American Experiment (17 page)

Throughout the first year of Congress members were clamoring to get on with the major task of securing the credit of the new United States. Public creditors, especially in Pennsylvania, were demanding support of the national credit, and a committee of sixteen in the House backed them up. This was all the encouragement needed by Hamilton, who had become Secretary of the Treasury in mid-September 1789, to prepare reports on the broadest dimensions of the American economy. Hamilton saw a vital need to honor debts, quicken the national economy through expanded currency and credit, and strengthen the Union by giving businessmen, as well as the educated and professional persons, a vested interest in the political and financial strength of the new government.

As lively, generous, and charming as ever, at least within his own circle, Hamilton continued to impress his fellow politicians with his habit of command, his eloquence, his darting imagination, his ability to stick to principle despite concessions to expediency. He had not only an instinct for leadership but a theory of it. He believed that the leader must risk and dare, venture and strive; that great men could influence history; that the mass of people could not act on their own, but only in response to forceful initiatives and bold innovations from a few men; that in his own case, he
could lead best not by appealing to the masses—an idea he detested—but by galvanizing his immediate followers, who in turn would carry his purposes and ideas to the people. Hamilton was the supreme political venturer; consciously or not, a biographer noted, he seemed to follow Machiavelli’s case for boldness: “for fortune is a woman, and it is necessary, if you wish to master her, to conquer her by force; and it can be seen that she lets herself be overcome by the bold rather than by those who proceed coldly.” Hence fortune, like a woman, was a friend to the young, because they mastered her with greater ferocity. And Hamilton was young.

Certainly his Report on Public Credit was audacious. Not only did he repudiate the idea of repudiating the debt, on the ground that failure to repay was a rejection of public morality and an invitation to anarchy or despotism. He also proposed that the federal government assume the states’ debts contracted during the Revolution, as well as those of the Confederation. And—most provocative of all—he urged that those presently holding securities, rather than the original buyers, be compensated. Thus the foreign and domestic debt would be funded at par, allowing creditors to swap depreciated securities for new interest-bearing bonds at face value. The bearers of these securities had a property right in them, Hamilton said, as in “their houses or their lands, their hats or their coats.” Hamilton had not dreamed up his proposals out of his fertile imagination alone. He had drawn heavily from European and especially British experience, from the writings of philosophers and economists, from extensive correspondence with other leaders, including James Madison. He had won the backing of the President, who had commended the resolve for support of the public credit in his January message to Congress.

It was not enough. The House of Representatives was so dubious about the forthcoming report, and so wary of Hamilton’s persuasiveness with a small body of his peers, that he was not permitted to introduce the report in person, or to answer questions. Soon his proposal to pay off current securities holders was opening partly healed wounds. All the old fears of a dominating national government, of a moneyed elite, of a paradise for speculators, were revived. It was the people against the money men. “America, sir,” cried James Jackson of Georgia, “will not always think as is the fashion of the present day; and when the iron hand of tyranny is felt, denunciations will fall on those who, by imposing this enormous and iniquitous debt, will beggar the people and bind them in chains.” For weeks a steaming debate occupied the House. Hamilton, always the realist, could not have been surprised by a revival of the old issues that had divided Federalists and anti-Federalists. But he was astonished when Madison—Madison, his collaborator on the
Federalist
; Madison, his partner in
conceiving and setting up the new government—turned against major parts of his report. A “perfidious desertion” of principles Madison had sworn to defend, this seemed to Hamilton. But the two men had been drawn into different political and philosophical orbits since the days of the
Federalist
; they now held clashing views over the nature, role, and scope of government.

Dominating the debate too was the politics of sectionalism, for the Southerners, and especially the Virginians, felt that Hamilton’s proposals favored “Eastern” interests over their own. And it was the politics of sectionalism that also rescued the bill. By July, Hamilton’s forces had sustained a series of setbacks in Congress. The arrival of “anti-Federalist” congressmen from North Carolina after that state’s belated ratification further darkened Hamilton’s prospects. Now the political gambler decided to play a strong card. For months New Yorkers, Philadelphians, and Southerners had been jockeying over possession of the permanent site of the nation’s capital. Hamilton now decided to offer support for a “southern” location in exchange for support of his proposals.

It was not easy for the New Yorker to make this concession. He had dreamed of seating the federal government permanently amid the banking and trading community of Manhattan; moreover, he would have to modify his proposals further if the Southerners were to accept the deal. But once Hamilton did decide, the deal was made almost overnight. In August 1790 the essence of Hamilton’s Report on Public Credit was approved by Congress, though by a narrow margin. And the capital would move to Philadelphia for ten years, and then be relocated permanently on the banks of the “Potoumac.”

With the nation’s credit narrowly assured, to Hamilton’s satisfaction but at no little political cost, he moved forward resolutely to the linchpin of his grand economic design—establishment of a powerful national bank. In this field too, the young Secretary was no novice. He had studied with admiration the august Bank of England; he had read the great economists, including Adam Smith, whose
Wealth of Nations
his sister-in-law sent him from abroad; he had been deeply involved in New York banking. In December 1790, Hamilton submitted to the President and to the Congress the second of his carefully drawn reports. Typically he took not a narrow banking approach but a broad fiscal one. Crucial to his plan was assigning to the new bank power over the issuance of bank notes. Money, Hamilton had long argued, was the lifeblood of the economy, and he calculated that a central bank would be strong enough to maintain the necessary supply of money without letting matters get out of hand. The nation’s capital would be augmented by increasing the amount of notes in circulation, by
providing wider use of individual notes, and by collecting individual deposits. At the heart of the plan was a marriage of government and private bankers. The two were so intertwined, in a system of mutual support, that the one was financially and legally implicated with the other. To ensure that the bank would not fall into improper hands—that is, into the hands of radicals who would pump out paper money—Hamilton provided for private stockholders to control most of the stock in the bank and appoint the great majority of directors.

Once again Congress split into warring factions, as Washington glumly watched the further erosion of his government of national unity. The most fiery issue was private control of the bank. The agrarians in Congress raised the old warnings of corruption, control by the rich and wellborn, higher taxes, a mania of speculation. Some also complained that Hamilton’s reports were simply too intricate and complex to be understandable. But part of Hamilton’s task was the education of a people who were still dominated by the notions of small-town economics; and Hamilton’s journalistic supporter John Fenno answered for him:

The Secretary makes reports

Where’er the House commands him;

But for their lives, some members say

They cannot understand him.

In such a puzzling case as this

What can a mortal do?

’Tis hard for
ONE
to find
REPORTS

And understanding too.

Many of the more moderate Republicans and anti-Federalists had to grant Hamilton’s case for a national bank and a stronger system of currency and credit; they too were concerned about the supply and stability of money. Some of them fell back on the constitutional issue—all the more appropriately, perhaps, now that Congress was meeting in Philadelphia, at the site of the constitutional convention itself. The attack on the proposed bank’s constitutionality was led by Madison himself. Speaking in his quiet precise way, but with unsurpassed authority, he reviewed the Constitution and found in it no “power to incorporate a bank”—no power under the authority to lay and collect taxes, none under the power to borrow money, none under the power “to pass all laws necessary and proper to carry into execution those powers.” He reviewed at length the writing and the ratifications of the Constitution and concluded that “the power exercised by the bill was condemned by the silence of the Constitution; was condemned by the rule of interpretation arising out of the Constitution; was condemned
by its tendency to destroy the main characteristic of the Constitution; was condemned by the expositions of the friends of the Constitution…; was condemned by the apparent intention of the parties which ratified the Constitution; was condemned by the explanatory amendments proposed by Congress themselves to the Constitution; and he hoped it would receive its final condemnation by the vote of this House.”

It did not. Beating off crippling amendments, facing down the charges of the irrepressible Jackson that the bill would help the mercantile interests at the expense of “the farmers, the yeomanry of the country,” surmounting almost solid southern opposition, the Federalists held their ranks firmly enough to pass the bill in its essentials. The problem indeed seemed to lie less in Congress than in the President himself. Washington had been troubled by the arguments of his fellow Virginian Madison. Always—and proudly—dependent on the advice of men he respected, the President referred the question of constitutionality to two other Virginians, the Secretary of State and the Attorney General. Both Jefferson and Randolph promptly agreed with Madison that the Constitution gave the federal government no power to establish a banking corporation and that no such authority could be implied in any power expressly given. Washington turned back to Hamilton.

The Secretary rose supremely to the occasion. Undaunted by the constitutional authorities arrayed against him, he wrote one of the notable state papers in American history, boldly laying out a broad construction of the Constitution, calling the bank vital to the collection of taxes and the regulation of trade and other functions clearly within the ambit of federal authority, and—even more sweeping—arguing in effect that the federal government as a sovereign entity had the right to use all means “necessary and proper” to realizing such objectives as were not forbidden by the Constitution. His state paper, written with verve and passion, was a direct link between Hamilton the nationalist of 1787 and the Hamiltonian system that the Secretary was seeking to establish. If sustained, his position could be a precedent for later constitutional decisions. But would Washington sustain it? The President, Hamilton had once said, “consulted much, resolved slowly, resolved surely.” Now Washington, delaying as long as he could, resolved in favor of Hamilton and signed the bank bill.

Though this was a striking victory for Hamilton, the bank still represented only one part of the Federalist thrust in America’s political economy. The House of Representatives had also asked the Secretary of the Treasury for a plan “for the encouragement and promotion of such manufacturers as will tend to render the United States independent of other nations for essential, particularly for military supplies.” As usual, Hamilton
interpreted his mandate in the broadest terms, and in December 1791, after almost two years of collecting and analyzing economic data, he submitted to Congress nothing less than an economic plan for the United States. Protection of struggling young industries—a central concern for the congressmen—was only a part of the plan, and the smaller part to boot. Hamilton and his brilliant Assistant Secretary, Tench Coxe, took an elaborate inventory of the nation’s capacities and needs, evaluated its existing and potential manpower, machinery, energy resources such as water power, and proposed economic measures that would guarantee the nation’s economic unity and industrial power for decades to come. His key proposals were for a variety of governmental aids to business, ranging from bounties for inventions and subsidies to business, to modernized transport and other internal improvements.

Hamilton did not feel bound by dogma; he borrowed from Adam Smith while rejecting most of his laissez-faire philosophy. Nor was he handicapped by sentiment. Coldly but approvingly he evaluated the potential of labor by women and children in factories. Better off there than on the farm! He counted especially on the availability of women for the cotton factories.

It was a superb piece of economic planning. But did it reach the fundamental wants and needs, hopes and expectations of the great mass of Americans, especially in the hinterland, and of the rival politicians who would respond to those basic needs?

Thousands of Americans indeed did not see Hamilton’s program as meeting their deepest needs and hopes. Their primary concerns were rather the religious and political liberties that had brought their forefathers to America, liberties that had received some protection under state bills of rights, liberties they wanted to protect against any possible threat from the new federal government.

Madison turned to drafting a bill of rights as quickly as he could in the first Congress, partly in response to the intense demand, partly to head off anti-Federalists who were pressing for a second general convention. Why not use the new amending process? Madison asked. This alternative required passage by a two-thirds vote in both House and Senate and endorsement by three-quarters of the states—a cumbersome procedure, but Madison was confident that the groundswell of support for a bill of rights would push the amendments through. First he and his colleagues in the House had to deal with more than two hundred amendments submitted by state ratifying conventions. These made up a mixed bag. Many simply wanted to restrict federal power in general. A few were
anti-
civil liberties;
thus from New England came one claim that the prohibition of religious tests in the Constitution would enable “Jews, Turks and infidels” to infest the new government. Others were eloquent on the popular demand for procedural and substantive rights. Out of the grist House leaders refined seventeen amendments. After Senate consideration, a conference between senators and representatives to adjust differences, and consideration by state legislatures, ten amendments emerged. Two of them—the ninth and tenth—reaffirmed the reservation of rights to the states and to the people. Others would secure the right of people to bear arms, to be secure in their homes, to enjoy a host of procedural rights in courts and outside. But the heart of the Bill of Rights lay in the bold and absolute provisions of the first article: