V.1, Entry 110, BANK CONTROVERSIES

BANK CONTROVERSIES (IN
U. S. HISTORY). The constitution (article 1, section 8) enumerates among the powers of congress: “1. To lay and collect taxes, duties, excises and imposts, to pay the debts and provide for the common defense and general welfare of the United States; * * * * * * * *.

—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.”

—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
CONSTITUTION), is often, but unjustifiably, inserted between the power and the purpose, so as to give the latter the appearance of a separate power. The second part of his opinion has been ruled against by the supreme court in the case of
McCulloch vs.
Maryland (in 4
Wheaton, below). (See also
CONGRESS, POWERS OF, II)

—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
ORDINANCE OF 1787, TERRITORIES).

—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
UNITED STATES).

—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
DEPOSITS, REMOVAL OF). The stock was at once subscribed; the principal office was opened at Philadelphia; and branches were soon established at Boston, New York, Baltimore, Portsmouth, Providence, Washington, Richmond, Charleston, Savannah, New Orleans, Cincinnati, and other cities.

—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.

—The message also suggested the substitution of a bank which should be a part of, and under the direct control of, the treasury. (See
INDEPENDENT TREASURY.) In the house this part of the message was referred to the committee of ways and means, which reported strongly in favor of the bank and against the president; and when resolutions against the constitutionality and expediency of the bank, and against rechartering it, were introduced, they were at once laid on the table by a vote of 89 to 66. It was thus evident that the president’s party was not ready to support him in assailing the bank, and no further steps were taken against it, with the exception of articles in administration newspapers, until Dec. 7, 1830, when the message with a slight but evident increase of warmth, renewed the suggestions above given. In the senate Benton, of Missouri, in February, 1831, attacked the bank from a point of view outside of its constitutionality, denouncing it as the possessor of needless and expensive privileges for which no return was ever made, and of irresponsible and dangerous power over local banks and the business interests of the country. Even with this attack no open struggle had yet begun, though the bank and its friends everywhere were being rapidly drawn into unofficial newspaper and pamphlet hostilities with the administration. In his message of Dec. 4, 1831, the president hinted broadly that, having several times called the attention of congress to his views about the bank, he now left the matter to the people. The reference was evidently to the presidential election of 1832, for which political arrangements were already making.

—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
JACKSON, ANDREW); but the suggestion conveyed in the message of 1831 was sufficient alone to drive the bank “into politics.” Since the president intended to “appeal to the people.” the bank felt compelled to imitate him; and from this time the conflict became flagrant. The national republican convention, Dec. 12, 1831, (see
NOMINATING CONVENTIONS), approved the bank as a great and beneficent institution maintaining a sound, ample and healthy state of the currency, summoned the people to defend it in its peril by rejecting Jackson at the ensuing election; and nominated as its own candidates Henry Clay and John Sergeant, both pronounced bank men, and the latter a director in 1834. The legislature of Pennsylvania, a Jackson state, had unanimously resolved in favor of the bank, and the Clay managers seem to have decided to force the fighting, in order, if possible, to deprive Jackson of Pennsylvania’s large vote by compelling him to attack Philadelphia’s chief institution. Clay’s own private correspondence shows his belief that, all the circumstances considered, the bank would “act very unwisely if it did not apply” for a new charter at this session. The application was accordingly made, Jan. 9, 1832, by senator Dallas, of Pennsylvania, on behalf of the bank. The charge was often made that the bank really endeavored to
buy its charter; and its loans to congressmen, mostly of the opposition to it, are stated by the report of a senate committee in 1834, as $322,199 to 59 congressmen in 1831, $478,069 to 54 congressmen in 1832, and $374,766 to 58 congressmen in 1833. A majority in both houses was in favor of the charter, but in the house the speaker was against it, and this circumstance controlled the operations of the opposition, guided by Benton. Vague and general charges of corruption were brought against the management of the bank, and the speaker so constituted the committee of investigation that, though the charges were disproved, the majority report brought the bank in guilty. Having thus obtained a basis for an “appeal to the people,” the opposition allowed the bill to recharter the bank to come to a vote, and it passed the senate June 11, 1832, 28 to 20, and the house July 3, 109 to 76. July 10, it was vetoed in a message of great ability, which was mainly devoted to proving the bank, as then constituted, to be an unnecessary, useless, expensive, un American monopoly, always hostile to the interests of the people and possibly dangerous to the government as well. An attempt to pass the bill over the veto failed.

—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
DEPOSITS, REMOVAL OF), and his action was sustained by the new house. In the senate the bank still had a majority which, standing alone, could only enjoy the poor satisfaction of censuring the president (see
CENSURES I.). For want of any other custodian of the public funds (see
INDEPENDENT TREASURY) they had been deposited in selected state banks, commonly called “pet banks.” April 4, 1834, the house finally voted (1) that the bank ought not to be rechartered, 134 to 82; (2) that the deposits ought not to be restored, 118 to 103; (3) that they should be left in the state banks, 117 to 105; and (4) that the affairs of the bank should be investigated, 175 to 42. The investigation was begun; but the bank objected to its methods as partisan and unfair, and put so many impediments in the way of it that it resulted in nothing. It was very evident, however, that the president was master of the situation, and the bank finally obtained a charter from Pennsylvania. Within two years the senate was opposed to the bank, and thereafter the democratic party was committed against any such institution.

—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
INDEPENDENT TREASURY) could have been introduced in 1835, when congress reduced the ratio of gold and silver to 16:1, there would have been no further need to lean upon the state banks, and the “hard money” system might have been forced through without the dreadful spasm with which the laws of nature compelled its adoption in 1837-9. But for many months the state banks were allowed to engage in a race for the production of fictitious wealth which deluged the country with paper money, raised the nominal value of all property far beyond the real value, and increased the sales of public lands from $5,000,000 in 1834 to $24,800,000 in 1836. July 11, 1836, the secretary of the treasury, by the president’s order, and against the known wish of congress, issued the so-called
specie circular, which directed the land offices to reject paper money and receive only specie in payment for public lands. At the following session congress did indeed pass a bill directing the reception of notes of specie-paying banks, but so late in the session that the president was able to dispose of it by a “pocket veto” (see
VETO). The swelling tide of paper money was thus turned back from the west upon the east, and early in May a suspension of specie payments, beginning in New York, began the panie of 1837, which, after a year’s general suffering, violently substituted reality in business for fiction.

—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
INTERNAL IMPROVEMENTS, UNITED STATES), they had promptly responded by suspending specie payments. Van Buren, the new president, therefore held manfully to the democratic idea of a “divorce of bank and state,” refused to countenance any governmental interference with the panic, and throughout his entire administration pressed vigorously the sub-treasury system, which was finally successful, after two failures, by the law of July 4, 1840 (see
INDEPENDENT TREASURY). This was considered by the whigs, and by the government’s rejected allies, the state banks, as an attack upon all banks. A subsidiary panic in 1839 lent force to their arguments, and when Harrison was chosen president in 1840, a majority of the congress elected to meet in 1841 was also whig, pledged to revive the past glories of a national bank and abolish the sub-treasury. But the majority was delusive; the whigs had again and again during the campaign denied to the voters that the bank question was at issue, and had declared that the only issue to be decided by the election was the curtailment of the executive power (see
WHIG PARTY); Harrison himself had at least once pronounced against a national bank; and Tyler, the vice-president elect, had been unmistakably known to the leaders of the convention, which nominated him as a confirmed opponent of such an institution.

—I. See
3 Hildreth’s
United States, 405; 1 Sparks’
Gouverneur Morris, 235, and 3: 437; the ordinance incorporating the bank of North America is in 1
Stat. at Large, (Bioren and Duane’s edition), 672. II. See
4 Hildreth’s
United States, 236 foll, and 6 211, 230, 1 von Holst’s
United States, 104; 1 Benton’s
Debates of Congress; 4 Jefferson’s
Works (edit. 1829). 306, 523; 1 Hamilton’s
Works, 138 foll, Story’s
Commentaries, § 903; Tiffany’s
Constitutional Law, § 337; 4
Wheat. 316; 7
How. 283;
The Federalist, xxxviii, xliv (both by Madison), 4 Elliot’s
Debates, 217, 265; for the Acts of Feb. 25 and March 2, 1791, see
1
Stat. at Large, 191, 196; for the Acts of March 23, 1804, and Feb. 24, 1807, see
2
Stat at Large, 274, 423. III. See
6 Hildreth’s
United States, 463 foll.; 1 von Holst’s
United States, 383; 5 Benton’s
Debates of Congress; 1
Statesman’s Manual, 323; A. J. Dallas’
Writings, 236 foll.; 2 Calhoun’s
Works, 155; 3 Parton’s
Life of Jackson, 187, 272 foll.;
Private Correspondence of Henry Clay, 322 foll.; Mackenzie’s
Life and Times of Van Buren, 133 foll.; Holland’s
Life of Van Buren, 294; 2
Statesman’s Manual, 863; Hunt’s
Life of Livingston, 370; 2 Sedgwick’s
Political Writings of Leggett; 3 Webster’s
Works, 391, 416; 1 Benton’s
Thirty Years’ View; 11 Benton’s
Debates of Congress; the Act of April 10, 1816, is in 3
Stat. at Large, 266; the Acts to wind up the affairs of the bank are in 5
Stat at Large, 8-297. IV. See
Sumner’s
History of American Currency, 160-163; 2 von Holst’s
United States, 406; 61 Niles’
Weekly Register; 10, 11 Adams’
Memoirs of John Quincy Adams; 2 Clay’s
Speeches; 2 Benton’s
Thirty Years’ View; 14 Benton’s
Debates of Congress; 2
Statesman’s Manual, 1345-1359.

ALEXANDER JOHNSTON.