What does a political battle waged over a bank in 1791 mean for Americans living in modern times? Quite a lot, it turns out.

In a recent paper, America’s First Great Constitutional Controversy: Alexander Hamilton’s Bank of the United States, Professor Charles J. Reid reexamines one of the earliest and most momentous constitutional battles in the United States history. He analyzes each aspect of the constitutional arguments given by those who supported and those who opposed the bank, sourcing his research in the annals of Congress, written opinions of those involved, and other context. Most importantly, he draws important conclusions about what this incident meant for the development of American political thought.

Taken as a whole, Reid’s work establishes that the result of the bank debate had considerable economic and constitutional ramifications.

Reid begins with a thorough examination of the American economic crisis of the 1780s. In many ways it laid the groundwork for the first American centralized banking system, the Bank of North America. Reid considers the extent to which the economic doldrums inspired prominent American politicians and financiers, such as Robert Morris and Alexander Hamilton, to champion a British-modeled national bank. Economic matters of the day, such as paper vs. hard money, trade privileges, stay laws, and state debts all contributed, it seems, to an atmosphere that produced such a monumental struggle over a bank.

Rather than confining the bank war to a straightforward political scuffle between Alexander Hamilton and Thomas Jefferson, Reid’s narrative does the reader an extraordinary deed by expounding upon the disposition of James Madison and his political collaborators in the House of Representatives, who vigorously attacked the constitutionality of the bank bill. Among them were James Jackson, William Branch Giles, and Michael Jenifer Stone, all of whom were significant figures whose names are rarely mentioned.

Reid’s article breathes new life into the notion that those who opposed the bank bill made a persuasive case against it on grounds that ventured beyond the bill’s perceived lack of constitutionality. Instead, Reid demonstrates, those who opposed the bank in the House also attacked the institution on economic and empirical grounds. They espoused that the bank would dilute the value of hard coinage, liken the United States to a centralized monarchy, and magnify the destructive potential of bank panics.

This supplementary context does not take away from what Reid considers the heart of Madison’s case – the onslaught against the bank on the basis that it was wholly unconstitutional. Madison and his companions asserted that Congress lacked the power to charter corporations on a structural basis, and even pointed out that an attempt to add such a power was deliberately rejected by the Philadelphia Convention.[1]

They were suspicious of the very concept of “implied powers,” considering such an idea to be little more than an unfounded political ploy that could never withstand honest scrutiny. Reid notes that Madison also questioend the idea that the congressional power to borrow money also gave it the ability to charter a bank that could lend and borrow.

One of the most redeeming aspects of Reid’s article is the attention paid to the argument of Edmund Randolph, so often ignored in the bank debate. Randolph, who championed the cause the Constitution’s ratification in his own state of Virginia after refusing to sign the document in Philadelphia, served as Washington’s Attorney General.

It may be impossible to determine whether Washington valued the opinion of Randolph any more or less than he did that of Jefferson or Hamilton, but nonetheless Randolph’s view on the matter is often neglected completely by historians.

Appearing to provide a prophetic response to contemporary constitutional arguments, Randolph believed that the general welfare and necessary and proper clauses did not empower Congress to enact the type of unspecified, implied powers that Hamilton defended in his quest to establish the bank.

Of course, Reid also delves into Jefferson’s opinion on the constitutionally of the bank after an examination of Jefferson’s prior written works including his most famous, Notes on the State of VirginiaAlthough Jefferson did not believe in a nonexistent state on a local level, he certainly thought the bank would violate the Tenth Amendment of the Constitution and the demarcation of powers between the states and general government – a principle Jefferson deemed to be the “foundation” of the federal Constitution.

In Compact of the Republic, I wrote that Jefferson supported this belief by noting that the power to create a bank was not specifically enumerated, that the Constitution was sold as a document that only allowed specified powers to be executed, that the bank was unnecessary, and that its existence would allow for too much federal control.[2]

Jefferson wrote  that departing from this aphorism “is to take possession of a boundless field of power, no longer susceptible of any definition.”[3] Taken as a whole, Jefferson’s argument maintained a coherent narrative.

In the last section of the article, Reid elaborates upon the contrary constitutional argument, developed by Hamilton and his political allies in support of a national bank. In doing so, his extensive research and thorough examination of the First Congress is refreshingly exhaustive, and he successfully summarizes each element of this argument effectively.

Tellingly, he also points out that Hamilton did not make any reference to the Constitution at all in his original proposal to Congress, instead making his case purely on the grounds of public policy alone. Only after being asked by President George Washington to produce a written opinion on the constitutionality of such a bank, did Hamilton craft such an argument in support of his cause.

Still, in this area I believe he missed a valuable opportunity to revisit what Hamilton himself said about the key elements of his argument, namely the necessary and proper clause and implied powers, during the ratification struggle. Making a noticeable reversal from his position during the ratification struggle, Hamilton’s perspective in the 1791 bank debate seemingly contradicted his position in 1788.

While Hamilton had in New York’s Poughkeepsie convention declared that the powers of the general government were “restricted to a certain sphere,” he now claimed that the necessary and proper clause opened up a reservoir of unstated, implied powers which could be used to justify a bank.[4] Beyond this, Hamilton devoted the entirety of The Federalist #33 to refute the prevalent allegation by opponents of the Constitution that the necessary and proper clause allowed for unlisted or implied powers.

On the contrary, the Constitution only vested the general government with “certain specified powers,” Hamilton wrote. “This is so clear a proposition,” he continued, “that moderation itself can scarcely listen to the railings which have been so copiously vented against this part of the plan, without emotions that disturb its equanimity.” The necessary and proper clause, he alleged, only allowed “the power of employing the means necessary” to execute each enumerated power.[5]

Reid’s paper effectively chronicles Hamilton’s acute dispositional transition to the point where he now claimed “necessary” now meant “incidental, useful, or conductive to.”[6] In addition, he describes Hamilton’s ostentatious effort to refute Madison’s view. As in Hamilton’s case, during the ratification campaign Madison held during that “necessary” meant indispensable and did not allow Congress to extrapolate any new, unlisted powers.

Despite these dynamics, Washington’s conscience was eventually satisfied by Hamilton’s position, and the president signed the bill into law. Despite the radical polarization of attitudes on the bank among the American political class, no one could have predicted the far-reaching implications of this decision. Toward the end of the paper, Reid establishes why this was perhaps the most crucial presidential decision in American political history.

Beyond illustrating how the arguments over the bank war impacted the development of the American political identify, Reid appropriately elaborates upon the degree to which various economic struggles influenced the founders’ positions on the bank.

For instance, his recollection of the pervasive suspicion toward mercantilism and the controversial acts of the British crown is an exceedingly important factor that must be understood to obtain a sufficient grasp of the bank dispute. Additionally, an exploration of the common law system the founders were familiar with, the legal history of corporations, and the association with kingly power to establish such institutions, was greatly appreciated.

My first of two criticisms of Reid’s article center upon the author’s perception of Madison’s theory regarding constitutional interpretation. Though Reid is correct to portray Madison’s opposition to the national bank at least partially as a matter of structure – because the power to establish corporations was deemed a reserved power not delegated to the general government – he omits Madison’s belief that the spirit of the debates and proceedings from the state ratification conventions should serve as an authoritative source regarding how the document should be interpreted.

If the structure of the Constitution did not allow for a swift constitutional resolution, Madison believed in drawing context from what the plan’s advocates said about it when it depended upon the states for ratification. In his Report of 1799, which defended Virginia’s act of interposition against the Alien and Sedition Acts, Madison asserted that “the firm and pointed manner, in which it is asserted in the proceedings of the convention of this state,”