The implementation of the bargain was relatively smooth. The residence legislation cleared the Senate on the first of July, by two votes; the margin in the House was three votes. Shortly before Washington signed that bill into law, the Senate voted to assume $21.5 million of state debts and to approve the financial settlements with the states. Massachusetts and South Carolina received the largest settlements, $4 million each, but Virginia’s was more than $3 million. In a letter to his father, Madison boasted that Virginia would receive more in reimbursement than its remaining war debt. Over the next two weeks, after Washington signed the residence legislation, the Senate approved the public-credit bill (with assumption) by four votes; in the House vote on that bill, the margin was six votes.25
* * *
A standard test for determining causation for an event is to ask the Latin question “Cui bono?” or “Who benefitted?” Only one of the principal participants in the Compromise of 1790, President Washington, walked away with everything he wanted.
Hamilton secured assumption, but at the cost of placing the residence on the Potomac, an outcome he called “bad.” Jefferson loved winning the Potomac residence, but soon repented his support for the public-credit program: “Of all the errors of my political life, this has occasioned me the deepest regret.” Madison also pushed relentlessly for the Potomac, but opposed assumption.26 Pennsylvanians celebrated the temporary residence in Philadelphia while assuring one another that it would ripen into a permanent arrangement. Massachusetts legislators were elated to secure assumption while hoping that the Potomac residence was too absurd actually to happen. Jefferson wrote of the compromise, “there will be something to displease and something to soothe every part of the Union.”27
Except for Washington. The president won everything he wanted. Assumption was a linchpin of his program to retrieve public credit and strengthen the government. A Potomac residence fulfilled his years of effort to promote his home region. The residence, a Maryland representative exulted, would be worth millions.28
The speculation among Pennsylvanians that the permanent residence might never get to the Potomac was a delusion. No one should have doubted Washington’s ability to make that happen, and to do so at speed. By the end of 1790, he had personally scouted eighty miles along the river and selected the site for the seat of government, unsurprisingly near Mount Vernon. Announcing his choice in January 1791, he appointed three commissioners (all friends) to oversee the project, though he continued to be its driving force. Maryland and Virginia soon ceded jurisdiction over the necessary land and approved funding. Washington retained agents to acquire lands and signed agreements with local property owners. He chose Andrew Ellicott to survey the site, and Peter L’Enfant to design the federal city. In September 1791, the commissioners named the city after him. As Madison had marveled years before when Washington seized hold of the Potomac River improvement project, “The earnestness with which he espouses the undertaking is hardly to be described.”29
Washington largely concealed his deal-making in 1790. Even his private statements were careful.30 Yet Washington’s hand showed when Major Jackson entered negotiations, and in the president’s session with Sedgwick of Massachusetts. Indeed, it showed whenever Hamilton or Jefferson huddled with legislators; both worked at Washington’s direction, and Jefferson portrayed Washington as a chief executive who was entirely in charge. That was always his way. Managing Mount Vernon, acquiring western land, commanding the Continental Army, and leading the Potomac Company, Washington exerted tight control and carefully minded the details. He approached the most important domestic legislation of his presidency the same way.31
In the final balloting, four representatives from Maryland and Virginia and one Maryland senator provided key votes for assumption. Four of those five came from the Potomac valley and had deep ties to Washington: Alexander White had served in the House of Burgesses with Washington, and later became a director of the Potomac Company; Charles Carroll of Carrollton was also involved in the river improvement and had been a member of the congressional Committee in Camp at Valley Forge; Richard Bland Lee was Washington’s congressman and came from the numerous Lee clan of Westmoreland County with whom Washington was intimate; and Daniel Carroll had served with Washington at the Philadelphia Convention. With these men, Washington’s influence was great. The conclusion that he was deeply engaged in the deal-making is buttressed by his response when Daniel Carroll and George Gale of Maryland lost reelection bids because of their support for the residence/assumption bargain. The president promptly appointed both to federal jobs.32
A final point is sometimes lost in this story. Almost all of the contending parties ardently pursued their regional interests. New Englanders needed assumption to bail out their state governments, while Northerners held a huge share of the outstanding state debts, making assumption essential to them. Southerners seethed over the profits that would flow to Northerners from the public-credit program. That resentment fueled Southern demands for the residence, which they expected would give them both material benefits and enhanced political power.33 By guiding and providing essential support for the Compromise of 1790, Washington ensured that each region won something, helping to reconcile North and South and strengthen the union.
That Washington never publicly or privately exulted in his deft navigation through these vexing issues is not surprising. He did not value either transparency or self-congratulation. In mid-June 1790, when the politicking was at its height, the French minister to the United States reported about the president, “Nobody has ever been more impenetrable than General Washington. Even the people who constantly surround him know his way of thinking only by the orders he gives.”34
When Congress adjourned at the end of summer 1790, Washington sailed to Rhode Island to welcome the tardiest state into the union. Worn by the congressional session and his acute illness three months before, Washington longed for Mount Vernon, where he wished to “have my mind as free from public cares . . . as circumstances will allow.”35 On August 30, after the usual pomp and booming cannon tributes, he left for home.
Chapter 45
The Bank
Washington knew about credit and debt. As a young man, he had fenced with British merchants over his own debts. Many of his peers had staggered under debt; some crumbled. Friends borrowed money from him; some reneged. To sustain himself while serving as president, he borrowed from wealthy men. Like most of his countrymen, however, he had little experience of banks. In 1780, Robert Morris had established the first bank in America.1 Nine years later, two more were operating. All served the wealthy and commercially sophisticated.
As the government moved to its temporary residence in Philadelphia in late 1790, a proposal to establish a publicly sponsored bank—the Bank of the United States—became the president’s next political challenge. His response would define the government’s powers under the Constitution.
* * *
The Washingtons’ new home in Philadelphia was familiar—the former home of Robert and Mary Morris, where Washington stayed during the Constitutional Convention. Washington showered his staff with instructions for the move.2
Although the mansion at Market and Sixth Streets was grand for its time, it bulged with the Washington family and retainers: Martha and the president, two grandchildren, four secretaries (one with a wife), valets, coachmen, footmen, porters, maids, and housekeepers (many enslaved), plus some family members of staff. Washington never complained about the close quarters, a silence sometimes attributed to his wish to avoid spurring the construction of a new presidential home that might threaten relocating the residence to the Potomac. Philadelphia actually built that new residence anyway, but Washington never moved in.3
Philadelphia aimed to please the new government. The city repealed its ban on theatrical performances, allowing the president to indulge in his favorite entertainment. The county courthouse, next to the State House, became Congress Hal
l, with the Treasury and State Departments nearby. On February 22, the celebration of Washington’s fifty-ninth birthday mimicked the traditional observance of the king’s birthday: a public dinner, a ball, and rounds of “huzzahs.”4
Washington’s years of physical activity were taking their toll, at least to Senator Maclay’s eye. “His frame would seem to want filling up,” the Pennsylvanian wrote after dinner with the president, “his motions rather slow than lively . . . his complexion pale nay almost cadaverous. His voice hollow and indistinct, owing, as I believe, to artificial teeth before his upper jaw.”5
Yet when Washington delivered his annual address on December 8, 1790, the astringent Maclay conceded that he performed “well enough, or at least tolerably.” Before the combined houses of Congress, Washington reported that “the abundant fruits of another year have blessed our country with plenty.” He praised growing trade, credit improvement, and public revenues above projections. He called for legislation to organize the militia, a national mint, and the post office.6
The address slighted important questions. Washington mentioned Indian unrest near the Wabash River, but not reports that an expedition had met a bloody defeat there. Neither did he refer to the proposal for a national bank that Congress soon would address. The omissions reflected his understanding of the power of information, which he released to suit his purposes, and also his instinct to skirt controversial matters in order to tamp down forces of disunion.7
Hamilton presented the proposal for the Bank of the United States as part of Congress’s establishment of public credit, and separately urged a new excise tax on whiskey to pay for the interest on the assumed state debts. His report—as approved by Washington—called the bank “an institution of primary importance.” The United States, it asserted, had so little currency that some communities relied on barter, throttling economic activity. The report offered a primer on banking, and promised three principal benefits from the proposed bank. First, its notes would function as money and lubricate commercial transactions. Second, its loans to the government would help the nation through crises. And third, it would smooth the collection of tax revenues.8 The United States would hold one-fourth of the bank’s stock and name some directors. The remaining stock and a majority of the board would be private.
Southern legislators feared that a Philadelphia-based institution might anchor the residence in that city, preventing its transfer to the Potomac, while others saw the bank as centralizing power. Legislators from frontier regions disliked the whiskey tax because western farmers distilled a substantial share of their grain into liquor for eastern markets. After lively debates, Congress passed both measures by wide margins.9
Madison, the nation’s leading lawmaker and one who still had the president’s ear, supported the whiskey tax but challenged the bank with a novel argument: that it was beyond Congress’s powers. The constitutional argument did not faze most congressmen, but it unsettled the politically astute president when it was time for him to sign the legislation. At the same time, legislation was pending before the Senate that would add Alexandria to the new federal district, affirming Washington’s selection of the site for the new seat of government. Northern lawmakers still disliked a Potomac residence, though they wanted the bank legislation. Once again, Northerners and Southerners were lined up on different sides of two questions at the same time. Another bargain, this one implicit, was before them.10
As presented by Madison, the bank legislation raised a core question about government power. The Constitution allowed Congress to legislate on subjects listed in Article I, Section 8, such as levying taxes, borrowing money, and regulating commerce. That list of “enumerated” powers did not include chartering a bank, or even creating a corporation. Indeed, at the Constitutional Convention, a delegate had argued that Congress should be able to create corporations, but his proposal was not adopted. By what intellectual alchemy, Madison asked, could Congress nevertheless create this bank corporation?11
For all of its intellectual elegance, Madison’s argument marked a reversal of his view of congressional powers only three years before. An awkward moment for him arose during the debates when a New Jersey congressman read a passage from the forty-fourth essay in The Federalist, one Madison had written (though his authorship was not known at the time). In that passage, Madison had declared that Congress held powers not enumerated in Article I, Section 8 because that provision granted a catchall power to make “all laws which shall be necessary and proper for carrying into execution” the enumerated powers. “No axiom is more clearly established in law, or in reason,” Madison wrote in The Federalist, “than that wherever the end is required, the means are authorized; wherever a general power to do a thing is given, every particular power necessary for doing it, is included.”12
* * *
The constitutionality of the bank was the type of question that made Washington regret his limited education. Years as a justice of the Fairfax County Court had not prepared him for constitutional argument. He readily understood, however, the political crosswinds he faced. His administration had proposed the bank, with his blessing. Vetoing the bill would be a repudiation of his treasury secretary, who likely would resign. In his annual message, Washington had applauded the revival of public credit, which many attributed to Hamilton, whose resignation would be a terrible upheaval early in the life of the government.
But the constitutional objection came from Madison, Washington’s closest political confidant since he had resigned from the army, a man whose judgment and learning he respected. Moreover, most of the bank’s opponents were Southerners; signing the bill would aggravate divisions between North and South. The worst outcome would be to veto the bill but watch Congress override his veto. That would show that he lacked confidence in Hamilton, while also making himself appear politically weak.
Many years later, Madison remembered having “several free conversations” with the president on the constitutional issue. Washington, he recalled, “was greatly perplexed,” believing that the bank would be useful. Though the president was inclined to a broad construction of national powers, he also knew from the ratification debates that many delegates had feared a powerful federal government. Although Washington never agreed that the bank was unconstitutional, Madison thought he “listened favorably.”13
Washington placed the issue before Attorney General Randolph, who submitted two written opinions endorsing Madison’s objections. Randolph’s opinions were workmanlike but uninspiring; at least, they failed to inspire the president. So Washington, who had only ten days in which to decide whether to sign or veto, asked for his secretary of state’s view. Though Jefferson had been in France during the Philadelphia Convention and the ratification process, Washington respected his abilities.14
Jefferson responded swiftly. His written opinion began by discussing common-law issues that were not all that relevant, then cited what is now the Tenth Amendment to the Constitution, which was then pending before the state legislatures for ratification. Jefferson emphasized that this amendment, though not yet in effect, reserved to the states or to the people “all powers not delegated” to Congress. “To take a single step beyond the boundaries thus specially drawn around the powers of Congress,” he wrote, “is to take possession of a boundless field of power, no longer susceptible of any definition.”
Jefferson thus insisted that no enumerated power authorized the bank legislation because the bill laid no taxes, borrowed no money, and regulated no commerce. On the most delicate question—whether the bank legislation might be deemed “necessary and proper” to support those activities—Jefferson noted that each could be performed without a national bank. That the bank might facilitate them, he reasoned, was mere convenience. Convenient, he argued, was not “necessary.” Jefferson continued with passion:
Can it be thought that the Constitution intended that for a shade or two of convenience, more or less, Congress should be a
uthorized to break down the most ancient and fundamental laws of the several states[?] . . . Nothing but a necessity invincible by any other means, can justify such a prostration of laws which constitute the pillars of our whole system of jurisprudence.
In tacit recognition that Washington generally leaned toward vigorous government action, Jefferson concluded that if the president found the constitutional issue uncertain, he should consider deferring to Congress and signing the legislation.15
On the day after receiving Jefferson’s opinion, Washington sent it to Hamilton, together with Randolph’s, asking for a response. Time was short, and Hamilton faced an uphill climb. Not only was he confronting the massed opinion of Washington’s Virginia friends, but the president already had on his desk two draft veto messages he had asked Madison to prepare.16 Hamilton had, however, one great advantage: By weighing in last, he could answer the contentions of his opponents. He took five days to prepare his response, working through the night to complete it. Though that left Washington little time to evaluate the arguments, Hamilton’s answer was powerful.
He drove immediately into the Virginians’ weakest point: whether Congress held powers “implied” by the Constitution, which had been Madison’s subject in Federalist No. 44. Although the Constitution granted no express power for Congress to create a corporation or a bank, Hamilton insisted that it could do so in the course of exercising another power that was enumerated. He illustrated his point by noting that Congress could not create a corporation to direct the Philadelphia police, having no power whatever over city police. But, he continued, it could establish corporations to collect taxes or assist with foreign trade, subjects within its enumerated powers.
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