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This Week in History:
February 23 - March 1, 1791

Hamilton Wins the Constitutional Argument
for the National Bank

by Nancy Spannaus
February 2014

Alexander Hamilton.

Saboteurs of First Treasury Secretary Alexander Hamilton's economic plan arose at the very beginning of the Washington Administration. They centered around Thomas Jefferson and the Virginians, who, at bottom, strongly resisted Hamilton's vision of the United States becoming a strong, unified industrial nation, independent of the British Empire. One of the major attempts at sabotage came around the question of the Bank of the United States, which was an absolutely essential part of Hamilton's plan to set up a credit system to advance the U.S. economy.

After the famous "grand bargain" around the establishment of the future American Capitol on the Potomac, hammered out between Hamilton and Jefferson in December 1790, the Virginia crowd, led by Representative James Madison, a former ally of Hamilton, launched an all-out attack in the Congress, claiming that establishing the Bank was unconstitutional. Although Madison failed to prevent the House from voting for the bank, his vocal opposition had a disturbing effect on President Washington, who then asked Attorney General Edmund Randolph for an opinion on the constitutionality of the Bank.Washington also asked Secretary of State Jefferson for his opinion. Not surprisingly, all three Virginians--products of the plantation/slave system of the South, declared the bank unconstitutional. President Washington was so affected that he asked Madison to draft a veto message.

George Washington.

Fortunately, Washington, on February 16, had the honor to send a note to Hamilton , requesting his opinion on the Constitutionality. Within 7 days, Hamilton produced his masterful "Opinion on the Constitutionality of the Bank", ultimately delivering it to Washington a mere day or two before the President had to either veto the bill, or let it go forward into law. Sometime during the course of Feb. 25, Washington signed the bank bill into law.

Hamilton's Opinion is one of the utmost importance, and we can only summarize it here. He begins with the general argument that the government had the right to erect corporations, as an inherent right attendant to its sovereignty. He wrote: "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 and exceptions specified in the constitution, or not immoral, or not contrary to the essential ends of political society." (emphasis in original)

Hamilton obliterated the "strict constructionist" argument put forward by Jefferson, Madison, and Randolph, showing that the United States had the right to erect corporations as an inherent and inseprarable right from the standpoint of sovereign power to carry out its stated objectives: collecting taxes; borrowing money; regulating trade; providing for the common defense; and, more generall, providing for the general welfare. Indeed, he showed that the denial of this right to the government would be destructive to the nation, which required the credit function of the National Bank.

Hamilton was successful with Washington--but the victory was shortlived. The purposes for which the Bank was established were effectively sabotaged under the following administrations, until James Monroe and John Quincy Adams came to power, and, with a re-established Bank of the United States (the second), put the nation's credit to work with a huge spurt in growth of the physical economy. Hamilton's associate on Washington's wartime staff, John Marshall, serving as Chief Justice of the Supreme Court, declared decisively in favor of the constitutionality of the national bank in 1819.