Few issues have been as well plumbed as the constitutional debates over the First and Second Banks of the United States. These debates led to the first organized political parties, the first Supreme Court ruling on the extent of federal powers, and one of the most significant vetoes in presidential history. The debates occupied the legislative, executive, and judicial branches for decades and defined the nature of federal power up to the present.
Eric Lomazoff, a political scientist at Villanova University, has not found any major new documents explaining these debates. But he does bring a political scientist's keen eye for previously ignored concepts. Even devotees of the subject will find original revelations and ideas about the banks, and the U.S. Constitution, in this book.
One subtle but important distinction Lomazoff introduces is between what he calls the “functional” and “federal” justifications for a national bank. The functional justification argued that a national bank met the “Necessary and Proper” standard in the United States Constitution for the government to raise money and collect taxes, in any situation. The federal justification, by contrast, looked to the economic environment in which a national bank would operate. Supporters of this standard argued that in a country with only three other banks in 1791, it was necessary and proper to provide some national organization for collecting and distributing taxes across the country.
Yet the federal justification was subject to changing circumstances. As states chartered over one hundred state banks by 1810, and as the federal government began depositing money in those state banks, the federal justification became more tenuous. As moderate Republican Adam Seybert of Philadelphia said, “the Treasury Department has been doing business with eleven banks, other than those sanctioned by Congress. Why, then, pretend, that it is impossible to transact this business through the agency of the State banks?” (pp. 82–83). This circumstantial change contributed to Congress's refusal in 1811 to continue the First Bank of the United States.
Probably the most significant contribution of the book is its analysis of Congress's 1816 debate to charter the Second Bank of the United States. Almost every previous work elides this constitutional discussion, but Lomazoff shows that it had almost nothing to do with taxes, borrowing, or the Necessary and Proper uses of federal power. Instead, almost all Democratic-Republican congressmen emphasized that the charter of the Second Bank was an exercise of the “Coinage Clause” of the Constitution.
After the suspension of convertibility of state banknotes into gold and silver during the British invasion of August 1814, many in and outside Congress argued that a national bank could force state banks back onto a metallic standard. In supporting the new charter, Senator John Calhoun argued that the country now faced the same situation as it had in 1787, characterized by a “depreciated paper currency” without central control (p. 114). Only a national bank could restore the central government's right and duty to “coin money” and “regulate the value thereof,” as the U.S. Constitution demanded.
The Coinage Clause justification served the ulterior motive that Democratic-Republicans could avoid the old Federalist justification for the bank, rooted in the Necessary and Proper Clause. Thus they could expand federal power even while they limited its constitutional authority. By contrast, Chief Justice John Marshall's ignoring of the Coinage Clause in McCulloch v. Maryland (1819) (and his hasty dismissal of the older “federal” justification for the bank based on economic circumstances) served the exact opposite purpose. Marshall pushed the now unloved Necessary and Proper reading to the fore to cement Federalist ideas into constitutional law.
The Coinage Clause debate reemerged with the vote on the second bank's recharter in 1832. When the House Ways and Means Committee chair, George McDuffie (D-SC), supported the bill for recharter, he grounded it in the Coinage Clause. McDuffie said that after the War of 1812 and the proliferation of state banknotes, the “great and essential power” of regulating currency had been “taken from Congress”; therefore, the federal government had “the most solemn constitutional obligation to restore the disordered currency” (p. 148).
President Andrew Jackson, by contrast, said in his veto message that only gold and silver currency could be “regulated” by Congress. Yet he also argued that even if Congress had the power to regulate paper currency, such a right could not be “transferred to a corporation” (p. 153). Here, Jackson not only dismissed the Coinage Clause justification but made one of the earliest constitutional arguments against the delegation of federal administrative powers. Ironically, though, Lomazoff shows that most reprints of Jackson's veto message excise the entirety of the Coinage Clause discussion, deeming it irrelevant to other issues of constitutional interpretation.
Lomazoff starts most chapters with a quick recital of the “conventional wisdom” on the national bank debates. And although his analyses are not always as far afield of the conventional wisdom as he would imply, many are indeed original and insightful. This book makes a worthwhile contribution to the long discussion, now over two hundred years old and ongoing, about America's first two national banks.
