Jefferson also may have noticed that on August 21, the Gazette of the United States had published a story that cast the French Revolution in the worst possible light. The report dealt with the National Assembly’s decision to pass a bill, depriving King Louis XVI of the power to declare war or negotiate peace. “Fifty thousand persons surrounded the place of meeting,” the story declared. “Had the decision been different, bloodshed and carnage would probably have been the consequences.” Jefferson could not have been pleased with this assertion that the Paris mob was now part of the legislative process. He would have disliked it even more if he knew that, henceforth, editor John Fenno would print almost nothing but bad news about the French Revolution thanks to orders—and cash—from Secretary Hamilton.12
Many years later, Jefferson called this agreement with Hamilton the worst mistake of his political life. “I was duped into it by the Secretary of the Treasury and made a tool for forwarding his schemes, not then sufficiently understood by me.” The latter part of the statement is especially hard to believe. If the Secretary of State somehow failed to understand what Hamilton was doing, he was in daily conversation with Congressman Madison, who would have been more than willing to explain it to him.
On December 6, 1790, the politicians gathered in Philadelphia to resume governing. President George Washington made financier Robert Morris’s mansion his official residence. The house was surrounded by brick walls that guaranteed some much needed privacy. Congress took up its task in the Pennsylvania State House (now Independence Hall) on Chestnut Street. The congressmen relaxed in sixty-five armchairs upholstered in black leather, while the senators chose red Morocco affixed to the frame with shiny brass tacks.13
A visitor would have been inclined to think James Madison still exercised decisive influence with George Washington. Functioning as chief ghostwriter, he composed the President’s message to Congress, in which he recommended “encouragements to our Navigation as well to render our commerce less dependent upon foreign bottoms.” Once more, Madison replied to the message, in which he had the pleasure of enthusiastically agreeing with his own words. Topping off this seemingly irresistible arrangement, he also wrote the President’s reply, in which he looked forward to “the happiest consequences” from their coming deliberations.14
Secretary of State Jefferson had meanwhile handed Madison a series of reports that were part of a prearranged plan to ram through tough new legislation against Great Britain. First came a tart narrative describing how the British had left Gouverneur Morris, the special envoy President Washington had sent to England, stewing in London for months, never answering his attempts to negotiate a settlement of the disagreements about the western forts and other matters. The Secretary of State recommended that there should be no attempt to reopen this failed conversation until America was in a position to enforce her demands.
Two weeks later came a report on the sad condition of America’s Mediterranean trade, thanks to the depredations of Muslim pirates in Algeria and elsewhere along the coast. Jefferson condemned Great Britain for its policy of paying bribes to these countries to exempt her ships from such attacks. Next came a report on the nation’s fishing industry, which had never recovered from its virtual extinction by British warships during the Revolutionary War. The business was still languishing because England either placed high import duties on its catches or excluded them entirely.
The Secretary of State made it clear that the answer to these irritations and insults was a congressional tonnage law, which would favor French ships over British ones by raising import duties on the ships of any country that did not have a reciprocal treaty with the United States to reduce tariffs.
Alas, neither President Washington’s warm words in his opening address to Congress nor the wealth of facts that the hardworking Secretary of State poured into these reports produced even a glimmer of a response from Congress. Jefferson and his covert partner, Congressman Madison, could only watch in dismay while the national legislature was again absorbed and divided by two new proposals from the Secretary of the Treasury, a taxation program on “whiskey and other domestic spirits”—and a proposal for a national bank.
It was a toss-up which disturbed Senator William Maclay more. He predicted revolutionary resistance to the liquor tax in the hills and valleys of western Pennsylvania. As for a national bank, it could only be described as the ultimate outrage in Hamilton’s attempt to turn America into an outpost of London. No one agreed with the latter accusation more vehemently than Secretary of State Thomas Jefferson. For him, American politics was rapidly becoming a conspiracy that threatened both the virtuous agricultural republic he saw as the nation’s destiny—and his beloved revolution in France.
CHAPTER 9
From Disagreements to the First Divide
IT HARDLY NEEDS SAYING that President Washington’s attitude toward these two new proposals was a crucial factor in their destiny in Congress. He had little difficulty favoring the tax on whiskey. Most people, including Thomas Jefferson and James Madison, seemed to think it was a relatively painless way to increase the flow of revenue into federal coffers. Hamilton’s argument that the money would enable the government to pay its current expenses and make regular payments on the national debt had considerable appeal.
There was a fair amount of debate on the subject. Albert Gallatin, a newly elected congressman from western Pennsylvania, joined Senator Maclay in warning that the measure would lead to violent protests. But the whiskey tax passed the House and Senate with comfortable majorities early in 1791.
The Bank of the United States was another matter. There was nothing in the Constitution empowering Congress to launch a bank. Nevertheless, Washington favored the idea. He had not mastered all the intricacies of Hamilton’s bank, but he was a believer in banks as a crucial way to concentrate a nation’s economic strength. During the darkest years of the Revolution, 1780–81, when the nation’s currency collapsed and the Continental Army faced starvation, Philadelphia’s Bank of North America had issued notes that retained their face value and were used to purchase vital supplies and equipment for the army.1
The Bank of the United States was a great deal more complex than the Bank of North America, or the Bank of New York, which Alexander Hamilton had helped to found in his home city. In his proposal to Congress, the Secretary of the Treasury called it “a great engine of state.” President Washington’s tacit approval was well-known, and this may have had much to do with the way the proposal passed the Senate almost casually, with a voice vote.
In the House of Representatives, a very different scene transpired. James Madison, still the acknowledged leader of this branch of the legislature, took the floor and shocked President Washington and Secretary Hamilton by opposing—and then denouncing—the idea. For a whole day, Madison lectured his fellow congressmen on what was wrong with the proposal. In essence, he argued that the absence of any mention of a bank in the Constitution meant that the framers of the national charter never intended to give the federal government the right to create such an entity.2
No one was more astonished by this denunciation than Alexander Hamilton. During the Constitutional Convention, Madison had proposed giving Congress the power to charter banks and other corporations. The delegates had rejected the proposal. Now he cited this rejection but coolly neglected to mention that he had been the author of the proposal. In his Federalist Papers essays, Madison had ignored this earlier disapproval and repeatedly insisted there were implied powers in the Constitution that gave Congress the ability to deal with many aspects of federal governance.
Congressman Elias Boudinot of New Jersey was among a number of listeners who did not hesitate to remind Madison of his previous stance. Boudinot read aloud the words from Madison’s essay, Federalist No. 44: “There must necessarily be admitted powers by implication unless the Constitution descended to every minutia…No axiom is more clearly established in law or in reason that whenever the end is required, the means are authorized
; whenever a general power to do a thing is given, every particular power for doing it is included.” Thus the Constitution gave Congress the power to regulate the nation’s commerce. Secretary Hamilton saw the Bank of the United States as an essential tool in this crucial task.3
The House of Representatives agreed with Boudinot and Madison’s other critics, who openly mocked his sudden transformation to a “strict” or literal interpreter of the Constitution he had done so much to create. The bill chartering the Bank of the United States passed the House by almost a two-to-one margin—39 to 20. But this victory, immensely pleasing to Hamilton, soon became only the first act in a drama that would alter America’s history.
President Washington, with his acute concern for the nation’s unity, was alarmed to note that almost all the congressmen from states north of the Potomac River backed Hamilton’s brainchild, while most of the southerners opposed it. Washington asked the lawyers in his cabinet, Secretary of State Jefferson and Attorney General Randolph, to give him their opinion of the bank bill. Soon the President had a strenuous essay by Jefferson on his desk, denouncing the bank with far more vehemence than Madison had exhibited in the House of Representatives. The Secretary of State insisted that permitting the federal government to exercise such an unspecified power could launch the nation toward a centralized federal tyranny.
“To take a single step beyond the boundaries…specifically drawn around the powers of Congress is to take possession of a boundless field of power, no longer susceptible of any definition,” the Secretary of State warned. Any extension of Congress’s delegated powers had to be truly necessary. Otherwise, the American government would soon become a mirror image of the British model, where the King and Parliament regularly chartered corporations which enriched a privileged few. Jefferson backed up his arguments with a copy of Madison’s speech to the House of Representatives.4
Attorney General Randolph came to the same conclusion in a far less emotional essay. Washington, obviously upset, sent these opinions to Secretary Hamilton and asked him to reply to them. His covering letter was cold, almost curt, suggesting a loss of faith in Hamilton as an interpreter of the Constitution. Simultaneously, the President asked Madison to prepare a veto message—a glimpse of which way he thought the argument was going.
Literally working day and night, in the next seven days Hamilton produced a fifteen thousand-word treatise that has become one of the most important documents in America’s legal and political history. At its climax, he summed it up in a single triumphant sentence: It is not to be denied that there are implied as well as express powers in the Constitution and the former are as effectually delegated as the latter. Supporting strict construction, as Jefferson and Madison were doing—arguing that all extensions of government power had to pass a test of being “absolutely necessary”—was madness, Hamilton maintained. It would soon leave the United States with a malfunctioning and ultimately, a nonfunctioning federal government. The states would eagerly rush to fill the power vacuum and would soon reduce federal authority to its pitiful condition under the Articles of Confederation.5
In every sense of the word, Hamilton’s argument was historic. He simultaneously justified the Bank of the United States and created a rationale for future exercises of federal power that has enabled the United States to function as a nation. President Washington read Hamilton’s essay and signed the Bank of the United States into law the following day.
This was the moment when Jefferson and Madison began seeing the President as a mere tool in Hamilton’s hands. There are strong reasons to challenge this conclusion. Washington was not a man who submitted to anyone’s supposed expertise. He had disagreed strongly with Hamilton more than once in earlier years. Once the Secretary convinced him that the Bank of the United States was constitutional, he had no further objections to it. Unlike his fellow Virginians, the President had no difficulty seeing the bank as a dynamic commercial force that would help unite the new nation.
Washington was not in the least bothered by the BUS’s similarity to the Bank of England. Unlike Jefferson, the President’s view of the mother country was remarkably free of hostility. At a dinner Washington gave for British officers after they surrendered at Yorktown, one of them boldly offered a toast to “The King.” Washington raised his glass and added: “Of England. Confine him there and I’ll drink him a full bumper.”6
A few months after the Bank of the United States became law, a delighted President told one of his closest friends: “Our public credit stands on the ground which three years ago it would have been considered a species of madness to have foretold.” Thomas Jefferson and James Madison remained violently opposed to the bank. They saw it as an institution designed to enrich the wealthy—and warned it was tempting Americans to risk their money and their peace of mind in what Jefferson called “an appetite for gambling.” Madison described the welcome that the bank received as “a mere scramble for public plunder.”7
In the spring of 1791, largely unaware that there was a deepening clash among his cabinet and close advisors, President Washington decided to take a trip through the southern states. He wanted to show the citizens below the Potomac that the President had the same concern for their welfare as he had displayed for the New Englanders the year before. He also wanted to reassure the southerners that signing the bank bill did not mean he was aligned with a so-called “northern phalanx” that, according to some Virginians, was conspiring to seize control of the government.
The trip was no small task. The President’s itinerary covered 1,826 miles—a huge distance to traverse by horseback and coach. At every stop there were parades, rallies and dinners, at which he had to appear both affable and presidential to hundreds of strangers. The military side of Washington’s character came to the fore. Every day was planned in advance; he let neither rain nor dust-choked roads delay him. His reward was the enormous enthusiasm with which people greeted him everywhere.
At Wilmington, North Carolina, “an astonishing concourse of people” included hundreds of women waving from windows and balconies. At a ball that night, the President was greeted by sixty-two beautifully gowned and coiffed ladies. Simultaneously, he played politics, telling a group of Freemasons led by war hero Mordecai Gist how pleased he was by their statement of support for “our equal government.” The adjective was not chosen by accident.
Similar welcomes took place in every city. Washington returned home convinced that the people of the South “appeared to be happy, contented and satisfied” with the federal government. By and large, he found the region prosperous and peaceful with no evidence of hostility to the whiskey tax, the funded debt, or the Bank of the United States.8
Only when the President returned to Philadelphia did he discover that not everyone approved of his trip. The most outspoken was a new voice on the newspaper scene, Benjamin Franklin Bache. This grandson of the Founding Father had launched the General Advertiser, with an undisguised tilt toward the French Revolution and a hostility to any and all tendencies in American politics that so much as hinted at a British model. Bache thought Washington’s tour smacked of the “royal progress” of a king and denounced the “incense” of admiring addresses that greeted the President in every city. He was aware that people were expressing their admiration for “the defender of the liberty of our country,” but insisted that it all “favors too much of monarchy to be used by republicans.”9
Shares in the Bank of the United States went on sale on July 4, 1791, in Philadelphia, New York, and Boston. Rumors had convinced not a few people that the government would pay 12 percent interest. Swarms of investors stormed the Treasury offices in Philadelphia and 26,200 would-be buyers entered bids. The shares sold out within an hour. To widen participation, Hamilton marketed the $400 shares (about $6,000 in today’s money) piecemeal; a would-be investor could pay only $25 for a document called “scrip,” which entitled him to buy a certain number of shares, for which he would have to pay in full in eighteen months.10
For the first month, the price of scrip remained within reasonable bounds. But early in August, it zoomed into the stratosphere. Some people began calling the frenzied market “scrippomania.” One friend warned Hamilton that the entire city of New York had become infected with gambling fever. Artisans were deserting their shops, storekeepers were auctioning off their goods to raise cash, and not a few merchants had abandoned their normal business routines to speculate in scrip. Another eyewitness said the city of Philadelphia had become “a great gaming house” with everyone from “merchants to clerks” betting on the soaring scrip. An alarmed Hamilton foresaw the danger of a bubble. He had already warned against “extravagant sallies of speculation” that could injure “the whole system of public credit” that he was struggling to create.11
With President Washington’s approval, Hamilton decided he had to intervene. He began “talking down” the price of scrip, telling several people he thought it was dangerously overvalued. Next he published a statement in The Gazette of the United States, signed by “A Real Friend to Public Credit,” warning that the price of scrip was much too high and certain to decline. Next, he ordered the cashier of the Bank of New York to buy $150,000 in government securities. The fever in scrip began to abate.
Nevertheless, Thomas Jefferson predicted serious damage to America’s social order. He was convinced that a tailor whose scrip had made him several thousand dollars in a single day would never be willing to work for ordinary wages again. Congressman Madison, who was in New York when the investment fever was raging there, told Jefferson the speculators were all “stockjobbers and tories.” Jefferson’s comments were equally abusive. In one letter, he told Madison: “Several merchants from Richmond (Scotch, English, etc.) were here [in Philadelphia] lately. I suspect it was to dabble in federal filth.”12
The Great Divide Page 13