James Madison, a drafter of the Constitution and Bill of Rights, served as the nation’s fourth president (1809-17) and signed the Second Bank of the United States into law.
The Virginia-born Madison came from a wealthy, slave-owning family, a background he had in common with his long-time ally Thomas Jefferson. But unlike Jefferson, Madison’s early experience in politics shaped his preference for a strong national government that could promote commerce, collect taxes, and expand trade; otherwise, he feared, states would be driven by parochial interests. This philosophy influenced his strategy during the 1787 Constitutional Convention, where his “Virginia Plan” was watered down to allow states to retain substantial authority. Nonetheless, Madison went on to promote the Constitution as a chief author of The Federalist Papers, along with Alexander Hamilton and John Jay.
In the winter of 1790-91, however, Madison, then a member of the US House of Representatives, broke with Hamilton over the First Bank of the United States. In particular, he rejected Hamilton’s claim that the Constitution granted “implied powers” upon Congress to incorporate entities like banks. And like Jefferson, he feared that the Bank would allow Northern commercial interests to align against the South.
President George Washington sided with Hamilton, his secretary of Treasury, and the First Bank began operations late in 1791. Madison and Jefferson formalized their split with Hamilton and his Federalist Party, forming the Democratic-Republican Party, and when Jefferson assumed the presidency in 1801, he appointed Madison as secretary of state. Eight years later, Madison was elected president.
The First Bank’s charter lapsed in 1811 following a narrow vote in Congress. The following year, war broke out with Britain. The nation’s finances rapidly deteriorated as foreign capital fled and the government was forced to rely on loans for war funding. A group of elite financiers began to pressure the Madison administration to charter a new Bank, and in 1814, they secured an ally with Treasury Secretary Alexander Dallas. Madison first agreed to back a new Bank so that the war could be financed but then pulled his support once peace negotiations began in late 1814. Still, the economy worsened in 1815, and many state-chartered banks stopped redeeming notes. Dallas delivered a deal in early 1816 that Congress was willing to pass, and in April, Madison signed the twenty-year charter establishing the Second Bank of the United States.
The rich literature on Madison’s philosophy has noted his evolution on the constitutionality of a national bank. As he explained in his later years, while he believed the First Bank lacked a constitutional basis at the start, its legitimacy grew over time through political acceptance. “It had carried into execution throughout a period of twenty years with annual legislative recognition … and with the entire acquiescence of all the local authorities, as well as of the nation at large,” he wrote.
McCoy, Drew R. The Last of the Fathers: James Madison and the Republican Legacy. New York: Cambridge University Press, 1991 (reprint).
Robertson, David Brian. “Madison’s Opponents and Constitutional Design.” American Political Science Review vol. 99, no. 2 (May 2005): pp. 225-43.
Thomas, George. “Recovering the Political Constitution: The Madisonian Vision.” Review of Politics vol. 66, no. 2 (Spring 2004): pp. 233-56.
Walters Jr., Raymond. “The Origins of the Second Bank of the United States.” Journal of Political Economy vol. 53, no. 2 (June 1945): pp. 115-31.
Written by the Federal Reserve Bank of Richmond. See disclaimer.