When considering the proposal put
forward by his Treasury Secretary for the formation of a national bank,
President Washington requested that certain other members of his cabinet weigh
in before making the final decision himself. Thomas Jefferson, newly appointed
Secretary of State and a fellow Virginian, was among those whose opinion
weighed particularly heavily with the president and was likely considered by
Hamilton to be the major obstacle to seeing a national bank incorporated.
Jefferson’s resultant evaluation of the prospect of creating a national bank
was delivered to President Washington in 1791, and unsurprisingly presented an
overwhelmingly negative evaluation of the constitutionality and desirability of
Hamilton’s scheme.
Much like with Hamilton’s Second Report,
most of Jefferson’s rebuttal had to do with constitutional principles rather
than with corporations more broadly. Just as the Secretary of the Treasury took
the opportunity to sketch out the framework of what would become the principle
of implied powers, so too did the Secretary of State lay the groundwork for
strict constructionism. That being said, there are certain elements of the
opinion Jefferson rendered that suggest what his position on the purpose and
ideal structure of corporations likely was.
For instance, Jefferson began his
evaluation by providing a list of legal principles which he felt the
establishment of a national bank would have violated. These included mortmain,
alienage, descents, forfeiture and escheat, distribution, and monopoly. The
average reader can be forgiven for not recognizing most of these; I didn't
either. They’re concepts deeply rooted in the English Common Law tradition that
are mostly concerned with property. The law of mortmain (literally “dead hand”)
was usually intended to refer in the negative sense to a prohibition of
property being held in perpetuity by a legal entity that was independent of its
administrators. Prohibitions against mortmain were common dating back to the
medieval era, though church lands were typically held to be exempt. The law of
alienage was intended to prevent land within a given legal realm from being
owned by a citizen or citizens of a foreign realm, while descents and
distribution both concerned the proper dispersal of property that was not
specifically accounted for in a legal will and testament. The law of forfeiture
entitled a legal authority to seize the property of an individual if that
individual had failed to fulfil an agreed-upon obligation or condition, and
escheat directed the state to take possession of property whose previous
owner(s) had perished without any legal heirs being discovered. The law of
monopoly, probably most familiar to the modern mindset, prevents any one person
or group from becoming the sole supplier of a given commodity, and thereby
controlling the market for that commodity.
Most, if not all, of these
principles effectively deny the legality of granting charters of incorporation
of any kind. In its most basic sense a corporation is a legal entity that can
theoretically exist in perpetuity (in violation of mortmain) and own property
(in potential violation of descents, distribution, escheat and forfeiture). The
national bank that Hamilton described in his Second Report would have additionally allowed for foreign ownership
of shares (in violation of alienage) and possessed singular authority on all
matters of national finance (in violation of monopoly). While it seems on the
one hand curious that the normally Anglophobic Jefferson would have clung so
tightly to principles rooted in the English legal tradition, I nevertheless
perceive an intent that is not altogether inconsistent with the Sage of
Monticello’s established political and philosophical outlook.
Though the principles just
described are indeed distinctly English in origin, the contemporary England
that Jefferson would have been familiar with in the late 18th
century was awash in corporate entities of various sizes and compositions. From
the Bank of England that Hamilton exalted to the East India Company, down to
the innumerable local banks and similar financial institutions, British society
in the 1780s seemed unconcerned with honouring some of the basic concepts rooted
in its legal heritage. Doubtless Jefferson believed that this disregard for
established law in pursuit of profit and convenience was at the heart of the
corruption he and many of his fellow Americans perceived as endemic to British
politics. In spite of his oft-expressed hostility towards Britain and its
at-times abusive relationship with the nascent United States, however,
Jefferson was from time to time still willing to invoke legal or philosophical
concepts native to the English tradition. As I tried to point out in my
inaugural set of posts his Declaration of Independence owed much to both the
English Bill of Rights of 1689 and the writings of John Locke. Taking these
facts into account I'm forced to wonder whether Jefferson was attempting to
harken back to what was in his mind an earlier, simpler, less corrupt and
business-oriented version of Britain. I say this because the principles
Jefferson invoked in his 1791 reply to President Washington are all rooted in
the medieval era, while the Bill of Rights and the writings of Locke both date
from the late 17th century. Since the Bank of England wasn't
chartered until 1694, and the explosion of merchant banks that accompanied the
beginning of the Industrial Revolution in Britain arrived only around the
middle of the 18th century, it seems at least possible that
Jefferson’s antipathy was perhaps directed towards the commercial England under
whom he and his fellow colonists had suffered in the 1760s and 1770s rather
than the England of Locke, the Glorious Revolution, and the supposed
restoration of ancient rights.
This is, I suppose, a rather lengthy
way of saying that Jefferson’s sentiments were generally anti-corporate. This
was no doubt aided by the fact that the Thirteen Colonies, while corporations
themselves, were comparatively sparse as to the larger, nationally chartered variety
that Hamilton considered the key to Britain’s abiding success and Jefferson its
entrenched corruption. Indeed, I think it fair to say that Jefferson regarded
the proliferation of corporations in 18th-century Britain as one of
the elements most offensive to his (and many of his contemporaries’) republican
sensibilities. As previously discussed many Americans in the post-Revolutionary
era considered incorporation – the granting of certain legal privileges to a
specific group – to be an unnecessary and undesirable type of social
distinction that conflicted with their hard-won sense of egalitarianism. I have
no trouble imagining that Jefferson was chief among this group. More than just
about any of his contemporaries Jefferson was keenly interested in reforming
the political and cultural fabric of the United States in an attempt to create
a new type of society that would be free of the abuses of the Old World.
Accordingly his attempts at reform touched on such diverse areas as education,
inheritance law, religion, and the criminal justice system. It seems hardly any
kind of stretch to suggest that Jefferson might also have desired to modify the
established laws and conventions that governed the existence of corporations in
furtherance of his ultimate goal of creating a more thoroughly republican
society.
That being said, Jefferson was
not as a rule opposed to the existence of all banks, or of all corporations in
general. In his reply to Hamilton’s Second
Report he argued, among other things, that the creation of a national bank
wasn't necessary because the existing state banks were more than capable of
facilitating trade and commerce. Not only had said institutions, he asserted,
fulfilled that very purpose during the years of the Revolution and its
aftermath, but the existence of multiple banks ensured that no one of them
would be permitted to dominate the American financial market. The resulting
competition would help make cheap credit accessible to as many people as
possible, rather than only those wealthy or connected enough to avail
themselves of the services offered by Hamilton’s national bank. This admission
seems to lend a vaguely utilitarian tinge to Jefferson’s usual idealism. Though
the proliferation of corporations may have to some degree galled his republican
scruples, he was willing to admit that they could, and did, serve a useful
purpose. In what to me seems a somewhat more remarkable acknowledgement,
Jefferson also coupled together the utility of corporations with the benefits
of competition. Though it’s surely anachronistic to say so, this would appear
to be a primitive form of American capitalism, whereby competition among
corporations occupying the same market space is seen to benefit consumer choice
and aid the public good by keeping prices low. I doubt very much that this is
what Jefferson envisioned in 1791, but it does seem to locate him as among
those post-Revolutionary critics of corporations who wished to temper the
exclusivity of incorporation by encouraging a much broader granting of charters
within the same field.
It’s also possible that Jefferson
encouraged state banking and wider access to credit for reasons that were
somewhat more personal. As a member of Virginia’s planter class he’d inherited
a lifestyle that was at times defined more by conspicuous wealth than anything
else. Owning land, livestock, and slaves, maintaining decent crop yields, and
preserving a gentlemanly appreciation of art and culture and a sense of
economic self-sufficiency was often an economically trying pursuit and
necessitated what some might have considered to be excessive borrowing. As a
consequence Jefferson and other men of his social standing were chronically in
debt, often to the merchants that supplied their more extravagant tastes. This
led many among the Southern planter class to develop a general dislike of
commerce, as well as of the banks, which they perceived as perpetuating debt.
This resentment was also felt among the less wealthy agriculturalists – the
yeomanry that Jefferson so often championed – throughout the United States.
Land rich but cash strapped, American farmers often borrowed as a means of both
countering their persistent cash-flow problems and facilitating investments in
new tools, better seed, and more land. A national bank, Jefferson doubtless
suspected, would end up doing most of its business among the merchants and
burgeoning industrialists that Secretary Hamilton favoured. State and local
banks could conversely provide loans to the landowners that needed them on a
much wider basis and at lower interest rates. Jefferson’s somewhat
schizophrenic view of corporations, as both deplorable and grudgingly
necessary, was thus perhaps based as much on personal experience as
philosophical principle. It’s worth noting, however, that President Washington,
also a member of the Virginia planter class, disagreed with his Secretary of
State’s suggestions and signed the Bank of the United States into law in
February, 1791.
Upon his inauguration as president
in 1801 Jefferson, now head of the most powerful political faction in the
United States and eager to reform what he perceived as the corrupt and
tyrannical influences present in the federal government, set his sights on the
national bank once more as a principle engine of anti-republicanism in America.
The state banks that he had recommended ten years prior had multiplied in the
interim – from only four in 1790 to almost thirty in 1800 – and were more
capable than ever of shouldering the burden of providing for the nation’s
financial needs. For their part the proprietors of the state banks were in
perfect agreement. They had always resented the status enjoyed by the Bank of
the United States as the sole holder of government deposits and during the 1790s
had been forced to suffer the Bank’s efforts to restrict their ability to issue
bills of credit. Accordingly Jefferson ensured that the authority of the Bank
was significantly weakened, allowing state banks to proliferate like never
before. As a result, there was little enthusiasm behind renewing the charter of
the BUS as it neared its expiration date in 1811. Jefferson’s Secretary of the
Treasury, the Swiss-born Albert Gallatin, pleaded that the national bank had
justified its existence by facilitating twenty years of economic stability, and
that passing authority over to the state banks would severely weaken the
ability of the federal government to exercise any control over the national
financial system. His cautions would prove of no avail. Backed by the state
banking interests, the Republican-controlled 11th Congress declined
to renew the charter of the Bank of the United States.
At this point in American history
the years of the Revolution had begun to fade into memory and the number of
corporate charters being issued in the United States fairly exploded, yet
conflict was still taking place at the highest levels of government over the
utility, legality and desirability of certain types of corporations. The five
years that followed, from 1811 to 1816, would prove exceptionally tumultuous,
and necessitate yet another revaluation of the purpose and limits of republican
government and the size and scope of corporate America.
As always I endeavour to provide
links to the source texts.
Hamilton’s Second Report on Public
Credit:
http://memory.loc.gov/cgi-bin/ampage?collId=llsp&fileName=009/llsp009.db&recNum=68
http://memory.loc.gov/cgi-bin/ampage?collId=llsp&fileName=009/llsp009.db&recNum=68
Jefferson’s rebuttal:
http://en.wikisource.org/wiki/Opinion_against_the_Constitutionality_of_a_National_Bank
No comments:
Post a Comment