It is February 3rd. Welcome to Episode 34 of History in a Year. Today, the ink is barely dry on the “Dinner Table Bargain” before a new war erupts in George Washington’s cabinet. Alexander Hamilton proposes a National Bank to jumpstart the American economy. Thomas Jefferson screams that it is unconstitutional and a tool of corruption. We witness the birth of the “Necessary and Proper” clause, the argument that split the Founding Fathers forever, and the moment George Washington decided to let the federal government become a giant.
STEPHEN: Welcome to History in a Year: America’s First 250 Years.
LEAH: Join us every single day as we journey from the Revolution of 1776 to the 250th anniversary of the United States.
STEPHEN: You can find every episode, full transcripts, and join the discussion at PointedWords.com. I’m Stephen.
LEAH: And I’m Leah.
STEPHEN: It is February 3rd. Welcome to Episode 34. Yesterday, we watched Alexander Hamilton and Thomas Jefferson strike a deal over dinner. The South got the capital city (Washington D.C.), and the North got the financial system (Assumption of Debt).
LEAH: It seemed like peace had finally broken out in the capital. The debt crisis was solved. The government was funded. Everyone took a breath.
STEPHEN: But Hamilton wasn’t done. In fact, he was just getting started. He had fixed the past (the debt), but now he wanted to build the future.
LEAH: In December 1790, just a few months after the dinner, Hamilton dropped his next bombshell on Congress. He sent them a document titled “The Second Report on Public Credit.” But history knows it by a different name: The Report on a National Bank.
STEPHEN: Now, before your eyes glaze over—because “banking” sounds boring to modern ears—you have to understand what money was like in 1790.
LEAH: It was a mess. There was no “American Dollar” that you could spend anywhere. If you walked into a tavern in Philadelphia, you might pay with a Spanish Piece of Eight. In Virginia, you might pay with a tobacco note. In Massachusetts, you might use a state-issued paper bill that was worth 10 cents on the dollar.
STEPHEN: It was chaos. How do you build a national economy when you can’t even agree on what money is?
LEAH: There were only three banks in the entire United States in 1790. The Bank of North America in Philadelphia, the Bank of New York, and the Bank of Massachusetts. That’s it. For four million people.
STEPHEN: Hamilton looked at this chaos and saw weakness. He looked across the ocean at Great Britain and saw the Bank of England.
LEAH: The Bank of England was the engine of the British Empire. It managed the government’s debt, it issued a stable paper currency, and it lent money to merchants to build ships and factories.
STEPHEN: Hamilton wanted that for America. He proposed a Bank of the United States.
LEAH: This wasn’t just a branch on a corner. This was a monster. It would be capitalized at $10 million. That was massive money in 1790. To put it in perspective, the entire federal government’s budget was less than $3 million.
STEPHEN: The Bank would be a private corporation, but the government would own 20% of the stock. It would hold the government’s tax revenue. It would issue paper money backed by gold. And it would lend money to jumpstart industry.
LEAH: Hamilton argued it was essential. He said, “A national debt, if it is not excessive, will be to us a national blessing.” He believed that credit was the fuel of progress.
STEPHEN: But when Thomas Jefferson read the proposal, he nearly had a stroke.
LEAH: Jefferson hated banks. He hated paper money. He hated the whole idea of “finance.”
STEPHEN: You have to remember, Jefferson was a Virginia planter. His wealth was in land and enslaved people. To him, wealth was something you could touch. If you grew tobacco, that was real. If you made a shoe, that was real.
LEAH: But banking? To Jefferson, banking was a scam. It was “paper men” moving numbers around in a ledger to get rich without doing any actual work.
STEPHEN: He famously wrote to John Taylor: “I sincerely believe that banking establishments are more dangerous than standing armies.”
LEAH: He thought banks were parasites. He thought they encouraged gambling. He thought they created a corrupt aristocracy of city slickers who would foreclose on honest farmers.
STEPHEN: So, his first objection was moral. But his second objection—and this is the one that matters for history—was Constitutional.
LEAH: This is the big fight. This is the argument we are still having 250 years later.
STEPHEN: Jefferson looked at the Constitution—which had just been written three years earlier—and said, “Show me where it says Congress can create a bank.”
LEAH: He opened his pocket copy of the Constitution. He turned to Article I, Section 8. This is the list of things Congress is allowed to do. It says: Congress can tax. It says: Congress can declare war. It says: Congress can coin money. It says: Congress can build post offices.
STEPHEN: But nowhere—nowhere!—does it say “Congress can incorporate a bank.”
LEAH: So Jefferson argued for Strict Construction. He said the federal government can only do the things explicitly listed in the Constitution. If it’s not on the list, the power belongs to the states. Period.
STEPHEN: James Madison—the “Father of the Constitution”—agreed with him! Madison stood up in the House of Representatives and said, “I wrote this document. I was in the room. We never intended to give the government this power.”
LEAH: They were terrified. They thought if Congress could just invent new powers, there would be no limit. Today it’s a bank. Tomorrow, what? Can they free the slaves? Can they take our land? It was a slippery slope to tyranny.
STEPHEN: So, Madison tried to kill the bill in Congress. But the Northern merchants loved the idea. The bill passed the Senate easily. It passed the House 39 to 20.
LEAH: Now the bill sat on George Washington’s desk.
STEPHEN: This was a huge moment for Washington. He had never vetoed a bill before. He was setting the precedent for every President who would follow him.
LEAH: He was torn. He respected Madison’s opinion immensely. He was a Virginian himself. He was worried that if he signed this, he would be betraying the South.
STEPHEN: So, he did what a good general does. He asked for intelligence. He asked his cabinet members to write him legal opinions.
LEAH: Edmund Randolph (Attorney General) wrote one. He said: It’s unconstitutional. Veto it. Thomas Jefferson (Secretary of State) wrote one. He said: It’s unconstitutional. Veto it.
STEPHEN: Jefferson’s essay is famous. He argued that “necessary” meant “absolutely essential.” He said a bank wasn’t essential; it was just convenient. And the Constitution doesn’t give you the power to do things just because they are convenient.
LEAH: Washington read these and was ready to veto. But then, he turned to Alexander Hamilton. He gave Hamilton one week to respond.
STEPHEN: Hamilton worked himself to exhaustion. He stayed up all night, drinking coffee, pacing the floor. He wrote a 15,000-word masterpiece. It is probably the most important state paper he ever wrote.
LEAH: In this essay, Hamilton formulated the doctrine of Implied Powers.
STEPHEN: He pointed to a tiny clause at the very end of Article I, Section 8. Clause 18. It says Congress can make all laws which shall be “Necessary and Proper” for carrying out its other powers.
LEAH: Hamilton’s logic went like this:
The Constitution says the government has the power to collect taxes, right?
And it has the power to pay debts?
And it has the power to borrow money?
Well, a Bank is a necessary tool to do those things efficiently.
Therefore, the power to create a Bank is implied by the power to tax.
STEPHEN: He argued that “Necessary” didn’t mean “absolutely essential” like Jefferson said. He argued that “Necessary” meant “helpful,” “useful,” or “conducive to.”
LEAH: He said, “If the end (collecting taxes) is legal, then the means (a bank) is legal, as long as it isn’t explicitly forbidden.”
STEPHEN: This is Loose Construction. It views the Constitution not as a straightjacket, but as a framework that can expand to meet the needs of the nation.
LEAH: Washington read Hamilton’s essay. He was convinced. He saw that for the United States to survive in a hostile world, it needed a strong government with the power to act.
STEPHEN: On February 25, 1791, George Washington signed the bill. The Bank of the United States was born.
LEAH: This was a crushing defeat for Jefferson and Madison. They realized that Washington had chosen a side. He wasn’t the neutral judge anymore. He had sided with the Federalists.
STEPHEN: Jefferson was furious. He started telling people that Washington was senile. He said the President was being manipulated by Hamilton like a puppet.
LEAH: But here is the crazy part: Hamilton was right about the economics.
STEPHEN: On July 4, 1791, the Bank opened its books for stock subscriptions in Philadelphia. It was an IPO (Initial Public Offering).
LEAH: It was a mania. We call it “Scriptomania.” People went crazy trying to buy shares. The stock sold out in one hour.
STEPHEN: The price of the shares skyrocketed from $25 to $300 in a few weeks. It was the first stock market bubble in American history. Doctors, lawyers, and shopkeepers were quitting their jobs to day-trade Bank stock.
LEAH: Jefferson looked at this frenzy and said, “See! I told you! It’s just gambling! It’s turning honest citizens into speculators!”
STEPHEN: But the bubble settled down. The Bank opened branches in Boston, New York, Baltimore, and Charleston. It stabilized the currency. It lent money to the government. It fueled the economic boom of the 1790s.
LEAH: Without the Bank of the United States, we probably wouldn’t have been able to fund the War of 1812 or the Louisiana Purchase later on.
STEPHEN: But the political cost was high. The split in the cabinet was now permanent. There was no going back to the “Team of Rivals.” It was war.
LEAH: Jefferson and Madison were now convinced that Hamilton was a threat to the Republic. They started organizing an opposition party—the Democratic-Republicans—specifically to stop him.
STEPHEN: And just as this internal war was heating up, a real war exploded across the ocean.
LEAH: In France, the people stormed the Bastille. The King was in prison. The guillotine was being sharpened.
STEPHEN: The French Revolution had begun. And it was about to tear America apart all over again.
LEAH: Join us tomorrow for Episode 35. The French Explosion. Americans cheer for liberty… until the heads start rolling. We see how the French Revolution became a wedge issue that nearly dragged the United States into a world war.
STEPHEN: I’m Stephen.
LEAH: And I’m Leah.
STEPHEN: You can find every episode at PointedWords.com. And this… is our story.