American Legal History
Court vs. Country: A Case Study of the First Bank of the United States

The War for Independence realized political and military objectives in the venture of American self-determination. The subsequent task of nation building revealed an interplay of two imported ideologies, which would operationalize fundamental questions of collective identity. The conflict between Court and Country, as observed in Britain, originated in contrasting urban and rural experiences. Country’s suspicion of the centralized power of Court in London influenced American revolutionary philosophy. Conversely, the Court, shaped by Renaissance civic humanism, was seen by its subscribers as an agent of modernizing civilization. These tensions informed the post-Founding political arena as Hamilton and Jefferson, champions of these respective ideologies, engaged in a struggle for the nation’s identity.

Although the First Bank of the United States was officially presented in a subsequent report, Hamilton, as Secretary of Treasury, laid the groundwork in a report requested by and submitted to the First Congress regarding the financial condition of the nation. While the Constitution and legislation enabled the federal government to collect tax revenue, Hamilton sought to address national and state debts, largely arising from wartime obligations. At the time of his report, the federal government had approximately $40 million in domestic debt, $13 million in foreign debt and was significantly in arrears on interest payments. In addition, the thirteen states had approximately $25 million in debt outstanding. Hamilton proposed the following:
  • Regarding federal debt, restructure and commit to payment in full, guaranteed by revenue from tax and contracts. This was politically controversial, because much of the domestic debt was issued to Patriots, many of whom subsequently conveyed them at a considerable discount to speculators after government payments fell in arrears.
  • The most controversial feature regarded state debts. Hamilton sought to transfer them to the federal government. However, southern states, with the exception of South Carolina, had largely paid off obligations, so this was seen by the opposition as a subsidy to the North.

Essentially, the proposal aimed to establish a vibrant credit market, which had significant implications for the economic character of the nation. This could be expected to stimulate capital intensive industries such as manufacturing and commerce as merchants would be further able to trade on credit. On the other hand, financial consolidation raised concern about the dependence of agriculture on linked commodity markets. Accordingly, Hamilton’s plan positioned the interests of the North against those of the South. Despite this partisan context, a compromise was achieved involving concessions to Virginia and relocation of the national capital from New York City to Washington, D.C.

Hamilton next introduced the First Bank as an agent of the financial activities contemplated by his prior proposal. The entity would be structured as a public-private partnership, but operated independently from the federal government subject to the mandate of its charter. There was passionate opposition, led by two Virginians, Jefferson, Secretary of State, and Madison, regarded the leader of the House. In parallel to substantive objections, a constitutional question was also raised, namely that Congress lacked authority. While Congress passed the legislation instituting the bank, the venue for the debate was President Washington’s decision to sign or veto.

Jefferson argued that the Constitution did not enumerate such a power for Congress. Madison advocated that in the absence of express authority, the states, under the 10th Amendment, were the appropriate issuers of banking charters. Attorney General Edmund Randolph agreed with his fellow Virginians. Hamilton proposed an elastic interpretation of Article 1, Section 8, Clause 18 – the Necessary and Proper Clause – which granted Congress expansive power to pursue the ends stated in the Preamble, namely forming a more perfect union and promoting the general welfare. The debate resembled opposing methods of constitutional interpretation, textualism vs. loose construction. Jefferson insisted that Hamilton’s argument replaced necessity with convenience. Hamilton responded that this was appropriate under an interpretative method that linked meaning to ends. While Hamilton won this encounter, the legal question and arguments raised regarding the First Bank reflect fundamental issues that have recurred throughout constitutional jurisprudence.

In addition to economic and legal polarization, the discord over Hamilton’s program was consistent with consolidation within Federalists and Anti-Federalists. The subject of the disagreement and its pervasive scope across domains of social life suggests that Court vs. Country is an instructive perspective. In particular, the question of national identity positioned respective interests similarly to the British experience. On one hand, Hamilton’s policies, seen as the Court model, favored industrialization and commerce in a program of modernization. On the other, Jefferson championed the Country in his vision of an agrarian republic. The concern that Court policies would revive economic colonialism had basis. Domestic manufacturing and financial capacities were infant, while trade and capital flows with Britain accounted for approximately 40% of balance of payments in the late 18th and early 19th century. Although the domestic agricultural base was vibrant, the distribution of commodities still relied on mercantile arrangements that paralleled or were directly subject to Britain. Furthermore, Hamilton’s program as a stimulus for modernization of the domestic economy, later realized in the form of the Industrial Revolution, promised to continue the South’s position of dependency in the value chain.

The cultural context in the conflict over Hamilton’s vision is relatable to present viewers when analogized to globalization. The decline of US industrial base in the late 20th century perhaps represents the concern of Anti-Federalists during post-Founding debates of national identity. As might be anticipated in a confrontation between titans of the Founding, the First Bank of the United States and related policies served to operationalize Court vs. Country into the metastructure of federal governance.

Sources:

Buck, The Development of the Organisation of Anglo-American Trade, Yale University Press, 1925

Elkins and McKitrick? , The Age of Federalism, Oxford University Press, 1993

Hamilton, First Report on the Public Credit, 14 January 1790

Hamilton, Second Report on the Public Credit, 14 December 1790

-- YashShah - 28 Apr 2017

 

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