The Bank of the United States and Mr. Hamilton’s Surprise!

As noted in the first post, Albert Gallatin initially aspired to being a private, rather than a political, entrepreneur. To that end the firm of Albert Gallatin and Co. tried to attract renters or buyers to land in Pennsylvania. McCraw describes how the firm “organized a company store, a boatyard on the Monongahela, and later a glassworks.” (192) Like many commercial men of his day, not the least of whom was Robert Morris, Gallatin’s speculations in land development eventually failed, but the experience of trying to make a go of it in the private economy was important.

Unlike Hamilton, Gallatin had a more nuanced feel for the variations of taste and opinion that a businessman must have to adapt to opportunities as they are, rather than as he might wish them to be. Failure has a way of accentuating the point. Again, McCraw’s text does not specifically highlight this difference, but it comes through well enough in the evidence.

As noted in the two previous posts, a powerful illustration is the attitude of both men to the subject of finance and its relationship to the economy. Most of those who dabbled in political economy at the time presented a hodgepodge of Smithian free-trade arguments and mercantilist expediencies, and neither Hamilton (as we have seen) nor Gallatin were immune to the mixing of apples and oranges.

Balance of trade arguments were made by both to contend for varying degrees of monetary intervention because trade supposedly “ran against us,” drawing hard money out of the country. Such arguments were and remain a canard, but the argument was ubiquitous at the time and appears specifically in Hamilton’s justification of the creation of the first Bank of the United States.

Gallatin also argued for a national bank, but more as a convenience, than an absolute necessity. McCraw emphasizes his concurrence with Hamilton, and spends much less time on Gallatin’s overall disposition. He ascribes most of Gallatin’s actions as grudging conformity to his party’s stupidity.  Once more the reality is a bit more complicated.

Gallatin was perfectly willing to accept the bank’s constitutionality to be sure, and even passionately urged its renewal on President Madison for many of the same neo-Mercantilist reasons as Hamilton, but at the end of the day, he made his peace with the forces set against it. In a very telling letter, not cited by McCraw, and not long after Andrew  Jackson had killed the second Bank, Gallatin advised a friend that the issue ought not to be raised again. The country could go on without one: “I do not doubt your sincerity and bravery; but the cause is really not worth dying for. Did I believe that a bank of the United States would effectually secure us a sound currency, I would think it a duty, at all hazards, to promote the object. As the question now stands, I would at least wait till the wishes of the people were better ascertained.” (Gallatin to John M. Botts, New York, 14 June, 1841).

Waiting is just what Hamilton did not do. Again, the difference may seem slight, but it’s important for a historian to recognize when he pronounces on the political motives of his subjects.

For McCraw, Gallatin’s hands were bound by a party increasingly under the influence of grasping private bankers and an addled older group of Jeffersonians still confused about the institution’s legality. Seeking the lucrative business of their national competitor, the former interests played the latter like fiddles.  Caught in the middle, Gallatin, could only look on as a befuddled Mr. Madison presided over the destruction of one of Hamilton’s crowning achievements. (297) But all the underlying assumptions here are wrong.

Let’s begin with the legal case. McCraw gives brief treatment of the opposition to Hamilton’s implied powers. He generously concedes it had something to do with small “r” republican concerns about corruption and centralization. (235) But here again, the far sighted Hamilton knew, this wasn’t a monopoly, not the only bank in town, and of course, he understood that anything useful for government to perform its delegated powers was perfectly necessary—one might say, like building post offices for national mail service.

How then could one possibly see the power of incorporation as anything but an ordinary attribute of sovereignty? McCraw proudly points out that Hamilton’s Report on a National Bank (1790) “formed the basis for chief justice John Marshall’s opinion in McCulloch v. Maryland (1819). And Hamilton’s “relentless logic” won President Washington’s approval.” (118)

On the debates that followed, McCraw paints a picture of a “surprised” Hamilton, touched to the quick by Madison’s unexpected, sudden opposition to his funding plans. It took him “completely by surprise.” It “jolted” him  as much as “anything that happened during his years as secretary.” (139) But the reality is, again, more complicated. There are excellent reasons to suspect the relationship was not so simpatico as Hamilton may have had reason to portray, not the least of which concerned the subject and the object of Hamilton’s constitutionalism.

There are tensions within the Publius essays themselves that leave real doubt as to the strength of Hamilton’s conviction that what is not granted by the people is retained because…“in strictness [his very words] the people surrender nothing; and as they retain everything, they have no need of particular reservations.” (Federalist 84)

And yet, Hamilton had let slip just a few essays earlier: “By a limited constitution I understand one which contains certain specified exceptions to the legislative authority….”(Federalist 78; See also Steven D.  Ealy’s discussion of this point). Here is an interesting contradiction! It reveals a Hamilton eager to make any case necessary to support the object of constitutional ratification, and less concerned about theoretical consistency. After all, time was of the essence. But the Constitution is either to be read as a grant of specific powers bestowed by a sovereign people, or it is a presumption of Parliamentary sovereignty, where the people have given their whole authority to the legislative assembly or government with only specific reservations. What is not reserved, then, is retained by Congress. One or the other, but not both.

Madison, was far more consistent in the first line of argument. And on the bank he and not Hamilton had reason to be surprised. Under the Articles of Confederation, with no power specifically allocated to grant incorporation, Madison had persuasively argued that the earlier Bank of North America needed to turn to the state of Pennsylvania for its operating charter. The national one could only be “symbolic.” And that is exactly what was done.

It was Madison, then, based on this experience, who moved at the Philadelphia Convention for an expansion of Mr. Pinckney’s original motion for a specific power of incorporation to be included in the new Constitution. (Lance Banning, Sacred Fire of Liberty, pp.326, 511 n 137; see also this section from the debates in the Constitutional Convention) The vote had gone decidedly against him.

The fact is, the power of incorporation was not an ordinary or incidental power. It was the ultimate claim of kings to be able to grant privileges to subjects. It was not simply an attribute of “government” and certainly not a government of derivative authority. When kings recognized or created whole cities, they outlined special privileges and rights with this power. When establishing Burroughs and various legal orders, listing their expectations of duties and rights, they used this power. When Popes established religious orders, they asserted this power. When these made mints and banks to serve their particular needs, they did so as sovereigns over their people, using this power. But if the people were sovereign, such a power could only reside with them, unless they specifically granted the right to their agents to create special bodies of specific privileges. None such existed in the Constitution.

This peculiar history was exemplified by the Bank of England, and was well known to both English and American Whigs. To read it otherwise, to see it merely as the building of post offices, ordinary and incidental to the power to create a postal service, is disingenuous. It sets the rationale of delegation originally put forward as the essence of the nature of the Constitution on its head, and makes Congress the supreme body. This is how Madison understood “strict construction.” It was not simplistic assertion of linguistic literalness, and the surprise ran the other direction.

Had not Hamilton heard Madison’s arguments? Had he not made similar arguments on numerous occasions himself, especially against the inclusion of a Bill of Rights? And here is where a bit of historical balance is in order. To quote Lance Banning: “But, surely, Madison’s insistence that the Hamiltonians were pushing a construction that the Federalists of 1788 had most decidedly disclaimed was fully as consistent with the facts as their own contention that the opposition leader was retreating from his previous position [i.e. his support for stronger national government].” (Banning, Sacred Fire, 331)

A constitutional amendment specifically allowing for incorporation of a bank for defined purposes would have met all of Madison’s objections. But that was a long road, and Hamilton was in a hurry. He got his bank, and eventually McCulloch v. Maryland blessed his reasoning, as McCraw announces triumphantly. And he also got just about every other implication of federal power that has ever since been asserted. This was/is the camel’s nose that has been gradually nudging all other reservations aside.

McCraw asserts all of the attendant economic justifications and assumptions. When the first bank’s charter was allowed to lapse at the end of Madison’s term, he asserts that the state bankers had escaped its salutary regulations, and the government deprived of an essential arm of finance. Hardly, as we will see next.