A Year With George Washington
On February 21, 1791, Congressman James Madison wrote to President Washington with his advice on what grounds he should veto the National Bank Bill, should he decide to do so.
The Secretary of the Treasury, Alexander Hamilton, proposed a Financial Plan for the United States with three main components, or planks. The three main planks were to establish a coherent national fiscal order, establish credit to ease the financial burden on the new nation, and pay down the state and national debt. Part of the second plank in Hamilton’s Financial Plan was to stabilize the nation’s credit with the creation of a National Bank.
The National Bank Act faced determined opposition from Secretary of State Thomas Jefferson and the powerful Congressman James Madison in the House. Despite the political clout the two stalwarts of liberty possessed, the Bank Act passed both houses of Congress and lay on the president’s desk for signature.
President Washington, to his credit, delayed signing the Bill into law and sought the advice of both Jefferson and Madison, as well as his Attorney General, Edmund Randolph. Madison and Randolph presented solid arguments against Washington signing the bill into law, but it was Jefferson who articulated the most compelling reasons to veto the Bill.
Hamilton’s National Bank was based on the Charter for the Bank of England and was designed as a government/private partnership in which the Federal government would own 20 percent of the bank’s stock, and private subscribers would own 80 percent. The bank’s total capitalization was $10,000,000. The plan provided that the Federal government would not have to pay the $2,000,000 subscription price (20% of $10 million) at the incorporation, but would pay it over time. Private subscribers would have to purchase their shares (80%, or $8 million) immediately. The Bank would serve as the nation’s depository for excise taxes and the like and could act as a lender to the federal government in extraordinary times.
Thomas Jefferson’s objections were manifold and compelling.
First, Jefferson believed the National Bank Bill to be unconstitutional, as nowhere in the Constitution was Congress given the authority to establish a bank. He also argued that it violated the 12th Amendment explicitly, as it clearly states that “all powers not delegated to the United States, by the Constitution, nor prohibited by it to the States, are reserved to the States or to the people.”
He believed that the states and/or the people had the right to form a banking entity, but that the federal government did not.
Second, he believed that because the National Bank’s charter would enable it to receive grants of land and chattel as a non-person entity, it would violate the ancient laws of Mortmain. Mortmain is an Old French term meaning “dead hand.” Jefferson argued that an entity that could control property in perpetuity would render it forever inalienable, meaning it would not be subject to the same constraints as other land or property owners, such as forfeiture for felonious acts, improper use, or fraud. Other, more benign, but equally important reasons were that the Mortmain land would be less viable without the assurance of best practices through forfeiture and could not be passed down to more discerning heirs.
Jefferson argued that the charter granted the bank the “sole and exclusive right of banking under the national authority; and so it violated the laws against monopoly.”
Jefferson pointed out several more objections to the Bill, listing various enumerated clauses in the Constitution, and challenging the proponents of the legislation to demonstrate its formation was in accordance with any clause.
President Washington seemed to have been persuaded by the opposition’s arguments and asked Madison to draft a veto memorandum to transmit to Congress his reasons for vetoing the bill. Because of this and his taking his time to decide, those anxiously awaiting his signature accused him of planning to veto the bill, claiming Washington did not want a powerful national bank in Philadelphia because it would threaten the planned move of the nation’s capital to the more southerly Potomac River location.
Washington had submitted Jefferson, Madison, and Randolph’s objections to Hamilton, who, in a manner typical of him, spent night and day furiously writing out a lengthy and detailed rebuttal. Washington, in the end, was persuaded by Hamilton’s comprehensive approach to the nation’s finances and signed the legislation.
The First National Bank’s charter lasted 20 years, ending in 1811. A Second National Bank would be chartered in 1816 and would be up for renewal during the Andrew Jackson administration beginning in 1832.
Jackson, who believed the National Bank was no more than a mechanism of corruption for the elite, would take up the Jeffersonian mantle in his epic fight against its charter renewal and would veto the Bill. The Second National Bank would be liquidated per its charter in 1836. It was not until the Federal Reserve was established in 1913 that central banking returned to the United States.
Below is the brief veto memorandum that Washington requested from Madison but never used.
From James Madison
Feby 21. 1791.
Copy of a paper made out & sent to the President at his request, to be ready in case his judgment should finally decide agst the Bill for incorporating a National Bank, the Bill being there before him.
Gentlemen of the Senate
Having carefully examined and maturely considered the Bill entitled, “An Act [ ] I am compelled by the conviction of my judgment and the duty of my Station to return the Bill to the House in which it originated with the following objections:
(if to the Constitutionality.)
I object to the Bill because it is an essential principle of the Government that powers not delegated by the Constitution cannot be rightfully exercised; because the power proposed by the Bill to be received is not expressly delegated; and because I cannot satisfy myself that it results from any express power by fair and safe rules of implication.
(if to the merits alone or in addition.)
I object to the Bill because it appears to be unequal between the public and the Institution in favor of the institution; imposing no conditions on the latter equivalent to the stipulations assumed by the former. (quer. if this be within the intimation of the President.) I object to the Bill because it is in all cases the duty of the Government to dispense its benefits to individuals with as impartial a hand as the public interest will permit; and the Bill is in this respect unequal to individuals holding different denominations of public Stock and willing to become subscribers. This objection lies with particular force against the early day appointed for opening subscriptions, which if these should be filled as quickly as may happen, amounts to an exclusion of those remote from the Government, in favor of those near enough to take advantage of the opportunity.
