Hamilton’s opinion supporting the National Bank is unconstitutional–the debate with Mr. Jefferson

On the Constitutionality of the National Bank—the debate between Mr. Jefferson and Mr. Hamilton.

Overview:

As we reported in a separate article,[i] Mr. Jefferson undertakes to prove his case that the Bank Bill is beyond the powers of Congress. He shows that no such power is granted by (1) the Taxing Clause, (2) the Borrowing Clause, (3) the Commerce Clause, (4) the General Welfare Clause, or (5) the Necessary and Proper Clause.

On the other hand, Mr. Hamilton’s long-winded argument,[ii] five times as long as Mr. Jefferson’s, boils down to one proposition which pervades almost everything: A federally-incorporated National Bank is would be a convenient, beneficial, and even excellent way for the Federal Government to conduct its financial affairs. Consequently, he says, it is constitutionally proper under the “necessary and proper clause” of the Constitution.

Mr. Hamilton does take some short swipes at Mr. Jefferson’s arguments on the unconstitutionality of the Bank. Those “swipes” are shown below just after Mr. Jefferson’s arguments. Following which, we posit our own reasoning and conclusions as to whose arguments carry the day.

Summary of Mr. Jefferson’s arguments and Mr. Hamilton’s replies:

1. Mr. Jefferson: A National Bank would violate state laws of Mortmain, Alienage, Descents, Forfeiture and Escheat, Distribution, and laws against Monopolies, all in violation of the foundation of the Constitution (the 10th Amendment)

Mr. Hamilton’s reply: “It can . . . never be good reasoning to say this or that act is unconstitutional, because it alters this or that law of a State. It must be shown that the act which makes the alteration is unconstitutional on other accounts, not because it makes the alteration.”

Conclusion: Mr. Hamilton is correct in saying that a federal law which alters the internal laws of a state is not, in and of itself, unconstitutional. But as we will see below, when a federal law, such as the Bank Law, is beyond the powers of the federal government, it is ultra vires, i.e., unconstitutional per se. And if it impinges on the powers of states reserved under the 10th Amendment, the “law” is unconstitutional for that additional reason.

2. Taxing power: Article 1, § 8, CL. 1. “The Congress shall have Power To lay and collect Taxes . . . to pay the Debts . . . of the United States . . . .”

Mr. Jefferson: “A power to lay taxes for the purpose of paying the debts of the United States; but no debt is paid by this bill, nor any tax laid.”

Mr. Hamilton’s reply: None.

Conclusion: Mr. Jefferson is right.

3. Borrowing Clause: Article 1, § 8, CL. 2. “Congress shall have Power . . . [t]o borrow Money on the credit of the United States”.

Mr. Jefferson: “But this bill neither borrows money nor ensures the borrowing [of] it.”

Mr. Hamilton’s reply: “A bank has a direct relation to the power of borrowing money, because it is an usual, and in sudden emergencies an essential, instrument in the obtaining of loans to government.”

“The legislative power of borrowing money, and of making all laws necessary and proper for carrying into execution that power, seems obviously competent to the appointment of the organ, through which the abilities and wills of individuals may be most efficaciously exerted for the accommodation of the government by loans.”

Conclusion: Mr. Hamilton raises the fallacious “relation” argument: “A bank has a direct relation to the power of borrowing money”, says he. But things that have a mere relation to a power of government, here the power of borrowing, do not of themselves sweep the relations into the power. One might just as well say that every borrower must establish his own bank to “efficaciously” accommodate his need for loans. The government does not need a National Bank to borrow money. Just like any other individual or entity, it can use banks already in existence for deposits, withdrawals, and loans.

4. Commerce Clause. Article 1, § 8, CL. 3. “Congress shall have Power . . . [t]o regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes”.

Mr. Jefferson: “To erect a bank, and to regulate commerce, are very different acts. He who erects a bank, creates a subject of commerce in its bills, so does he who makes a bushel of wheat, or digs a dollar out of the mines; yet neither of these persons regulates commerce thereby. To make a thing which may be bought and sold, is not to prescribe regulations for buying and selling.”

Mr. Hamilton’s reply: “The institution of a bank has also a natural relation to the regulation of trade between the States, in so far as it is conducive to the creation of a convenient medium of exchange between them, and to the keeping up a full circulation, by preventing the frequent displacement of the metals in reciprocal remittances Money is the very hinge on which commerce turns. And this does not merely mean gold and silver; many other things have served the purpose, with different degrees of utility. Paper has been extensively employed.”

* * *

“Accordingly, such only are the regulations [of trade] to be found in the laws of the United States whose objects are to give encouragement to the enterprise of our own merchants, and to advance our navigation and manufactures. And it is in reference to these general relations of commerce, that an establishment [i.e, the Bank] which furnishes facilities to circulation, and a convenient medium of exchange and alienation, is to be regarded as a regulation of trade.”

* * *

Conclusion: Mr. Jefferson is right. The establishment of a National Bank can in no way be described as a regulation of trade under the Commerce Clause. The Bank, as Mr. Hamilton says, again resorting to the “relation” argument, may have a “natural relation to the regulation of trade”, but it is not trade. The mere relation of the Bank to trade (commerce) is not enough to transform the Bank into commerce itself. And to say that the Bank itself is “trade” or “commerce” would be to change the Commerce Clause to read nonsensically: “Congress shall have power . . . to regulate the Bank with foreign Nations, and among the several States, and with the Indian Tribes”.

5. General Welfare Clause: Article 1, § 8, CL. 1. “The Congress shall have Power To lay and collect Taxes . . . to pay the Debts and provide for the common Defence and general Welfare of the United States . . . .”

Mr. Jefferson: “[Congress] are not to lay taxes ad libitum for any purpose they please; but only to pay the debts or provide for the welfare of the Union. * * * [To read the Clause that way] would reduce the whole [Constitution] to a single phrase, that of instituting a Congress with power to do whatever would be for the good of the United States; and, as they would be the sole judges of the good or evil, it would be also a power to do whatever evil they please. * * * [The General Welfare Clause] was intended to lace [Congress] up straitly within the enumerated powers, and those without which, as means, these powers could not be carried into effect.”

Mr. Hamilton’s reply: “There is an observation of the Secretary of State to this effect which may require notice in this place: — Congress, says he, are not to lay taxes ad libitum, for any purpose they please, but only to pay the debts or provide for the welfare of the Union. Certainly no inference can be drawn from this against the power of applying their money for the institution of a bank. It is true that they cannot without breach of trust lay taxes for any other purpose than the general welfare; but so neither can any other government. The welfare of the community is the only legitimate end for which money can be raised on the community. Congress can be considered as under only one restriction which does not apply to other governments, they cannot rightfully apply the money they raise to any purpose merely or purely local.”

“But, with this exception, they have as large a discretion in relation to the application of money as any legislature whatever. The constitutional test of a right application must always be, whether it be for a purpose of general or local nature. If the former, there can be no want of constitutional power.”

“The quality of the object as how far it will really promote or not the welfare of the Union must be matter of conscientious discretion, and the arguments for or against a measure in this light must be arguments concerning expediency or inexpediency, not constitutional right. Whatever relates to the general order of the finances, to the general interests of trade, etc., being general objects, are constitutional ones for the application of money.”

“Certainly no inference can be drawn from this against the power of applying their money for the institution of a bank. It is true that they cannot without breach of trust lay taxes for any other purpose than the general welfare; but so neither can any other government. The welfare of the community is the only legitimate end for which money can be raised on the community. Congress can be considered as under only one restriction which does not apply to other governments, they cannot rightfully apply the money they raise to any purpose merely or purely local.”

Conclusion: Mr. Hamilton ignores the fact that the General Welfare Clause, the first clause in the enumeration of the Congress’s powers is only, a descriptive shorthand of all the power the powers that follow. Of itself it only gives a power to tax, but the proceeds of the tax can be used only for the constitutional purposes in the 17 powers that immediately follow (and as well as some other scattered constitutional powers). In short apart from imparting the taxing power, the General Welfare Clause as a restraint on federal power, meaning the tax funds can be spent only in carrying out the specific enumerated powers that follow the Clause. As Mr. Jefferson said, “The General Welfare Clause] was intended to lace [Congress] up straitly within the enumerated powers, and those without which, as means, these powers could not be carried into effect.”[iii]

6. Necessary and Proper Clause: Article 1, § 8, CL. 18. “To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.”

Mr. Jefferson: “[T]he Constitution allows only the means which are “necessary,” not those which are merely “convenient” for effecting the enumerated powers. If such a latitude of construction be allowed to this phrase as to give any non-enumerated power, it will go to everyone, for there is not one which ingenuity may not torture into a convenience in some instance or other, to some one of so long a list of enumerated powers. It would swallow up all the delegated powers, and reduce the whole to one power, as before observed. * * * Nothing but a necessity invincible by any other means, can justify such a prostitution of laws, which constitute the pillars of our whole system of jurisprudence.”

Mr. Hamilton’s reply: “To this mode of reasoning respecting the right of employing all the means requisite to the execution of the specified powers of the government, it is objected, that none but necessary and proper means are to be employed; and the Secretary of State maintains, that no means are to be considered as necessary but those without which the grant of the power would be nugatory.”

* * *

“It is a common mode of expression to say, that it is necessary for a government or a person to do this or that thing, when nothing more is intended or understood, than that the interests of the government or person require, or will be promoted by, the doing of this or that thing. The imagination can be at no loss for exemplifications of the use of the word in this sense. And it is the true one in which it is to be understood as used in the Constitution. The whole turn of the clause containing it indicates, that it was the intent of the Convention, by that clause, to give a liberal latitude to the exercise of the specified powers. The expressions have peculiar comprehensiveness. They are thought to make all laws necessary and proper for carrying into execution the foregoing powers, and all other powers vested by the Constitution in the government of the United States, or in any department or officer thereof.”

* * *

“That the word necessary, in the general clause, can have no restrictive operation derogating from the force of this principle indeed that the degree in which a measure is or is not necessary cannot be a test of constitutional right, but of expediency only.”

Conclusion: Mr. Hamilton turns the word “necessary” (as in “necessary and proper”) into “expedient”, a bastardization of the language. In Dr. Johnson’s Dictionary, which was in use in America when the Constitution was written, “necessary means “needful, indispensably requisite”.

Moreover, Mr. Hamilton’s endorsement of giving “a liberal latitude to the exercise of the specified powers” contradicts the ancient and then existing rule, “postestas strict interpretatur,” means “power is strictly interpreted.”[iv]

The Constitution’s structure implicitly adopts the principle of strict construction of federal power, by its detailed enumeration of specific federal powers (mostly in Article 1, §8) coupled with its general or broad reservations of individual rights and state sovereignty in the 9th and 10th Amendments: 9th—“The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people;” 10th—“The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”

As Mr. Jefferson said elsewhere, “Laws . . . abridging the natural right of the citizen should be restrained by rigorous constructions within their narrowest limits.”[v]

Finally, Mr. Hamilton doesn’t deal with the word “proper” in the “Necessary and Proper” Clause. Proper there used means lawful under the Constitution. And if a National Bank is not among the enumerated federal powers, it is ultra vires and the exercise of it cannot be “proper”.

7. Hamilton adds the argument: It now remains to show, that the incorporation of a bank is within the operation of the provision which authorizes Congress to make all needful rules and regulations concerning the property of the United States. * * * Hence, therefore, the money to be raised by taxes, as well as any other personal property, must be supposed to come within the meaning, as they certainly do within the letter, of authority to make all needful rules and regulations concerning the property of the United States.

Conclusion: Here is the worst of Mr. Hamilton’s arguments. The property provision to which Mr. Hamilton apparently refers is “The Congress shall have Power to dispose of and make all needful Rules and Regulations respecting the Territory or other Property belonging to the United States.”[vi]  That provision clearly relates to real estate, and not personal property, like money.


[iv] Black’s Law Dictionary, 5th Ed. @ 1052

[v] Bergh 13:327 (1813), THE REAL THOMAS JEFFERSON , p. 560 @ AMERICAN FREEDOM LIBRARY (CD available for $19.95 on the internet)

[vi] Article 4, §3,CL. 2

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Published in: on March 24, 2012 at 10:17 am  Leave a Comment  

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