Author:Schwartz, David S.

RECONSTRUCTING THE NATIONAL BANK CONTROVERSY: POLITICS AND LAW IN THE EARLY AMERICAN REPUBLIC. By Eric Lomazoff. Chicago and London: University of Chicago Press. 2018. Pp. x, 171. Cloth, $90; paper, $30.


The constitutional debates surrounding the First and Second Banks of the United States generated the first major precedents regarding the scope of federal legislative powers. Their importance continues to resonate today, informing both practical questions like Congress's power to impose an individual health insurance mandate or structure a "Green New Deal," and theoretical questions such as the viability of the ideology of limited enumerated powers or the validity of originalism as an interpretive approach to constitutional questions. (1)

The 1791 debate over the First Bank--Alexander Hamilton's brainchild and a key element of his plan for national economic development--was the first episode to test the meaning and limits of implied federal powers under the Constitution's Necessary and Proper Clause. Three decades later, in 1819, the constitutional challenge to the Second Bank gave rise to Chief Justice Marshall's famous decision in McCulloch v. Maryland, (2) the Supreme Court's most significant early pronouncement on the scope of federal powers. The Bank controversy persisted as one of the most salient constitutional issues in American politics until it was eclipsed by the growing slavery controversy in the late 1840s.

Surprising as it may seem, no scholar prior to 2018 gave this fifty-five-year constitutional debate a full monograph-length treatment. Detailed studies of the National Bank debates were subsumed into biographies, (3) longue duree economic histories, (4) general political histories, (5) or Andrew Jackson studies. (6) Two book-length studies of the McCulloch litigation limited their discussion of post-1819 developments to epilogue-type treatment. (7)

Eric Lomazoff's (8) important new book, Reconstructing the National Bank Controversy: Politics and Law in the Early American Republic, is the first scholarly study that views the Bank controversy as a continuous fifty-five-year sequence of events. The Controversy encompassed at least six salient episodes in U.S. constitutional history, most of which Lomazoff covers in some detail. The great debate over Hamilton's original bank proposal was the first major episode (Chapter One), followed by the failed effort to renew the First Bank's charter in 1811 (Chapter Four). Then came Madison's call for a new national bank in late 1814, culminating in the charter of the Second Bank (Chapter Five). The McCulloch decision in 1819 qualifies as the fourth episode due to the importance of Marshall's opinion in the constitutional canon (Chapter Six). The fifth was the 1832 debate to renew the Second Bank's charter, ending with Andrew Jackson's famous veto of the Bank bill (pp. 146-55). Although far less famous, the sixth episode comprised President John Tyler's vetoes of two bills to charter a Third Bank in 1841 (pp. 159-60). After that, the prospect of rechartering a national bank was effectively dead, but related disputes about an implied federal power over the nation's currency continued for another ninety years, through the Legal Tender controversies between 1871 and 18849 to the Gold Clause Cases of 1935. (10)

Reconstructing the National Bank Controversy weaves together two strands of scholarship that have long been entirely separate. Past legal studies of the First and Second Banks have focused on the constitutional questions of implied powers and the Necessary and Proper Clause, without extensive reference to the Bank's role in regulating national currency in the early U.S. economy. That latter issue has been the province of economic historians, whose interest in constitutional history and development has been glancing at best. By showing how the issues of banking and monetary policy shaped constitutional arguments, Lomazoff puts the constitutional and economic studies in conversation.

Lomazoff therefore fills a significant gap in the scholarship of American legal history and constitutional development. He meticulously documents how the First Bank gradually evolved from federal financier to national currency regulator, demonstrating that this shift in function became a crucial element in subsequent constitutional debates. While supporters of the First Bank based its constitutionality on Congress's broad implied powers to conduct its fiscal operations and to promote foreign and domestic commerce, Lomazoff shows that a broad Madisonian consensus, formed in 1816, held that chartering the Second Bank was constitutional because of a general federal power to regulate the nation's currency. Although Lomazoff at times overemphasizes the role of the Coinage Clause in this transformation, his book nevertheless powerfully demonstrates the ways in which political and economic circumstances shape constitutional arguments as much as, if not more than, the other way around. Reconstructing the National Bank Controversy strongly supports arguments that constitutional meaning is an evolutionary process, inconsistent with the premises of originalism, and that the doctrine of limited enumerated powers almost always gives way, in the end, to demands for national policy solutions.


    1. Hamilton's Bank

      Lomazoff begins with the 1791 Bank Debate in Congress. Supporters of the Bank relied on the now-established interpretation of the Necessary and Proper Clause as broadly permissive of implied powers (p. 19). Their opponents, Lomazoff argues, offered three versions of a narrow construction of the Necessary and Proper Clause. The first was the familiar Jeffersonian "strict" or "absolute" necessity test identified and rejected by Marshall in McCulloch (pp. 19-20). Second, some Bank opponents argued that a law could not be a necessary and proper means to implement a federal power if there were "one or more viable alternatives" to congressional action more congenial to states' rights (p. 20). This argument would eventually seize on the increasing existence of state-chartered banks as a state-friendly alternative to a national bank (Chapter Two). A third argument held that "necessary and proper" laws had to conform to usual or customary governmental practice, whereas a national bank was not, according to the Bank's opponents, the customary means of government tax collection or borrowing (p. 20). Lomazoff concludes that these opposition arguments were put forward in a fashion that "could be readily characterized as haphazard" (p. 27). His account thus aligns with Richard Primus's startling recent discovery that Bank opponents jumped willy-nilly onto a bandwagon of constitutional objections only after James Madison concocted his own constitutional objections, hoping to block the Bank bill at the eleventh hour. (11)

      Lomazoff at times suggests, somewhat self-contradictorily, that the three arguments were combined into systematic two- or three-part "tests" in which each element had to be met (pp. 20, 25-26). But a better reading of the debates, in my view, is that the various arguments were offered as alternatives or fallbacks. And Lomazoff's account would have been more complete had he included Madison's argument against the Bank, that a "great and important power" must be express and cannot be implied. (12) This "great powers" argument was a poor one as a matter of doctrine and logic, as it leaves the criterion for "greatness" utterly indeterminate and fails to make sense of constitutional precedents for implied powers as great as chartering a bank. (13) Significantly, it was not adopted by Madison's congressional allies. But it is an important argument if for no other reason than its association with Madison, and it has cropped up from time to time in implied powers controversies. (14)

    2. "Banco Mania" and the End of the First Bank

      After discussing the 1791 Bank Debate, Lomazoff's next three chapters trace major changes in the banking industry that created the primary context for the defeat of the First Bank recharter bill in 1811. Banking, as part of a nationwide financial system, was not well understood in 1791. When the First Bank was chartered, there were only three other banks in the entire United States, so experience with banks was limited (pp. 24, 36). Policymakers were unsure whether any major city or region could sustain more than one bank; competition was assumed to be a zero-sum game that would necessarily result in one bank driving its competitors out of existence by acquiring a critical mass of the other banks' notes and draining them of their specie reserves (p. 37). And banks were assumed to be Federalist institutions, favoring established coastal merchants over emerging entrepreneurs. (15)

      During the First Bank's twenty-year charter, all that changed. States got into the game of "Banco mania," so that by 1811 there were some 100 state-chartered banks; Jeffersonians realized that state banks could serve the interests of Republican business entrepreneurs; and experience now showed that competing banks could coexist in the same city or region (pp. 41-44, 47). Moreover, a nationwide banking system came into focus as it came to be understood that the First Bank could play a national-currency-regulating role. Because it accepted state banknotes and deposit credits in payment of federal taxes, the First Bank became the creditor of the state banks. Then, by demanding redemption of state banknotes in specie, the First Bank could drain (or could threaten to drain) the state banks' gold and silver reserves. This threat restrained the state banks' ability to issue commercial credit in the form of paper banknotes, whose total amounts had to bear some fixed relationship to the banks' specie reserves, thus allowing the National Bank to control state bank lending and the national money supply. (16)

      As a result of these changed...

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