Alexander Hamilton (69 page)

Hamilton’s own allusion to staying up “the greatest part” of that night also attests to some electrifying finish, some final, brilliant burst of inspiration that completed his stupendous feat. As with many of his intellectual exploits, they were almost feats of athletic prowess as well.

Hamilton lent his opinion the erudition of a treatise and the warmth of a manifesto. The essence of it was that government must possess the means to attain ends for which it was established or the bonds of society would dissolve. To liberate the government from a restrictive reading of the Constitution, Hamilton refined the doctrine of “implied powers”—that is, that the government had the right to employ all means necessary to carry out powers mentioned in the Constitution.

In drafting his opinion, Hamilton claimed that minutes of the Constitutional Convention could provide “ample confirmation” of his liberal interpretation of the necessary-and-proper clause. Reluctant to break the convention’s confidentiality oath—or perhaps afraid that Madison might play the same game—he then expunged the passage and let the Constitution speak for itself. He told Washington that, if adopted, “principles of construction like those espoused by the Secretary of State and the Attorney General would be fatal to the just and indispensable authority of the United States.”
³⁵
Then, in blazing italics, Hamilton trumpeted his main theme: “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
sovereign
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.” If Jefferson’s and Randolph’s views were upheld, “the United States would furnish the singular spectacle of a
political society
without
sovereignty
or of a people
governed
without
government.
”
³⁶

Hamilton waved away complaints that the Constitution did not explicitly mention a bank: “It is not denied that there are
implied
as well as
express
powers and that the former are as effectually delegated as the latter.”
³⁷
To argue, as did Jefferson, that all government policies had to pass a strict test of being “absolutely necessary” to the performance of specified duties would paralyze government. How could one say with certainty what was absolutely necessary? Hamilton pointed out that, in setting up the Customs Service, he had overseen construction of lighthouses, beacons, and buoys, things not strictly necessary, but useful for society all the same. He was crafting a rationale for the future exercise of numerous forms of federal power.

The Bank of the United States would enable the government to make good on four powers cited explicitly in the Constitution: the rights to collect taxes, borrow money, regulate trade among states, and support fleets and armies. Jefferson wanted to deprive the federal government of the power to create
any
corporations, which Hamilton thought could cripple American business in the future. At the time, few corporations existed, and those mostly to build turnpikes. The farseeing Hamilton perceived the immense utility of this business form and patiently explained to Washington how corporations, with limited liability, were superior to private partnerships. In the end, his bank argument was predicated not only on his interpretation of the Constitution but on his reading of history: “In all questions of this nature, the practice of mankind ought to have great weight against the theories of individuals.”
³⁸

After writing this magisterial defense, Hamilton packed it off to Washington before noon on Wednesday, February 23. The next day, Washington studied the opinion and, despite lingering doubts, was sufficiently impressed that he did not bother to send it to Jefferson. The day after that, he signed the bank bill.

Hamilton’s plea for the bank had a continuing life in American history, partly from the influence it exerted upon Chief Justice John Marshall. When Daniel Webster made oral arguments for the Second Bank of the United States in the landmark case of
McCulloch v. Maryland
in 1819, he quoted Hamilton’s 1791 memo to Washington on the necessary-and-proper clause. In words that distinctly echoed Hamilton’s, Marshall said that
necessary
didn’t mean
indispensable
so much as
appropriate.
Repeatedly in American history, Hamilton’s flexible definition of the word
necessary
was to free government to handle unforeseen emergencies. Henry Cabot Lodge later referred to the doctrine of implied powers enunciated by Hamilton as “the most formidable weapon in the armory of the Constitution . . . capable of conferring on the federal government powers of almost any extent.”
³⁹
Hamilton was not the master builder of the Constitution: the laurels surely go to James Madison. He was, however, its foremost interpreter, starting with
The Federalist
and continuing with his Treasury tenure, when he had to expound constitutional doctrines to accomplish his goals. He lived, in theory and practice, every syllable of the Constitution. For that reason, historian Clinton Rossiter insisted that Hamilton’s “works and words have been more consequential than those of any other American in shaping the Constitution under which we live.”
⁴⁰

Among many arcane subjects that Hamilton had to master was the minting of coins. So laggard was America in this regard that after Washington took office, his daily expenses were still quoted in British pounds, shillings, and pence, even though the Confederation Congress had adopted the dollar as the currency unit. Businessmen in different states continued to assign differing values to the foreign coins that still circulated freely. So many gold and silver coins were adulterated with base metals that many merchants hesitated to do business for fear of being shortchanged. Counterfeiting was also widespread, and when Hamilton became treasury secretary it was still a crime punishable by death in New York State.

Somehow, even as he brought forth his bank report, Hamilton plowed through books about coinage in foreign nations, especially
Principles of Political Economy
by Sir James Steuart. He pored over tables that Isaac Newton, as master of the mint, had prepared for the British Treasury Board, specifying the pound’s exact value in precious metals, and he ordered special assays of foreign coins to gauge the gold, silver, and copper content in their alloys.

On January 28, 1791, a week after the Senate approved his bank bill, Hamilton handed beleaguered legislators yet another hefty document. His
Report on the Mint
was studded with clever suggestions. “There is scarcely any point in the economy of national affairs of greater moment than the uniform preservation of the intrinsic value of the money unit,” he intoned. “On this, the security and steady value of property essentially depend.”
⁴¹
He endorsed the dollar as the basic currency, divided into smaller coins on a decimal basis. Because many Americans still bartered, Hamilton wanted to encourage the use of coins. As part of his campaign to foster a market economy, Hamilton suggested introducing a wide variety of coins, including gold and silver dollars, a ten-cent silver piece, and copper coins of a cent or half cent. He wasn’t just thinking of rich people; small coins would benefit the poor “by enabling them to purchase in small portions and at a more reasonable rate the necessaries of which they stand in need.”
⁴²
To spur patriotism, he proposed that coins feature presidential heads or other emblematic designs and display great beauty and workmanship: “It is a just observation that ‘The perfection of the coins is a great safeguard against counterfeits.’ ”
⁴³
With customary attention to detail, Hamilton recommended that coins should be small and thick instead of large and thin, making it more difficult to rub away the metal.

As to whether coins should be minted from gold or silver, Hamilton caused no end of mischief by opting for both, starting the vogue for “bimetallism” that was to become the curse of American financial history. He stumbled into this decision because he feared that if he chose either gold or silver as the sole monetary metal, it would “abridge the quantity of circulating medium” at a time when his primary aim was to expand the money supply and stoke economic activity.
⁴⁴
One major problem that he sought to remedy was that the dollar had no fixed value in various states. With typical exactitude, Hamilton tried to establish the quantity of precious metal in each coin so that the silver dollar, for instance, would contain “370 grains and 933 thousandth parts of a grain of pure silver.”
⁴⁵

At the time Hamilton drafted his
Report on the Mint,
he and Jefferson still talked civilly and exchanged ideas about money. Coinage was one of Jefferson’s hobbyhorses, and he had reported on it to Congress the previous summer. In fact, Hamilton drew on that report in preparing his paper. For once, they seemed in agreement. “I return your report on the mint, which I have read over with a great deal of satisfaction,” Jefferson told Hamilton before the latter sent it to Congress.
⁴⁶
While minister in Paris, Jefferson had visited the royal mint and marveled at a machine concocted by the Swiss inventor Jean Pierre Droz, which could simultaneously stamp images on both sides of a coin.

Hamilton long regretted that when the U.S. Mint was finally established by Congress in spring 1792 and began to produce the first federal coins, Washington lodged it under Jefferson’s jurisdiction at State. The mint was a pet interest of Jefferson, and Washington submitted to his prodding. The president also believed that the treasury secretary was bowed beneath enough work. Unfortunately, Jefferson ran the mint poorly. Hamilton later tried, in vain, to arrange a swap whereby the post office would go to State in exchange for the mint coming under Treasury control, where it belonged. Despite this wobbly start, the mint became a Philadelphia fixture, and when the government moved to Washington, D.C., in 1800 it stayed behind in the interim capital.

That the Bank of the United States had sparked heated controversy and polarized the country must have seemed like forgotten history on July 4, 1791. On that memorable day in Philadelphia, the subscription to the stock of Hamilton’s central bank was thrown open to an expectant public, and the public promptly went berserk. Speculaton was rife that the stock would pay rich dividends of 12 percent or more, and people had been flocking to the capital for a week in anticipation of this first offering. So lusty was the pent-up demand that mobs, dazzled by visions of riches, stormed the building, overwhelming the clerks. The heavily oversubscribed issue sold out within an hour, leaving many disgruntled investors empty-handed. Jefferson told James Monroe, “The bank filled and overflowed in the moment it was opened.”
⁴⁷

Hamilton had expected an ebullient market in these publicly traded shares but nothing nearly this clamorous. By late June, reports flooded his office of large quantities of money flowing into the forthcoming subscription. “In all appearances, the subscriptions to the Bank of the United States will proceed with astonishing rapidity,” Hamilton assured one congressman. “ ’Twill not be surprising if a week completes them.”
⁴⁸
Even Hamilton never dreamed that the response would be so giddy that it would take less than an hour to complete the offering.

When trading in shares commenced, prices promptly took off, buoyed by a money fever such as Americans had never witnessed. Investors did not purchase shares outright. To create a robust market and broaden share ownership, Hamilton agreed to sell the bank shares initially in the form of scrip. The system worked thus: investors made a twenty-five-dollar down payment and received a scrip that entitled them to buy a set number of shares at par and then pay off the balance over an eighteen-month period. So frenzied was the trading in scrip that many investors doubled their money within days, and the resulting madness was dubbed “scrippomania.”

The contagion spread rapidly to other cities. Special couriers galloped off to New York to report prices rocketing upward in Philadelphia and Boston, and newspapers recorded each fresh spurt in shares. Madison happened to be in New York and watched with consternation as the trading mania descended on Manhattan. For this Virginia planter, the bedlam of speculation wasn’t a pretty sight. On July 10, he informed Jefferson that “the Bank shares have risen as much in the market here as at Philadelphia” and castigated the booming market as “a mere scramble for so much public plunder.”
⁴⁹
Like Madison, Jefferson didn’t view this “delirium of speculation” as a tribute to Hamilton’s mystique so much as squandered money. He told Washington, “It remains to be seen whether in a country whose capital is too small to carry its own commerce, to establish manufactures, erect buildings, etc., such sums should have been withdrawn from these useful pursuits to be employed in gambling.”
⁵⁰

Hamilton had brought the modern financial world to America, with all its unsettling effects. He had wanted to spread bank ownership widely, but he made a critical blunder that only ratified southern suspicions that he was the ringleader of a northern plot. Philadelphia had hosted the initial offering, and many investors had traveled there, lugging gold and silver, to make purchases. Hamilton had also arranged for Bostonians to buy scrip through the Bank of Massachusetts and New Yorkers through the Bank of New York. Hence, a disproportionate number of scrip holders resided in Philadelphia, Boston, and New York, which looked like arrant favoritism rather than a consequence of the fact that Boston and New York had banks to act as intermediaries. Hamilton regretted this ownership pattern, and his correspondence confirms that he
had
written to southerners, trying to entice them to buy bank shares.