Washington- The Indispensable Man

by James Thomas Flexner

  Hamilton had another secret reason for opposing discrimination. If the money were dribbled out across the country, it would disappear in small purchases. If, on the other hand, it enriched a small group of urban financiers, it would become capital available for initiating and bolstering enterprises that would strengthen the economy. The general prosperity thus created, so Hamilton’s reasoning ran, would elevate the economic standard of the theoretically defrauded veterans more than would the fragmentary purchase of a new cow or a new carpet or a few additional acres.

  By the time Jefferson appeared in New York, discrimination had already been voted down. He could not have supported it in any case. While in Europe, he had assured bankers that it was safe for them to invest in the American paper, which would be paid in full.

  Washington undoubtedly wished that discrimination could be made practical. That would be to the advantage of the soldiers who had fought beside him and also to his own advantage, since he too had sold paper to speculators. Publicly, he adhered to his principles by making no comment. Privately, he expressed unhappiness about the controversy, stating that, although discrimination had been urged for “the purest motives … the subject was delicate and perhaps had better never been stirred.” Not only might a defeat of the proposal make poor people regard the government as their enemy, but the debate tended to exacerbate regional divisions. Most of the paper originally held in the South had been sold to northeasterners, who thus stood almost alone to profit.

  Discrimination was defeated by a large majority.

  The most fundamental of Hamilton’s schemes was funding, and this paradoxically made it the least divisive: the implications were really understood only by the financial community, who were unanimously for the plan. Hamilton proposed that the old paper be exchanged for new securities. To meet interest payments and pay off some holders, specific sums of tax money would be sequestered. However—and this was the nub of the scheme—only two percent of the bonds could be bought back by the government in one year. Being semi-permanent and altogether secure, the bonds would circulate as if they were money, and the interest payments would also add to the nation’s fluid capital.

  Not conscious that Hamilton was engrafting onto a farming society the self-reproducing cells of capitalism, the agrarian opposition did not go beyond a feeling that there was something immoral about not paying off the national debt as quickly as possible. But they were soothed by the thought that the immediate tax burden would be lighter.

  Washington made no comment. He was himself no financial expert. However, his experiences during the Revolution, when the lack of fluid capital had done so much to starve the army and prolong the war, made him sympathetic to the broad conception of enlarging financial credit.

  Hamilton’s funding plan moved comfortably through Congress.

  The hullabaloo rose over “assumption,” which was the name given to Hamilton’s proposal that the federal government take over the still unpaid war debts of the various states. This action, he explained, would strengthen the nation by “doing away with the necessity of thirteen complicated and different systems of [state] finance.” The lion’s share of taxes would be carried into the federal system, and it would become the interest of all public creditors to support the central authority.

  As he was a passionate believer in a strong centralized government, these objectives were for Hamilton a series of pluses. But those who did not wish the Union to override the states saw minuses. And the states that had already paid off their debts were outraged at the suggestion that they should be taxed to bail out the delinquent states. Unfortunately the largest states of the two great regions were on opposite sides: Virginia had paid most of her debts; Massachusetts was waiting on the federal government. And the whole matter was made more irritating to the South by the fact that most of the state paper had, like the federal paper, ended up in northern strongboxes. Again, it was the business community that would profit.

  The legislative battle over assumption rose to Herculean proportions. As the debate went on for month after month, the holders of state paper were thrown into consternation. Hopeful or discouraging rumors made speculators buy or sell in an erratic manner that wracked the economy. Hamilton prophesied that the nation would topple into a bottomless financial crash if assumption failed, while the debtor states that hoped to be got off the hook—Massachusetts was joined by South Carolina—threatened to secede from the Union if the other states left them dangling.

  Washington favored assumption. He had, while preparing for the Presidency, drawn up a “Plan of American Finance” in which all taxes were collected by the Union. And he argued privately that the expenses of the war had been incurred in a common cause. “Had the invaded and hard-pressed states believed the case would have been otherwise,” they might well have surrendered “and given a different determination to the war.” However, the President had no intention of intervening publicly. It remained for Jefferson to tip—in a way which he later regarded as the greatest mistake of his life—the scale in Hamilton’s direction.

  Still unsuspicious of the Secretary of the Treasury, Jefferson was worried at the way the Union seemed to be pulling apart—and he saw the basis for a deal. Another major issue was the location of the permanent national capital. In those days of poor communication and slow transportation, each region saw great advantages in having the government, so to speak, in its hands. Meeting with Madison and Hamilton, Jefferson presided over a swap: in exchange for enough northern votes to put the capital in the South, enough southern votes would be recruited to pass assumption. On this basis, the issue was settled.

  Although Washington took no part in this deal, he was pleased with both halves of the compromise, all the more because Congress provided that the permanent capital should be on the Potomac. Washington was himself empowered to pick the exact spot. His was now the opportunity to create near Mount Vernon, whether the Potomac Canal succeeded or not, the great city he had for so long envisioned. Yet he did not hurry to approve the twin bills that grew out of the compromise. Before doing so, he carefully investigated a constitutional objection raised by a pamphleteer.

  Even as he sighed with relief that the controversy had been brought to a seemingly peaceful end, he was worried. He feared that that “warmth and intemperance, with prolixity and threats,” which had characterized the debate in the House, would decrease national respect for the Congress. He considered it outrageous that congressmen, by imputing the worst motives to each other, should have spread far and wide “jealousies and distrusts.”

  Washington himself had not been spared. For the first time since he had become President, he heard an undertone of personal attacks: he had, it was charged, sold out his troops by not insisting on discrimination; he had sold out the entire nation to get the national capital at his door.

  Rhode Island had at last made the union complete by coming in. This gave Washington, after the second congressional session had ended, excuse for a junket. At Newport, he “completely fatigued the company” by walking, fortified by the wine and punch served in four different houses along the route, briskly from nine in the morning until one in the afternoon. Yet, energetic as he seemed, he was worried about his health.

  In providing for the permanent capital on the Potomac, Congress had thrown a sop to Pennsylvania. During the ten years it would take for the permanent capital to be exactly located and then built, Philadelphia should be the capital. As he contemplated moving from New York, Washington wrote a Philadelphia land agent expressing his wish to acquire a small farm near that city. “I shall candidly declare that to pay money is out of the question with me. I have none and would not, if it was to be had, run in debt to borrow.” He wished to exchange “valuable lands, improved” that he owned in western Pennsylvania.

  Washington explained that he needed the acres near Philadelphia “for the amusement of farming and for the benefit arising from exercise.” Both he and his physicians believed “that my late change from active sce
nes, to which I have been accustomed and in which the mind has been agreeably amused, to the one of inactivity which I now lead and where the thoughts are continually on the stretch, has been the cause of more illness and severe attacks of my constitution within the last twelve months than I had undergone in thirty years preceding put together. A deviation therefore is necessary.”

  The agent, Washington added, should burn his letter “as soon as you have read it.” He did not wish the government or some patriotic individuals to supply what he considered necessary to his health. Since even three thousand acres within sixteen miles of Pittsburgh were not considered a fair exchange for sixty acres near Philadelphia, the survival of the keystone of the national government remained endangered.

  THIRTY-ONE

  The Great Schism Opens

  (1790–1792)

  When Congress reconvened in December, 1790, no one expected anything but harmony. Even after Hamilton had proposed the next step in his master financial plan, it was only belatedly realized that a Pandora’s box of discord had been opened.

  Hamilton urged that Congress charter “the Bank of the United States.” It would be “a great engine of state” but not actively controlled by the government. He argued—and so experience during the Revolution seemed loudly to testify—that the national currency should not be at the mercy of governmental action. When pinched, governments always pursued expedients that resulted in inflation. But to ensure their own prosperity, so Hamilton contended, private interests would keep the economy healthy.

  The government would hold only a fifth part of the capital of the bank and would select only a fifth of the directors. However, long-range control would be assured: the records would always be open to the Secretary of the Treasury, and the bank would have to act in a way that would induce Congress to renew its charter after a period of years.

  Hamilton did not envisage such an ordinary bank as stands on city street corners. The Bank of the United States would deal only in large-scale operations: service the national debt; make loans to the government and for major private projects. The bank’s bills of indebtedness (Congress had failed to authorize a mint) would circulate as the basic currency of the United States. Using its powers to create and control credit, the bank would ward off excessive inflation or deflation, would force its policies on local banks.

  It should have been clear at a glance that Hamilton’s scheme would enrich an inner group of private businessmen and give them great national power, but at first no objection was raised. The bank bill passed the Senate casually, with a voice vote, and in a preliminary vote the House backed the scheme without opposition. It was only as the House approached a final vote that Madison arose to argue that the Constitution did not give the federal government the power to incorporate a bank. Although Madison talked for a whole day, the House passed the bill thirty-nine to twenty. The problem was thus moved onto Washington’s desk. As he believed that the principle function of the presidential veto was to protect the Constitution, he found himself “greatly perplexed.”

  Washington called in Madison for a long conference, and asked the advice of members of his cabinet. Jefferson and Randolph backed the argument of their fellow Virginian. The Constitution did not specifically authorize Congress to incorporate institutions. Therefore Congress could not do so unless the act were absolutely necessary to keep functions specifically granted Congress in the Constitution from being (to use Jefferson’s word) “nugatory.” Madison scoffed at the idea that a bank could be authorized under the right to regulate trade. He asked, with a farmer’s sublime ignorance of such matters, “Would any plain man suppose” that a bank had “anything to do with trade?”

  The developing debate was a confrontation between two basic attitudes towards the Constitution: “strict interpretation” vs. the acceptance of “implied powers.” However, the stand taken by the Virginians was actually a cover for something very different. This is evident because in their present support for “strict interpretation,” Madison and Jefferson were reversing their previous positions. Madison, indeed, has been considered “the father of implied powers.” He had written in The Federalist that “no axiom is more clearly established in law and reason that wherever the end is required, the means are authorized; wherever a general power to do a thing is given, every particular power for doing it is included.”

  Hamilton, caught by surprise by Madison’s about-face, worked feverishly for days on the rebuttal he subsequently submittted to Washington. Strict interpretation, he pointed out, would, by banning any response to new situations, soon make the federal government obsolete. The state governments, being not similarly tied, would keep up to date and therefore take over, thus defeating the object of the federal union.

  Since Hamilton’s argument was—as almost all modern historians agree—unanswerable, Washington had no choice but to sign the bill. It was this act which brought to the surface the fundamental flaw in the harmony of Washington’s administration—and of the nation.

  The true issue that had sidled in under the cloak of an argument about constitutionality reflected a dichotomy so deep in American life that it was to explode several generations later into the great national tragedy of the Civil War. Washington recognized that the disagreements which had stirred strong controversy since he had become President were regional in application. It was not by chance that the compromise which had solved the crisis over assumption had been a swap between the South and the Northeast. Concerning the arguments over the bank, Washington mourned that “the line between the southern and the eastern interests appeared more strongly marked than could have been wished.”

  Oceans of ink have been spilled in describing the mounting conflict between Jefferson and Hamilton—and, in the process, the fundamentals have tended to become drowned.

  Most confusing to the record has been the Marxist interpretation that arose in the 1930’s, which envisions the controversy as an example of “class warfare” waged between Hamilton as a champion of privilege, and Jefferson, who desired laws that would help the underprivileged. This attributes twentieth-century issues to the eighteenth. Those who wished through government action to support the poor in opposition to the rich were in those days known as “levelers.” Far from being a leveler, Jefferson boasted that the nation’s “mass of weight and wealth” supported his ideas. Had a welfare state been thought of during Washington’s Presidency, it would surely have been less sympathetic to Jefferson than Hamilton, since it involved so great an increase in governmental power. The controversy which embroiled the two champions was not basically concerned with the haves and the have-nots. It was between rival economic systems, each of which was aimed at generating its own men of property.

  The profoundest reason for the Jeffersonian-Hamiltonian controversy dates back to long before the birth pangs of the United States: it reflects one of the most basic shifts in the whole history of European man. For many centuries society was agricultural, regions being primarily self-sustaining, wealth (and with it temporal power) appertaining to the ownership of land. Gradually, as communications improved, merchants began to compete with the landowner, but this remained, except in a few commercial cities, an unequal battle until the industrial revolution ranged its products and its possibilities on the mercantile side. An agricultural community subsisted basically on barter—goods exchanged for other goods or for services; and money, which was hard for agriculturalists to come by, was regarded (all the more because sometimes desperately needed) as an evil force. “Usury,” which meant lending money at profitable interest, was considered a sin and often a crime. But money was the lifeblood of the emerging society, and “usury,” redefined as “the expansion of credit,” came to be deified as a major engine of “progress.”

  The settlement of America, being an offshoot of mobility and trade, was, of course, an aspect of the huge change that was advancing with majestic slowness down the centuries. The American Revolution, which pitted the self-reliant individual against hereditary
power, was a world-shaking explosion of new points of view. Yet the eighteenth-century American experiment was by no means the final move in the great cultural shift from the medieval to the modern world. Although fought a considerable distance down the road, the battle between Jeffersonianism and Hamiltonianism was a contest between the old agrarianism and the new economics that was, for better or worse, on the rise. It was not inapposite that, when the conflict finally burst all bounds into the bloody Civil War, southern officers often thought of themselves in terms of medieval chivalry.

  The nature of the land had dictated a rough four-part division of American society. New England, with its hilly, rocky fields that precluded mass cultivation, had developed no agricultural aristocracy. The yeoman farmers were individual entrepreneurs, and a drive to seek a livelihood from the ocean created a large class of merchants. Society in the middle colonies was more mixed than that of New England, but, being influenced by the rising city of New York and the great city of Philadelphia, was on the whole sympathetic to mercantilism. Along the frontier, mobility being very restricted, the economic pattern was agricultural barter. The South was also agrarian but had, unlike the frontier, fostered an agricultural aristocracy.

  More than any other American group, the Virginia aristocrats resembled in their life-styles what had for some time been the most vocal political opposition in Great Britain. The protesting Englishmen, known as the Old Whigs, were gentlemen farmers, members of county families that had led the Glorious Revolution, which had in 1688 brought the crown to William and Mary. Since then, the Old Whigs had been forced into the background by a few rich families who also called themselves Whigs. The members of this oligarchy had added to aristocratic lineage and major country estates wealth that was pouring into England as a result of her world leadership in finance and trade. Except when their course had been temporarily interrupted by the pretensions to royal power of George III, the rich Whigs had long ruled England, changes in government being a shifting of coalitions between the various dominant clans.