Mr. President (27 page)

Although Washington gave the debut of the new government a glowing review, the unveiling of the American presidency was not an unqualified success. As evidenced by the removal and treaty issues, the Constitution left some questions unanswered, and these would not be the only ones. Other issues were likely to surface, and as they did, they would be debated by Congress, the judiciary, and the public. The document the framers created was not some algorithm that could be dutifully followed to achieve optimum results. Instead, by necessity, it would have to be treated as an incomplete and therefore evolving guide that pointed in a general direction but left more room than some might prefer for interpretation—and, like it or not, discretion.

At the Federal Convention, Gouverneur Morris, pushing to shape an independent presidency, had suggested a subtle but highly significant change in wording. As of August 24, the working draft stated that the president “
shall
, from time to time, give information to the legislature, of the state of the Union,” and “
may
recommend to their consideration such measures as he shall deem necessary, and expedient.” Why only “may”? It should be the chief executive’s “
duty
” to make recommendations to Congress, Morris argued. To “prevent umbrage or cavil” when a president tried to initiate legislation, Morris moved to strike out the word “may,” and he had his way without debate. The impact of this small change was monumental. At Morris’s request, Article II, Section 3 of the U.S. Constitution states unequivocally that the president
shall
take a lead role in shaping public policy.

Dutifully, in pursuance to the constitutional demands on his office, President Washington prepared a brief and carefully worded message to the second session of the First Federal Congress, which convened early in January 1790. In the nation’s first State of the Union address, Washington outlined with broad strokes the path he wished Congress to take. Save for Morris’s attention to detail more than two years earlier, Washington would have had to tread lightly, fearful of being accused of meddling. As it was, the president could speak his mind, respectfully but forcefully.

Washington “read his speech well,” noted the acerbic William Maclay, usually a harsh critic. His suit was jet-black, suggestive to Maclay of mourning clothes and befitting the solemn occasion. To the president’s right stood the Senate and its president, John Adams; to his left were members of the House and their Speaker, Frederick Muhlenberg, a Lutheran pastor from Pennsylvania, along with the department heads, Knox, Jefferson, Hamilton, and Randolph. At this early stage, with federal judges yet to be sworn in and an administrative machinery yet to take hold, this small audience—fewer than one hundred men—constituted the full extent of the federal government.
¹

Washington’s speech was short, scarcely three printed pages, and “hastily” delivered within ten minutes. After an uplifting introduction—“I embrace with great satisfaction the opportunity, which now presents itself, of congratulating you on the present favourable prospects of our public affairs”—the president succinctly cataloged a dozen items he wished Congress to consider in its “consultations for the public good.” Topping the list, predictably, were military matters. “Providing for the common defence will merit particular regard,” he told the legislative branch of the federal government. To effect this, he called on Congress to provide “comfortable support of the officers and soldiers,” establish a uniform plan of military discipline, station troops in the West, and promote the domestic manufacture of military supplies. He asked, too, for funds to support a team of foreign ambassadors and emissaries. His domestic agenda included a “uniform rule of naturalization”; uniform currency, weights, and measures; “due attention” to a post office and post roads; and “the advancement of agriculture, commerce and manufacture, by all proper means.” He dwelled the longest on the need to promote “science and literature.” Since knowledge, he said, “is in every country the surest basis of public happiness” and the best “security of a free Constitution,” education served “every valuable end of government.” Citizens needed to learn how to “distinguish between oppression and the necessary exercise of lawful authority” and to “discriminate the spirit of liberty from that of licentiousness, cherishing the first, avoiding the last.” Washington did not specify an exact program—the public good might be “best promoted by affording aids to seminaries of learning already established, by the institution of a national university, or by any other expedients”—but he left no doubt that in his mind, the “necessary and proper” clause of the Constitution covered governmental support of education.
²

Then, for his final recommendation, Washington directed his words exclusively to the “Gentlemen of the House of Representatives.” He noted “with peculiar pleasure” that the House, just before adjourning in September, had directed Secretary of the Treasury Alexander Hamilton to prepare a plan “for the support of the public credit.” The president had nothing specific to say on the matter, but he wished to emphasize the subject’s importance, and he entreated the House, which was empowered by the Constitution to take the lead in all money bills, to involve “the other branch of the Legislature” in its considerations. It was “superfluous,” he said, to raise a matter in which “the character and permanent interests of the United States are so obviously and so deeply concerned,” but raise it he did. How could he not? Without credit, the new government would cease to function.

Washington’s address, no doubt intentionally, served as the perfect setup for Hamilton, who finalized his report the very next day. Five days after that, on January 14, Hamilton submitted his findings and suggestions directly to Congress—
not
to the president. From our present perspective, the order of communications and chain of command appear curious, but Congress had commissioned the report and Congress would receive it. We have no indication that Washington was directly, or even indirectly, involved. The president had selected Hamilton because of his studied expertise in finances, a field in which Washington possessed no special knowledge. Implicit in the nomination was an expectation that Hamilton could figure a way to get the struggling nation on its feet, and once Hamilton was on the job, Washington stepped aside. He would make his wishes known on military matters to Secretary Knox and on diplomatic matters to Secretary Jefferson, but on financial matters he gave his secretary of the Treasury free rein.

Hamilton’s plan was multifaceted, with each component playing an integral role in the overall scheme. First, as Congress requested, the secretary tabulated the extent of public debt, which by the standards of the day was huge: $54 million owed by the federal government, and another $25 million owed by state governments. Next, he argued forcefully that federal debt obligations must be honored in full; nothing short of that would inspire confidence among future lenders. Bonds would be retired only gradually, but in the meantime they would yield a respectable interest, to be paid out quarterly. Once people developed confidence in these moneymaking notes, the notes could trade at a stable rate on the open market, thereby increasing the nation’s liquid
capital. Further, the federal government would assume all state debts. This would lessen the burden of direct taxation imposed by state governments, and it would also give the moneyed class a vested interest in the security and well-being of the national government. That, indeed, was the final object. In the future, if the United States needed money, investors would trust the government sufficiently to lend it more. The public credit would be secured.
³

How would all this be funded? The federal government, unlike state governments, was empowered to pass import duties, which were less intrusive than direct taxation on people or property. To the duties already in place, Hamilton proposed to add what we call today “sin taxes” on coffee, tea, and distilled liquor. These were “pernicious luxuries,” he pronounced, which were “consumed in so great abundance” that they produced “national extravagance and impoverishment.” Liquor, he claimed, was the worst of all. “The consumption of ardent spirits particularly, no doubt very much on account of their cheapness, is carried to an extreme, which is truly to be regretted, as well in regard to the health and the morals, as to the economy of the community.” Taxing distilled spirits would simultaneously fund the national debt and improve the nation’s morals. This idea was hardly new. Back in 1750, four years before submitting his noted Albany Plan, Benjamin Franklin had advocated funding a pan-colonial council by taxing “strong liquors” and licensing public houses; now Hamilton once again launched an assault on the American appetite for liquor while using the funds it could generate for the public good.
⁴

The Treasury secretary, unlike the president, did not address Congress in person. That would have been bad form, an apparent attempt to intrude in legislative deliberations—but this was for form only because the report, although solicited,
was
intended to influence legislation. Hamilton spelled out a clear program, complete with highly detailed drafts of two revenue-producing bills involving “spirits distilled within the United States” and “certain inland duties on foreign wines.” Then, appearances be damned, Hamilton aggressively lobbied for his program. “Mr. Hamilton is very uneasy, as far as I can learn, about his funding system,” Maclay recorded in his diary on February 1. The House was about to consider his suggestions, and according to Maclay the Treasury secretary first lobbied the Speaker and then “spent most of his time in running from place to place among the members.” A week
later, just after debate had commenced, Maclay wrote, “Hamilton, literally speaking, is moving heaven and earth in favor of his system.” He deployed a minister to support it before congressmen “as if he had been in the pulpit” and mobilized the Society of the Cincinnati, his fellow officers from the Revolutionary War, to push for it out of doors. Hamilton, an officer in the executive branch of government, had become an active advocate for specific legislation.
⁵

Was this what the framers had intended? True, thanks to Gouverneur Morris, the
president
was required to
recommend
measures to Congress, but did that entitle
another
executive officer, operating without direction or even input from the president, to
push
for specific legislation? Maclay questioned the propriety of Hamilton’s advocacy. The Constitution had eschewed the parliamentary system, in which ministers combined executive and legislative roles, but now the Treasury secretary, “in the style of a British minister,” had “sent down his bid.”
⁶

Maclay and many others also opposed the substance of Hamilton’s plan, which clearly favored some groups of citizens over others. During the Revolutionary War, Congress had paid soldiers and farmers with bills of credit, not hard cash, but many recipients, needing real money for current expenses, relinquished their notes to speculators for a small fraction of their face value. Now, if Hamilton had his way, those speculators would be rewarded with windfall profits. A note yielding 6 percent interest on the face value, but purchased for twenty cents on the dollar, would produce a 30 percent annual interest on the investment, and when the note was finally paid off, it would yield a 500 percent profit. James Madison, among others, thought this highly unfair. He suggested tracking down the original owners and giving them a share of the profits, a policy dubbed “discrimination.”

Although Madison’s discrimination scheme, arguably unworkable in the absence of reliable records, was defeated in Congress by a convincing thirty-six-to-thirteen vote, out of doors it was widely popular, particularly among those who would have to assume the brunt of the tax burden to pay off wealthy speculators. Just west of the Appalachian Mountains, particularly in Pennsylvania, farmers turned their corn and wheat crops into market whiskey. Hamilton’s taxes threatened their livelihoods, and to compound the injury, his plan placed the revenues from these taxes in a specific fund used only to pay off wealthy note holders. In the minds of these westerners, Hamilton had schemed to
transfer money directly from ordinary, hardworking citizens into the hands of a moneyed eastern elite.

Hamilton’s plan caused another regional division as well. Four southern states (Virginia, Maryland, North Carolina, and Georgia) had already retired most of their war debts, while several northern states, in particular Massachusetts, had not, and states that had already paid off were understandably reluctant to bail out the others. In the House, federal assumption of state debts initially failed by two votes, but in a brokered deal that brought the national capital to the Potomac, it finally squeaked through.

President Washington took no public stance on these legislative matters. Congress had commissioned the report from Hamilton, and it was up to Congress to implement his suggestions—or not. If he was concerned about the divisive impact of Hamilton’s measures, he kept that to himself as well. Any intrusions on his part might raise questions as to his objectivity and transcendent leadership.

Yet when Hamilton submitted a second report on the public credit to Congress at the close of 1790, Washington engaged in the argument. At issue was Hamilton’s new proposal for a national bank, capitalized and directed primarily by private investors but receiving up to 20 percent of its capitalization from the federal government. Banknotes issued from this formidable private-public partnership would function as liquid capital, more solid than the paper currency issued by the confederation government, which had lost virtually all its value. Functionally, the bank seemed like a good way to get the nation’s economy rolling while not endangering public credit, but Washington had his doubts. Where, exactly, did the U.S. Constitution authorize such an arrangement?