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Thomas Jefferson vs. the Federal Reserve
Michael Maharrey

The Federal Reserve is the engine that drives one of the biggest, most powerful governments in the history of the world.

Without the Fed, it would be difficult, if not impossible, for the government to fund its foreign wars, its massive, unsustainable social programs, the ever-growing police state, and the tangled web of corporate welfare programs. It’s almost certain none of this would exist as we know it today – not even close. The federal government would truly be limited.

Although the Federal Reserve is relatively new within the scope of American history, its roots go back to the early days of the republic and the First Bank of the United States, chartered by Congress on Feb. 25, 1791.

A national bank was the brainchild of Alexander Hamilton. His rationale wasn’t much different from those who later came up with the Federal Reserve. Hamilton thought a central bank was necessary to stabilize and improve the fledgling nation’s credit and to better manage the financial business of the United States government.

The notion of a national bank but wasn’t without its detractors. One of the most vocal opponents of the bank was Thomas Jefferson who argued that it was unconstitutional.

The debate was really about more than chartering a bank. At its core, it was an argument about the extent of federal power. Jefferson held to the promise of the ratification debates – that federal authority would remain carefully circumscribed by the enumerated delegated powers. Given that the Constitution doesn’t authorize Congress to charter corporations, much less a national bank, Jefferson argued that it was an unconstitutional act.

On the other hand, Hamilton pivoted from the position he took during the ratification debates and justified his project by invoking the doctrine of “implied powers.” His arguments foreshadowed how federal policies of every imaginable stripe would be justified moving forward. Arguably, Hamilton’s arguments for the First Bank of the United States set the foundation for much of the federal overreach we have today.

Jefferson and Hamilton both wrote documents making their cases for the establishment of the bank. Jefferson wrote his Opinion on the Constitutionality of a National Bank first.

He rested his argument on the Tenth Amendment, writing:


He then succinctly stated his conclusion.


Jefferson proceeded to outline the various clauses of the Constitution supporters of the bank used to constitutionally justify and explained why they failed to bear the burden of that power.

The primary justification was the Commerce Clause, but Jefferson argued that “to erect a bank, and to regulate commerce, are very different acts.” Erecting a bank actually creates an institution of commerce, and as Jefferson pointed out, “to make a thing which may be bought and sold, is not to prescribe regulations for buying and selling.”

He went on to argue that if erecting a bank is an exercise of the commerce power, it would be void because it would also impact commerce within individual states.


Next Jefferson tackled the General Welfare Clause, pointing out that Congress cannot lay and collect taxes for any purpose it pleases, “but only to pay the debts or provide for the welfare of the Union.” Likewise, Congress can’t do anything it pleases to promote the “general welfare.” It can only further the general welfare by laying taxes and acting within its enumerated powers.


Jefferson drove his point home by pointing out a very inconvenient fact for Hamilton – the Philadelphia Convention debated and rejected delegating the power to charter corporations.

On one of the final days of the convention, James Madison proposed the federal government be delegated the authority “to grant charters of incorporation where the interest of the U.S. might require & the legislative provisions of individual State may be incompetent.”

Rufus King of Massachusetts objected specifically on the grounds that “It will be referred to the establishment of a Bank, which has been a subject of contention in those Cities (New York and Philadelphia). He also warned that “In other places it will be referred to mercantile monopolies.”

George Mason of Virginia proposed limiting the power to charting corporations for the construction of canals. “He was afraid of monopolies of every sort, which he did not think were by any means already implied by the Constitution as supposed by Mr. Wilson.”

Ultimately, the convention rejected the proposal completely. Historian Dave Benner wrote, “This casts overwhelming doubt on the notion that the Constitution allowed Congress to form such monopolies. No enumerated power to grant monopolies and corporate charters was ever included in the document, and during the ratification campaign, none of the Constitution’s advocates cited the presence of such a power.”

But Hamilton’s arguments didn’t rely on the existence of any delegated power. Instead, he appealed to the existence of unwritten “implied powers.”

In response to Jefferson’s appeal to the Tenth Amendment and that the federal government can only exercise delegated powers, Hamilton affirmed it, and then effectively nullified its limiting force. He wrote, “The main proposition here laid down, in its true signification is not to be questioned.” But he continued, insisting, “It is not denied that there are implied well as express powers, and that the former are as effectually delegated as the latter.”

But who decides the extent of these implied powers? Who determines their limits? In effect, Hamilton sets up an almost unlimited reservoir of power the general government can dip into in order to take whatever actions it deems appropriate. This was a 180-degree reversal from the position he took during the ratification debates when he insisted that the new general government would only exercise limited powers.

Hamilton primarily based his defense of the national bank on the “necessary and proper clause,” citing it as the source of these “implied” powers. While Jefferson relied on a very narrow definition of “necessary and proper,” Hamilton used the phrase to milk implied powers out of the Constitution.

The debate centered on the meaning of the word necessary. Jefferson took a very narrow view, arguing that the government can carry out all of its enumerated powers without a national bank. “A bank therefore is not necessary, and consequently not authorized by this phrase.”


Hamilton found this view too limiting. He wrote, “It is certain that neither the grammatical nor popular sense of the term requires that construction. According to both, necessary often means no more than needful, requisite, incidental, useful, or conducive to.”


Jefferson hit the problem with Hamilton’s view on the head. It opens up a door to virtually unlimited government power. This runs counter to James Madison’s assurance in Federalist #45 that “the powers delegated by the proposed Constitution to the federal government are few and defined.” [Emphasis added]

Under Hamilton’s “implied power” doctrine and his loose reading of the necessary and proper clause, there is very little the federal government can’t do. After all, virtually anything could be defined as “needful” or “useful” to the government. During the ratification debates, opponents of the Constitution worried that the necessary and proper clause would be construed exactly as Hamilton read it. At the time, Hamilton swore they had nothing to worry about. In Federalist #33, he wrote, “It may be affirmed with perfect confidence that the constitutional operation of the intended government would be precisely the same, if these clauses [necessary and proper and the supremacy clause] were entirely obliterated, as if they were repeated in every article. They are only declaratory of a truth which would have resulted by necessary and unavoidable implication from the very act of constituting a federal government, and vesting it with certain specified powers.” [Emphasis added]

Hamilton pivoted from “specified powers” in 1788 to “implied powers” just three years later.

In his push for a bank, Hamilton also invoked a rule of construction very favorable to the government. He wrote, “This restrictive interpretation of the word necessary is also contrary to this sound maxim of construction, namely, that the powers contained in a constitution of government, especially those which concern the general administration of the affairs of a country, its finances, trade, defense, etc., ought to be construed liberally in advancement of the public good.”

This was not “a sound maxim of construction” at the time.

St. George Tucker was an influential lawyer and jurist, and he wrote the first systematic commentary on the Constitution. Published in 1803, View of the Constitution of the United States served as an important law book, informing the opinions of judges, lawyers and politicians for the next 50 years. He explained that we should always construe federal power in the most limited sense possible.

 “The powers delegated to the federal government, are, in all cases, to receive the most strict construction that the instrument will bear, where the rights of a state or of the people, either collectively or individually, may be drawn in question.”

This is the exact opposite of Hamilton’s maxim. As “Light Horse” Harry Lee put it during the Virginia ratifying convention, “When a question arises with respect to the legality of any power, exercised or assumed by Congress, it is plain on the side of the governed. Is it enumerated in the Constitution? If it be, it is legal and just. It is otherwise arbitrary and unconstitutional.”

When political power resides in the people, the default position should always be to assume the most limited government power possible – not the most liberal reading as Hamilton insisted.

Later in his life, Jefferson made a similar point in a letter to William Johnson.


There was no probable construction authorizing charting a national bank.

Reading Hamilton’s arguments for the bank, it becomes clear he was trying to “squeeze” meaning – and power – out of the Constitution. Under the limited general government promised by supporters of the Constitution during ratification, including Alexander Hamilton, there would have been no national bank.

Hamilton’s twisting of the Constitution to wring out new powers set the stage for much the federal overreach that would follow. It was the “foundation” for the “living breathing” Constitution we live under today.


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Michael is the author of four books. Constitution: Owner’s Manual examines various constitutional clauses and principles through the lens of the ratifying conventions. Our Last Hope: Rediscovering the Lost Path to Liberty makes the historical, philosophical and moral case for nullification. Smashing Myths– Understanding Madison’s Notes on Nullification, digs deep into James Madison’s views on nullification, focusing on his writing’s later in life. Finally, Michael joined Tenth Amendment Center executive director Michael Boldin in penning Nullification Objections: Dismantling the Opposition, a book that takes apart the common objections to nullification one at a time.

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