Quadsville

This is a continuation of my Quad City Times blog, “Historian on the Move.” I have related articles there including:

Takeover of the Mortgage Giants: Any Precedents?

The Financial Crisis: Historical Lessons on Government Mismanagement

Let’s Turn American Innovation Loose

Much of the commentary regarding having the U.S. Treasury take ownership of certain banks has focused on the unprecedented nature of these actions.  Actually, it is NOT unprecedented.

Alexander Hamilton, President George Washington’s Secretary of the Treasury, proposed a joint ownership bank in December of 1790 in his Report on a National Bank.  It was intended to be a marriage of public and private interests.  2/5’s of its $10 million in stock was to be owned by the Federal Treasury whereas 2/5’s were to be owned by private American interests and 1/5 of non-voting stock was slated to be owned by foreigners (hopefully British).

The proposed First Bank of the United States would have the authority to make loans to private borrowers and to the federal government.  It could also issue bank notes which could circulate as the nation’s currency.  This Bank would fill a gap in terms of providing investment capital and having dependable currency.  It could (& eventually did) create branches in different areas of the country.

Hamilton’s proposal ran into immediate opposition.  James Madison questioned whether the Bank was constitutional.  So, President Washington solicited constitutional opinions from his Cabinet.  He received two diametrically opposed views.  Secretary of State Thomas Jefferson, aided by Madison, argued that the Bank wasn’t constitutional since the Constitution gave no explicit power to the federal government to create corporations on any kind.  Further, the federal government could only do what was absolutely necessary for the general welfare.  Since such a Bank didn’t meet this standard, it wasn’t constitutional.

Had this view prevailed, then the Constitution would have had to be amended—a difficult and lengthy process.  The general consensus of historians has been that it has been better long term that Hamilton’s views won out.  The First Bank of the United States did exactly what Hamilton hoped it would.

Hamilton’s view was that the Bank was within the “implied” powers of the Constitution.  The Constitution, he argued, was designed to be flexible so since a Bank was needed to aid in creating investment capital and providing for a national currency, then it was constitutional.  Hamilton’s view proved to be convincing and President Washington approved of the legislation.  The Bank opened its doors in April of 1791.

This Constitutional debate has not ended and one still hears that some want a strict interpretation of the Constitution whereas others point to the Constitution’s “implied” powers.  An example of that debate in more recent times can be found within the heated arguments over Roe v. Wade which is based on the allegedly implied right to privacy.

It is interesting to note that there has been virtually no constitutional debate regarding the federal government taking part ownership of certain troubled banks.  Even more, I have yet to see any comparison made with Hamilton’s Bank of the United States.  Let’s hope that the recent actions of the U.S. Treasury in taking ownership of selected banks will work out as well as Hamilton’s Bank did.

Art Pitz

The Professor’s House

http://www.professorshouse.net/