A Ban on Banks: Wisconsin’s Radical 1846

Constitution
13 February 2009 · Posted by Joshua in History

Political leaders have been debating for months over how to deal with the banking-
induced financial crisis currently seizing the world, but controversy over banking is
nothing new. Wisconsin’s history demonstrates this vividly. In 1846, as Wisconsin
was preparing for statehood, a political convention met in Madison to author the
state constitution. The draft this convention created never took effect—citizens
overwhelmingly rejected it in an 1847 referendum, and statehood was delayed until
a second constitution was approved the next year. The first proposal, voters
thought, was simply too radical. Two of its radical provisions dealt with debt and
banking.

Banking provisions in the rejected 1846 Wisconsin Constitution. (Digitized by the Wisconsin
Historical Society)

One section of the rejected constitution, the Homestead Provision, was designed to
protect family homes from being seized to cover debt. An even more radical
proposal, Article 10, actually banned any bank from doing business within
Wisconsin’s borders.

The Homestead Provision, based on provisions in the earlier Texas Constitution,

would have exempted the family home and forty acres, to a maximum value of one
thousand dollars (then a substantial sum), from being seized to repay contractual
debts. The second constitution replaced this with a more vague statement
exempting only “a reasonable amount of property” from seizure. Currently,
Wisconsin law provides an exemption for property worth up to $40,000, but it
does not apply to mortgages or debts incurred to purchase or improve the home.

The idea to forbid banking in Wisconsin was proposed by Edward G. Ryan, a

Democrat elected to the constitutional convention from Racine. The convention
approved his proposal by a 79-27 vote, and the article they passed read like this:

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Article X: On Banks and Banking

Section I: There shall be no bank of issue within this state.

Section II: The legislature shall not have power to authorize or incorporate, by any
general or special law, any bank or other institution having any banking power or
privilege, or to confer upon any corporation, institution, person or persons any
banking power or privilege.

Section III: It shall not be lawful for any corporation, institution, person or persons
within this state, under any pretense or authority, to make or issue any paper
money, note, bill, certificate, or other evidence of debt whatever intended to
circulate as money.

Section IV: It shall not be lawful for any corporation within this state under any
pretense or authority, to exercise the business of receiving deposits of money,
making discounts, or buying or selling bills of exchange, or to do any other banking
business whatever.

Section V: No branch or agency of any bank or banking institution of the United

States, or of any State or Territory within or without the United States shall be
established or maintained within this state.

Section VI: It shall not be lawful to circulate within this state, after the year one
thousand eight hundred and forty seven, any paper money, note, bill, certificate or
other evidence of debt whatever intended to circulate as money, issued without this
state, of any denomination less than ten dollars, or after the year one thousand
eight hundred and forty nine, of any denomination less than twenty dollars.

Section VII: The legislature shall, at its first session after the adoption of this
constitution, and from time to time thereafter as may be necessary, enact adequate
penalties for the punishment of all violations and evasions of the provisions of this
article.1

Wisconsin’s politicians were willing to ban banking because they had lived through
decades of bank-related economic turmoil. In 1816, the U.S. Congress had
delegated management of federal finance to a private corporation, the Second Bank
of the United States, but in 1819 and 1834, the bank’s policies were blamed for
causing recessions. The congressional charter for the bank expired in 1836, but in
its stead, unregulated “wildcat banks” began offering easy loans and printing
money, as was legal at the time. Eager for profit, the banks expanded rapidly,
making too much money available far too quickly. The resulting inflation triggered
a depression that lasted from 1837 to 1843, unparalleled in severity until the Great
Depression. When Wisconsin’s founding politicians met to write the constitution in
1846, these events were still fresh in mind.

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Delegates at the constitutional convention were also concerned about the influence
banks could have over Wisconsin’s legislature. Edward Ryan, who had introduced
the bank article, hoped the constitution would also specify penalties for those who
ignored the ban, fearful that unless the penalties were embedded in the
constitution, banks would influence the legislature to change them. Defending his
points at the convention, Ryan explained:

I hope this convention has a decided majority of “hards”—of men who are opposed
to all banks, banking, and bank paper. But who can tell when there will be a “soft”
legislature? Let a “soft” legislature come into power, and the penalties will at once
be put down so that it will be for the interest of any corporation to pay the fine for
the sake of the money they can make. The law will be as “soft” as it is now, when
any company may be ready and willing to pay $1000 a year for the privilege. Leave
the question open, and the halls of legislation will be beset with “softs” asking for
privileges, bitterly complaining that high penalties cannot be paid, as the business
of banking is not as good “as it used to was.” Give us low penalties, and we will pay
them. I would place these restraints, limits, and penalties where the “softs” cannot
reach or reduce them. I fear the “softs.” They cannot be killed. The hundred heads
of the hydra might be lopped off, but the “softs” have no heads. They spring up on
every hand; they sway and govern legislatures. Look at the new states—democratic,
“hard,” as are the body of the people; see how the “softs” have carried all their
measures and involved the people. Let it not be so in Wisconsin. Place the penalty
where the “softs” cannot reach it. Before I will consent to have the penalty reduced,
I will vote to increase it. I belong to that party which would give to banking no
quarter.2

Despite Ryan’s argument, the convention did grant the legislature power to set
penalties for offenses against the bank ban, but it didn’t matter. The proposed
constitution was ultimately rejected by the public, 20,333 to 14,119. When the
second constitution was drafted, the banking article was replaced with a section
leaving the matter up to future referendums.

Notably, the anti-banking measures were not the only radical provisions in the
1846 Wisconsin Constitution. The document also offered generous rights to
immigrants, gave married women the right to own property independently of their
husbands, and called for a referendum to decide whether African Americans would
be given the right to vote. All of these issues were controversial, but while rejected
by a majority in the 1840s, these ideas would eventually gain support and take
effect.

What about banking? In light of today’s financial crisis, it is easy to wonder

whether Ryan and his supporters in 1846 were onto something. The notion that
banking should be entirely banned seems ridiculous — banking and even debt are
essential to the function of modern society. Even so, it seems that Wisconsin’s early
politicians had good reason to worry about banks and their abuses. Unlike many,
they were willing to experiment with radical ideas to address the issue. Perhaps

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 politicians today would do well to take a similar mindset. Change and improvement
are only possible when radical ideas are admitted into public debate.

Notes:
1. The Rejected Constitution of the State of Wisconsin,1846. The
original manuscript is viewable online at the Wisconsin Historical Society.
A transcription is available from Wikisource.
2. Quoted in Quaife, Milo. The Convention of 1846. (Madison: State Historical Society
of Wisconsin, 1919).

Last Revision: 31 December 2017, 10:16 pm CST

https://www.acceity.org/2009/02/13/wisconsin-constitution-banned-banks/