- Washington's Secretary of Treasury, Alexander Hamilton, proposed a Bank of the United States. This bank would be a powerful private institution, the government would be a major stockholder, the federal Treasury would deposit surplus monies in it, it would stimpulate business, and print paper money (for a much needed strong national currency).
- Jefferson argues against thie bank. There was no authorization in the Constitution, and he was convinced that all powers not specifically granted to the central goverment were reserved to the states (supported by 10th amendment in Bill of Rights). Therefore, Jefferson believed that only the states had the power to charter banks. Jefferson believed that the Constitution should be interpreted literally -> theory of "strict construction." This theory was embraced by the faction antifederalists, and the political party that they would soon emerge into, the Democratic-Republicans.
- Hamilton believed that what the Constitution did not forbid it permitted. His support was the "elastic clause" (Article 1, Section 8, Clause 18 of the Constitution). Congress may pass any laws "necessary and proper" to carry out the powers vested in the various government agencies. This justified Congress in establishing a bank. The faction federalists, who would soon become the political party, Federalists, believed in loose construction/ the "elastic clause."
- Hamilton's argument convinced Washington, who signed the bank into Law 1791.
- Strict construction was for states' rights. Loose construction was for more power of the national government.
- The big importance of Strict vs. Loose Construction is it is the basis for the forming of political parties under President Adams. Strict=Democratic-Republicans (Jefferson/Madison). Loose=Federalists (Hamilton/Adams). The Bank issue was just the big thing that separated the two parties.
Strict Construction versus Loose Construction
Date: Early 1790s