by creating a convenient species of medium in which they are to be paid… .
A Bank has a direct relation to the power of borrowing money, because it is a usual and in sudden emergencies an essential instrument in the obtaining of loans to government.
A nation is threatened with a war. Large sums are wanted, on a sudden, to make the requisite preparations. Taxes are laid for the purpose, but it requires time to obtain the benefit of them. Anticipation is indispensable. If there be a bank, the supply can at once be had; if there be none loans from individuals must be sought. The progress of these is often too slow for the exigency; in some situations they are not practicable at all. Frequently, when they are, it is of great consequence to be able to anticipate the product of them by advances from a bank… .
The institution of a bank has also a natural relation to the regulation of trade between the states: in so far as it is conducive to the creation of a convenient medium of exchange between them, and to the keeping up a full circulation by preventing the frequent displacement of the metals in reciprocal remittances. Money is the very hinge on which commerce turns. And this does not mean merely gold & silver; many other things have served the purpose with different degrees of utility. Paper has been extensively employed… .
Illustrations of this kind might be multiplied without end. They shall, however, be pursued no further.
There is a sort of evidence on this point arising from an aggregate view of the Constitution, which is of no inconsiderable weight. The very general power of laying & collecting taxes & appropriating their proceeds—that of borrowing money indefinitely—that of coining money & regulating foreign coins—that of making all needful rules and regulations respecting the property of the United States—these powers combined, as well as the reason & nature of the thing speak strongly this language: That it is the manifest design and scope of the Constitution to vest in Congress all the powers requisite to the effectual administration of the finances of the United States. As far as concerns this object, there appears to be no parsimony of power.
To suppose, then, that the government is precluded from the employment of so usual as well as so important an instrument for the administration of its finances as that of a bank, is to suppose what does not coincide with the general tenor & complexion of the Constitution, and what is not agreeable to impressions that any mere spectator would entertain concerning it. Little less than a prohibitory clause can destroy the strong presumptions which result from the general aspect of the government. Nothing but demonstration should exclude the idea that the power exists.
In all questions of this nature the practice of mankind ought to have great weight against the theories of individuals.
The fact, for instance, that all the principal commercial nations have made use of trading corporations or companies for the purposes of external commerce is a satisfactory proof that the establishment of them is an incident to the regulation of that commerce.
This other fact, that banks are an usual engine in the administration of national finances, & an ordinary & the most effectual instrument of loans, & one which in this country has been found essential, pleads strongly against the supposition that a government clothed with most of the most important prerogatives of sovereignty in relation to the revenues, its debts, its credit, its defense, its trade, its intercourse with foreign nations—is forbidden to make use of that instrument as an appendage to its own authority… .
It is presumed, that nothing of consequence in the observations of the Secretary of State and Attorney General has been left unnoticed.
There are indeed a variety of observations of the Secretary of State designed to shew that the utilities ascribed to a bank in relation to the collection of taxes and to trade could be obtained without it, to analyse which would prolong the discussion beyond all bounds. It shall be forborne for two reasons—first because the report concerning the Bank may speak for itself in this respect; and secondly, because all those observations are grounded on the erroneous idea that the quantum of necessity or utility is the test of a constitutional exercise of power… .
james madison to thomas jefferson