Alexander Hamilton Part 2

The plans of Hamilton having been formulated, it remained to be determined whether they should be adopted by the lawmaking power or should remain a splendid but abortive monument to the constructive skill of their author. Vigorous opposition was expected by Hamilton to the measures which he proposed. He had endeavored to meet and disarm such opposition as far as possible in the careful and illuminating language of his report, but it soon became evident that against nearly all parts of it a bitter and persistent battle would be waged. The owners of capital and the commercial element were represented in the Northern and Eastern States rather than in the South, and the representatives of the former states strongly supported from the first the entire policy of the Secretary of the Treasury. Rumors were already abroad that something was to be done to restore the national credit, but it was not until the reading of Hamilton's report in the House (January 14, 1790) that the full scope of his plans was made manifest.

The effect of the report was so favorable upon the public credit as to forge weapons for its enemies. This came about through the sudden rise in the public funds, and the promptness with which speculators bought them up from holders who were ignorant of their value. Funds which would have been gladly disposed of at three shillings to the pound, or fifteen per cent. of their face value, at any time within the previous three years, rose before noon the next day fifty per cent. of their quoted price. It was not yet certain that the project would be adopted by Congress, but shrewd men were willing to discount the future in much the same manner that brokers in Wall Street do at the present time. The absence of a well-organized stock market, with the ramifications of telegraphic quotations throughout the Union, put in the hands of the more daring of these speculators an opportunity to avail themselves of the ignorance of others to an extent which would not be possible to-day. Agents were soon scouring the country, buying up the certificates of the debt in all its varied forms, before the news of Hamilton's great report had reached the humble holders, some of whom were old soldiers or quiet farmers who had been compelled to furnish supplies for the army. Jefferson says in his Anas:--

"Couriers and relay horses by land, and swift-sailing pilot-boats by sea, were flying in all directions. Active partners and agents were a.s.sociated and employed in every state, town, and county, and the paper bought up at five shillings, and even as low as two shillings in the pound, before the holder knew that Congress had already provided for its redemption at par."

This sudden and remarkable effect of Hamilton's recommendations put weapons in the hands of the enemies of the project, because it seemed to give force to their argument that a distinction should be made between those to whom the debt was originally issued at par and the new holders who had obtained it at a discount. Long and bitter were the debates in the House over this and other branches of Hamilton's project. But it was so obvious that a distinction between the holders of the debt would run directly counter to its character as negotiable paper, and would be almost impossible of just execution, that the friends of the funding project easily had the best of the argument.

Madison, although inclined to oppose Hamilton, was forced to admit that the debt must be funded at par without discrimination. He brought forward a project to pay the original holders the difference between par and the price at which they had sold, and to pay to the present holders only what they had paid for the securities. This was shown to be so impracticable that only thirteen votes were given for it in a House of forty-nine members voting. The advocates of the entire funding project carried it in committee of the whole (March 9, 1790) by a vote of 31 to 26.

The debates had so strengthened the position of Hamilton that the wisdom of funding the debt of the Union at par was now generally admitted. His opponents and those who feared too great a concentration of power in the capitalist cla.s.s and the central government made their stand on the proposal to a.s.sume the state debts. When the resolution reported by the committee of the whole was taken up in the House on March 29, several representatives from North Carolina appeared in the House and swelled the ranks of the opposition. North Carolina had been late in accepting the Const.i.tution, and her members had not been present on previous votes. When, therefore, a motion to recommit the financial projects was made, it was carried by a vote of 29 to 27. The advocates of a.s.sumption were so indignant, and so convinced that one part of the project was as vital as the other, that they voted to recommit the original funding resolution. Further debate took place, but without shaking the firmness of the opposition to the a.s.sumption of the state debts. The project was rejected in committee (April 12) by a vote of 31 to 29.

The situation was a grave one. Hamilton felt that the future of the Union was at stake. If his projects were not adopted substantially as a whole, the new government would be without credit and the work of the Convention of 1789 would be in vain. The government at Washington would be as helpless as the Continental Congress and its committees had been. This opinion was shared by all those who favored a vigorous central government, and practically by all the members of the party in Congress which was forming in support of the measures of Hamilton and looking to him as their leader. While casting about for some means for meeting the emergency, Hamilton fell upon a plan which represents one of the few cases in which he had recourse to diplomacy in his public career. The question of the location of the national capital had been for some time pending in Congress. It had already become involved with the a.s.sumption of the state debts. A strong bid had been made by the opponents of a.s.sumption for the five votes of Pennsylvania by the offer to locate the capital for fifteen years at Philadelphia.

The importance of having Congress and its officials in a given city represented more at that time, in spite of the small size of the body and the relative insignificance of the interests before it, than would be the case to-day with either of the great commercial cities of New York, Boston, or Philadelphia. Local interests played the same part then as now in political man[oe]uvring, and possession of the capital looked larger in the eyes of some members than the financial policy of the Union. In the sarcastic language of Professor McMaster, "The state debts might remain unpaid, the credit of the nation might fall, but come what might, the patronage of Congress must be drawn from New York and distributed among the grog-shops and taverns of Philadelphia."

Hamilton took advantage of this situation to save a.s.sumption and to fix the financial policy of the United States. The Senate had rejected the proposal to establish the capital at Philadelphia, and when the project came back to the House, Baltimore was subst.i.tuted by a majority of two. The Pennsylvanians and their friends in the Senate retaliated by mutilating the funding bill and daring the a.s.sumptionists to reject it. The latter held to their position and rejected the bill, 35 to 23. It was while matters were in this acute stage, while threats were made on behalf of the North that the Union would be broken up if a.s.sumption were not carried, that Hamilton one day in front of the President's house met Thomas Jefferson. Jefferson had recently returned from France to a.s.sume the position of Secretary of State. What followed is best told in Jefferson's own words, because he afterwards claimed that he had been "duped" by Hamilton and acted without knowledge of the effect of what he was doing. Jefferson's account of the matter is as follows:--

"As I was going to the President's one day, I met him (Hamilton) in 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 circ.u.mstances 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 Ma.s.sachusetts, 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 pa.s.sed on July 9, 1790, by a majority of three, and the a.s.sumption of the state debts was carried soon after. The form of the a.s.sumption differed somewhat from the proposal of Hamilton, but it accomplished the result at which he aimed. A specific sum, $21,500,000, was a.s.sumed by the government and distributed among the states in set proportions. The project pa.s.sed 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 quant.i.ty 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 inst.i.tution 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 inst.i.tution, 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 cla.s.ses 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 cla.s.ses 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 c.o.c.ks."

There was something deeper involved, from the standpoint of Jefferson, than the mere question of bringing the moneyed cla.s.s to the side of the government. The latter object was sufficiently distasteful to him, but the extension of the powers granted by the Const.i.tution beyond those which were directly enumerated in the doc.u.ment involved a question of public policy and const.i.tutional law which afforded the basis for the creation of two great national parties. The Const.i.tution 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 Const.i.tution. It is doubtful whether the Const.i.tution 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 Const.i.tution. 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 Const.i.tution, 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 Const.i.tution. 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 a.s.sumption 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 Const.i.tution.

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 const.i.tutional power of Congress to establish the bank. The cabinet was divided. Jefferson and Randolph were against the const.i.tutionality 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 inst.i.tuted 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 inst.i.tution, 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 const.i.tutional 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 Const.i.tution, 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 Const.i.tution 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 const.i.tutionality 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 inst.i.tution 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 Const.i.tution. 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 acc.u.mulated 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 a.r.s.enal 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 antic.i.p.ated 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 pa.s.sed 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.

This suppression of the "Whiskey Rebellion," as it was called, was one of the most important steps in the consolidation of the Union. Many who had observed the aggressive and comprehensive projects of Hamilton, and seen them daily binding closer the bonds of union, did not believe that they would stand the test of armed conflict. They feared that the power of the government would wither and the people split into warring factions when men were called upon to march in arms against their fellow-citizens. The event proved that the new government had vindicated its right to exist, and that the sentiment of union was daily gaining a stronger hold upon the hearts of the people. That this new power had not only built up a cohesive financial system, but had shown its capacity to put down resistance to its lawful authority with a strong hand, was largely the work of Hamilton.

It may be said that it was wholly his work, so far as any great national policy can be projected and carried out by a single man, independently of the support of his a.s.sociates in the government and of the body of public opinion which make possible the execution of his plans.

The time had come when Hamilton felt that his constructive work was done. He withdrew from the cabinet (January 31, 1795), and Oliver Wolcott of Connecticut was appointed his successor. Hamilton chose the moment for retiring from office with a tact and judgment unusual with public men. He was moved partly by the desire to provide for his family upon a more liberal scale than his modest salary under the government permitted. He was too patriotic, however, to have abandoned his post until he felt that his constructive work was complete. It was with conscious satisfaction that in his report on the public credit at the beginning of 1795 he was able to marshal the measures already taken towards restoring order to the national finances and point out their results. The credit of the country had been raised from the lowest abyss of dishonor to that of the most enlightened nations of the old world; an adequate system of taxation had been provided for meeting the public obligations; the business interests had been knit together in support of the government by a national bank; a monetary system had been established; the Treasury had been organized in its various branches upon a basis which has survived to our day; and finally the strength of the fabric of the Union and of the financial system had been subjected to the test of a rebellion which, without serious bloodshed, but with a strong display of force, had been fully and firmly subdued.

VI

FOREIGN AFFAIRS AND NEUTRALITY

The comprehensive measures of Hamilton for strengthening the Union gave a definite character and policy to the Federalist party. The foundations of this party had been laid by the struggle over the question whether the Const.i.tution should be accepted by the states; but the measures of Hamilton were too strong for some of the friends of the Const.i.tution, and many changes occurred in the temporary groupings of political leaders before a definite dividing line was established between the Federalism of Hamilton on the one side and the Democracy of Jefferson and Madison on the other. These two eminent Democratic leaders had, indeed, been among the most earnest supporters of the Const.i.tution. Madison went farther than Jefferson in the direction of Federalism, and encountered the distrust of the states-rights element at home; but Jefferson, as has been already seen, made several reports in the Continental Congress in favor of declaring the United States a nation, and was the cordial promoter of those important steps towards union,--the transfer of the Western territory to Congress and the adoption of a common monetary system.

The plans of Hamilton in regard to the finances, however, and his resolute policy of neutrality between France and Great Britain, ran counter to the views of Jefferson. It is not surprising, therefore, that the latter found himself pitted against the great Federalist leader upon nearly every question of importance which came before the cabinet. The feeling that he had been duped in regard to the a.s.sumption of the state debts found vent in many complaints, which finally bore fruit in open attacks upon Hamilton, at first made indirectly through a clerk in the government service, and then directly in a long letter to Washington. Jefferson gave the post of translating clerk in the State Department to a Frenchman, Philip Freneau, who published a journal known as the "National Gazette." In this journal Freneau began a series of bitter and sometimes well-directed attacks upon the measures of the administration, and particularly those of Hamilton. A friend of Jefferson in Virginia, Colonel Mason, approached Washington in the summer of 1791, and made a long and severe criticism upon the Treasury measures and their effect upon the people.

Washington continued to stand above party, and sought to mitigate the friction between his cabinet officers. Where the judgments of Hamilton and Jefferson differed on constructive measures, however, Washington in nearly every case became convinced of the wisdom of the recommendations of Hamilton. He therefore had the appearance of leaning to his side, although he often mitigated the sharpness of the arguments of his vigorous young minister of finance and endeavored to temper his excess of zeal. After listening to Mason, Washington felt that the time had come to interpose in the growing hostility between his cabinet ministers. He submitted a brief summary to Hamilton of the criticisms which had been made upon his projects and asked him to submit a statement in reply. The charges were directed not only against the substance of the financial measures, but declared that they fostered speculation, corrupted Congress through the ownership of the public debt by members of that body, and that Hamilton was laboring secretly to introduce aristocracy and monarchy.

It was not difficult for Hamilton to brush away most of these criticisms. This he did in the cool, logical manner of which he was a master by numbering each objection to his policy and measures and showing that it was not founded upon solid reasoning or fact. Hamilton would have done well to have rested his case upon his letter to Washington, but he was now convinced that Jefferson was behind the attacks upon him, and he determined to strike back. He began a series of anonymous communications through the Federalist organ, "Fenno's Gazette," which showed all his usual vigor and force of reasoning, but which only intensified the bitterness in the cabinet. President Washington was deeply disturbed by this open outbreak of hostilities, and remonstrated by letter with both Hamilton and Jefferson. Hamilton suspended his attacks, while Jefferson confined his hostility to less open methods.

When Congress met at the close of 1791, Giles of Virginia, a loud-spoken, hot-headed member of the House, called for accounts of the various foreign loans made by the government. An attempt was made to prove corruption in the management of the Treasury. Hamilton could not have found a better opportunity for defending himself, if he had sought it. He was no longer shut up to the unsatisfactory methods of unsigned communications through newspapers, but was in a position to speak openly and boldly in exposition and defense of his measures.