III.

of bills of credit. Virginia, then for the first time in- CHAPTER volved in serious expenses, resorted at last to paper money Issues, by which the use of tobacco as a currency seems 1791 soon to have been in a great measure superseded, as it already had been in North Carolina and Maryland.

The colonial paper money had long been a subject of complaint on the part of the British merchants; and, soon after the Canadian war had been brought to a conclusion, they had obtained an act of Parliament, by which the provisions of the New England Restraining Act were extended to all the colonies. From that restraint the Revolution set them free; and, to raise means for the struggle, the paper money system had been pushed to an extent before quite unknown. Such was the excess of issues, that within six years the paper money, both state and national, lost all its credit and ceased to circulate. Yet the downfall of this paper had been by no means followed by a healthy state of the currency. Apart from the interruption of commerce by the war, the country was altogether too poor and exhausted to supply itself with specie from abroad; and the loans obtained from France, and the sums sent over for the expenses of the French auxiliary army, went but a little way toward filling the gap. The Continental bills were, in fact, succeeded by Continental certificates for supplies, army pay, &c., and these, with the certificates of the state and federal debt, the whole greatly depreciated, had served, though but poorly, the purpose of a currency. Some of the states subsequently to the peace had even resumed the issue of paper money; but to this a stop had been put by the new Constitution.

In the midst of all this monetary confusion, the rudiments of a better system had appeared. Simultaneously with the introduction into America, near a hundred years

CHAPTER before, of the currency of bills of credit, the Bank of III. England had introduced into that country the issue of 1791. bank-notes, payable in cash on presentation. This idea

of a redeemable currency was carried into effect, for the first time on this side of the Atlantic, by the Bank of North America, established by Robert Morris just at the close of the late war, chiefly as an assistance to him in the difficult office of superintendent of the Continental finances. The use of this new sort of bills, added to the convenience of loans to the merchants, was soon found so satisfactory, that banks on the same principle had since been established at New York and Boston. These three banks, to which another at the rising city of Baltimore was just about to be added, were at this time the only ones in the country, and their circulation was confined to the cities in which they were situated. The Bank of North America had originally been chartered by the Continental Congress, but upon some doubts as to the authority of that body, a charter had also been obtained from the State of Pennsylvania. Its connection with the Continental treasury seems to have ceased with the retirement of Morris, and it was now a mere state institution.

No national mint yet existed; the only coinage under the Continental Congress had been a quantity of cents manufactured by contract. The Spanish dollar, always the chief circulating coin of North America, had been adopted as the monetary unit, and, by a section of the first tariff act, the value of other coins had been fixed in relation to it, those coins at such values to be a legal tender in the payment of duties. But in the present scarcity of coin, and amid the various substitutes for money employed in different localities, there was hardly such a thing as a national currency.

III.

With respect to the facility of obtaining occasional CHAPTER temporary loans for the use of the government, the three existing banks, considering their implied engagements to 1791. their ordinary customers, could not be relied upon with much certainty; and still less could the aid of private lenders be expected with confidence.

The expediency of establishing a national bank was at that time a very different question from its expediency now. It was a great object at that time to provide, if not a national currency of coin, which, poor as the country then was, seemed quite out of the question, at least its best and only tolerable substitute, a redeemable paper currency. It was also very desirable to extend to the infancy of the new banking system, so vastly superior in all respects to the old system of government paper money, and likely, under wise management, to be so beneficial to trade and industry, that aid and countenance which it might derive from a connection, mutually advantageous, with the national government. A+ present the government does not need the special aid of banks; nor does the banking system require the fostering support of the government. Indeed, in the extension to which that system has attained, the great necessity of the times seems to be that of a balance-wheel, the constant pressure of which shall keep the banks always in mind of their liability to be called upon for instant redemption. Nor does it appear that any check of that sort has yet been hit upon superior or equal to the steady, uniform, and necessary operation of the exclusive use of specie in the transactions of the government. Nor ought the lesson to be overlooked taught by the experience of the last sixty years; the two great catastrophes in the history of our banking system-the temporary stoppages of specie payments-having both resulted from too in.

CHAPTER timate a connection on the part of the banks with the III. national government; in the one case as rash and im1791. provident lenders, in the other case as borrowers no less rash and improvident.

A bill for the charter of a national bank, introduced into the Senate by a committee to which the secretary's report had been referred, and corresponding precisely with his recommendations, encountered but very little opposition in that body. On the third reading, Jan. 20. the yeas and nays were twice called; once on a motion to limit the duration of the charter to ten years, which failed, six to sixteen; and again on a motion, lost also, five to eighteen, to strike out the clause restraining Congress from chartering any other bank during the continuance of this. Finally, the bill passed without a division. In the House, it was suffered to pass a second reading, the usual stage of discussion, without opposition; but on the questions of the third reading and the final passage, a warm debate arose. Jackson, Richard Bland Lee, Giles, and Madison spoke against the bill; for it, Lawrence, Sherman, Gerry, Ames, Vining, and Sedgwick. Jackson and Giles attacked the whole policy of the banking system, which they seemed to think little better than a cunningly-devised scheme for enriching the bankers at the expense of the public. Madison confined his objections to the want of power in Congress to pass such a bill. There was no direct grant of any such power, nor could it be implied, so he maintained, from any power expressly granted. It was answered that the power to establish a bank was implied in the powers to collect a revenue and to pay the debts of the United States, and in the authority expressly granted to make all laws necessary and proper for carrying those powers into execution. The terms "necessary and prop

III.

er," in this connection, could not be restricted to those CHAPTER means only without which the effect could not be produced, but must be understood as comprehending all 1791. means adapted to, and commonly employed for, the purpose. A bank was such a means, in reference to revenue transactions, in use by the Continental government previous to the adoption of the Constitution, and well known to the people. This line of argument, the same adopted long afterward by the Supreme Court of the United States, being based on an assumed state of facts liable to change, it would seem to follow, that if the use of a bank should happen, by change of circumstances, to become inexpedient, it would, at the same time, become unconstitutional. So far, indeed, as sentiment and feeling go, always of great weight in political affairs, questions of constitutionality and expediency are always intimately connected. When the expediency of a certain course of policy has been established, arguments in favor of its constitutionality will not be wanting. Hence, too, the opposite practice, already commenced by Virginia, and which soon came to be common to all parties, of denouncing as unconstitutional almost every measure to which opposition was made.

The bill finally passed the House by a vote of thirtynine to twenty; but, before signing it, the president required the written opinions of the members of his cabinet as to its constitutionality. Hamilton, supported by Knox, was strong in the affirmative; Jefferson and Randolph took the opposite side-the first instance, it would seem, of an important difference of opinion in the cabinet, and forerunner of that decided breach which soon followed.

After due deliberation, the president put his signature to the act. Except in a few particulars of little importance, it conformed to the plan suggested by Hamilton,