In December of 1790 Alexander Hamilton presented a plan
to Congress for the creation and incorporation of the
National Bank of the United States. Its purpose was to
provide the government with a resource for short term
credit. Making funds available for business thereby
helping to strengthen the National Economy. Congress
passed this proposal, and the only thing standing in its
way was a possible Presidential veto from George Washington.
Washington being unsure of the Bill's constitutionality
asked his cabinet members for advice. Thomas Jefferson
and Edmund Jennings Randolph opposed the Bill citing
the apparent lack of power granting Congress the authority
to create Corporations. Hamilton's arguments were based on
the premise of "implied" powers, a power need not be explicitly
granted in order for Congress to exercise it, if the power was
for the attainment or goal of a granted power.
Alexander Hamilton: FOR THE BANK (Feb 23 1791)
THE SECRETARY OF THE TREASURY, having perused with attention the papers
containing the opinion of the secretary of state and attorney general
concerning the constitutionality of the bill for establishing a national
bank, proceeds, according to the order of the President, to submit the
reasons which have induced him to entertain a different opinion...
In entering upon the argument, it ought to be premised that the
objections of the secretary of state and attorney general are founded
on a general denial of the authority of the United States to erect
corporations. The latter, indeed expressly admits that if there be
anything in the bill which is not warranted by the Constitution, it is
the clause of incorporation.
Now it appears to the secretary of the treasury that this general
principle is INHERENT in the very DEFINITION of government and ESSENTIAL
to every step of the progress to be made by that of the United States,
namely: that every power vested in a government is in its nature soverign
and includes, by force of the term, a right to employ all the MEANS
requisite and fairly applicable to the attainment of the ENDS of such
power, and which are not precluded by restrictions and exceptions
specified in the Constitution, or not immoral, or contrary to the essential
ends of political society...
The circumstance that the powers of sovereignty are in this country divided
between the national and state governments does not afford the distinction
required. It does not follow from this that each of the portion of powers
delegated to the one or to the other is not soverign with regard to its
proper objects. It will only follow from it that each has sovereign power
as to certain things and not as to other things. To deny that the government
of the United States has sovereign power as to its declared purposes and
trusts, because its power does not extend to all cases, would be equally
to deny that the state governments have sovereign power in any case,
because their power does not extend to every case. The 10th section of the
1st Article of the Constitution exhibits a long list of very important
things which they may not do. And thus the United States would furnish
the singular spectacle of a political society without soveriegnty, or of a
people governed without government.
If it would be necessary to bring proof to a proposition so clear as that
which affirms that the powers of the the federal government, as to its
objects, were sovereign, there is a clause of its Constitution which would
be decisive. It is that which declares that the Constitution, and the laws
of the United States made in pursuance of it, and all treaties made, or
which shall be made, under their authority, shall be the supreme law of
the land. The power which can create the supreme law of the land in any case
is doubtless sovereign as to such case.
This general and indisputable principle puts at once an end to the
abstract question whether the United States have power to erect a corporation;
that is to say, to give a legal or artificial capacity to one or more persons,
distinct from the natural. For it is unquestionably incident to sovereign
power to erect corporations, and consequently to that of the United States,
in relation to the objects entrusted to the management of the government. The
difference is this: where the authority of the government is general, it can
create corporations in all cases; where it is confined to certain branches of
legislation, it can create corporations only in those cases.
Here then, as far as concerns the reasonings of the secretary of state and
the attorney general, the affirmative of the constitutionality of the bill
might be permitted to rest. It will occur to the President that the principle
here advanced has been untouched by either of them.
For a more complete
elucidation of the point, nevertheless, the arguments which they had used
against the power of the government to erect corporations, however foreign
they are to the great and fundamental rule which has been stated, shall be
The first of these arguments is that the foundation of the Constitution
is laid on this ground: "that all powers not delegated to the United States
by the Constitution, nor prohibited to it by the states, are reserved for
the states, or to the people," Whence it is meant to be inferred that Congress
can in no case exercise any power not included in those not enumerated in the
Constitution. And it is affirmed that the power of erecting a corporation is
not included in any of the enumerated powers....
It is not denied that there are implied as well as express powers and that
the former are as effectually delegated as the latter....Then it follows that
as a power of erecting a corporation may as well be implied as any other thing
, it may as well be employed as an instrument or mean of carrying into
execution any of the specified powers as any other instrument or mean whatever.
The only question must be, in this, as in every other case, whether the mean
to be employed or, in this instance, the corporation to be erected, has a natural
relation to any of the acknowledged objects or lawful ends of the government.
Thus a corporation may not be erected by Congress for superintending the police
of the city of Philadelphia, because they are not authorized to regulate the
police of that city. But one may be erected in relation to the collection of
taxes, or to trade with foreign countries, or to trade between the states, or
with Indian tribes; because it is the province of the federal government to
regulate those objects, and because it is incident to a general sovereign or
legislative power to regulate a thing, to employ all the means which relate
to its regulation to the best and greatest advantage.
Through this mode of reasoning respecting the right of employing all the
means requisite to the execution of the specified powers of the government,
it is objected that none but necessary and proper means are to be employed;
and the secretary of the state maintains that no means are to be considered
as NECESSARY but those without which the grant of the power would be be
nugatory. Nay, so far does he go in his restrictive interpretation of the
WORD as even to make the case of the NECESSITY which shall warrant the
constitutional exercise of the power to depend on casual and temporary
circumstances - an idea which alone refutes the construction. The expediency
of exercising a particular power at a particular time, must, indeed, depend
on circumstances; but the constitutional right of exercising it must be
uniform and invariable, the same today as tomorrow.
All the arguments, therefore, against the constitutionality of the bill
derived from the accidental existence of certain state banks -- institutions
which happen to exist today and, for aught that concerns the government of
the United States, may disappear tommorow -- must not only be rejected as
fallicous but must be viewed as demonstrative that there is a radical source
of error in the reasoning.
It is essential to the being of the national government that so erroneous
a conception of the meaning of the word "necessary" should be exploded.
Its is certain that neither a grammatical nor popular sense of the term
requires that construction. According to both, "necessary" often means no
more than needfull, requisite, incidental, usefull, or conductive to. It is
a common mode of expression to say that it is NECESARY for a government or
a person to do this or that thing, when nothing more is intended or understood
than than that the interests of the government or person require, or will be
promoted by, the doing this or that thing. The imagination can be at no loss
for the exemplifications of the true one in which it is to be understood as
used in the Constitution.
The whole turn of the clause containing it indicates that it was the intent
of the Convention by that clause, to give a liberal latitude to the exercise
of the specified powers. The experessions have peculiar comprehensiveness.
The are, "to make all laws necessary and proper for carrying into the
foregoing powers, and all other powers vested by the Constitution in the
government of the United States, or in any department or officer thereof."
To understand the word as the secretary of state does would be to depart
from its obvious and popular sense and to give it a restrictive operation, an
idea never before entertained. It would be to give it the same force as if the
word "absolutely" or "indispensably" had been prefixed to it....To insist upon
it would be to make the criterion on of the exercise of any implied power a
CASE OF EXTREME NECESSITY: which is rathe a rule to justify the overleaping
of the bounds of constitutional authority than to govern the ordinary exercise
It may he truly said of every government, as well as that of the United
States, that it has only a right to pass such laws as are necessary and
proper to accomplish the objects entrusted to it; for no government has
a right to do MERELY WHAT IT PLEASES. Hence, by a process of reasoning
similar to that of the secretary of state, it might be proved that neither
of the state governments has a right to incorporate a bank. It might be
shown that all the public business of the state could be performed without
a bank, and inferring thence it was unnecessary, it might be argued that it
could not be done, because it is against the rule which has been just
mentioned. A like mode of reasoning would prove that there was no power to
incorporate the inhabitants of a town, with a view to a more perfect police.
For it is certain that an incorporation may be dis-pensed with, though it is
better to have one. It is to he remembered that there is no EXPRESS power in
any state constitution to erect corporations....
This restrictive interpretation of the word "necessary" is also contrary
to this sound maxim of construction; namely, that the powers contained in a
constitution of government, especially those which concern the general
administration of the affairs of a country, its finances, trade, defense,
etc., ought to be construed liberally in advancement of the public good.
This rule does not depend on the particular form of a government, or on the
particular demarcation of the boundaries of its powers, but on the nature
and objects of government itself. The means by which national exigencies are
to be provided for, national inconveniences obviated, national prosperity
promoted, are of such infinite variety, extent, and complexity that there
must of necessity be great latitude of discretion in the selection and
application of those means. Hence, consequently, the necessity and propriety
of exercising the authorities entrusted to a government on principles of
liberal construction. . . .
The truth is that difficulties on this point are inherent in the nature of
the federal Constitution; they result inevitably from a division of the
legislative power. The consequence of this division is that there will be
cases clearly within the power of the national government; others, clearly
without its powers; and a third class which will leave room for controversy
and difference of opinion, and concerning which a reasonable latitude of
judgment must be allowed.
But the doctrine which is contended for is not chargeable with the
consequences imputed to it. It does not affirm that the national government
is sovereign in all respects but that it is sovereign to a certain extent;
that is, to the extent of the objects of its specified powers.
It leaves, therefore, a criterion of what is constitutional and of what is
not so. This criterion is the END to which the measure relates as a MEAN.
If the end be clearly comprehended within any of the specified powers, and
if the measure have an obvious relation to that end, and is not forbidden by
a particular provision of the Constitution, it may safely be deemed to come
within the compass of the national authority.
There is also this further criterion, which may materially assist the
decision: Does the proposed measure abridge a preexisting right of any state
or of any individual? If it does not, there is a strong presumption in favor
of its constitutionality, and slighter relations to any declared object of
the Constitution may be permitted to turn the scale. . . .
There are two points in the suggestions of the secretary of state . . .
that are peculiarly incorrect. One is that the proposed incorporation is
against the laws of monopoly, because it stipulates an exclusive right of
banking under the national authority; the other, that it gives power to the
institution to make laws paramount to those of the states.
But, with regard to the first point: The bill neither prohibits any state
from erecting as many banks as they please, nor any number of individuals
from associating to carry on the business, and consequently, is free from
the charge of establishing a monopoly; for monopoly implies a legal
impediment to the carrying on of the trade by others than those to whom it
And with regard to the second point, there is still less foundation. The
bylaws of such an institution as a bank can operate only on its own members
can only concern the disposition of its own property, and must essentially
resemble the rules of a private mercantile partnership. They are expressly
not to be contrary to law; and law must here mean the law of a state as well
as of the United States. There never can be a doubt that a law of a
corporation, if contrary to a law of a state, must be overruled as void,
unless the law of the state is contrary to that of the United States, and
then the question will not be between the law of the state and that of the
corporation, but between the law of the state and that United States. . . .
It is presumed to have been satisfactorily shown in the course of the
1. That the power of the government, as to the objects entrusted to its
ment, is, in its nature, sovereign.
2. That the right of erecting corporations is one inherent in, and
inseparable from, the idea of sovereign power.
3. That the position that the government of the United States can exercise
no power but such as is delegated to it by its Constitution does not
militate against this principIe.
4. That the word "necessary", in general clause, can have no restrictive
operation derogating from the force of this principle; indeed, that the
degree in which a measure is or is not necessary cannot be a test of
constitutional right but of expediency only.
5. That the power to erect corporations is not to be considered as an
independent or substantive power but as an incidental and auxiliary one
and was therefore more properly left to implication than expressly
6. That the principle in question does not extend the power of the
government beyond the prescribed limits, because only affirms a power to
incorporate for purposes within the sphere of the specified powers.
And, lastly, that the right to exercise such a power in certain cases is
unequivocally granted in the most positive and comphensive terms...
It shall now be endeavored to be shown that there is a power to erect one
of the kind proposed by the bill. This will be done by tracing a natural
and obvious relation between the institution of a bank and objects of
several of the enumerated powers of the government; and by showing that,
politically speaking, it is necessary to the effectual execution of one
or more pf those powers....
The proposed bank is to consist of an association of persons, for the
purpose of creating a joint capital, to be emploted chiefly and essentially
in loans. So far the object is not only lawful but it is the mere exercise
of a right which the law allows to every individual. The Bank of New York,
which is not incorporated, is an example of such an association. The bill
proposes, in addition, that the government shall become a joint proprietor
in this undertaking, and that it shall permit the bills of the company,
payable on demand, to be recievable in its revenues; and stipulates that
it shall not grant priveleges, similar to those which are to be allowed to
the company, to any others. All this is incontrovertably within the compass
of the discretion of the government. The only question is, whether it has a
right to incorporate this company in order to enable it the more effectually
to accomplish ends which are in themselves lawful.
To establish such a right, it remains to show the relation of such an
institution to show the relation of such an institution to one or more of
the specified powers of the government. Accordingly, it is affirmed that it
has a relation, more or less direct, to the power of collecting taxes, to
that of borrowing money, to that of regulating trade between the states,
and to those of raising and maintaining fleets and armies. To the two former
the relation may be said to be immediate; and in the last place it will be
argued that it is clearly within the provision which authorizes the making
of all needful rules and regulations concerning the property of the United
States, as the same has been proctised upon by the government.
A bank relates to the collection of taxes in two ways -- indirectly, by
increasing the quantity of circulating medium and quickening circulation,
which facilitates the means of paying directly, by creating a convient
species of medium in which they are to be paid. To designate or appoint the
MONEY or THING in which taxes are to be paid is not only a proper but a
NECESSARY EXERCISE of the power of collecting them.... The appointment, then
,of the MONEY or THING in which the taxes are to be paid is an incident to
the power of collection. And among the expedients which may be adopted is
that of bills issied under the authority of the United States....
A bank has a direct relation to the power of borrowing money, because it
is a usual and in sudden emergencies an essential, instrument in the
obtaining of loans to government.... The essentiality of such an institution
as an instument of loans is exemplified at this very moment. An Indian
expedition is to be prosecuted. The only fund out of which the money can
arise, consistently with the public engagements, is a tax, which only begins
to be collected in July next. The preparations, however, are instantly to
be made. The money must therefore, be borrowed -- and of whom could it be
borrowed if there were no public banks? It happens that there are institutions
of this kind, but if there were none, it would be indispensable to create
Let it then be supposed that the necessity existed (as but a casualty would
be the case); that proposals were made for obtaining a loan; that a number
of individuals came forward and said, "We are willing to accomodate the
government with the money; with what we have in hand, and the credit we can
raise upon it, we doubt not of being able to furnish the sum required, but
in order to do this it is indispensable that we should be incorporated as
a bank. This is essential toward putting it in our power to do what is
desired and we are obliged on that account to make it the consideration
or condition of the loan"
Can it be believed that a compliance with this proposition would be
unconstitutional? Does not this alone evince the contrary?....
The institution of a bank has also a natural relation to the regulation
of trade between the states, insofar as it is conducive to the creation of
a convenient medium of exchange between them, and to the keeping up a full
circulation, by preventing the frequent displacement of the metals in
reciprocal remittances. Money is the very hinge on which commerce turns.
And this does not merely mean gold and silver; many other things have served
the purpose, with different degrees of utility. Paper has been extensively
employed. It cannot, therefore, be admitted with the attorney general that
the regulation of trade between the states, as concerns the medium of
circulation and exchange, ought to be considered as confine to coin....
The secretary of state objects to the relation here insisted upon, by
the following mode of reasoning: To erect a bank, say he, and to regulate
commerce are very different acts. He who creates a bank, creates a subject
of commerce; so does he who makes a bushel of wheat, or digs a dollar out of
the mines; yet neither of these persons regulate commerce thereby. To make
thing which may be bought and sold is not to prescribe regulations for buying
The secretary of state further argues that if this was a regulation of
commerce, it would be void, as extending as much to the internal commerce of
every state as to its external. But what regulation of commerc does not
extend to the internal commerc of every state? What are all the duties upon
imported articles, amounting to prohibitions, but so many bounties upon
domesti manufactures, affecting the interests of different classes of
citizens in different ways? What are all the provisions in the Coasting Act
which relate to the trade between district and district of the same state?
In short what regulation of trade between the states but must affect the
internal trade of each state? What can operate upon the whole but must extend
to every part?
The relation of a bank to the execution of the powers that concern the
common defense has been anticipated. It has been noted that, at this very
moment, the aid of such an institution is essential to the measures to be
pursued for the protection of our frontiers.
It now remains to show that the incorporation of a bank is within the
operation of the provision which authorizes Congress to make all needful
rules and regulations concerning the property of the United States. But it
is previously necessary to advert to a distinction which has been taken by
the attorney general.
He admits that the word "property" may signify personal property, however
acquired, and yet asserts that it cannot signify money arising from the
sources of revenue pointed out in the Constitution, "because," says he, "the
disposal and regulation of money is the final cause for raising it by taxes."
But it would be more accurate to say that the object to which money is
intended to be applied is the final cause for raising it than that the
disposal and regulation of it a such.
The support of government the support of troops. for the common defense
the payment of the public debt, are the true final causes for raising money.
The disposition and regulation of it, when raised, are the steps by which
it is applied to the ends for which it was raised, not the'ends themselves.
Hence, therefore, the money to be raised by taxes, as well as any other
persoal property, must be supposed to come within the meaning, as they
certainly do within the letter, of authority to make all needful rules and
regulations concerning property of the United States....
A hope is entertained that it has, by this time, been made to appear, to
the satisfaction of the President, that a bank has a natural relation to the
power of collecting taxes -- to that of regulating trade -- to that of
providing for the common defense -- and that, as the bill under consideration
contemplates the government in the light of a joint proprietor of the stock
of the bank, it brings the case within the provision of the clause of the
Constitution which immediately respects the property of the United States.
Under a conviction that such a relation subsists, the secretary of the
treasury, with all defence, concieves that it will result as a necessary
consequence from the position that all the specified powers of government
are sovereign, as to the proper objects; that the incorporation of a bank
is a constitutional measure; and that the objections taken to the bill, in
this respect, are ill-founded....
It has been stated as an auxiliary test of constitutional authority to
try whether it abridges any preexisting right of any state, or any individual.
The proposed investigation will stand the most severe examination on this point.
Each state may still erect as many banks as it pleases. Every individual may
still carry on the banking business to any extent he pleases.
Sources: Works of Alexander Hamilton, IV, pp 104-138,
Annals of America Vol 3 Sel 91.
President George Washington
Secretary of State Thomas Jefferson
Attorney General Edmund Jennings Randolph
Secretary of Treasury Alexander Hamilton