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History of the United States by Charles A. Beard and Mary R. Beard

«·THE CLASH OF POLITICAL PARTIES · The Rise of Political Parties·»

The Men and Measures of the New Government

Friends of the Constitution in Power.—In the first Congress that assembled after the adoption of the Constitution, there were eleven Senators, led by Robert Morris, the financier, who had been delegates to the national convention. Several members of the House of Representatives, headed by James Madison, had also been at Philadelphia in 1787. In making his appointments, Washington strengthened the new system of government still further by a judicious selection of officials. He chose as Secretary of the Treasury, Alexander Hamilton, who had been the most zealous for its success; General Knox, head of the War Department, and Edmund Randolph, the Attorney-General, were likewise conspicuous friends of the experiment. Every member of the federal judiciary whom Washington appointed, from the Chief Justice, John Jay, down to the justices of the district courts, had favored the ratification of the Constitution; and a majority of them had served as members of the national convention that framed the document or of the state ratifying conventions. Only one man of influence in the new government, Thomas Jefferson, the Secretary of State, was reckoned as a doubter in the house of the faithful. He had expressed opinions both for and against the Constitution; but he had been out of the country acting as the minister at Paris when the Constitution was drafted and ratified.

An Opposition to Conciliate.—The inauguration of Washington amid the plaudits of his countrymen did not set at rest all the political turmoil which had been aroused by the angry contest over ratification. “The interesting nature of the question,” wrote John Marshall, “the equality of the parties, the animation produced inevitably by ardent debate had a necessary tendency to embitter the dispositions of the vanquished and to fix more deeply in many bosoms their prejudices against a plan of government in opposition to which all their passions were enlisted.” The leaders gathered around Washington were well aware of the excited state of the country. They saw Rhode Island and North Carolina still outside of the union.[1] They knew by what small margins the Constitution had been approved in the great states of Massachusetts, Virginia, and New York. They were equally aware that a majority of the state conventions, in yielding reluctant approval to the Constitution, had drawn a number of amendments for immediate submission to the states.

The First Amendments—a Bill of Rights.—To meet the opposition, Madison proposed, and the first Congress adopted, a series of amendments to the Constitution. Ten of them were soon ratified and became in 1791 a part of the law of the land. These amendments provided, among other things, that Congress could make no law respecting the establishment of religion, abridging the freedom of speech or of the press or the right of the people peaceably to assemble and petition the government for a redress of grievances. They also guaranteed indictment by grand jury and trial by jury for all persons charged by federal officers with serious crimes. To reassure those who still feared that local rights might be invaded by the federal government, the tenth amendment expressly provided that the powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively or to the people. Seven years later, the eleventh amendment was written in the same spirit as the first ten, after a heated debate over the action of the Supreme Court in permitting a citizen to bring a suit against “the sovereign state” of Georgia. The new amendment was designed to protect states against the federal judiciary by forbidding it to hear any case in which a state was sued by a citizen.

Funding the National Debt.—Paper declarations of rights, however, paid no bills. To this task Hamilton turned all his splendid genius. At the very outset he addressed himself to the problem of the huge public debt, daily mounting as the unpaid interest accumulated. In a Report on Public Credit under date of January 9, 1790, one of the first and greatest of American state papers, he laid before Congress the outlines of his plan. He proposed that the federal government should call in all the old bonds, certificates of indebtedness, and other promises to pay which had been issued by the Congress since the beginning of the Revolution. These national obligations, he urged, should be put into one consolidated debt resting on the credit of the United States; to the holders of the old paper should be issued new bonds drawing interest at fixed rates. This process was called “funding the debt.” Such a provision for the support of public credit, Hamilton insisted, would satisfy creditors, restore landed property to its former value, and furnish new resources to agriculture and commerce in the form of credit and capital.

Assumption and Funding of State Debts.—Hamilton then turned to the obligations incurred by the several states in support of the Revolution. These debts he proposed to add to the national debt. They were to be “assumed” by the United States government and placed on the same secure foundation as the continental debt. This measure he defended not merely on grounds of national honor. It would, as he foresaw, give strength to the new national government by making all public creditors, men of substance in their several communities, look to the federal, rather than the state government, for the satisfaction of their claims.

Funding at Face Value.—On the question of the terms of consolidation, assumption, and funding, Hamilton had a firm conviction. That millions of dollars’ worth of the continental and state bonds had passed out of the hands of those who had originally subscribed their funds to the support of the government or had sold supplies for the Revolutionary army was well known. It was also a matter of common knowledge that a very large part of these bonds had been bought by speculators at ruinous figures—ten, twenty, and thirty cents on the dollar. Accordingly, it had been suggested, even in very respectable quarters, that a discrimination should be made between original holders and speculative purchasers. Some who held this opinion urged that the speculators who had paid nominal sums for their bonds should be reimbursed for their outlays and the original holders paid the difference; others said that the government should “scale the debt” by redeeming, not at full value but at a figure reasonably above the market price. Against the proposition Hamilton set his face like flint. He maintained that the government was honestly bound to redeem every bond at its face value, although the difficulty of securing revenue made necessary a lower rate of interest on a part of the bonds and the deferring of interest on another part.

Funding and Assumption Carried.—There was little difficulty in securing the approval of both houses of Congress for the funding of the national debt at full value. The bill for the assumption of state debts, however, brought the sharpest division of opinions. To the Southern members of Congress assumption was a gross violation of states’ rights, without any warrant in the Constitution and devised in the interest of Northern speculators who, anticipating assumption and funding, had bought up at low prices the Southern bonds and other promises to pay. New England, on the other hand, was strongly in favor of assumption; several representatives from that section were rash enough to threaten a dissolution of the union if the bill was defeated. To this dispute was added an equally bitter quarrel over the location of the national capital, then temporarily at New York City.

First United States Bank at Philadelphia
From an old print
First United States Bank at Philadelphia

A deadlock, accompanied by the most surly feelings on both sides, threatened the very existence of the young government. Washington and Hamilton were thoroughly alarmed. Hearing of the extremity to which the contest had been carried and acting on the appeal from the Secretary of the Treasury, Jefferson intervened at this point. By skillful management at a good dinner he brought the opposing leaders together; and thus once more, as on many other occasions, peace was purchased and the union saved by compromise. The bargain this time consisted of an exchange of votes for assumption in return for votes for the capital. Enough Southern members voted for assumption to pass the bill, and a majority was mustered in favor of building the capital on the banks of the Potomac, after locating it for a ten-year period at Philadelphia to satisfy Pennsylvania members.

The United States Bank.—Encouraged by the success of his funding and assumption measures, Hamilton laid before Congress a project for a great United States Bank. He proposed that a private corporation be chartered by Congress, authorized to raise a capital stock of $10,000,000 (three-fourths in new six per cent federal bonds and one-fourth in specie) and empowered to issue paper currency under proper safeguards. Many advantages, Hamilton contended, would accrue to the government from this institution. The price of the government bonds would be increased, thus enhancing public credit. A national currency would be created of uniform value from one end of the land to the other. The branches of the bank in various cities would make easy the exchange of funds so vital to commercial transactions on a national scale. Finally, through the issue of bank notes, the money capital available for agriculture and industry would be increased, thus stimulating business enterprise. Jefferson hotly attacked the bank on the ground that Congress had no power whatever under the Constitution to charter such a private corporation. Hamilton defended it with great cogency. Washington, after weighing all opinions, decided in favor of the proposal. In 1791 the bill establishing the first United States Bank for a period of twenty years became a law.

The Protective Tariff.—A third part of Hamilton’s program was the protection of American industries. The first revenue act of 1789, though designed primarily to bring money into the empty treasury, declared in favor of the principle. The following year Washington referred to the subject in his address to Congress. Thereupon Hamilton was instructed to prepare recommendations for legislative action. The result, after a delay of more than a year, was his Report on Manufactures, another state paper worthy, in closeness of reasoning and keenness of understanding, of a place beside his report on public credit. Hamilton based his argument on the broadest national grounds: the protective tariff would, by encouraging the building of factories, create a home market for the produce of farms and plantations; by making the United States independent of other countries in times of peace, it would double its security in time of war; by making use of the labor of women and children, it would turn to the production of goods persons otherwise idle or only partly employed; by increasing the trade between the North and South it would strengthen the links of union and add to political ties those of commerce and intercourse. The revenue measure of 1792 bore the impress of these arguments.

«·THE CLASH OF POLITICAL PARTIES · The Rise of Political Parties·»