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The Bank Bill, [8 February] 1791

The Bank Bill

[8 February 1791]

The House continued to debate the bank bill on 3, 4, 5, and 7 February.

Mr. Madison observed, that the present is a question which ought to be conducted with moderation and candor—and therefore there is no occasion to have recourse to those tragic representations, which have been adduced—warmth and passion should be excluded from the discussion of a subject, which ought to depend on the cool dictates of reason for its decision.

Adverting to the observation of Mr. Smith, (S. C.) “that it would be a deplorable thing for the Senate of the United States to have fallen on a decision which violates the constitution,”1 he enquired, What does the reasoning of the gentleman tend to shew but this, that from respect to the Senate, this house ought to sanction their decisions? And from hence it will follow, that the President of the United States ought, out of respect to both, to sanction their joint proceedings: but he could, he said, remind the gentleman, of his holding different sentiments on another occasion.

Mr. Madison then enlarged on the exact balance or equipoise contemplated by the constitution, to be observed and maintained between the several branches of government—and shewed, that except this idea was preserved, the advantages of different independent branches would be lost, and their separate deliberations and determinations were intirely useless.

In describing a corporation he observed, that the powers proposed to be given, are such, as do not exist antecedent to the existence of the corporation; these powers are very extensive in their nature, and to which a principle of perpetuity may be annexed.

He waved a reply to Mr. Vining’s observations on the common law,2 (in which that gentleman had been lengthy and minute, in order to invalidate Mr. Madison’s objection to the power proposed to be given to the Bank, to make rules and regulations, not contrary to law). Mr. Madison said the question would involve a very lengthy discussion—and other objects more intimately connected with the subject, remained to be considered.

The power of granting Charters, he observed, is a great and important power, and ought not to be exercised, without we find ourselves expressly authorised to grant them: Here he dilated on the great and extensive influence that incorporated societies had on public affairs in Europe: They are a powerful machine, which have always been found competent to effect objects on principles, in a great measure independent of the people.

He argued against the influence of the precedent to be established by the bill—for tho it has been said that the charter is to be granted only for a term of years, yet he contended, that granting the powers on any principle, is granting them in perpetuum—and assuming this right on the part of the government involves the assumption of every power whatever.

Noticing the arguments in favor of the bill, he said, it had been observed, that “government necessarily possesses every power.” However true this idea may be in theory, he denied that it applied to the government of the United States.

Here he read the restrictive clause in the Constitution—and then observed that he saw no pass over this limit.

The preamble to the Constitution, said he, has produced a new mine of power; but this is the first instance he had heard of, in which the preamble has been adduced for such a purpose. In his opinion the preamble only states the objects of the confederation, and the subsequent clauses designate the express powers by which those objects are to be obtained—and a mean is proposed thro which to acquire those that may be found still requisite, more fully to effect the purposes of the confederation.

It is said, “there is a field of legislation yet unexplored.” He had often heard this language—but he confessed he did not understand it. Is there, said he, a single blade of grass—Is there any property in existence in the United States, which is not subject to legislation, either of the particular States, or of the United States? He contended that the exercise of this power on the part of the United States, involves, to all intents and purposes, every power which an individual state may exercise. On this principle he denied the right of Congress to make use of a Bank to facilitate the collection of taxes. He did not, however admit the idea, that the institution would conduce to that object: The bank notes are to be equal to gold and silver, and consequently will be as difficult to obtain as the specie. By means of the objects of trade on which gold and silver are employed, there will be an influx of those articles—but paper being substituted, will fill those channels, which would otherwise be occupied by the precious metals—This, experience shews is the uniform effect of such a substitution.

The right of Congress to regulate trade, is adduced as an argument in favor of this of creating a corporation—but what has this bill to do with trade? Would any plain man suppose that this bill had any thing to do with trade?

He noticed the observation respecting the utility of Banks to aid the government with loans—He denied the necessity of the institution to aid the government in this respect—Great Britain, he observed, did not depend on such institutions—she borrows from various sources.

“Banks it is said, are necessary to pay the interest of the public debt,”—then they ought to be established in the places where that interest is paid—but can any man say, that the bank notes will circulate at par in Georgia. From the example of Scotland we know that they cannot be made equal to specie, remote from the place, where they can be immediately converted into coin—they must depreciate in case of a demand for specie—and if there is no moral certainty that the interest can be paid by these bank bills, will the government be justified in depriving itself of the power of establishing banks in different parts of the union?

We reason (said he) and often with advantage from British models, but in the present instance there is a great dissimilarity of circumstances. The bank notes of Great-Britain do not circulate universally; to make the circumstances parallel, it ought to have been assumed as a fact that banks are established in various parts of Great-Britain, at which the interest of the national debt is paid—but the fact is, it is only paid in one place.

The clause of the constitution which has been so often recurred to, and which empowers Congress to dispose of its property, he supposed referred only to the property left at the conclusion of the war, and has no reference to the monied property of the United States.

The clause which empowers Congress to pass all laws necessary, &c. has been brought forward repeatedly by the advocates of the bill; he noticed the several constructions of this clause which had been offered; the conclusion which he drew from the commentary of the gentleman from Massachusetts, Mr. Gerry,3 was that Congress may do what they please—and recurring to the opinion of that gentleman in 1787; he said the powers of the constitution were then dark, inexplicable and dangerous—but now, perhaps as the result of experience they are clear and luminous!

The constructions of the constitution, he asserted, which have been maintained on this occasion go to the subversion of every power whatever in the several States—but we are told for our comfort that the judges will rectify our mistakes; how are the judges to determine in the case; are they to be guided in their decisions by the rules of expediency?

It has been asked that if those minute powers of the constitution were thought to be necessary, is it supposable that the great and important power on the table was not intended to be given? Mr. Madison interpreted this circumstance in a quite different way, viz. if it was thought necessary to specify in the constitution, those minute powers, it would follow that more important powers would have been explicitly granted had they been contemplated.

The Western Territory business he observed, was a case sui generis, and therefore cannot be cited with propriety: West Point, so often mentioned he said, was purchased by the United States pursuant to law—and the consent of the State of New York is supposed, if it has not been expressly granted; but on any occasion does it follow that one violation of the constitution is to be justified by another?

The permanent residence bill, he conceived was entirely irrelative to the subject; but he conceived it might be justified on truly constitutional principles.

The act vesting in the President of the United States the power of removability has been quoted; he recapitulated in a few words his reasons for being in favor of that bill.

The bank of North-America, he said, he had opposed, as he considered the institution as a violation of the confederation.4 The State of Massachusetts he recollected voted with him on that occasion. The bank of North-America was however the child of necessity—as soon as the war was over, it ceased to operate as to continental purposes. But, asked he, are precedents in war, to justify violations of private and State rights, in a time of peace? And did the United States pass laws to punish the counterfeiting the notes of that bank? They did not, being convinced of the invalidity of any such law—the bank therefore took shelter under the authority of the State.

The energetic administration of this government is said to be connected with this institution. Mr. Madison here stated the principles on which he conceived this government ought to be administered—and added, other gentlemen may have had other ideas on the subject, and may have consented to the ratification of the constitution on different principles and expectations—but he considered the enlightened opinion and affection of the people, the only solid basis for the support of this government.

Mr. Madison then stated his objections to the several parts of the bill: The first article he objected to, was the duration—A period of twenty years, he observed, was to this country as a period of a century in the history of other countries—there was no calculating for the events which might take place: He urged the ill-policy of granting so long a term, from the experience of the government in respect to some treaties, which tho found inconvenient, could not now be altered.

The different classes of the public creditors, he observed, were not all put on an equal footing by this bill; but in the bill for the disposal of the Western Territory, this had been thought essential: The holders of 6 per cent. securities, will derive undue advantages—Creditors at a distance, and the holders of 3 per cent. securities, ought to be considered—as the public good is most essentially promoted by an equal attention to the interest of all.5

I admit, said he, that the government ought to consider itself as the trustee of the public on this occasion, and therefore should avail itself of the best disposition of the public property.

In this view of the subject, he objected to the bill, as the public, he thought, ought to derive greater advantages from the institution than those proposed. In case of a universal circulation of the notes of the proposed bank, the profits will be so great that the government ought to receive a very considerable sum for granting the charter.

There are other defects in the bill, which render it proper and necessary in my opinion, that it should undergo a revision and amendment before it passes into a law: The power vested by the bill in the executive to borrow of the bank, he thought was objectionable—and the right to establish subordinate banks, he said, ought not to be delegated to any set of men under heaven.

The public opinion has been mentioned: If the appeal to the public opinion is suggested with sincerity, we ought to let our constituents have an opportunity to form an opinion on the subject.

He concluded by saying, he should move for the previous question.6

Gazette of the U.S., 20 Apr. 1791.

1JM paraphrased a passage from Smith’s speech of 5 Feb.

2Vining spoke immediately before JM on this day.

3Gerry delivered a lengthy speech on 7 Feb.

4See PJM description begins William T. Hutchinson et al., eds., The Papers of James Madison (vols. 1–10, Chicago, 1962–77; vols. 11—, Charlottesville, Va., 1977—). description ends , III, 175 n. 16; IV, 20–21 n. 7, 22–23.

5On 22 Feb. JM successfully moved to insert a clause in a supplementary bill making it optional for subscribers to pay in either 3 or 6 percent securities, both of the Continental and assumed debts (Gazette of the U.S., 23 Feb. 1791; U.S. Statutes at Large description begins The Public Statutes at Large of the United States of America … (17 vols.; Boston, 1848–73). description ends , I, 196–97).

6The House passed the bill by a vote of 39 to 20. It was presented to the president on 14 Feb. and signed on 25 Feb. (DHFC description begins Linda Grant De Pauw et al., eds., Documentary History of the First Federal Congress of the United States of America (3 vols. to date; Baltimore, 1972—). description ends , III, 714, 740). See also JM’s Draft Veto of the Bank Bill, 21 Feb. 1791 and n. 1.

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