A Patriot's History of the United States: From Columbus's Great Discovery to the War on Terror

by Larry Schweikart

  Like Adams, Hamilton was not a popular man. His illegitimate birth and humble origins always loomed in his personal and professional background, building within him a combative edge to his demeanor early in life. Hamilton’s foreign birth prohibited him from becoming president, sentencing him to be forever a power behind the throne. As treasury secretary, Hamilton hit the ground running, proposing a bold economic program based on a permanent national debt, internal and external taxation, a national bank, and federal subsidies to manufacturers. Whether agreeing or not with his solutions, few could doubt that his reports constituted masterful assessments of the nation’s economic condition. Naturally, Jefferson and Madison opposed Hamilton’s views, setting the stage for the dramatic political debate that came to characterize the Washington administration.19

  Hamilton’s Three Reports

  Congress spent the first two years of Washington’s administration launching the federal ship and attending to numerous problems inherent in a new government. James Madison’s first order of business had been to draft a bill of rights, move it through both houses of Congress, and send it on to the states, which had ratified all of the first ten amendments by 1791. Another weighty matter involved the creation of the federal judiciary. Congress’s Judiciary Act of 1789 created thirteen federal district courts (one for each state of the union), three circuit courts of appeal, and a supreme court manned by six justices. John Jay became the first chief justice of the Supreme Court; he and each of his five colleagues rode the circuit several weeks of the year, providing the system with geographic balance. The remarkable feature of the plan was the latitude Congress enjoyed in setting the number of federal justices, courts, and the varied details of the operations of the federal court system.

  Those issues, while of great importance, nevertheless took a backseat to the overriding economic issues that had, after all, sparked the creation of the new Republic in the first place. Few people in American history have been so perfectly suited to an administrative post as Alexander Hamilton was to the position of Treasury secretary. His plans took the form of three reports delivered to Congress in 1790–91 that laid the problems before the lawmakers and forced them to give legal weight to his fiscal inclinations.20

  His first paper, the “Report on Public Credit” (January 1790), tackled the nation’s debt problem. At the end of the Revolution, the national government owed more than $70 million to bondholders. On top of that, some (not all) states owed monies amounting, collectively, to an additional $25 million. A third layer of $7 million existed on top of that from various IOUs issued by Washington and other generals on behalf of the Continental Congress. American speculators held 75 percent of this combined $102 million debt; most of them had paid approximately fifteen cents on the dollar for national and state bonds at a time when many doubted their worth. Hamilton’s problem was how to pay off the bondholders and simultaneously refinance the nation’s many upcoming expenses in order to establish a sound fiscal policy and a good credit rating. It was an ironic situation in that “the United States, which sprang from the stock of England, whose credit rating was the model for all the world, had to pull itself out of the pit of bankruptcy.”21

  Hamilton called his proposal “assumption.” First, the national government would assume all of the remaining state debts—regardless of the inequities between states—and combine them with the national debt and any legally valid IOUs to individuals. Then the federal government would pay off that debt at face value (one hundred cents on the dollar), a point that caused an immediate firestorm among those who complained that the debts should be paid to the original holders of the instruments. Of course, there was no proving who had originally held anything, and the idea flew in the face of Anglo-American tradition that possession is nine tenths of the law. Originally, Hamilton intended to tax the states to fund the payments—hence the source of the confusing “three-fifths” compromise for taxation—but this never occurred because of the success of Hamilton’s other proposals. Equally controversial, however, was the plan Hamilton submitted for paying the debts. He wanted the federal government to issue new bonds to borrow more money at better terms, creating a permanent national debt to help finance the government’s operations. Hamilton’s aims were clear. He wanted to establish confidence in and good credit for the new government among creditors at home and abroad, and thus ally creditors with the new government, ensuring its success.22 As he noted, “The only plan that can preserve the currency is one that will make it the immediate interest of the moneyed men to cooperate with the government.”23 “A national debt,” he wrote in a sentence that thoroughly shocked old Whigs, “if not excessive, is a national blessing” [emphasis ours].24 The secretary had no intention that the nation, having broken the shackles of English oppression, should succumb to a form of debt peonage, but he fully understood that monetary growth fueled investment and economic expansion. In that sense, he departed from the mercantilists and joined arms with Adam Smith.

  Contrary to traditional portrayals, Hamilton and Jefferson shared much ground on these issues. Jefferson, in an oft-cited letter of September 1789, had stated that “the earth belongs…to the living,” or, in other words, those alive at any given time should not be saddled with debts and obligations of earlier generations.25 Defining a generation as nineteen years, Jefferson sought to restrain the government from following the destructive French model and creating a debt so high the state would collapse. Yet Hamilton’s plan called for a Jeffersonian structure through a sinking fund that would require the legislature to always pay off old debt before legally being allowed to issue new bonds. Or, in modern terms, it was an American Express form of credit, whereby the balance had to be paid, not just the interest on the debt, which he also feared. So whereas Jefferson wanted to put a generational time limit on the nation’s debts, Hamilton preferred a functional limit, but it was a distinction without a difference.

  Both also boiled the debt issue down to the political dangers it presented, but here they came to radically different conclusions. Where Jefferson hated the notion of tying the wealthy to government because he thought it put the bankers in power, Hamilton embraced it for the same reason. If the nation owed financiers a great deal of money, they were in the weaker position, not the government.

  Hamilton’s desire to rally creditors and bankers to support the new federal government was also apparent in his second paper, a “Report on a National Bank” (December 1790). This plan voiced Hamilton’s desire for a national fiscal agency, a Bank of the United States modeled after the Bank of England. This Bank of the United States (BUS) would safeguard all federal tax and land-sales revenues, transact government financial affairs, meet the government payroll, and issue and circulate currency, thereby regulating smaller banks. To Hamilton, all these missions were subordinated to the bank’s role as a steady source of credit to the national government. It did not disturb Hamilton, though, that with 80 percent of its stock held by private investors, the BUS would provide its owners with access to public funds for their private speculative ventures. It is essential to understand that, contrary to practices today, insider trading and insider investing were among the primary purposes of starting a bank.26 Virtually everyone understood that in order to marshal a community’s—or a nation’s—finances around important projects, the primary owners of banks had to have legitimate access to those large pools of capital. Hamilton’s bank plan thus aimed to bring sound fiscal practices and a strong currency to the government through an alliance lucrative to private bankers and the investor class at large.

  At this point, it is worthwhile to reiterate that contrary to the popular image, Hamilton had no illusions about the dangers inherent in big government. He rightly understood that over the long term, prices did not lie. Monetary values reflect real value in short order. While the will of the people might swing wildly, depending on emotions, news coverage, propaganda, or other factors, markets generally are constrained by reality, and he wanted to let that reality en
force its discipline on American finances.27 It worked: when Hamilton’s plan took effect in 1791, U.S. debt per capita, in real dollars, stood at $197, but within twenty years it had plummeted to $49.28

  A third report, the “Report on Manufactures” (December 1791), proved significant mainly as a portent of things to come: Congress rejected this ambitious neomercantilist plan. Hamilton, keenly aware of the significance of the burgeoning Industrial Revolution, sought a departure from the market disciplines he had invoked in his earlier reports. Without question, Hamilton was one of the few Americans who fully understood the impact of capitalists’ rapidly accelerating use of technology, capital, labor, raw materials, transportation, and global markets to create wealth. In this, the stodgy Adams wholeheartedly agreed, noting, “Property must be secured, or liberty cannot exist.”29 Hamilton, however, went beyond merely protecting private property. He called on America to immediately accelerate its own industrial revolution, creating a modern nationally regulated economic system. For all of his foresight, Hamilton’s serious flaw was looking backward to mercantilism to accomplish these ends. He advocated protective tariffs and federal bounties (subsidies) to incubate industry. Neither of the British finance ministers, Townshend or Pitt, would have criticized such policies. In a style anticipating Henry Clay, Abraham Lincoln, and Franklin D. Roosevelt, Hamilton wrote, “The public purse must supply the deficiency of private resources.”30

  Anti-Federalists, and even some Federalists, reacted to Hamilton’s three reports with utter amazement. In some specifics, the white papers recommended the creation of a system they deemed suspiciously similar to the mercantilism Americans had just overthrown, with the latter report sparking Madison’s immediate and crucial defection to the Anti-Federalist cause. Southerners, westerners, agrarians, and small-government men everywhere rallied to challenge the secretary. Madison represented Virginia, which had already paid off its debts. Why, asked congressmen from the solvent states, should they subsidize the lax fiscal policies of the indebted states? Moreover, why should they reward bondholders—stockjobbers, as some farmers called them—who had bought cheap during the nation’s crisis and now demanded payment at par? Further, Madison argued, the Constitution in no way authorized funding, assumption, and a permanent national debt.

  A compromise temporarily settled this dispute over a permanent national debt. At a dinner party sponsored by Jefferson, and with Madison in attendance, Hamilton surrendered on the location of the national capital—at least this party concluded those behind-the-scenes negotiations, which had been conducted for months. By agreeing to move the capital to Philadelphia and, ultimately, to the Virginia-Maryland border in a separate District of Columbia, Hamilton gained the support of southerners anxious to see the seat of government located in their neck of the woods. Philadelphia relented, in part, because Pennsylvania congressmen thought that once they had the capital—even for a while—it would never move. An attempt to move the location of government, said one representative in an ill-fated prophecy, “will be generally viewed…as a mere political maneuver [with no more credibility than] inserting Mississippi, Detroit, or Winniprocket Pond.”31 Significantly, in the winter of 1791, Jefferson publicly joined Madison in opposing the BUS. Planters and farming folk were known for their antibanking prejudices (one southerner wrote that he deemed entering a bank as disgraceful as entering a “house of ill repute”); they decried what they perceived as bankers’ feeding at the public trough. Moreover, they argued forcefully that the Constitution was silent on the issue, precluding a BUS. Hamilton countered that the BUS was “necessary and proper” (Article I, Section 8) to carry out the enumerated powers of taxation, coining of money, and commercial regulation. Hamilton’s argument of implied powers—that if the end (taxation, and so forth) is constitutional, then the means of achieving that end is too—would become extremely important in years to come. Jefferson countered that “necessary and proper” included only powers indispensable to carrying out enumerated duties, but on this count he met defeat. Despite southern opposition, both houses of Congress voted to create a BUS and chartered it for twenty years. It would fall to James Madison’s (and, later, Andrew Jackson’s) administration to renew the ongoing battle over the BUS.

  Feuding Patriots

  By the end of 1791, America had harvested a bumper crop from the seeds of partisan political dispute. Adding to southern opposition to Hamilton’s program, a strong protesting voice arose from frontiersmen in western Pennsylvania, upstate New York, and the new frontier settlements of the Ohio Valley. In these places frontiersmen rallied around the cause of Jefferson, forging a southern/western alliance that would affect national politics for more than a generation.

  Westerners were outraged by Hamilton’s initial fiscal policies and, later, by his “whiskey tax,” a measure aimed to subsidize debt assumption by taxing western corn products at 25 percent.32 In this case, again, Hamilton stood on weak economic ground. He primarily urged Washington to enforce the tax to demonstrate the federal government’s ultimate taxation authority. It constituted a flexing of federal muscle that was unnecessary and immature. By levying these excise taxes on one of the most untaxed and unregulated groups in America—frontier farmers—Hamliton sparked a firestorm of opposition.

  Most economic life in the West revolved around corn; corn whiskey even served as a medium of exchange in the cash-short territories. Many farmers lacked cash at all, using whiskey as their currency. Protesting the tax, furious westerners resorted to violence, just like the Shaysites before them. Riots erupted in the Pittsburgh region, Kentucky, the Carolina backcountry, and even Maryland. Led by David Bradford and James Marshall, these self-styled “whiskey rebels” terrorized tax collectors, closed down courts, and threatened to invade Pittsburgh. When President Washington offered amnesty for surrender, the rebels rejected the offer.

  The Whiskey Rebellion marked a critical juncture for the new Federalist government. Unless it was crushed, Washington believed, “We can bid adieu to all government in this country except mob and club government.” He added, “If the laws are to be trampled upon with impunity, then there is an end put, with one stroke, to republican government.”33 In August, Washington sent Hamilton to lead a 13,000–man army (larger than the Continental Army) to crush the rebels. With this show of force the rebel cause instantly evaporated; Bradford, Marshall, and others bid a hasty retreat by flatboat down the Ohio River. Although courts convicted two whiskey rebels of treason, Washington magnanimously pardoned them both in July of 1795.

  Washington and Hamilton took pride in their decisive action; the Federalists had proven the ability of the new government to enforce the law. In the process, however, they handed the Republicans a political victory. Many Revolutionary-era Americans were alarmed at the sight of an American standing army moving against a ragged band of Pennsylvania farmers—fellow Americans, no less! Rightly or wrongly, the Republicans saw an uncanny resemblance between the Whiskey Rebellion and the patriots’ stamp and tea tax revolts of the Revolutionary era.34

  Federalists rightly feared new frontier states would bolster Jefferson’s support in Congress, and they opposed the statehood of these new territories. A compromise exchanged statehood for Kentucky with that of Vermont in 1791, but Tennessee proved to be an entirely different matter. In 1796, Federalists vainly threw roadblocks in front of the statehood drive, arguing that Tennessee’s census and constitution were problematic, and that statehood was “just one more twig in the electioneering cabal of Mr. Jefferson.”35 Despite this arch-Federalist opposition, Tennessee entered the Union in time to cast its 1796 electoral votes for Jefferson and send a young Jeffersonian, Andrew Jackson, to Congress.

  Meanwhile, by the start of Washington’s second term in office, the Hamilton-Jefferson feud had spun out of control, well past the point of resolution. Worse, their political differences only exacerbated an obvious personality conflict between these two young lions. Washington’s cabinet meetings lost civility as the men settled into a
pattern of continued verbal sparring and political oneupsman-ship. When not debating in person, they maneuvered in congressional caucuses and cloakrooms or sniped by letter to acquaintances before finally ceasing speaking to each other altogether, resorting to firing anonymous newspaper editorials.

  Jefferson initially clung to the hope that the president’s evenhandedness would ultimately manifest itself in public policy. Employing his considerable skills of persuasion to lobby the president, Jefferson urged Washington to break from Hamilton or to at least blend some of Madison’s and his own ideas into the Federalist policy mix. Continually thwarted on the domestic front, Jefferson might have endured had he not been so often overruled in his own area of expertise, foreign affairs. Over the course of Washington’s first term, the secretary of state saw his foreign policy aims slowly erode under Hamilton’s assaults, and it was in the area of foreign policy where the disagreements reached their most vindictive stage.

  Beyond the Oceans

  Although America was an independent nation under the terms of the Treaty of Paris of 1783, that independence was fraught with ironies and contradictions. In the family of nations, America was a kitten among tigers. European powers with strong armies and navies still ruled the oceans and much of North and South America, despite American independence. In addition, fading, but still dangerous, forces such as those of the Ottoman Empire and the Barbary States were constantly a concern on the high seas. But an alliance with France threatened to embroil the young nation in continental warfare almost immediately with the French Revolution of 1789.

  What course would American foreign policy follow? Would Americans form alliances with their democratic brethren in France, or honor their English roots? Would they be able to trade with both nations? Was neutrality an option? These were the questions the secretary of state faced, yet his proposed solutions ran counter to those of his archenemy Hamilton and his Federalist allies. Under this cloud the members of the administration attempted to shape a foreign policy. Their first foreign policy initiative was to re-create the military establishment Congress had disbanded following the Revolutionary War.36 Federalist proponents of the Constitution had called for a viable army and navy to back up national foreign policy decrees; the ratification of the Constitution brought this “power of the sword” once again to American government.