Cyclopædia of Political Science, Political Economy, and the Political History of the United States
BANK CONTROVERSIES (IN
—18. To make all laws which shall be necessary and proper for carrying into execution the foregoing powers, and all other powers vested by this constitution in the government of the United States, or in any department or officer thereof."
—From these two paragraphs broad constructionists have inferred the power of congress to charter a national bank, or any other corporation of national extent, which strict constructionists have denied.
—I. 1781-91. Under the confederation, Robert Morris, superintendent of finance, had drawn up the plan of the first national bank, which was chartered by congress, Dec. 31, 1781, for ten years, under the name of The Bank of North America, with a capital of $400,000, afterward increased to $2,000,000. The general doubt of the power of congress to create a corporation cast a cloud upon the bank's title to existence, and it was chartered by the state of Pennsylvania in 1783. In 1785 a change of parties in the state legislature brought about a repeal of the charter, and in 1787, after another party change, the charter was renewed.
—II. 1791-1811. In January, 1791, a bill to incorporate The Bank of the United States passed the senate without division, and the house, Feb. 8, by a vote of 39 to 20. Its capital was to be $10,000,000, of which $2,000,000 was to be subscribed by the United States; its charter was to continue for twenty years; its bills were made receivable in all payments to the United States; and it had the power to establish branch banks, the headquarters remaining at Philadelphia. Immediately upon the passage of the bill a strong pressure was brought to bear upon president Washington to induce him to veto it, and he therefore called for the written opinions of his cabinet upon the constitutionality of the proposed bank. The opinions submitted by Jefferson and Hamilton are most interesting, as they map out with great exactness the opposite views of the federal government's powers which were to control party conflict for the succeeding three-quarters of a century.
—Jefferson's opinion, which was first given, begins with the following text: "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,' (XII 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."
—After showing that there was no power to establish a national bank under the special powers to lay taxes, to pay the debt of the United States, to borrow money, and to regulate commerce, he proceeds to consider "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. Congress 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 pleased. * * * * * * 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. * * * * * * 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 much 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 nonenumerated power, it will go to every one; for there is no one which ingenuity may not torture into a convenience in some way 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 phrase, as before observed." (Italics as in original.)
—Jefferson's opinion that the paying of debts and providing for the general welfare is not a power but a purpose, is fully argued and accepted by Story as quoted below, and by the supreme court in the Passenger Cases (in 7 Howard, below); but a colon, which the original has not (see
—Hamilton's opinion, though very much longer, may be clearly given in his own summary: "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, and 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 can not 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 and substantive power, but as an incidental and 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 and 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," (see
—It will be perceived that the essence of Hamilton's opinion, which is entirely lacking in Jefferson's, but which the courts have since very steadily accepted, is the sovereignty of the federal government within its specified bounds—the principle that, when a people have found it necessary to create a sovereignty even for specified purposes, a further and interior limitation upon the sovereignty within its own sphere must be express to be valid (see
—Hamilton's opinion prevailed with the president, and the bill was signed and became law. The bank, thus chartered, went at once into active and successful operation. It had occasion to bring suits in federal and state courts, and was always recognized as a legally incorporated body. March 23, 1804, an act was passed without a division to allow it to establish branches in the territories, and, having been signed by Jefferson himself, now president, became law; and Feb. 24, 1807, an act to punish forgery of the bank's notes was similarly passed. The charter was to expire in 1811. In 1809 the bank applied for a recharter, and its application was warmly indorsed by Gallatin, secretary of the treasury. In 1810 a bill for a recharter was introduced, met with some opposition on the grounds laid down by Jefferson, and went over to the next session. In the next session the bank's application was renewed and finally defeated, Jan. 24, 1811. In the house the vote to postpone the bill indefinitely was 65 to 64; in the senate a motion to strike out the enacting clause of the bill was only carried by the casting vote of the vice-president, Clinton. The bank then, after an unsuccessful effort to obtain a charter from the state of Pennsylvania, wound up its affairs and went out of existence. The government had previously, in 1802, sold out its 2,200 shares of stock to the Barings, of London, at a premium of 57 per cent.
—III. 1816-36. The war of 1812, which almost immediately followed the failure to recharter the bank, was principally supported by loans and the issue of treasury notes. Party spirit was enlisted against the loans, and the federalist newspapers in New England denounced them so warmly that government agents in that section of the country were compelled to advertise that the names of subscribers to the loans would be kept secret. This opposition, together with the downfall of the import trade, the consequent decrease in revenue, the constant drain of specie from the country in payment for smuggled goods, and the want of any convertible currency to take its place, not only increased the public debt from a total of $45,209,737.90 in 1812, to a total of $127,334,933.74 in 1816, but decreased the national credit so far that the treasury negotiated the last loans of the war at a discount of 40 per cent. In January, 1814, upon a petition from New York, a project for a new national bank was introduced in the house, but, as the dominant party still held it unconstitutional, it was dropped without action. In October, 1814, the plan was revived, backed this time by the recommendation of the secretary of the treasury, Dallas, and the influence of the administration. Dallas' plan obliged the bank to lend the government $30,000,000, but gave it power to suspend specie payments. It was met by another plan, introduced by Calhoun, of South Carolina, which neither obliged the bank to loan money to the government, nor allowed it to suspend. The federalists, by favoring Calhoun's plan, defeated Dallas', and then, by combining with the Dallas men, they defeated both plans. The senate, Dec. 9, 1814, then passed a bill for a bank on Dallas' plan, which was defeated in the house by the casting vote of the speaker. A compromise plan then passed both houses, Calhoun's two principles being retained, and was vetoed, Jan. 30, 1815, by the president. The veto message "waived the question of the bill's constitutionality," as having been already passed upon approvingly by the legislative, executive and judiciary, with the general concurrence of the people; but objected to the plan of this bill on the score of convenience, as not being calculated to aid the government or the people in their embarrassments. In February, 1815, after the arrival of the news of peace, the senate again passed a bank bill on Dallas' plan, which was lost in the house by a single vote. April 10, 1816, the act to establish The Bank of the United States became law. It followed Hamilton's plan closely. The charter was to run twenty years; the capital was to be $35,000,000, one-fifth in cash, the rest in United States 6 per cent stocks; the government was to have the appointment of five of the twenty-five directors; and the bank was to have the custody of the public funds (see
—Within three years, the mismanagement, speculations and frauds of the president and directors of the bank brought the institution to the verge of bankruptcy and helped to derange the whole business of the country. The efforts of a new president were successful in saving the bank, but only by a curtailment and recall of loans to other banks, which aided in bringing on the general stringency of 1818-21, and roused strong feeling against the bank. State legislatures began to arraign it as unconstitutionally chartered. The legislatures of Maryland and Ohio, in 1818, levied taxes upon the branch banks in their states, with the intention of forcing them to close; and, though the supreme court (see McCulloch vs. Maryland, in 4 Wheaton, below) decided in favor of the bank's constitutionality, and against a state's right to tax it, Ohio took the amount of her tax, $100,000. from the vaults of the branch bank at Chillicothe by force, in defiance of an injunction from the federal circuit court. The directors at once brought suit in the federal courts against the agents of the levy for trespass, and the state in 1820 withdrew the use of its jails for the custody of prisoners in such suits, at the same time reducing its tax to $10,000 a year, and refunding the over amount of $90,000. Returning prosperity changed the current of feeling, and Ohio withdrew from her position.
—Until 1829 the bank of the United States seems to have had no connection whatever with national politics. In the presidential elections of 1824 and 1828 we find no allusions to it. It was simply a very successful business enterprise, now numbering twenty-five branches, under the general control of the directors of the parent bank and their president, Nicholas Biddle. In Jackson's letters of March, 1829, there are some traces of an under current of dislike for the bank and its directors, as "minions of Clay." No symptoms appear, however, of any possibility of collision between the bank and the administration until June, 1829, when the Jackson managers of the state of New Hampshire, Isaac Hill and Levi Woodbury, began to urge president Biddle to remove the president of the branch bank at Portsmouth, N. H., and to appoint a Jackson man in his place. Biddle refused on the ground that the incumbent was a man "of first-rate character and abilities," and not appointed for political reasons; and in October he finally, and so emphatically "as to leave no possibility of misconception," declared to the secretary of the treasury that neither the bank nor its branches "acknowledged the slightest responsibility of any description whatsoever to the secretary of the treasury touching the political opinions and conduct of their officers, that being a subject on which they never consult, and have no desire to know, the views of any administration." Here the matter rested until the meeting of congress, when, in his message of Dec. 8, 1829, the president for the first time personally entered the field by making the following reference to the bank. "The charter of the Bank of the United States expires in 1836, and its stock-holders will most probably apply for a renewal of their privileges. In order to avoid the evils resulting from precipitancy in a measure involving such important principles and such deep pecuniary interests, I feel that I can not, in justice to the parties interested, too soon present it to the deliberate consideration of the legislature and the people. Both the constitutionality and the expediency of the law creating this bank are well questioned by a large portion of our fellow-citizens; and it must be admitted by all that it has failed in the great end of establishing a uniform and sound currency."
—The message also suggested the substitution of a bank which should be a part of, and under the direct control of, the treasury. (See
—Up to this time Jackson seems to have been willing to avoid open war upon the bank until his other enemies should be disposed of, (see
—Time has shown that the application for a recharter at this session was a false step, and that the bank's only course was to wait patiently until a two-thirds majority in congress could be obtained, pass the bill for the charter, if necessary, over the veto, and end the battle by one blow. For the bank only one victory was needed; the charter, once obtained, was secure. By impatience it succeeded only in implicating its quarrel with the presidential election, which resulted not only in the president's triumphant re-election, but also in the choice of a house of representatives, to meet in 1833, which was pledged to support the president against all his opponents, even against the bank.
—The president now had the move, and he made it. A premonition of his purpose was given in his message of Dec. 4, 1832, in which he announced a belief, which he had warmly taken up, that the bank was insolvent, and advised an investigation into its affairs and the sale of the government stock in it. This congress, however, the same which had recently passed the bill for a bank charter, was still opposed to the president, and the house voted that the deposits might safely be left in the bank. Before the meeting of the new congress, elected in 1832, the president had removed the deposits of public moneys from the bank (see
—IV. 1837-45. For over twenty years gold and silver, as a currency, had been practically unknown in the United States. Whatever may have been the evils connected with the free grant of the use of the public funds to a private corporation, the bank of the United States had at least provided a currency acceptable everywhere. What was to take its place? Benton's engrossing desire was to bring his party back to its original devotion to "hard money," gold and silver, but to this there was one insuperable obstacle: the state banks which were now the only available receptacle for the public funds, which had thrown the whole weight of their influence for the government and against the bank, and which it was necessary to support, possessed the power of issuing notes to a more unlimited and dangerous extent than the bank of the United States. If the sub-treasury system (see
—The democratic party had by this time thoroughly learned the folly of the state bank, or "pet bank," system. The pet banks had gladly received the public revenues, but, when called upon to refund them for distribution among the states (see
—President Harrison called congress together in extra session for May 31, 1841. His early death (see
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