Not long after the ratification of the Constitution, Madison came to have serious doubts about his former Federalist friends. Particularly, he came to suspect the sincerity of many who had asserted that the new government would possess only those powers specifically delegated to it.
The first disappointment came with Hamilton’s championing of the incorporation of the Bank of the United States in 1791. It sparked the formation of the first party system: Federalists who supported the bank versus Republicans (not the modern party by that name) who opposed it. Madison felt especially sensitive to this issue. He remembered that the power of incorporation had come up at the Philadelphia convention. Indeed, he remembered it so well because he had been the one to move for its approval. He also recalled that it had been roundly voted down.
To Madison’s thinking, the power to incorporate was a very particular and peculiar power. At the time he had proposed its inclusion in the Constitution, he was certain it could serve important national purposes, but having been voted down, he was just as certain that no such power had been given to the general government.
Hamilton took a different view. The bank, he argued, would be of such significant utility to the collection of taxes, the paying of obligations, the administration of finance, both public and private, and of the regulation of commerce and the value of coinage, that it achieved the level of an implied power. Its necessity was established by its usefulness, and as such, it was constitutional.
To Madison that way of thinking amounted to no limits at all. By such an assumption, anything deemed useful could be done by the federal government regardless of whether or not it had been specifically written down. Where then was the promise of reserved and delegated powers?
Madison summarized his concern poignantly on the floor of the House: “With all this evidence of the sense in which the constitution was understood and adopted, will it not be said, if the bill should pass, that its adoption was brought about by one set of arguments, and that it is now administered under the influence of another set?”
Other trends were equally disturbing.
As tensions with the European powers increased over the next decade, Federalists were heard calling for the federal exercise of English common law practices respecting sedition and libel. The very idea alarmed Madison and Jefferson because it meant that the whole panoply of English precedents respecting the exercise of national powers could now be carried over to America.
Already in 1797, the federal circuit court in Virginia had accepted a case brought under English common law rules of sedition against Representative Samuel Jordan Cabell for a circular letter sent to his constituents that was highly critical of John Adams. If such a suit were allowed to stand, the Constitution’s essential purpose of limiting the powers of the national government to those specifically written in the document would be severely compromised. What written limits could apply when all powers assumed by the English state could be assumed by the government of the United States?
In 1798, the worst suspicions of the Republicans were realized. From the 18th of June to the 4th of July, four acts were passed regulating seditious libel and the activities of resident aliens. Known collectively as the Alien and Sedition Acts, these laws tried to stem the influence of the much feared French Revolution. The most onerous, however, was the act governing seditious libel for this law could potentially silence the Republican opposition press. Its only redeeming feature was to admit truth as a defense. In England, at the time, anything that damaged the reputation of a government official or office could be charged and punished, whether true or not.
But to make matters worse, the American federal judiciary stood ready to enforce these laws. Two successive administrations under Federalist control, those of Washington and Adams, had stocked the judicial branch with Federalist judges. Some, like Samuel Chase of the United States Circuit Court, had made their sentiments well known, if not notorious: “There is nothing we should more dread,” Chase wrote, “than the licentiousness of the press.” The Republican paper, The Aurora, countered, that if the United States had twenty judges like Chase, liberty would lost. Under these circumstances, where was the formal remedy to resist unconstitutional acts?
If Publius’ promises had been found wanting, and the channels specifically prescribed through judicial review were now largely blocked, what of those reserved powers of the states, so eloquently presented at one time by Hamilton himself?
In Federalist 84 Hamilton had made explicit the first stage by which a state was expected to interpose itself against offending federal measures. In the old common law parlance of the day, this was the function served by the hue and cry, a warning shouted out by any concerned citizen or night watchman of a criminal act or an approaching danger.
Hamilton’s readers would have recognized this immediately in Hamilton’s description. “The executive and legislative bodies of each state,” he said, “will be so many sentinels over the persons employed in every department of the national administration…” The first and most basic form of interposition is thus declarative and informational. The states will “adopt and pursue a regular and effectual system of intelligence,” and because of such function, they will “never be at a loss to know the behavior of those who represent their constituents in the national councils.” It was on this basis that first Jefferson, and then Madison, initiated the use of the federal check of the states.
In June of 1798, Vice President Jefferson had written to Madison to complain that the Federalists had brought in a sedition bill which “undertakes to make printing certain matters criminal, tho’ one of the amendments of the Constitution has expressly taken religion, printing presses, etc., out of their coercion.” Where to go from here?
Next stop, theVirginia and Kentucky Resolves…
PILEUS 
Madison latter flipped on the bank though. I’d be interested in how he tried to square the circle about that decades later.
That is an excellent question. In January of 1815, he rejected the first proposal for a new Bank of the United States, but not for constitutional reasons. His experience with the absence of a national bank during the War of 1812 convinced him that such an institution would be a useful thing to have but he wanted it fashioned in a particular way.
In his veto statement, he observed this: “Waiving the question of the constitutional authority of the Legislature to establish an incorporated bank as being precluded in my judgment by repeated recognitions under varied circumstances of the validity of such an institution in acts of the legislative, executive, and judicial branches of the Government, accompanied by indications, in different modes, of a concurrence of the general will of the nation, the proposed bank does not appear to be calculated to answer the purposes of reviving the public credit…”
Basically, he came to think that long recognition by the various branches of government and the people is another means by which constitutionality can be conferred. Others would, and I think rightly, disagree. Gary Rosen has written a book, American Compact, that deals in part with this very issue. I do not go along with everything he says about Madison’s place in the American constitutional tradition, but on Madison’s particular rationalization, I think he has that right.