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james madison to thomas jefferson On Speculative Excess Summer 1791 - Lance Banning, Liberty and Order: The First American Party Struggle [2004]

Edition used:

Liberty and Order: The First American Party Struggle, ed. and with a Preface by Lance Banning (Indianapolis: Liberty Fund, 2004).

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Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.


james madison to thomas jefferson
On Speculative Excess Summer 1791

Soon after the adjournment of the third session of Congress and Washington’s approval of the national bank, Jefferson joined Madison in New York City for a pleasure tour through upper New York and part of New England, taking time before departing from the city for a breakfast with the revolutionary poet and journalist Philip Freneau, whom they were seeking to persuade to launch a national newspaper. Upon their return to the city, Jefferson traveled on to Philadelphia to catch up on business. Madison remained in New York, where he witnessed the opening of subscriptions for stock in the new national bank.

10 July

… The Bank-Shares have risen as much in the market here as at Philadelphia. It seems admitted on all hands now that the plan of the institution gives a moral certainty of gain to the subscribers with scarce a physical possibility of loss. The subscriptions are consequently a mere scramble for so much public plunder which will be engrossed by those already loaded with the spoils of indi[vi]duals. The event shews what would have been the operation of the plan if, as originally proposed, subscriptions had been limited to the 1st of April and to the favorite species of stock which the Bank-Jobbers had monopolized. It pretty clearly appears also in what proportions the public debt lies in the country—What sort of hands hold it, and by whom the people of the U.S. are to be governed. Of all the shameful circumstances of this business, it is among the greatest to see the members of the Legislature who were most active in pushing this job, openly grasping its emoluments. [Philip] Schuyler is to be put at the head of the Directors, if the weight of the N.Y. subscribers can effect it. Nothing new is talked of here. In fact stockjobbing drowns every other subject. The Coffee House is in an eternal buzz with the gamblers… .

8 August

… It is said that packet boats & expresses are again sent from this place to the southern states to buy up the paper of all sorts which has risen in the market here. These & other abuses make it a problem whether the system of the old paper under a bad government, or of the new under a good one, be chargeable with the greater substantial injustice. The true difference seems to be that by the former the few were the victims to the many; by the latter the many to the few. It seems agreed on all hands now that the bank is a certain & gratuitous augmentation of the capitals subscribed in a proportion of not less than 40 or 50 percent. And if the deferred debt should be immediately provided for in favor of the purchasers of it in the deferred shape, & since the unanimous vote that no change shd. be made in the funding system, my imagination will not attempt to set bounds to the daring depravity of the times. The stockjobbers will become the praetorian band of the government—at once its tool & its tyrant; bribed by its largesses, & overawing it by clamours and combinations… .

Commerce and Manufactures

When the War for Independence was succeeded by a sharp, postwar depression, numerous Americans began to think again about the economic and commercial policies appropriate for the new republic. Early in the Revolution, few had doubted that an American doctrine of free trade would revolutionize the world and bring unprecedented prosperity at home. By 1784, it was clear that it had actually done neither. Many blamed the economic troubles, in no small part, on European policies that favored their own merchants and excluded American ships or products from some of the best potential markets. Britain’s navigation laws—and, most especially, the closure of the British West Indies to American ships—were widely seen as the most objectionable of all. The best response, however, was a matter for intense dispute. During the Confederation years, various states attempted individually, without success, to retaliate against the British regulations. Some Americans began to advocate encouragement of native manufactures and the development of a larger domestic market for American goods. Jefferson and Madison were more reluctant to promote intensive economic change or to accept the inequalities that urbanization and industrialization seemed to entail. But men of both persuasions were convinced that it was critical to grant the central government authority to regulate the nation’s commerce, to negotiate commercial treaties, and to retaliate against the European regulations if required. None of the nation’s needs was more responsible for the demand for federal reform. The Constitution was barely ratified, however, before the underlying differences among its advocates erupted in ferocious disagreements.