Flight of the Eagle. Conrad Black
plan came in three main proposals from January 1790 to March 1791: foreign debt, mainly in the hands of the former French and Dutch allies, was reckoned at $11.7 million, and was to be honored entirely with payment in guaranteed interest-bearing notes. The domestically held debt of the defunct Confederation and the states was estimated at about $67 million, and all of this was to be “assumed,” which meant placed in a sinking fund where it would yield interest and be retired eventually. Hamilton had softened the onerousness of these assumptions of debt by quietly buying some of it at heavily discounted prices, but it was a very controversial plan. There was general agreement on the foreign debt but the uneven distribution of state debt led to fierce debate and it was initially narrowly rejected by the House of Representatives at the urging of Madison, but Hamilton arranged with Madison, in a deal brokered by Jefferson, that the debt-assumption proposals would be accepted in exchange for moving the capital of the country from Philadelphia to a new site on the Potomac adjacent to Virginia.
This instantly gave the U.S. government a respected fiscal status, competitive with the stronger European nations, put a lot of money in the hands of the administration’s grateful friends, presaged a number of Keynesian and monetarist policies of 130 to 150 years later, created a lively American capital market, subordinated the states to the central government, and deprived the states of much of their argument for access to tax revenues, as their debt vanished.
Hamilton’s second measure was the establishment of the Bank of the United States as the handler of large money transfers, the manager of the national debt, principal institutional lender, and issuer of supplementary currency as debt certificates. This generated heated constitutional argument with Jefferson, who considered it ultra vires to the government, but Hamilton’s view of the “implicit powers” of the government prevailed with Washington and Congress. Only 35 at this time, Hamilton, who had caught Washington’s attention as a young volunteer from the West Indies early in the Revolutionary War, was undoubtedly a man of genius, as all his contemporaries, including worldly figures such as the timeless French foreign minister, Talleyrand, agreed. Almost at a stroke he massively reinforced the basis of American government and union and planted the fast-growing seeds of American finance and the transition from an agricultural to an industrial economy, events that would change and astonish the whole world. A mint was established in January of 1791 to give America its own coinage and end the miscellaneous circulation of British, French, Spanish, and even German currency in America.
To ensure adequate revenue to deal with the debt assumption and the operations of the federal government, Hamilton proposed tariffs (with the additional benefit of stimulating manufacturing) and excise taxes, including a tax on distilled spirits. The tax fell heavily on the hinterland agricultural communities, as this was the chief destination of unsold grain for the distillation of spirits, and was strenuously challenged and often defied, in the Carolinas and Pennsylvania especially, and eventually led (in July 1794) to the Whiskey Rebellion in western Pennsylvania. Washington mobilized 15,000 militiamen, and under General Henry Lee, accompanied by former colonel Hamilton, the disobedience was suppressed. Two men were convicted of treason, but pardoned by Washington. The effect of these measures, including the unambiguous enforcement of the excise taxes, was to establish the unquestioned authority of the United States government as a fiscally responsible national administration that soon had a better international credit rating than the main European powers, and as an unchallengeably authoritative occupant of its constitutional jurisdictions, whose writ would run in all matters and throughout the land.
Hamilton’s proposed measures for encouraging manufacturing were not immediately adopted, but were very prescient and even visionary. In a report of nearly 100,000 words, Hamilton outlined proposals that went beyond the House of Representatives’ request for a plan to make the United States independent of foreign sources for military supplies. Hamilton “elaborated his grand vision of a powerful, integrated, and wealthy war-making nation that would be the equal of any in Europe, including Great Britain.”4 The political economy of the Federalists, hinted at in broad strokes by Washington and hammered into detailed proposals fit for legislation by Hamilton, was a fast track to an economic and military powerhouse. Despite the Jefferson-Madison advocacy of a rather bucolic and adjudicatory state, their political astuteness would bring them to the highest offices within a few years, where they were no less nationalistic than their Federalist predecessors. From right to left, country to city, South to North, patricians to the lower bourgeoisie, the small but talented American political class was straining like whippets to attract immigrants, settle the West, build industry, and make America a mighty nation in the world. And there was never the slightest hesitation to include military power and its application as a chief criterion of the new nation’s potential influence.
Washington and his Treasury secretary not only had got control of the debt problem that had been building and festering for nearly 10 years and established a strong currency, but had done so in a manner that was in accord with the adopted Constitution and was susceptible only to technical legal arguments by Jefferson and his followers, but not to comparisons with the unrepresented taxation and high-handed collection measures of the British. Almost at once, the new nation had a solid fiscal regime.
Where Washington desired a rather mystic national commitment to thrift, unity of purpose and sacrifice, with a balance between urban industry and agriculture, and Jefferson professed the greater virtue and desirability of rural life, Hamilton saw clearly the economic future and eschewed laissez-faire capitalism in favor of government participation to encourage centralized government, promotion of manufacturing and heavy industry, and a headlong pursuit of pure capitalism (pure apart from the fact that the government was channeling the direction of its progress). Hamilton saw the huge advantage the British and Dutch had over the other powers because of their private capital markets and sophisticated methods of funding public debt, compared with Colbert’s authoritarian methods of official financial regimentation in France.
Jefferson, though an elitist, favored a broad suffrage. Washington trusted the people less than Jefferson, but wanted them ultimately responsible for their own government, with an edge for more accomplished people, which in practice meant wealthier ones. Hamilton was fairly liberal in matters of civil rights, but was both a monarchist at heart and a meritocratic authoritarian in matters of devising and implementing public policy. Adams the Bostonian, despite his personal and intra-party disputes with Hamilton, partly shared the political and economic designs of the New Yorker, while Madison sided with Jefferson, his fellow Virginia plantation owner. Jefferson’s Enlightenment utopianism based on man’s inert decency and capacity for self-improvement vied with a Hamiltonian blend of Hobbesian cynicism, Adam Smith capitalism, and far-sighted industrialism. As in all things, Washington hovered majestically above it all, seeking excellence in men and policies and making it up as he went along. He thought Hamilton more practical in economic terms, but relied heavily on Madison for adaptation of the Constitution. It must be said that, on balance, the Constitution was so intelligently designed and the principal founders of the country so capable and highly motivated that the United States started its life with four to five decades of what would, in later periods, if not always at the time, be regarded as good government.
Washington had unsuccessfully demanded, and then promised, indissolubility of nationhood, adequate armed forces, fiscal integrity, and an example of incorruptible sacrifice. Having led in the establishment of the new nation, he wished now to do all he could to maximize the likelihood of its swift growth and undisturbed progress among nations, which at that time numbered only the five Great Powers in Europe that came through the Seven Years’ War (Britain, France, Austria, Russia and Prussia), the secondary powers (the Spanish, Portuguese, Ottoman, and Dutch Empires as well as Sweden, Denmark, Switzerland, and a few of the German and Italian kingdoms and principalities), and on rumor and belief, mysterious entities in the East, most conspicuously China. With its house increasingly in order, the United States was already reaching the upper levels of the second tier of powers, as its population passed the level of half of Britain’s at about the end of Washington’s presidency, when it reached 5 million to Britain’s 10 million. And where the old empires were in decline, the United States, glamorized by its revolution and mythologized by the stirring tenor of its originating state papers, was, from its earliest days, a dazzling and steeply ascending comet among nations.
Washington was not trying to lead the Congress