A Biography of Alexander Hamilton (1755-1804)
The Reports on Public Credit IIThe Second Report on the Further Provision Necessary for Establishing Public Credit (Submitted to Congress on December 13, 1790)
In this report, Hamilton argued the necessity of a national bank, and raised yet another host of issues.
The bank proposed by Hamilton would be a national institution run by a private board of directors. Private ownership, Hamilton reasoned, would prevent the corruption which might result if the bank were run by government officials as was the Bank of England. He explained: "The keen, steady, and, as it were, magnetic sense, of their own interest, as proprietors, in the Directors of a Bank, pointing invariably to its true pole, the prosperity of the institution . . ."
Hamilton explained that a national bank would provide a safe depository for government funds, regulate banking practices around the country, provide a uniform currency, provide capital for investments and industry, and loan the government money in times of emergency. Hamilton saw it as no less than an engine of national prosperity and a necessary ancillary to his overall plan.
THE OPPOSITIONBanks had long been controversial, and were commonly associated with mercantile countries such as England and Holland. Madison, again leading the opposition along with a majority of southerners, raised the familiar point that the bank was another policy which would only benefit merchants and speculators, not the planters and yeomanry of which the country was largely comprised.
Madison challenged the bank proposal by claiming that it was unconstitutional. Arguing for strict construction of the constitution, he stated that since the constitution did not explicitly sanction such action, the United States government had no power to create a bank or any other type of corporation.
The plan for the bank was passed by congress under circumstances that would become increasingly alarming: the vote was split between the north and south--the southerners being uniformly opposed to the bank, the north, which held the majority of mercantile interest, in favor.
When the bill hit Washington's desk, the President was already harboring strong doubts about the constitutionality of the bank. Washington was poised to veto the bill, but first asked both Attorney General Edmund Randolph and Jefferson for their opinions. Both wrote in support of a veto on constitutional grounds. Washington forwarded their responses to Hamilton informing him that if he did not provide a convincing response, he would have to veto the bank plan. Hamilton did not disappoint. Within a few days, Hamilton handed back his now famous Opinion on the Constitutionality of the Bank. His lengthy response was no less than an exhaustive treatise on implied powers of the constitution. Interestingly, the basic argument he used was originated by Madison himself in the Federalist, (no. 44) that "wherever the end is required, the means are authorized; wherever a general power to do a thing is given, every particular power necessary for doing it is included."
Realizing that the statement in itself would surely give rise to moral objections, Hamilton issued a qualified version: "[the government has] 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 & exceptions specified in the constitution; or not immoral, or not contrary to the essential ends of political society."
The argument swayed Washington, who passed the bank bill in February of 1791.