the street. He walked me backwards and forwards before the
President's door for half an hour. He painted pathetically the temper
into which the legislature had been wrought; the disgust of those who
were called the creditor states: the danger of the _secession_ of
their members, and the separation of the states. He observed that the
members of the administration ought to act in concert; that though
this question was not of my department, yet a common duty should make
it a common concern; that the President was the centre on which all
administrative questions ultimately rested, and that all of us should
rally around him, and support, with joint efforts, measures approved
by him; and that the question having been lost by a small majority
only, it was probable that an appeal from me to the judgment and
discretion of some of my friends might effect a change in the vote,
and the machine of government, now suspended, might be again set into
motion. I told him that I was really a stranger to the whole subject;
that not having yet informed myself of the system of finance adopted,
I knew not how far this was a necessary sequence; that undoubtedly, if
its rejection endangered a dissolution of our Union at this incipient
stage, I should deem that the most unfortunate of all consequences, to
avert which all partial and temporary evils should be yielded. I
proposed to him, however, to dine with me the next day, and I would
invite another friend or two, bring them into conference together, and
I thought it impossible that reasonable men, consulting together
coolly, could fail, by some mutual sacrifices of opinion, to form a
compromise which was to save the Union. The discussion took place. I
could take no part in it but an exhortatory one, because I was a
stranger to the circumstances which should govern it. But it was
finally agreed, that whatever importance had been attached to the
rejection of this proposition, the preservation of the Union and of
concord among the states was more important, and that, therefore, it
would be better that the vote of rejection should be rescinded, to
effect which some members should change their votes. But it was
observed that this pill would be peculiarly bitter to the Southern
States, and that some concomitant measure should be adopted to sweeten
it a little to them. There had been projects to fix the seat of
government either at Philadelphia or at Georgetown on the Potomac; and
it was thought that by giving it to Philadelphia for ten years, and to
Georgetown permanently afterwards, this might, as an anodyne, calm in
some degree the ferment which might be excited by the other measure
alone. Some two of the Potomac members (White and Lee, but White with
a revulsion of stomach almost convulsive) agreed to change their
votes, and Hamilton undertook to carry the other point. In doing this,
the influence he had established over the eastern members, with the
agency of Robert Morris with those of the Middle States, effected his
side of the engagement."
Hamilton had little of the state pride which influenced the men of
Massachusetts, New York, Virginia, or of any other state who had
grown up on the soil won by their English ancestors by their blood or
the sweat of their brows. To him the question of the location of the
capital seemed insignificant in comparison with the foundation of the
Union upon the rock of a comprehensive financial policy. It is
significant of the commanding influence which the young secretary had
acquired, and the well-knit party which was gathering around him, that
he had no difficulty in carrying his part of the programme for seating
the capital eventually on the banks of the Potomac. The bill to remove
the capital was passed on July 9, 1790, by a majority of three, and
the assumption of the state debts was carried soon after. The form of
the assumption differed somewhat from the proposal of Hamilton, but it
accomplished the result at which he aimed. A specific sum,
$21,500,000, was assumed by the government and distributed among the
states in set proportions. The project passed the Senate July 22, by a
vote of 14 to 12, and the House on July 24, by a vote of 34 to 28. A
great step was thus taken in the consolidation of the Union, and
notice was given to the world that the United States proposed to pay
their debts and fulfill with scrupulous honor their financial
obligations.
V
STRENGTHENING THE BONDS OF UNION
The funding of the debt was only one of several parts of the policy of
Hamilton for putting the new government upon a solvent and firm basis.
The session of Congress which began in December, 1790, witnessed the
presentation of his report in favor of a national bank. This report,
like that on the debt, showed careful study of the subject in its
theoretical as well as practical aspects. Hamilton referred in opening
to the successful operation of public banks in Italy, Germany,
Holland, England, and France. He then went on to point out some of
their specific advantages in concentrating capital and permitting the
easy transfer of credit. He declared that such a bank would afford
"greater facility to the government, in obtaining pecuniary aid,
especially in sudden emergencies." It would also facilitate the
payment of taxes, by enabling tax-payers to borrow from the bank and
by the aid which it would give in the transfer of funds. He did not
shrink from declaring that the country would benefit if foreigners
invested in the bank shares, since this would bring so much additional
capital into the United States. Hamilton then pointed out the vital
distinction between government paper issues and bank paper. He laid
down thus the fundamental principle of a well-regulated bank-note
currency:--
"Among other material differences between a paper currency, issued by
the mere authority of government, and one issued by a bank, payable in
coin, is this: That, in the first case, there is no standard to which
an appeal can be made, as to the quantity which will only satisfy, or
which will surcharge the circulation: in the last, that standard
results from the demand. If more should be issued than is necessary,
it will return upon the bank. Its emissions, as elsewhere intimated,
must always be in a compound ratio to the fund and the demand: whence
it is evident, that there is a limitation in the nature of the thing;
while the discretion of the government is the only measure of the
extent of the emissions, by its own authority."
The bank which Hamilton proposed was private in its ownership, but the
United States were to pledge themselves not to authorize any similar
institution during its continuance. The capital of the bank was not to
exceed $10,000,000, for which the President of the United States might
subscribe $2,000,000 on behalf of the government. It was further
provided that three fourths of the amount of each share might be paid
in the public debt instead of gold and silver.
It was the purpose of Hamilton not merely to create a useful financial
institution, in which the government would be able to keep its
deposits, but to weld the monetary system of the country into an
harmonious whole. The result of this, which he foresaw and intended,
was to bind the property-owning classes to the interests of the new
government. The effect was much the same as the creation of the Bank
of England by the loan of its capital to the government, which bound
the moneyed classes firmly to King William, through the knowledge that
the debt and the solvency of the bank depended on the perpetuation of
his government and the exclusion of the Stuart Pretender. The tendency
of Hamilton's project was clearly seen by Jefferson and other
democratic leaders, and did not fail to arouse their hostility. It was
not long before they promptly took sides against the national bank.
Jefferson wrote regarding the meetings of the cabinet at this time
that "Hamilton and myself were daily pitted in the cabinet like two
cocks."
There was something deeper involved, from the standpoint of Jefferson,
than the mere question of bringing the moneyed class to the side of
the government. The latter object was sufficiently distasteful to him,
but the extension of the powers granted by the Constitution beyond
those which were directly enumerated in the document involved a
question of public policy and constitutional law which afforded the
basis for the creation of two great national parties. The Constitution
did not anywhere grant in terms to the government the power to
establish a national bank. Even Hamilton did not pretend to put his
finger on the specific authority for his new project. He advanced a
doctrine which was eagerly embraced by the party which was growing up
around him, but which was as resolutely opposed by the other party.
This was the doctrine of the implied powers granted to the new
government by the Constitution. It is doubtful whether the
Constitution would have been ratified by Virginia and other states if
this doctrine had been set forth and defended in the state conventions
by the friends of the Constitution. This by no means implies that the
policy and doctrine of Hamilton were not wise and far-sighted.
Hamilton had definite aims before him, and it was his legitimate
mission to educate public sentiment up to the point of accepting those
aims and of granting him the means for carrying them out.
The doctrine of the "implied powers" rested upon the theory that
unless they were directly prohibited by the Constitution, all powers
were granted to the government by implication which were found
necessary and proper for carrying out the powers specifically granted.
Jefferson came to believe, if he did not believe at the outset, that
the government was one of delegated powers which were strictly limited
to those enumerated in the Constitution. The doctrine of Hamilton,
from this point of view, was revolutionary. It meant the conversion of
a government holding limited delegations of power from the people and
the states into a government having supreme power, capable of taking
an infinite variety of measures whenever Congress, in the exercise of
its discretion, believed that such measures would contribute to the
well-being of the Union. The state governments, coming closer to the
people than the federal government, were most directly threatened by
this assumption of power, and it was as the champions of state rights
as well as democratic ideas that Jefferson and his friends took their
ground as the advocates of the strict construction of the
Constitution.
It is not surprising, therefore, that the proposal to create the Bank
of the United States called forth in Congress prolonged and heated
debates. But the policy of Hamilton had been so far successful in
restoring the public credit that he carried the project for the
national bank through both houses, and it was laid before the
President for his approval. Washington had watched with interest the
struggle in the two houses, and was somewhat impressed by the weight
of the argument against the constitutional power of Congress to
establish the bank. The cabinet was divided. Jefferson and Randolph
were against the constitutionality of the bill. Hamilton and Knox were
in favor of it. Washington asked each of them to give him in writing
the reasons for his opinion. He weighed them carefully and then
affixed his signature to the bill (February 25, 1791). The new project
realized all the benefits which Hamilton expected. Washington, in his
tour of the Southern States in the spring of 1791, found the sentiment
for union strengthening and the country recovering from the
prostration of the era of bad money and political uncertainty which
had followed the Revolution. He declared in a letter written after his
return:
"Our public credit stands on that ground, which, three years ago, it
would have been madness to have foretold. The astonishing rapidity
with which the newly instituted bank was filled, gives an unexampled
proof of the resources of our countrymen and their confidence in
public measures. On the first day of opening the subscription, the
whole number of shares (twenty thousand) were taken up in one hour,
and application made for upwards of four thousand shares more than
were granted by the institution, besides many others that were coming
in from various quarters."
How much was likely to be done by a national bank to bind together the
commercial interests of different sections of the country can hardly
be appreciated to-day. At that time there were only four banks in the
country; none of these was ten years old, and their combined capital
was only $1,950,000. The Bank of the United States was authorized to
establish offices of discount and deposit in all the states and to
distribute parts of its capital among eight branches in the chief
cities of the country. It was the drafts of these branches upon each
other, and their means for reducing to a uniform and reasonable rate
the cost of transferring funds, which contributed to knit all parts of
the country together in commercial matters and so strengthened the
bond of political union. The bank did not make regular reports to the
Treasury Department, but its success is indicated by a special report
communicated to Congress by Secretary Gallatin (January 24, 1811),
which showed resources of $24,183,046. The average annual dividends
paid upon the stock up to March, 1809, were over eight per cent.
So invaluable were the operations of the Bank of the United States to
the public treasury that Jefferson himself when President came to its
support. His support was perhaps never very hearty, and was due to
Albert Gallatin, his Secretary of the Treasury, whose foresight and
ability give him a rank next to Hamilton among the able men who have
presided over the national finances. Gallatin made a strong report in
1809, recommending that the charter of the bank be renewed upon its
expiration in 1811, with an increase of capital and wider powers. A
new charter was voted in the House, but the bill was not acted on in
the Senate, and before the next session the opposition of the state
bankers had rallied sufficient strength to defeat the recharter. The
second United States Bank was authorized in 1816, under the
administration of Madison and with his approval, but its career was
terminated in 1836, as the result of the political hostility of
President Jackson.
It was not until after the grant of this second charter that the
question of the power of Congress to establish a bank came directly
before the Supreme Court in 1819. At the head of this court sat John
Marshall, who next to Hamilton, perhaps, did more than any other man
to strengthen and extend the powers of the general government. The
jealousy of the state banks had led the State of Maryland to impose a
discriminating tax on the Bank of the United States. If the right to
levy such a tax had been admitted, the Bank would have been completely
at the mercy of the states, and one of the chief purposes of its
creation would have been defeated. In order to sustain the right of
the bank to exemption from taxation, it was necessary to prove that it
was a constitutional instrument of federal power. Hence the question
of the power of Congress to create such a corporation came directly
before the court.
Hamilton found the power to create a bank partly in the preamble to
the Constitution, which declares that the people of the United States
have adopted it in order to "promote the general welfare," but more
particularly in that concluding phrase of the clause defining the
powers of Congress, which declares that that body shall have
authority "to make all laws which shall be necessary and proper for
carrying into execution the foregoing powers, and all other powers
vested by this Constitution in the government of the United States or
in any department or officer thereof." Marshall, in the series of
great decisions by which he strengthened the power of the Union, often
made use of these provisions to justify his reasoning. In one of the
most famous of these decisions (McCulloch _vs._ Maryland), he
sustained the constitutionality of the bank as an instrument of
federal power and denied the right of the states to levy upon its
property. He declared that the power to tax involved the power to
destroy, and that if the federal government had not the power to
withdraw its creations from discriminating legislation by the states,
the latter might tax the mail or the mints, the papers of the
custom-houses, or the forms of judicial process.
The view of Hamilton regarding the power of the federal government to
create a bank was thus sustained in emphatic terms by the highest
court in the land. It was partly his policy in providing for the bank
and demonstrating its usefulness, with his other measures to develop
the powers of the central government, which made possible the
decisions of Marshall. If the question of the right to incorporate a
bank could have been brought before the court at the beginning, before
the institution had proved its value, and if men like Jefferson and
Madison had been upon the bench, there is at least room for doubt
whether a decision would have been rendered in favor of a power which
is not granted directly to the government by the Constitution. But by
the resolute executive policy of Hamilton and the broad judicial
constructions of Marshall, the functions of the new government were
extended to all those great objects necessary to create a vigorous and
united nation.
The many other measures of Hamilton were directed by the same
singleness of purpose to strengthen the hands of the government and
consolidate the Union. The report on the mint followed the previous
reports of Jefferson in recommending the adoption of the dollar as the
unit of value. Hamilton observed that "upon the whole, it seems to be
most advisable, as has been observed, not to attach the unit
exclusively to either of the metals; because this cannot be done
effectually, without destroying the office and character of one of
them as money, and reducing it to the situation of a mere
merchandise." He believed, however, that care should be taken to
regulate the proportion between the metals with an eye to their
average commercial value. He pointed out the danger of undervaluing
either metal, and the inevitable result, in case of a difference of
ratio in two countries, "if other things were equal, that the greatest
part of the gold would be collected in one, and the greatest part of
the silver in the other."
This discussion of the subject took place at a time when monetary
principles were not very well fixed, when the standard and the state
of the currency had hardly been settled on an orderly basis in any
country, and when the means of transportation for the precious metals
were much slower and less efficient than under modern conditions, and
the cost was much greater. Hamilton endeavored to find the true
commercial relation between gold and silver as a basis for the coinage
values, in the hope that this would not change sufficiently to upset a
bimetallic system founded upon such a basis. He was not a victim of
the delusion that government can arbitrarily give value by law to
money, but declared, "There can hardly be a better rule in any country
for the legal, than the market proportion; if this can be supposed to
have been produced by the free and steady course of commercial
principles."
The report on manufactures and the bill providing for an excise were
parts of the project of Hamilton for building up a vigorous and
self-supporting nation. The report on manufactures was not presented
to Congress until the beginning of the long session at the close of
1791, and was not carried out in legislation. It consisted chiefly of
an argument for the encouragement of young industries in an
undeveloped country. Hamilton strongly favored the diversification of
the industries of the country between agriculture and various forms of
manufacture, because he believed it would contribute to the solidity
of the industrial system and to the financial independence of the
United States. His conception of the best method for promoting
American industries differed materially, however, from more recent
developments of the protective system. He recommended bounties and
premiums in many cases in preference to protectionist customs duties,
in order to avoid the rise in the price of articles to the consumer
which often results from such duties. The customs duties which he
proposed, moreover, ranged only from seven and a half to fifteen per
cent., and the latter rate was to be levied on only a few articles.
The country was not yet ripe for extensive industrial enterprises. The
manufactures then existing were chiefly for supplying local needs,
the factory system had not been introduced, and the capital had not
been accumulated for the creation of large establishments. The country
needed many foreign manufactured articles to put it upon the highroad
to industrial development, and it was at a much later period that the
manufacturing interests acquired the power which enabled them to
increase the scale of duties. When this time came, they turned to the
arsenal of Hamilton's report for weapons in support of the policy of
diversifying industries; but they used these weapons in behalf of a
scale of duties which was not recommended by him and they ignored his
arguments for premiums and bounties for the protection of the consumer
against excessive prices.
Whether Hamilton would have favored the policy of protection in its
later developments, it is useless to inquire. It is idle to claim for
any thinker of the past that he anticipated all future discoveries and
reasoning in the fields of politics or economics. It is not
necessary, in order to give a statesman a high place in history, to
worship blindly all that he did or said or to make such deeds and
words an authority for later generations. What can be said of Hamilton
without reasonable ground of denial is that he did not recommend in
any of his writings the high scale of duties advocated by some
protectionists in recent years. On the contrary, he urged a scale of
duties which would be treated by the protectionist of to-day as below
even the level of a "tariff for revenue only." That his ideas were far
from extreme is indicated by the project which he drew up in 1794 for
a reciprocity treaty with Great Britain, which proposed to limit
American import duties on the leading textiles and manufactured
articles of metal to ten per cent. of their value. He even criticised
Jefferson's message of 1801 for recommending the repeal of the
internal revenue taxes, upon the ground that the duties on imports
were high and that if any taxes were to be repealed, they should be
those which weighed on commerce and navigation.
A measure which led to more immediate results than the report on
manufactures was the report on the excise. Hamilton found it
necessary, in order to obtain sufficient funds to meet the interest on
the debt and other charges, to recommend an excise tax upon distilled
liquors produced in the United States. The bill passed Congress in
January, 1791, and was soon put in force. Violent resistance was made
in western Pennsylvania, where the manufacture of whiskey was more
extensively carried on than in any other part of the Union. The
federal collector for Washington and Allegheny was tarred and
feathered, and deputy marshals did not dare serve writs against those
guilty of the outrage. Washington's journey through the South had a
good effect in softening the opposition to the law, which first showed
itself in Virginia and North Carolina; but in Pennsylvania conditions
went from bad to worse, until it became necessary to give the federal
government additional powers for collecting the tax and putting down
insurrection. Masked mobs terrorized those who were inclined to obey
the law, and forced them to publish the injury done to their stills.
In order to protect themselves by embroiling the whole community, some
of the insurgent leaders had the mail stopped, the militia called out
on their side, and threatened to lay Pittsburg in ashes (July, 1794).
The opportunity had come for testing the question whether the Union
was strong enough to put down rebellion by force. It was an
opportunity which Hamilton did not shirk. At his earnest solicitation,
an army was dispatched to the disturbed districts. Washington showed
no hesitation in supporting the authority of the federal government.
He obtained a certificate from a judge of the Supreme Court, setting
forth that the laws of the United States were set at naught and that
the courts were unable to enforce them. He then issued a proclamation
commanding the insurgents to submit to the laws, and made a
requisition for 12,950 militia from Pennsylvania, Maryland, Virginia,
and New Jersey, to move on September 1, 1794, towards the disaffected
districts.
The firmness of Washington put an end to the insurrection. Governor
Mifflin of Pennsylvania, who had hesitated to put down the
disturbances by the strong hand of the state, recovered his courage,
and aided the federal government by proclamations and by his full
quota of troops. Hamilton accompanied the army as it moved towards the
West, and remained with it after Washington turned back to attend the
opening of Congress. The strong display of force made by the
government overawed the insurgents and finally compelled their
submission. Albert Gallatin, although a citizen of the disaffected
section and an opponent of the party in power, exerted his influence
on behalf of order. Negotiations were set on foot between
commissioners of the President, and a committee of citizens, of which
Gallatin was a member. When this committee met to decide whether they
would recommend compliance with the law, they were surrounded by
riflemen who were ready to shoot if their leaders showed signs of
yielding. But they adopted the clever device of a ballot upon which
both yea and nay were written, with the option of destroying either
word. A small majority voted to submit. Some of the obstinate spirits
held out, but as the people fell away from them, they were arrested
and put on trial, and the authority of the federal government was no
longer disputed.