the power relations within the government, tended to favor some factions over others, and, were it not for Hamilton’s capable management, the speculative frenzy it generated might have had a severely negative effect on the nation’s well-being.
The Constitution, as understood by Madison, intends to “break and control the violence of faction” by carefully balancing the structures of government against its powers. But this design implies that the two must be in sync—adjusting one without toggling the other can lead to corruption. Though supported by many eminent members of the Founding generation, the Bank nevertheless was a challenge to Madison’s view of the Constitution because it disturbed this synchronicity. While his worst fears were never realized, the Bank still serves as an apt metaphor for our story.
We shall begin our story by examining the problem of republican government that Madison and the Framers faced in the 1780s. Put simply, it did not seem to work very well. We shall then look at Madison’s proposed solution to the problems he saw, and how his ideas influenced the constitutional design. Then, we shall turn our attention to Hamilton, who had other views and priorities. The dispute between them remained latent during the ratification phase, but it became active when Hamilton proposed his Bank. In the final analysis, Hamilton certainly had the better arguments about the economic necessity of the Bank, but Madison’s warnings about its threat to the republic turned out to be prescient.
Prior to the Revolution, republican government had typically depended on the balancing of different estates. Government derived its authority not merely from the people at large, but rather a mixture of the common folk, a nobility, the clergy, and in the case of Great Britain a monarchy as well. The point of this arrangement was to balance the interests of the various classes of society, so that ultimately the public good would be promoted. Each must maintain its appropriate station so as to retain the proper equilibrium, as the English had attested when they responded to the excesses of James II with the Glorious Revolution of 1688. No less a republican eminence as Montesquieu endorsed England as the only country whose laws offered political liberty.1
Revolutionary Americans were deeply familiar with republican philosophy, as well as with the discontents in the British system who denied the perfection of Albion’s constitution.2 The Country party ideology of Cato’s Letters and Bolingbroke pointed backward in time, toward an idyllic (and largely fictional) period before the Norman Invasion, when the hearty Anglo-Saxon race did not have to swear fealty to an overbearing monarch. In that view, the once-virtuous English system had been corrupted by the leadership of Sir Robert Walpole, the first British prime minister who was accused of bribing members of Parliament. When Americans looked at the interference of the Crown in their affairs following the Seven Years War, they saw a similar pattern, and resolved to do something about it—something quite radical.
Their solution was to inaugurate a government heretofore unseen by modern eyes: there would be no special status for landed, moneyed, or otherwise elite interests; there would be no king; there would only be the people. This radicalism rings forth in the most famous passage of the Declaration of Independence:
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.—That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed,—That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.3
There is no mixed estate here. Governmental authority begins and ends with the people. Today, we take this as a given—and indeed are wont to criticize the Founders for not following through on this premise by promoting, for instance, universal suffrage, abolition, or women’s rights—but in the summer of 1776 the Declaration of Independence was the boldest statement on behalf of popular government yet written.
Yet the experience of the Revolution, and especially of the decade that followed, seemed to prove the Americans wrong and the advocates of a mixed estate right. America had done away with established privilege, replacing its toehold in government with democratic institutions, and had met with economic and social misery. The people seemed incapable of ruling.
For starters, the national government created to replace the king—organized under the measly Articles of Confederation—was chronically strapped for cash. Lacking the ability to raise taxes, it was dependent upon requisitions from the states, which they regularly did not provide. This ultimately led to the Newburgh Conspiracy in the spring of 1783, in which senior army officers as well as members of Congress plotted to force Congress to fund their pensions. It was only through the influence of George Washington—who resolved to be a true republican general in the mold of Cincinnatus—that the coup went nowhere.4
Unfortunately, that was not the end of governmental incompetence following the war. The impotence of the central government meant that the rights of British loyalists, as granted under the Treaty of Paris, often went ignored by state governments. Meanwhile, the British regularly violated their own commitments, particularly in the West, with little fear of reprisal from the American government. What’s more, foreign governments gleefully played states off one another, utilizing the lack of central management to maximize their trading profits. The states themselves had difficulty even coordinating over shared waterways like the Potomac River.
The most dangerous want of central authority had to do with a fast-spreading dispute between debtors and creditors, which occurred in part because of the economic downturn of the decade, and threatened an outbreak of widespread civil unrest. In the state of Rhode Island, a coalition of debtors won control of the government and enacted very liberal laws on the repayment of debts, basically forcing creditors—even those from other states—to take massive haircuts. Meanwhile, in neighboring Massachusetts, eastern creditors held the balance of power and refused to offer debt relief to the farmers of the west. Their inattention to the yeomanry’s grievances eventually led to the civil unrest known as Shays’ Rebellion.5
Madison, then in his mid-thirties and serving in the Virginia House of Delegates after a stint in the Continental Congress, had, like many of his contemporaries, surmised that the core problem was the Articles of Confederation itself. According to Madison, it was a “treaty of amity and commerce and alliance, between independent and sovereign states.”6 But Madison took his analysis much farther than any other politician of the era. He had, thanks to books supplied from France by his good friend Jefferson, taken a careful study of previous confederations between independent states, and found similar defects to what plagued the American nation in that decade.7 That spring, he wrote a systematic treatise entitled the Vices of the Political System of the United States, detailing his complaints.
The problems, Madison argues, were many. Without a strong central authority, the state governments had failed to follow through on requisitions, regularly encroached the national government’s authority, violated the laws of nations, trespassed on the rights of other states, failed to act in concert when mutual interests suggested they should, behaved illiberally to political minorities, and generally failed to pass sensible and forward-looking laws. The reason for all of these troubles, Madison suggests, was that the states had been ruined by factionalism, or battles between “a number of citizens, whether amounting to a majority or minority of the whole, who are united and actuated by some common impulse of passion, or of interest, adverse to the rights of other citizens, or to the permanent and aggregate interests of the community.”8
Influenced by his Calvinist education at Princeton, Madison believed that self-interested behavior was an inevitable aspect of social and political life, and thus governmental success depended not on the virtue of the people, but rather on how well the state managed the selfishness. America in 1787 was an abject failure on that front, with a federal government powerless to do anything and state governments gripped by the very factional gamesmanship that needed management.9
Toward