When Congress ended its session, Washington turned to a project for unifying the country: a presidential visit to every state in the union. He hoped to “become acquainted with their principal characters and internal circumstance, . . . [and learn] useful informations and advices on political subjects.” In an age when travel was uncomfortable and sometimes risky, it was an ambitious plan for a man in his late fifties who was recovering from severe illness and surgery. Yet he always insisted that activity was the best medicine. It was sitting in rooms, he believed, that compromised his health.37
He went to New England first. Soon after leaving on October 15 with two aides and six servants, he recorded in his diary his admiration for the region’s prosperity, its agriculture and home construction practices. In Connecticut, he found “a great equality in the people,” with “few or no opulent Men and no poor.” He visited factories for producing sailcloth, linen, woolens, and glass. Though a man of agriculture, Washington admired the dynamism of commerce and manufacturing. “A people who are possessed of the spirit of commerce,” he wrote in 1784, “who see, and who will pursue their advantages, may achieve almost anything.”38
Local gentry on horseback greeted him as he entered many towns. Sometimes bands played or fireworks soared or cannon boomed. Always, residents strained for a view of the hero while dignitaries jostled to present their proclamations. This was a chance to see Washington in the flesh, not merely his image engraved on a locket or painted on a pitcher. Washington discovered that the crowds preferred him in his old military uniform, so he changed into it whenever he neared a town.39
The Boston visit served as the journey’s high point, beginning with a parade by all the trades and occupations. From the statehouse balcony, Washington heard the crowd’s three cheers, then an ode and a song in his honor, then three more cheers. A banner read, “to the man who unites all hearts.” Two days later came an oratorio and a dinner at Faneuil Hall.40
Washington often noted the women he encountered. An evening assembly in Boston, he wrote, attracted a hundred “handsome and well dressed ladies.” The girls operating machines at a sailcloth factory, he recorded, “are the daughters of decayed families . . . and are girls of character.” At another factory, he told a foreman that he employed the prettiest girls in Boston. Washington also visited Lexington, where the war with Britain began, but did not recount his emotions there.41
The travel inevitably involved frustrations. Some roads were disappointing, while Washington sputtered that New Englanders unfailingly gave wrong road directions. Nonetheless, he returned to New York without significant mishap, after less than a month of travel. He attended Martha’s reception that evening.42
In a letter to British historian Catharine Macaulay Graham, Washington reported that New England was “in a great degree, recovered from the ravages of war—the towns flourishing—and the people delighted with a government instituted by themselves and for their own good.” He called his government “the last great experiment for promoting human happiness by reasonable compact in civil Society.” He admitted his sense of the importance of his actions and words:
I walk on untrodden ground. There is scarcely any action, whose motives may not be subject to a double interpretation. There is scarcely any part of my conduct which may not hereafter be drawn into precedent.43
As Washington entered his second year in office, his cautious style was working. A French diplomat offered a canny evaluation of Washington’s performance as a “happy mixture of authority and modesty.”
While playing the role of the King of England he mingles in the crowd of his fellow citizens and appears to give them advice rather than order, to propose doubts to them rather than principles, to indicate to them the road to public prosperity rather than to want to lead them there himself.44
Two great challenges, however, loomed on the horizon: choosing the permanent seat of government and addressing America’s war debts. They would test the new government and its president.
Chapter 43
The Debt and the Residence
As the new government neared its first anniversary, its credit was in tatters. Public debts exceeded $70 million, or roughly 40 percent of a national economy that had wallowed in depression for a decade. The federal government, and many states, only infrequently paid interest on their debts. Unless those governments made regular debt payments, no one would lend to them in future crises. In his first annual address on January 8, 1790, Washington called the public credit situation “a matter of high importance.”1
Almost as pressing was the smoldering question of where the government would reside. Though superficially a straightforward geographic choice, the symbolic power of this “residence” question presented a political minefield of local interests and sectional rivalries. The choice would define the nation as urban or rural, steeped in Northern values or Southern customs, westward-looking or leaning toward Europe. The winning region would gain influence over the government and undoubted economic benefits.
To resolve those critical problems, the new president and Congress first had to understand why they had proved so intractable.
* * *
The residence question had festered longer. Indeed, for thirteen years since declaring independence, Congress had never unpacked its bags, moving from Philadelphia to Baltimore, to York, to Lancaster, back to Philadelphia, to Princeton, to Annapolis, to Trenton, and finally to New York City in 1785. As potential sites for its residence, Congress had considered more than fifty towns between Newburgh, New York, and Norfolk, Virginia, and west to the Ohio River. When the new Congress gathered in 1789, the residence question was pressing.2
The decision loomed large because the United States had so little history, few traditions, and modest shared experience. Symbols of union were vital: the flag, the seal, the Fourth of July, even George Washington. The seat of government could embody the aspirations of the republic dedicated to liberty and justice. Yet the subject inflamed the parochial instincts of legislators. Acquiring the residence would bring a region greater access to government, increased demand for its land and crops and services, higher public spending, transportation improvements, and military protection. Madison estimated the value of the residence at $500,000 per year.3
Several criteria had emerged for the decision. The residence should be centrally located, affording all citizens fair access to their government, although centrality could be defined by wealth and population (which would bring the residence toward the north), or by geography (which pointed farther south). If the west were considered, the residence should be on a river that flowed east from the Appalachians, though neither the Mohawk, the Susquehanna, the Potomac, nor the James was navigable for its full length. A coastal location would foster commerce, but would be exposed to enemy warships.4
A bias had emerged for founding a new city that would signal America’s break with the past. While building a new city, a temporary residence would be needed in an existing city. New York and Philadelphia were the only candidates for that role.5
A Virginian offered a pithy distillation of the criteria for the permanent residence: “nearly central, a convenient water communication with the Atlantic Ocean, and an easy access to the Western Territory.” Major sites vying for the prize were the falls of the Delaware River (near Trenton, New Jersey); Germantown, Pennsylvania, a Philadelphia suburb; on the Susquehanna River west of Philadelphia; Baltimore; and somewhere on the Potomac River.6
Regional blocs sparred over the question. New Englanders and New Yorkers wanted the temporary residence in New York City and thought the Potomac too distant and too southern. Pennsylvanians and middle-state legislators preferred Philadelphia for the temporary residence, but spread their support among the four non-Potomac candidates for the permanent site. Virginians and most Southerners backed the Potomac. Georgians and South Carolinians disliked Philadelphia, which had too many anti-slavery Quakers and a
harbor that could freeze in winter. Yet the regional blocs had fractured repeatedly through years of maneuvering.7
President Washington’s commitment to developing the Potomac placed a heavy thumb on the scale. A congressional committee had toured that region five years before to evaluate it as the seat of government. At roughly the same time, when Congress leaned toward a site near Trenton, Washington wrote to a Virginia delegate that placing “the seat of empire at any spot on the Delaware [River] is . . . demonstrably wrong.” Five years later, the Potomac Company was feverishly clearing the river, while its investors included two senators and three representatives from Maryland and Virginia. Promoters of the Potomac as Congress’s permanent residence were placing enthusiastic articles in the press.8
In late August and September of 1789, the Pennsylvanians—led by Senator Robert Morris—secured New England support for placing both temporary and permanent residences in their state, but the deal fell apart. Madison trolled among the Pennsylvanians for Potomac support, but attention shifted to a site on the Susquehanna seventy miles west of Philadelphia, recently named Columbia, where developers were already raffling off building lots.9
Potomac backers responded by securing a requirement that the seat of government be on a navigable river; because Philadelphians would never allow improvement of the Susquehanna to a point where it could compete with Philadelphia’s harbor, the Susquehanna option sank. The Germantown option fluttered into prominence when Robert Morris pledged $100,000 to construct buildings there for the government’s residence, but last-minute ploys by Madison and New Englanders torpedoed that effort. A Virginia-based lunge on behalf of the Potomac also fell short. The debate took on an antic quality when five senators disputed whether to adjourn so they could view a hot-air balloon exhibition nearby.10
In that round of scheming, Washington stood apart from the fray, despite his strong preference for the Potomac. When Robert Morris asked Washington’s view of the issue, the president was cautious, but seemed “much dissatisfied.”11 The congressional free-for-all evidently persuaded the president that he should not be a spectator when the question next arose. David Stuart wrote from Virginia that hopes for a Potomac residence “were always centered in you.” He urged that Washington veto any other site. Since the president was loath to veto legislation on such a controversial subject—he would veto only two laws in eight years as president—he would need to apply his influence during legislative deliberations, not after they were completed.12
The politics of the issue presented a form of multidimensional chess. With two possible outcomes for the temporary residence, five leading candidates for the permanent residence, and as many as nine different voting blocs within Congress on the question, there were at least ninety possible voting configurations—but that calculation does not account for changes of heart, side deals, or political betrayals.
In late November, with Washington only recently back from New England, Madison reported on Robert Morris’s latest intrigues. The Pennsylvanian had proposed to pretend to have a deal with Southerners for the Potomac, in order to “alarm” New York and New England into accepting Germantown as the permanent residence.13
The Potomac forces were mobilizing too. Merchants and landowners formed a committee to develop what Stuart called “the most flaming accounts” of the Potomac’s advantages. They distributed broadsides and pamphlets throughout the nation. Virginia and Maryland nearly doubled Morris’s financial offer, promising $192,000 to build the new residence on the Potomac. The battle soon would resume.14
* * *
To address the nation’s troubled finances, the sober Washington turned to his firebrand treasury secretary, Alexander Hamilton. With only three banks in the country, the American economy was unsophisticated. Without a national currency, Americans used some fifty forms of money, including a half dozen state currencies, various pre-Constitution debt instruments, and a grab bag of foreign coinage.15
Hamilton, with his high energy and outspoken admiration for British financial and banking practices, made an immediate impact on the new government. Within two days of taking office in September 1789, he arranged two short-term loans and met with the minister from France about payments due to that nation. Treasury, which collected taxes and managed spending, employed people in every state. In Hamilton’s hands, it quickly dwarfed other government offices. Soon it would absorb the post office, reaching into every small town.16
Congress instructed Hamilton to report on how to restore public credit, which required a system for managing the public debts. Foreign loans to Congress totaled $12 million, plus interest, and domestic debt in several forms totaled another $41 million. “Loan certificates” reflected direct loans that had been made by wealthy citizens; on the open market, they could be bought in 1790 for 20 cents on the dollar. “Final settlement certificates” had been fobbed off on departing soldiers and army suppliers when peace arrived in 1783; they were worth even less. “Indents” had been issued instead of interest payments; they had the least value of all. Hamilton wanted to manage the Revolutionary War debts of the state governments also, which he estimated at more than $20 million. Taken together, public debts exceeded $70 million.17 As Hamilton settled in, financial markets began to revive. Fortunes could be made if the government’s credit recovered. If a note purchased for 10 percent of its face value were later redeemed in full, the profit would be 900 percent. People with money to invest were intensely interested in Hamilton’s proposal for the debt, which would come in his January 1790 report to Congress on public credit. Washington reviewed that report in draft and approved it, much as he reviewed and approved every important policy statement of his presidency. The Report on Public Credit of January 1790 embodied Washington’s policy.
Released as a fifty-one-page pamphlet the day after Washington delivered his annual address, the report began with a lecture on paying debts. Nations that pay what they owe, it said, “are respected and trusted, while the reverse is the fate of those who pursue an opposite conduct.” Maintaining public credit was the price of liberty.18
The report proposed to honor the face value of every debt incurred by the government, but not to pay the promised interest rates. Instead, all debt would command 4 percent interest. Principal would be repaid slowly, only 2 percent of it every year, so the debts would linger for generations; that would keep taxes at moderate levels and encourage wealthy individuals, eager for interest payments, to support the government. Finally, all of those certificates and indents would be replaced with new government debt obligations that could circulate as surrogate currency, greasing the wheels of the economy.
Controversially, the report proposed to pay only the current holder of any debt certificate, who usually was a rich man in a city who had bought it cheap from a struggling former soldier, farmer, or small-scale trader. The original holders would receive nothing. The government’s promise to repay, Hamilton argued, had been made to whoever held debt certificates in their hands, not to those who had sold them to others. The government’s honor required payment only to the current holder. Others, especially James Madison, disagreed.
Another contentious proposal was for the federal government to assume the Revolutionary War debts of the states. “Assumption” of state obligations would recognize that states incurred those debts for the common purpose of winning independence. Yet a deeper rationale was well explained by a Boston merchant. Assumption would, he wrote to Vice President Adams, unite creditors of the states with creditors of the federal government “in the support of one firm energetic government, and make it in their interest to unite in the regular collection of the revenue.” If assumption consolidated all debt at the national level, states would not enact competing taxes, while state creditors would become federal creditors and support federal taxation.19
Foreseeing the windfalls that would become available under Hamilton’s proposal, some investors dispatched agents to purchase any claims on the
government they could find. A Connecticut congressman sent two ships to the South to acquire debt securities at bargain prices. Because Southerners and Westerners were often the targets of those agents, intense regional hostility developed. “Emissaries are still exploring the interior and distant parts of the union,” Madison wrote in disgust, “in order to take advantage of the ignorance of holders.” From Virginia, Washington’s friend Stuart reported that “vermin from the northward” were buying public debt certificates.20
Anger flared among those who already mistrusted the new federal government. Assumption, a Virginian emphasized, would further consolidate the central power. Another Virginian predicted that assumption would leave state governments with “little else to do than eat drink and be merry.” The wave of speculation prompted Madison to press for partial payments to the original debt holders, but Congress would not do it.21
Assumption also threatened to pit states against each other. Since the peace, states like Virginia and Pennsylvania had retired much of their debt. Others had not. Thus, assumption might reward those states that had paid little, since their debts would be repaid by national taxes on all citizens, including those in other states. This prospect bred more resentment.22
That problem could be resolved if Congress reimbursed every state for its war-related expenses. If the state had already paid its debts, the money from Congress would represent reimbursement; if the state still owed its original creditors, they could be paid with federal dollars. But this “settlements” fix would significantly increase the national government’s costs and triggered other questions. Should a state be reimbursed for military costs that Congress never requested? What about Southern states with poor records of their wartime spending?23
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