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CHAPTER III.

THE BANK QUESTION (1829-1837).

34. The Bank of the United States (1789-1816). THE re-election of Jackson in 1832 sealed the fate of the Bank of the United States, and ultimately resulted Currency in a complete revolution in the fiscal policy of question. the government. The Constitution may be said to have been in large part created by a fiscal question. Tariff wars between the States and the dangers of an unsound currency had been prominent among the causes which led to the formation of a strengthened federal government in 1789. One of the chief objects of those who advocated and framed the new government was to create an authority which could supply the country with a safe currency (Formation of the Union, § 53). The Congress of the Confederation and the governments of the States had demoralized commerce and industry by unlimited issues of irredeemable paper money, and the Constitution of 1787 was meant to secure the country against like folly in the future. It vested in Congress alone the power to coin money and regulate the value of coin; it explicitly forbade the States to emit bills of credit; and it nowhere granted the power to emit such bills to Congress. A proposition to confer that power upon Congress had been defeated in the constitutional convention by a heavy majority. There remained, however, a device for issuing paper money. was promptly held by the courts that this power, which the States could not directly exercise, they could exercise

Federal convention.

It

indirectly through the instrumentality of banks. While state legislatures could not vote government issues, they could incorporate banks and authorize them, State banks. as joint-stock companies, to issue paper in any amount they chose, without restriction or safeguard, and that even when the State itself arranged to become the chief or only stockholder. The only way in which the federal government could check such operations, apparently, was by going into the field of competition itself and dominating unsound state banks by means of a sound national bank whose issues would be extensive and accepted with confidence.

Bank of the

The first Bank of the United States had been established, at the suggestion of Hamilton, for several purposes not only in order to furnish the counUnited States. try with at least one sound and stable currency, but also in order to serve as the fiscal agent of the government in handling its revenues and floating its loans, and in order to interest men with money in the new federal government (Formation of the Union, § 78). That it did act as a check upon the less reliable state banks is made sufficiently manifest by the opposition offered to the renewal of its twenty-year charter, which expired in 1811. After experiencing for five years, however, the combined financial effects of war and state banking, the country was glad to see a second Bank of the United States chartered in 1816 (Formation of the Union, § 120).

35. Constitutionality of the Bank (1789-1819).

The constitutionality of a bank chartered by Congress had early been called in question. Where, it was asked, did Congress, exercising only specified powers, get the authority to grant charters? And, even if it could grant charters, whence did it derive the right to charter a bank

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and give to it the handling of the national revenues? The Constitution gave to Congress the power to lay and collect taxes, duties, imposts, and excises, to pay the debts and provide for the common defence and general welfare of the United States; the power to borrow money on the credit of the United States; and the power to coin money and regulate the value of both foreign and domestic coin. But how, from any one of these powers, or from all of them put together, could it argue its right to create a great semi-governmental bank? The last clause of the article of the Constitution conferring powers upon Congress did indeed say that Congress might make " all laws which should be necessary and proper for carrying into execution the foregoing powers; but could this bank be said to be both necessary and proper for carrying into execution the limited fiscal functions of the federal government? Washington had thought these Early views. questions worthy of consideration before signing the bill which created the first national bank in 1791, and had obtained careful written opinions from Hamilton and Jefferson. Hamilton had argued strongly in favor of the constitutionality of the bank, Jefferson as strongly against it; but Washington had accepted the reasoning of Hamilton (Formation of the Union, § 78), and in 1819 the Supreme Court of the United States, in the Supreme the leading case of McCulloch vs. Maryland, sustained the Act creating the second Bank of the United States upon substantially the same grounds that Hamilton had urged (Formation of the Union, § 125). It held that, while it was true that the government of the United States was a government of specified powers only, it must nevertheless be deemed to be sovereign within the sphere assigned to it by the Constitution; that the powers granted must be taken to include every privilege incidental to their exercise, the choice of

Decision of

Court.

courts.

the means by which the ends of the government were to be reached lying in every case within the discretion of Congress, and not being subject to be restrained by the The Bank had been chartered as a fiscal agent of the government: whether the creation of such an agency was necessary and proper to the exercise of its fiscal functions it was for Congress, not for the courts, to judge. A "sound construction of the Constitution must allow to the national legislature that discretion with respect to the means by which the powers it confers are to be carried into execution, which will enable that body to perform the high duties assigned to it, in the manner most beneficial to the people."

36. Jackson's Hostility to the Bank (1829, 1830).

Such a decision was of course conclusive of all legal controversy, But it had not by any means satisfied all Opposition minds. Many still dreaded the effects of the to the Bank. exercise of such powers by Congress, even when they did not doubt their constitutionality. They dreaded the power of this great corporation which the federal government had set up to dominate the money transactions of the country. Jackson was of the number. of those who felt uneasy about the influence of the Bank. Moreover, he never considered any question settled merely because the Supreme Court had passed upon it. He did not, therefore, hesitate to speak of the Bank in disparaging terms of covert hostility in the very first message he sent to Congress. The charter of the Bank was not to expire until 1836, and the term of office for which Jackson had been elected when he wrote the message of December, 1829, was to end in 1833. It was singular that he should call the attention of Congress to a matter with the final settlement of which he might have

First attack.

nothing to do. But delicacy did not weigh with Jackson any more than the judgments of the Supreme Court. He attacked the Bank at once, and the terms in which he did so deserve transcription as a suitable text for the controversies that were to follow. "The charter of the Bank of the United States expires in 1836, and its stockholders will most probably apply for a renewal of their privileges. In order to avoid the evils resulting from precipitancy in a measure involving such important principles and such deep pecuniary interests, I feel that I cannot, in justice to the parties interested, too soon present it to the deliberate consideration of the legislature and the people. Both the constitutionality and the expediency of the law creating this Bank are well questioned by a large portion of our fellow-citizens; and it must be admitted by all that it has failed in the great end of establishing a uniform and sound currency. Under these circumstances, if such an instrument is deemed essential to the fiscal operations of the government, I submit to the wisdom of the legislature whether a national one, founded upon the credit of the government and its revenues, might not be devised, which would avoid all constitutional difficulties, and at the same time secure all the advantages to the government and the country that were expected to result from the present Bank." These sentences forecast a great deal that was to follow. There was more feeling and determination back of them, they were spoken with much more definiteness of purpose, than appeared upon their smooth surface. Congress at first attached no importance to these utterances of the President; but again and again, in subsequent messages, Jackson returned to the subject, his language becoming constantly more and more explicit in its hostility, until at length decisive measures of selfdefence were forced upon the friends of the Bank.

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