Eleanor Finch
The creation of a national bank in the United States in 1791 was a highly contested issue, with Alexander Hamilton, the first Secretary of the Treasury, and Thomas Jefferson, the Secretary of State, taking opposing stances. Hamilton, a leading voice of the Federalists, advocated for a national bank to provide credit, stimulate the economy, and address Revolutionary War debt. He argued that the Constitution implied powers beyond those explicitly stated, and that a national bank fell within this scope. On the other hand, Jefferson, a Republican, warned against excessive power in the federal government, believing that states should charter their own banks. The debate framed the issue for President George Washington, who ultimately sided with Hamilton, signing the bill into law. However, the constitutionality of the national bank continued to be a contentious topic in US politics for decades, with the McCulloch v. Maryland case in 1819 revisiting these questions.
| Characteristics | Values |
|---|---|
| Proponents | Alexander Hamilton, George Washington, John Marshall |
| Opponents | Thomas Jefferson, James Madison, James McCulloch |
| Hamilton's arguments | Hamilton believed in the need for banks to provide credit and stimulate the economy. He argued that the Constitution must confer implied powers along with those actually enumerated. He also believed that the necessary and proper clause meant that Congress should do anything it felt was necessary to carry out national responsibilities. |
| Jefferson's arguments | Jefferson believed that states should charter their own banks and that a national bank unfairly favored wealthy businessmen in urban areas over farmers in the country. He also argued that Congress did not have the power under the Constitution to pass the national bank bill, and that the creation of a national bank was not a power granted under the enumerated powers. |
| Madison's arguments | Madison believed that the legislature was the one branch of government most likely to overextend its legitimate constitutional authority. He also believed that the power to create corporations had to be explicitly authorized and was not something that could be created by “implication” from the text of the Constitution. |
| McCulloch's arguments | McCulloch, the head cashier of the national bank’s Baltimore branch, refused to pay the tax levied by the state government of Maryland on any bank operating in the state without a state charter. |
| Outcome | The bill for establishing a National Bank was passed, and the Bank of the United States began its operations. However, the issue of its constitutionality continued to be a source of contention in U.S. politics for many years. |
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What You'll Learn
Hamilton's proposal
Hamilton's formal proposal for a national bank was presented in a report to Congress in December 1790, known as the "Report on a National Bank." He envisioned a Bank of the United States with a $10 million capital, which was an immense value at the time and far greater than the combined capital of all other American banks. Hamilton proposed that the federal government would own one-fifth of the bank's stock, while the remaining $8 million in stock would be sold to private investors. The government would deposit its tax revenues in the bank, and in turn, the bank would loan money to the government and private businesses, stimulating their productivity and growth.
Hamilton argued that a national bank would provide numerous benefits to the country. Firstly, it would serve as a safe place to keep public funds and offer banking facilities for commercial transactions. Secondly, it would issue paper money or banknotes, providing Americans with a uniform currency. Thirdly, it would act as the government's fiscal agent, collecting taxes and paying debts. Additionally, Hamilton believed that a national bank would promote business and industry by extending credit and providing loans.
Hamilton also addressed the constitutional concerns surrounding the establishment of a national bank. He pointed to the necessary and proper clause in Article I, Section 8 of the Constitution, which granted Congress the power to make laws related to its enumerated powers, even if they were not explicitly listed. Hamilton interpreted this clause as giving Congress the discretion to implement its assigned powers through various means, including the creation of a national bank.
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Jefferson's opposition
Thomas Jefferson believed that the creation of a national bank was unconstitutional. He held the view that individual states should have the power to charter their own banks, rather than having a centralised national bank. Jefferson's opposition to the national bank stemmed from his belief that it unfairly favoured wealthy businessmen and merchants in urban areas, over farmers and plantation owners in rural areas.
Jefferson's vision for the United States was that of a chiefly agrarian society, not one based on banking, commerce and industry. He feared that a national bank would create a financial monopoly, undermining state banks and adopting policies that favoured creditors over debtors. He also argued that the Constitution did not grant the federal government the authority to establish corporations, including a national bank.
In contrast, Alexander Hamilton, the first Secretary of the Treasury, strongly advocated for the creation of a national bank, modelled after Great Britain's national bank. Hamilton wanted the federal government to establish bank branches in major cities, implement a uniform currency, and have a place to deposit and borrow money when needed. He argued that the Constitution conferred implied powers, in addition to those explicitly stated, through the "`necessary and proper'" clause. This clause, according to Hamilton, allowed Congress "to make all laws which shall be necessary and proper" to execute its expressly granted powers.
Despite Jefferson's opposition, the Bank of the United States was established in 1791, with its headquarters in Philadelphia. The bank was capitalised at $10 million, with $2 million owned by the government and the remaining $8 million held by private investors. The establishment of the bank marked a significant shift in the nation's financial system, with it becoming the largest financial institution in the country.
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The Necessary and Proper Clause
The creation of a national bank by Alexander Hamilton, the first Secretary of the Treasury, sparked debate over the Necessary and Proper Clause. Hamilton proposed the Bank of the United States, modelled after Great Britain's national bank, with a $10 million capital and the ability to issue paper money. He envisioned government bank branches in major cities, a uniform currency, and a repository for federal funds. Thomas Jefferson and James Madison opposed the idea, arguing that the Constitution did not empower Congress to establish corporations or banks.
Hamilton countered that the Constitution implied powers beyond those explicitly stated. Chief Justice John Marshall, in McCulloch v. Maryland (1819), upheld the bank's constitutionality, interpreting the Necessary and Proper Clause as authorising Congress to establish a bank to aid its enumerated powers, such as taxation and spending. This case set a precedent, with the Supreme Court unanimously agreeing that Congress has implied powers in addition to those enumerated.
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The role of Congress
However, Alexander Hamilton, the first Secretary of the Treasury, argued that the Constitution conferred implied powers along with those actually enumerated. He believed that the necessary and proper clause enabled Congress "to make all laws which shall be necessary and proper" to carry out the powers expressly granted to them by the Constitution. Hamilton argued that a national bank would be useful and appropriate in enabling the government to carry out several of these powers, including collecting taxes, regulating trade, and creating a military.
Thomas Jefferson, on the other hand, disagreed with Hamilton's interpretation of the necessary and proper clause. He argued that Congress should only take actions that were absolutely necessary and that creating a national bank was not a power granted under the enumerated powers. Jefferson also believed that a national bank unfairly favoured wealthy businessmen in urban areas over farmers in the country.
Despite the objections of Madison and Jefferson, Congress passed the bill for establishing a national bank in 1791. The Senate passed it on January 20, 1791, and the House followed in early February. President George Washington initially had doubts about the constitutionality of the bill, but he ultimately agreed with Hamilton and signed it into law.
The issue of the constitutionality of the national bank continued to be a source of contention in U.S. politics for many years. The case of McCulloch v. Maryland in 1819 further highlighted the debate over federalism and the extent and limits of states' rights and national government power.
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McCulloch v. Maryland
The case centred around the Second Bank of the United States, established by Congress in 1816. The following year, the Bank opened a branch in Baltimore, Maryland, where it carried out all the normal operations of a bank. In 1818, the Maryland legislature voted to impose a tax on all banks within the state that were not chartered by the state legislature. The Second Bank of the United States refused to comply, resulting in a lawsuit against its head, James William McCulloch. Maryland successfully argued on appeal to the state appellate court that the Second Bank was unconstitutional because the Constitution did not explicitly grant the federal government the power to charter a bank.
The Supreme Court, however, decided that the chartering of a bank was an implied power of the Constitution, under the "elastic clause". This clause granted Congress the authority to “make all laws which shall be necessary and proper for carrying into execution” the work of the Federal Government. Chief Justice John Marshall observed that the Second Bank was no different from the First Bank of the United States, whose constitutionality had not been challenged. Marshall's decision upheld the constitutionality of the Bank, stating that the federal government, while limited in its powers, is supreme within its sphere of action. He asserted that if the end is legitimate and within the scope of the Constitution, all appropriate means that are not prohibited may be used to carry it out.
This case presented a significant challenge to the Constitution, questioning whether the Federal Government holds sovereign power over states. It also posed the questions: Does the Constitution give Congress the power to create a bank? And can individual states tax or ban the bank?
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Frequently asked questions
The constitutional issue involving the national bank was that the Constitution did not explicitly grant Congress the power to establish a national bank.
The key figures involved in the debate were Alexander Hamilton, Thomas Jefferson, James Madison, and President George Washington. Hamilton and Jefferson presented conflicting responses to Washington, who ultimately agreed with Hamilton.
Alexander Hamilton, the first Secretary of the Treasury, wanted to create a National Bank based on Great Britain's national bank. He believed that the Constitution conferred implied powers along with those actually enumerated, and that a national bank would be useful and appropriate in enabling the government to carry out its powers. Thomas Jefferson, on the other hand, believed that a national bank was unconstitutional, arguing that states should charter their own banks and that a national bank unfairly favored wealthy businessmen. He also disagreed with Hamilton's interpretation of the necessary and proper clause, arguing that Congress should only take actions that were absolutely necessary.
Despite the opposition, a national bank was eventually established. President Washington agreed with Hamilton's arguments and signed the bill into law. However, the issue of the bank's constitutionality and the reach of the necessary and proper clause continued to be a source of contention in U.S. politics for many years.
