Jefferson and Hamilton

by John Ferling

  After seven weeks at home, Jefferson started back to Philadelphia. He stopped for two or three nights at Mount Vernon but was back in the temporary capital by the last week of November.32 Years later, Jefferson recalled that strident party warfare had originated in the battle over assumption. It had indeed been what he called a “bitter and angry contest,” but it was only when Hamilton unveiled the next step in his program that unbridled partisanship developed. This second phase of Hamiltonian economics sparked a jarring battle, but even more, it brought about ideological divisions that Jefferson correctly labeled “the real ground of the opposition” to Hamiltonians. These differences, and the partisanship that accompanied them, defined the first decade of the new republic.33

  Deep within his Report on Public Credit, Hamilton had included a proposal to levy an excise tax on “every gallon of those Spirits” distilled in the United States and duties “upon all Stills employed in distilling Spirits.” In short, Hamilton was proposing what would become widely known as the “whiskey tax.” He had recommended such a step because he did not believe that the revenue raised from the duties on foreign imports would be sufficient for the needs of the federal government, but he also privately told Washington that he was taking this step to monopolize this source of revenue before the states latched on to it. Hamilton anticipated formidable opposition. Not only had excise taxes been denounced by the Continental Congress prior to American independence, but Hamilton himself had acknowledged in The Federalist that the citizenry would “ill brook” sweeping excise taxes. He was correct. In fact, when Congress passed the Funding Bill, it had stricken Hamilton’s proposed excise tax from the legislation.34

  But in December 1790, with the federal government facing a shortfall of some eight hundred thousand dollars, Hamilton resurrected his proposal for a tax on domestically distilled whiskey. (He also called for excise taxes on spirits that entered the country and rum produced in the United States from imported materials.) He thought it would produce about one-quarter of the needed revenue. Predictably, immediate and stormy opposition ensued. Five state legislatures from Pennsylvania southward denounced the proposed tax, knowing it would fall principally on farmers who distilled whiskey from the corn they raised. Their congressional delegations fought the tax, fearful that it would trigger farmers’ uprisings akin to Shays’ Rebellion. Skeptics also suspected hidden motives on the part of the treasury secretary. More than one was convinced that Hamilton’s ultimate goal was the elimination of the states. Others were certain that he longed for a farmers’ rebellion, as it would afford the administration with the pretext for raising a large American army. However, there was support for a levy on spirits in the eastern portion of many states, where merchants and the wealthy preferred a whiskey tax to its most discussed alternatives: a land tax or an increase in the impost. Hamilton’s foes fought tenaciously, but once again the treasury secretary’s forces were better organized. Proponents of the excise descended on Congress and soothingly told the skeptics that the whiskey tax would be devoid of the “absurdity, villainy, and deplorable effect on society” that had characterized European excises. They knew this duty would be for the best, they said, because they had “consulted Hamilton.” But their finishing touch was to broadcast that Washington supported the bill. Anything “that can be fairly fixed on the President” will win support in Congress, one member murmured. On the day the Senate was to vote, Pennsylvania’s Maclay cautioned against “the box of Pandora.” However, the legislation passed, and in the House as well, prompting Maclay to sigh: “Mr. Hamilton is all-powerful, and fails in nothing he attempts.”35

  Jefferson and Madison had stayed out of this imbroglio, possibly because their bargain with Hamilton had committed them to support assumption as well as an excise tax.36 However, they did not remain aloof from another battle that Hamilton set afoot with his second great report. On the day after he asked Congress to pass the whiskey tax, Hamilton boldly urged the creation of a central bank. This was the capstone of his economic “machine,” as Jefferson labeled it, the “engine” that was to drive everything. And for Jefferson, it was the bank that made him understand the full meaning of Hamiltonianism.

  Hamilton urged Congress to charter a Bank of the United States for twenty years “to be opened at the City of Philadelphia.” At a time when the capital in the three banks in the United States totaled two million dollars, he proposed that the national bank be capitalized at ten million, with one-fifth of its startup money provided by the government, the remainder coming through the sale of bank stock. It was to be managed by private citizens. Furthermore, federal funds were to be deposited in the bank, enabling it to issue notes that would serve as legal tender. This would significantly increase the supply of money and stimulate the economy. In emergencies, the bank could make loans to the United States, and it could routinely advance credit to private borrowers through loans for ninety days or less, which he said would stimulate investment and promote national prosperity.37

  Over the years there had been land banks, mercantile banks, loan office banks, and, beginning in 1781, the Bank of North America, which Congress had chartered at Robert Morris’s urging. None of these eased the misgivings of most Americans about banking. Much of the citizenry believed that banks promoted usury or were a swindle through which the rich cheated the poor. Senator Maclay, for instance, thought banks an “aristocratic engine” that resulted in wealth “accumulating in a few hands.” Perhaps the most widespread feeling was that banks served only urban entrepreneurs, some of whom were “ignorant adventurers” or “bankrupt and fraudulent traders.” Try as they might, neither the nation’s ordinary husbandmen nor most planters below the Potomac could imagine how a bank could be of much assistance to them.38 Given these endemic sentiments, Hamilton wrote his report as a veritable tutorial on banking. He contested the “jealousies and prejudices” and endeavored to show how banks had contributed to prosperity in the “most enlightened commercial nations.” Otherwise, he simply insisted that the bank was essential to the establishment of the new nation’s private credit and security and that sufficient controls would be built in to guard against harmful malfeasance.39

  Hamilton’s enthusiasm for banking was not new. His ideas were born a dozen years or so earlier when he had risen in the predawn quiet at headquarters and devoured the writings of English and Scots who had dilated on Great Britain’s economic system that had indisputably strengthened the nation. With time, Hamilton came to understand that Great Britain, like no other nation, had found that the triad of a funded debt, a central banking system, and a market in fruitful public securities offered the means of marshaling wealth. This national treasure facilitated expansion, so that in an amazingly short time England, a small kingdom with but one-third the population of France, ruled the largest, most opulent, and splendid empire since that of Rome. What is more, the British state had achieved its status as the world’s greatest political and commercial power without having imposed ruinous taxation on its citizenry. It taxed them—the landed gentry especially—but the trade in securities enabled the state to supplement its revenue raised by taxation with revenue accrued through borrowing.

  However, there was a flip side to Britain’s stunning success. For one thing, it had been accompanied by the propulsive growth of a centralized administration and ever more capacious bureaucracy. There had also been a resurgence in royal authority, for monarchs utilized the patronage that went hand in glove with the new reality to subtly and artfully manipulate Parliament. Furthermore, commercialization changed the fabric of the country. With its stock markets, speculation, banks, and trading companies, Great Britain seemed to be in the thrall of an insatiable quest for wealth. A new moneyed class emerged, and not infrequently its members possessed greater wealth than the aristocracy and lived more extravagantly. Not surprisingly, some public officials were servile to businesses, businessmen, and financiers.

  Taxation levels may not have been oppressive, but they grew steadily, and came mostly
in the form of duties on land and excise taxes on agricultural staples. At the outset of the eighteenth century, Englishmen paid twice what Frenchmen did in per capita annual taxation; by the end of the Revolutionary War, English taxes were three times those of France. Moreover, while Great Britain had expanded, its expansion had not occurred peacefully. The use of force was an essential ingredient in the advancement of Britain’s overseas hegemony. War became commonplace. Great Britain was at war nearly 50 percent of the time between 1689 and 1783, fighting five major wars and two smaller ones. Complaints were heard in England, and some popular American figures discerned that Britain’s new institutions and those who profited from them—including the king—flourished because of war, which only fed their pugnacity. Thomas Paine in Common Sense had written that the king had little to do but drag his country into one unnecessary war after another. Benjamin Franklin had reached the same conclusion a year before Common Sense appeared, telling a friend that England’s “Injustice and Rapacity” drove it inevitably into “plundering Wars.”40

  There can be little doubt that the English fiscal structure provided the model for Hamilton’s economic plans. Several things in his experience and way of thinking drew him to the English example, but his views on human nature were crucial. His conviction that humankind was driven by ambition, cupidity, and an insatiable lust for preeminence led him to wish to equip America not just with the means of surviving in a heartless world but also with the capability of cutting a figure in that world. For this, Hamilton understood perfectly the need for ready wealth. Moreover, his conviction that people were driven primarily by their self-centered pursuit of private interests led him to seek the means of controlling humankind’s selfish propensities, lest society unravel in the face of self-absorbed avarice. He was convinced that social stability required the presence of a strong central government dominated by those at the top of a hierarchical society. Through the patronage that coursed downward, multiple dependencies would result, reducing individual independence and, in Hamilton’s judgment, acting as a safeguard against disorder. His viewpoint was strikingly different from that of Jefferson, who was committed to the attainment of the greatest possible measure of individual independence. Believing that people were naturally amicable, warm-hearted, and benevolent, Jefferson thought their ardor for social interactions formed a sort of glue that held society together. Indeed, he was confident that social unrest was unlikely in republics with small, unobtrusive governments, and in his judgment, monarchies inevitably created invidious class distinctions, which led to rancorous social relations.41

  Hamilton’s outlook was also shaped by the fact that his world was the commercial world. As an adolescent, he had worked for a trading company. The war years aside, his life in the mainland colonies had been spent mostly in New York, a hub of economic trafficking. He had often worked closely with public officials from the mercantile sector and represented businessmen in his legal practice. St. Croix and New York may have been inhabited largely by farmers, but for Hamilton, it was indisputable that in both places it was the merchant class that made things hum. He saw that as commerce flourished, opportunities arose for others, so that in time they and their descendants could rise socially and economically. And he believed that it was not just the wealth generated by trade that made a commercial society commendable. As with Hume, who had expounded on how “ingenuity … industry, knowledge, and humanity” were “linked together by an indissoluble chain” in a commercial society, Hamilton was persuaded that commercial societies produced a philanthropic, sociable, knowledgeable, enterprising people habituated to a useful work ethic. An urbanite to the core, Hamilton saw that commerce nourished cities, and cities in turn brought people together where they could intermingle in productive ways. Cities were incubators of consumerism, the arts, education, inventiveness, and enlightened thinking. People “flock into cities” in commercial societies, Hume had written—and Hamilton assented—and there they “love to receive and communicate knowledge; to show their wit … [and] taste in conversation and living…. Particular clubs and societies are every where formed: Both sexes meet in an easy and sociable manner; and the tempers of men … refine apace.” Unlike Jefferson, Hamilton was not one to see cities as blights on humanity or to eulogize yeoman.42

  Hamilton had the most limited knowledge of the lives of farm people. He had never lived on a farm, and even during the times that he and Betsey visited her family, it was at the Schuyler’s Albany mansion. Hamilton did not denigrate husbandry, but he shared Hume’s belief that farmers had “no temptation … to encrease their skill and industry.” They raised only that which was necessary, leaving much of their land uncultivated. Theirs was a way of life that fostered a “habit of indolence,” corroding the work ethic.43

  Like many another immigrant to a new land, Hamilton was an ultranationalist. He had come to America to escape what he had regarded as a life without a future in St. Croix. He had succeeded spectacularly, and he loved the country in which he had realized such good fortune. He had fought to set his chosen land free, and he desperately wanted it to succeed as he had succeeded. Long before he became the treasury secretary, Hamilton’s dreams of a powerful America appeared in his writing. In his first political essay—the piece challenging the Tory Samuel Seabury nearly two years before independence—he looked toward the “future grandeur and glory of America,” and a time when Americans would be “still securer against the encroachments” of foreign powers. In “The Continentalist” in 1782 he had longed for a “noble and magnificent … great Federal Republic” that would be “respectable abroad.”44 Having endured a lonely youth embroidered with scorn and disdain, he grew to be an adult driven by overweening aspirations of renown and glory. Though he kept his dreams to himself, it is a good bet that whatever it was he longed to achieve, Hamilton knew that his lusty ambitions would never be fulfilled in a frail and feeble United States. Hamilton’s hopes, together with his wartime experiences, shaped his thinking. His memory was etched with recollections of how America’s soldiers had needlessly suffered and died, and how parochial states had shamelessly neglected the national cause, so that the United States had come within a whisker of losing the War of Independence. Consolidation, a powerful chief executive, and a vibrant commercially driven economy—all leading to a vigorous and strapping United States that was impervious to humiliation—were Hamilton’s antidotes to the dreadful woes he and his adopted country had experienced.

  From the instant Hamilton proposed the bank, Senator Maclay knew that Congress would approve it. “It is totally vain to oppose this bill,” he sighed. Nevertheless, the Bank’s foes fought back resolutely with attacks in newspapers. There was “caballing and intrigue” on both sides in Congress, noted Maclay. He also said that many of his congressional colleagues presumed the president backed Hamilton, which caused them to be “borne down by … a fear of being charged with a want of respect to General Washington.” It soon was apparent that Washington was actively pitching in to win approval for the bill. Maclay thought that Washington had often slighted him in the past, but now the president courted him, inviting the senator to dinner and bestowing a “marked attention” on him. Maclay was not swayed. He saw the bank as “an aristocratic engine” that would give money interests undue influence on public policies. Among those who opposed Hamilton, some were simply suspicious of banks, others thought too few Americans would benefit from such a large expenditure, and the Virginians were anxious lest the establishment of the bank in Philadelphia would prevent the national capital from ever being moved to the Potomac.45

  To this moment, Jefferson had not fought any of Hamilton’s proposals, and the two secretaries had maintained a cordial, though not close, relationship. The bank changed that. Jefferson was already aware of the consuming hostility in Virginia toward Hamilton’s initial economic program. In fact, on almost the very day that the treasury secretary urged the bank, the state legislature denounced the assumption of state debts as unconstitutional and
asserted that funding would provide the president with “unbounded influence,” much like that wielded by Britain’s monarch.46 But Jefferson hardly required a nudge from the assemblymen back home. The bank proposal brought Hamilton’s economic plans into sharper focus. For the first time, Jefferson understood that Hamilton was committed to crafting America on the English model. If the treasury secretary succeeded, Jefferson feared the promise of the American Revolution would be dashed.

  Americans often spoke of their Revolution as a “Glorious Cause.” For Jefferson, the cause had been a great republican resistance against tyrannical monarchy and centralized control by a faraway and corrupt government. He wanted minimal government in the new American nation, and he also wished to purge the land of the lingering traces of the unenlightened past, especially to wipe away those parts of the English social and political heritage that he believed continued to stain life in America.

  Of late, some scholars have puzzled over Jefferson’s alarm at the bank, finding his fears “obsessive and almost paranoid.”47 But Jefferson had his reasons. He looked on a bank as doing nothing to serve the interests of Virginia or most Americans, and he, too, feared that it might thwart the move of the capital to the Potomac. Consciously or not, he may also have been nettled by Hamilton’s seeming influence with Washington, which Jefferson coveted. Nor did Hamilton’s blatant Anglophilia sit well with Jefferson, who, like other Southerners, remembered the horror spread by the British army; and, like other planters, he chafed at not having been compensated for the slaves the redcoats had taken with them. He feared the bank would not only create a new class of speculators but also would serve as conduit for funneling largess and bribes to congressmen.48 As much as anything, however, Jefferson’s uneasiness stemmed from the fact that it was Hamilton who had proposed the bank. Through Madison, Jefferson had been made aware that Hamilton had revealed his monarchist colors and antipathy to the states at the Constitutional Convention. Now, the pieces of the puzzle came together in Jefferson’s mind. Thinking that the “natural order of things is for liberty to yield and government to gain ground,” Jefferson believed a national bank would only accelerate the danger. A bank would strengthen the central government, and it would assure the sway of the “financial interest” over Congress. The bank would be like a mighty “engine in the hands of the Executive … which added to the great patronage it possessed … might enable it to assume by degrees a kingly authority.”49 Taking the long view, he feared that further consolidation and the rise of a new money class—part and parcel of Hamiltonianism—would menace republicanism, decentralized government, and the agrarian way of life. He was convinced that Hamiltonianism would in time lead to the Europeanization of America, leaving Americans prey to the evils he had observed firsthand during his five years in France—monarchy, rigid social stratification, concentration of wealth, massive poverty, and urban squalor.