The Great Divide

IT HARDLY NEEDS SAYING that President Washington’s attitude toward these two new proposals was a crucial factor in their destiny in Congress. He had little difficulty favoring the tax on whiskey. Most people, including Thomas Jefferson and James Madison, seemed to think it was a relatively painless way to increase the flow of revenue into federal coffers. Hamilton’s argument that the money would enable the government to pay its current expenses and make regular payments on the national debt had considerable appeal.

There was a fair amount of debate on the subject. Albert Gallatin, a newly elected congressman from western Pennsylvania, joined Senator Maclay in warning that the measure would lead to violent protests. But the whiskey tax passed the House and Senate with comfortable majorities early in 1791.

The Bank of the United States was another matter. There was nothing in the Constitution empowering Congress to launch a bank. Nevertheless, Washington favored the idea. He had not mastered all the intricacies of Hamilton’s bank, but he was a believer in banks as a crucial way to concentrate a nation’s economic strength. During the darkest years of the Revolution, 1780–81, when the nation’s currency collapsed and the Continental Army faced starvation, Philadelphia’s Bank of North America had issued notes that retained their face value and were used to purchase vital supplies and equipment for the army.¹

The Bank of the United States was a great deal more complex than the Bank of North America, or the Bank of New York, which Alexander Hamilton had helped to found in his home city. In his proposal to Congress, the Secretary of the Treasury called it “a great engine of state.” President Washington’s tacit approval was well-known, and this may have had much to do with the way the proposal passed the Senate almost casually, with a voice vote.

In the House of Representatives, a very different scene transpired. James Madison, still the acknowledged leader of this branch of the legislature, took the floor and shocked President Washington and Secretary Hamilton by opposing—and then denouncing—the idea. For a whole day, Madison lectured his fellow congressmen on what was wrong with the proposal. In essence, he argued that the absence of any mention of a bank in the Constitution meant that the framers of the national charter never intended to give the federal government the right to create such an entity.2

No one was more astonished by this denunciation than Alexander Hamilton. During the Constitutional Convention, Madison had proposed giving Congress the power to charter banks and other corporations. The delegates had rejected the proposal. Now he cited this rejection but coolly neglected to mention that he had been the author of the proposal. In his Federalist Papers essays, Madison had ignored this earlier disapproval and repeatedly insisted there were implied powers in the Constitution that gave Congress the ability to deal with many aspects of federal governance.

Congressman Elias Boudinot of New Jersey was among a number of listeners who did not hesitate to remind Madison of his previous stance. Boudinot read aloud the words from Madison’s essay, Federalist No. 44: “There must necessarily be admitted powers by implication unless the Constitution descended to every minutia…No axiom is more clearly established in law or in reason that whenever the end is required, the means are authorized; whenever a general power to do a thing is given, every particular power for doing it is included.” Thus the Constitution gave Congress the power to regulate the nation’s commerce. Secretary Hamilton saw the Bank of the United States as an essential tool in this crucial task.³

The House of Representatives agreed with Boudinot and Madison’s other critics, who openly mocked his sudden transformation to a “strict” or literal interpreter of the Constitution he had done so much to create. The bill chartering the Bank of the United States passed the House by almost a two-to-one margin—39 to 20. But this victory, immensely pleasing to Hamilton, soon became only the first act in a drama that would alter America’s history.

President Washington, with his acute concern for the nation’s unity, was alarmed to note that almost all the congressmen from states north of the Potomac River backed Hamilton’s brainchild, while most of the southerners opposed it. Washington asked the lawyers in his cabinet, Secretary of State Jefferson and Attorney General Randolph, to give him their opinion of the bank bill. Soon the President had a strenuous essay by Jefferson on his desk, denouncing the bank with far more vehemence than Madison had exhibited in the House of Representatives. The Secretary of State insisted that permitting the federal government to exercise such an unspecified power could launch the nation toward a centralized federal tyranny.

“To take a single step beyond the boundaries…specifically drawn around the powers of Congress is to take possession of a boundless field of power, no longer susceptible of any definition,” the Secretary of State warned. Any extension of Congress’s delegated powers had to be truly necessary. Otherwise, the American government would soon become a mirror image of the British model, where the King and Parliament regularly chartered corporations which enriched a privileged few. Jefferson backed up his arguments with a copy of Madison’s speech to the House of Representatives.4

Attorney General Randolph came to the same conclusion in a far less emotional essay. Washington, obviously upset, sent these opinions to Secretary Hamilton and asked him to reply to them. His covering letter was cold, almost curt, suggesting a loss of faith in Hamilton as an interpreter of the Constitution. Simultaneously, the President asked Madison to prepare a veto message—a glimpse of which way he thought the argument was going.

Literally working day and night, in the next seven days Hamilton produced a fifteen thousand-word treatise that has become one of the most important documents in America’s legal and political history. At its climax, he summed it up in a single triumphant sentence: It is not to be denied that there are implied as well as express powers in the Constitution and the former are as effectually delegated as the latter. Supporting strict construction, as Jefferson and Madison were doing—arguing that all extensions of government power had to pass a test of being “absolutely necessary”—was madness, Hamilton maintained. It would soon leave the United States with a malfunctioning and ultimately, a nonfunctioning federal government. The states would eagerly rush to fill the power vacuum and would soon reduce federal authority to its pitiful condition under the Articles of Confederation.5

In every sense of the word, Hamilton’s argument was historic. He simultaneously justified the Bank of the United States and created a rationale for future exercises of federal power that has enabled the United States to function as a nation. President Washington read Hamilton’s essay and signed the Bank of the United States into law the following day.

This was the moment when Jefferson and Madison began seeing the President as a mere tool in Hamilton’s hands. There are strong reasons to challenge this conclusion. Washington was not a man who submitted to anyone’s supposed expertise. He had disagreed strongly with Hamilton more than once in earlier years. Once the Secretary convinced him that the Bank of the United States was constitutional, he had no further objections to it. Unlike his fellow Virginians, the President had no difficulty seeing the bank as a dynamic commercial force that would help unite the new nation.

Washington was not in the least bothered by the BUS’s similarity to the Bank of England. Unlike Jefferson, the President’s view of the mother country was remarkably free of hostility. At a dinner Washington gave for British officers after they surrendered at Yorktown, one of them boldly offered a toast to “The King.” Washington raised his glass and added: “Of England. Confine him there and I’ll drink him a full bumper.”⁶

A few months after the Bank of the United States became law, a delighted President told one of his closest friends: “Our public credit stands on the ground which three years ago it would have been considered a species of madness to have foretold.” Thomas Jefferson and James Madison remained violently opposed to the bank. They saw it as an institution designed to enrich the wealthy—and warned it was tempting Americans to risk their money and their peace of mind in what Jefferson called “an appetite for gambling.” Madison described the welcome that the bank received as “a mere scramble for public plunder.”⁷

In the spring of 1791, largely unaware that there was a deepening clash among his cabinet and close advisors, President Washington decided to take a trip through the southern states. He wanted to show the citizens below the Potomac that the President had the same concern for their welfare as he had displayed for the New Englanders the year before. He also wanted to reassure the southerners that signing the bank bill did not mean he was aligned with a so-called “northern phalanx” that, according to some Virginians, was conspiring to seize control of the government.

The trip was no small task. The President’s itinerary covered 1,826 miles—a huge distance to traverse by horseback and coach. At every stop there were parades, rallies and dinners, at which he had to appear both affable and presidential to hundreds of strangers. The military side of Washington’s character came to the fore. Every day was planned in advance; he let neither rain nor dust-choked roads delay him. His reward was the enormous enthusiasm with which people greeted him everywhere.

At Wilmington, North Carolina, “an astonishing concourse of people” included hundreds of women waving from windows and balconies. At a ball that night, the President was greeted by sixty-two beautifully gowned and coiffed ladies. Simultaneously, he played politics, telling a group of Freemasons led by war hero Mordecai Gist how pleased he was by their statement of support for “our equal government.” The adjective was not chosen by accident.

Only when the President returned to Philadelphia did he discover that not everyone approved of his trip. The most outspoken was a new voice on the newspaper scene, Benjamin Franklin Bache. This grandson of the Founding Father had launched the General Advertiser, with an undisguised tilt toward the French Revolution and a hostility to any and all tendencies in American politics that so much as hinted at a British model. Bache thought Washington’s tour smacked of the “royal progress” of a king and denounced the “incense” of admiring addresses that greeted the President in every city. He was aware that people were expressing their admiration for “the defender of the liberty of our country,” but insisted that it all “favors too much of monarchy to be used by republicans.”⁹

Shares in the Bank of the United States went on sale on July 4, 1791, in Philadelphia, New York, and Boston. Rumors had convinced not a few people that the government would pay 12 percent interest. Swarms of investors stormed the Treasury offices in Philadelphia and 26,200 would-be buyers entered bids. The shares sold out within an hour. To widen participation, Hamilton marketed the $400 shares (about $6,000 in today’s money) piecemeal; a would-be investor could pay only $25 for a document called “scrip,” which entitled him to buy a certain number of shares, for which he would have to pay in full in eighteen months.10

For the first month, the price of scrip remained within reasonable bounds. But early in August, it zoomed into the stratosphere. Some people began calling the frenzied market “scrippomania.” One friend warned Hamilton that the entire city of New York had become infected with gambling fever. Artisans were deserting their shops, storekeepers were auctioning off their goods to raise cash, and not a few merchants had abandoned their normal business routines to speculate in scrip. Another eyewitness said the city of Philadelphia had become “a great gaming house” with everyone from “merchants to clerks” betting on the soaring scrip. An alarmed Hamilton foresaw the danger of a bubble. He had already warned against “extravagant sallies of speculation” that could injure “the whole system of public credit” that he was struggling to create.¹¹

With President Washington’s approval, Hamilton decided he had to intervene. He began “talking down” the price of scrip, telling several people he thought it was dangerously overvalued. Next he published a statement in The Gazette of the United States, signed by “A Real Friend to Public Credit,” warning that the price of scrip was much too high and certain to decline. Next, he ordered the cashier of the Bank of New York to buy $150,000 in government securities. The fever in scrip began to abate.

Nevertheless, Thomas Jefferson predicted serious damage to America’s social order. He was convinced that a tailor whose scrip had made him several thousand dollars in a single day would never be willing to work for ordinary wages again. Congressman Madison, who was in New York when the investment fever was raging there, told Jefferson the speculators were all “stockjobbers and tories.” Jefferson’s comments were equally abusive. In one letter, he told Madison: “Several merchants from Richmond (Scotch, English, etc.) were here [in Philadelphia] lately. I suspect it was to dabble in federal filth.”12

In another letter to Jefferson, Madison feared “the stockjobbers will become the praetorian band of the government, at once its tool & its tyrant.” (In ancient Rome, the Praetorian Guard was the emperor’s private army, which could, and sometimes did, threaten both the unruly populace and the ruler.) Madison was convinced that the stockjobbers could be bribed by Congress’s “largesses” or could overawe it “with clamours and combinations.” He gloomily concluded that his imagination would not “attempt to set bounds to the daring depravity of the times.”¹³

The enthusiasm of these first investors was unquestionably extreme, and merited some concern. But the apocalyptic reaction of Jefferson and Madison was even more extreme. It revealed a profound hostility to the very idea of public finance. Hamilton’s successful intervention in the scrippomania bubble enabled President Washington to remain enthusiastic about the new financial system. He told one correspondent that the eagerness to buy shares in the Bank of the United States was “unexampled proof of the resources of our countrymen and their confidence in [the] public measures” of the new federal government.¹⁴

What explained the almost instinctive hatred of banks and a stock market that Thomas Jefferson and James Madison displayed? From the perspective of 2014, these two gifted men sound like maniacs. The investors of 1791 were doing something that tens of millions of contemporary Americans do every day—invest in bonds or stocks. Mere dislike of Alexander Hamilton or jealousy of his growing power and influence is not enough to explain such frantic extremism. Why did not President Washington, a man who said seeing America a happy nation was “the first wish” of his soul, watch this birth of a commercial spirit with similar horror and dread? To understand this phenomenon, which continues to have relevance in the twenty-first century, requires a trip back in time to England in the early eighteenth century.

Under Prime Minister Robert Walpole in the 1720s, the British government became a centralized engine that made Britain the strongest nation in Europe. Its taxation system enabled it to sustain a large fleet and a standing army. It chartered and helped finance the East India Company and other corporations that extended the reach of the empire and earned huge profits for private investors. To manage this international colossus, Walpole used titles, honors, and other favors, including occasional bribery, to persuade leading members of Parliament to support his policies.15

Simultaneously, a vocal opposition to this centralization arose. Claiming to speak for the majority of the people, they called themselves the “country” party, who opposed the “corruption” of the “court” party. The very terms were polemical. Soon newspapers and books were full of angry exchanges between true believers on both sides. The argument was followed with fascination by intelligent men in the thirteen colonies. The majority of Americans sympathized with the country party, especially after Parliament began asserting more and more power over all parts of the empire. They adopted the chief argument of the opposition, that the court party was drenched in corruption and was steadily destroying British liberty, both at home and abroad. This rhetoric became an essential part of the vocabulary used to justify the American Revolution.

The country party liked to portray themselves as idealists who wanted to regain a largely mythical past, when stalwart yeomen voted their consciences on behalf of the public good. Over the horizon in an equally mythical future, they saw a land where justice prevailed, under a “patriot king” who adjudicated the differences between the quarreling factions. Both Thomas Jefferson and James Madison had absorbed this ideology in their collegiate youth, and when they saw its supposed lessons being ignored by Alexander Hamilton, they reacted with ideological fury.¹⁶

Again, we must ask why President Washington did not share these fierce emotions. Here we come close to defining the essential difference between Thomas Jefferson and George Washington. For Jefferson, liberty was a sacred, semi-religious goal. He saw a future in which America’s independent farmers were liberty’s best guardians. Thanks to them, the nation would demonstrate the perfectability of human nature. This utopian faith was at the root of his passionate support of the French Revolution, as well as his determination to keep the supposed corruptions of commerce out of America’s future.

Washington was the polar opposite of a utopian. He drew his own conclusions about politics and business, rooted largely in his experiences. He had no prejudice against the commercial world. Premier merchant Richard Morris was one of his closest friends. Nor was he in the least shocked to hear Hamilton praise merchants and other men of business as vital to America’s future.

While President Washington was touring the South, Thomas Jefferson had an encounter with Alexander Hamilton that confirmed his worst suspicions. The President had suggested that the members of the cabinet meet with Vice President John Adams and discuss any decisions that the government needed to make in his absence. One April evening, after discussing official business at a dinner party at Jefferson’s residence, the talk turned to theories of government. For a while, Adams pontificated about the virtues of Britain’s “balanced” government and its distribution of power between the king, the lords, and the commons. The problem with this arrangement, Adams added, was the “corruption” that gave the king and his ministers too much influence over the House of Commons. This was straight country party doctrine, virtually from the mouth of its most famous spokesman, Lord Bolingbroke.

Hamilton disagreed with the Vice President. He said that if by some miracle the British government were purged of corruption, the result would be “impracticable.” In his opinion, the present system, with its supposed corruption, was “the most perfect government that ever existed.” Hamilton was expressing his admiration for the way Prime Minister Walpole’s successors had created a wealthy and powerful nation. But Jefferson—and probably Adams—heard him with minds steeped in the long struggle between Britain’s country and court parties.

To them, Hamilton’s words were a veritable confession of his admiration for the ruthless men and evil deeds that would eventually snuff out all traces of liberty in the mother country. For Jefferson, the behavior of the first investors in the Bank of the United States confirmed this judgment with a certainty that would dominate his mind for the rest of his life.

Even before the Bank of the United States began selling its shares to clamorous customers, Jefferson and Madison had decided it was time to do more than express their disapproval of Hamilton’s program to a small circle of friends. In the spring of 1791, they took a trip to northern New York, which Jefferson described to President Washington as a remedy for the headaches that kept disturbing his health. In discussing it with others, he called it a “botanical” expedition to discover new flowers and fauna in that part of America.

The journey’s real purpose was political. The Virginians spent time with Chancellor Robert R. Livingston, head of a powerful and wealthy Hudson River Valley clan. They also met with Senator Aaron Burr, who had recently defeated Hamilton’s father-in-law, Philip Schuyler, in his bid for reelection. They may also have seen Governor George Clinton. These gentlemen, especially Clinton, were united by personal dislike of Secretary of the Treasury Hamilton. Although the word “party” was still taboo, there was little doubt that the Secretary of State and the Congressman were seeking the support of these men in the months to come.

Back in New York City, the peripatetic Virginians spent not a little time with Madison’s college roommate, Philip Freneau. Known as “the Poet of the Revolution,” for verses he had published about his experience aboard a British prison ship in New York Harbor, the New Jersey–born Freneau was writing a column for a New York newspaper in which he revealed a hatred of all things British. He was more than ready to denounce Hamilton and his rich friends as enemies of the poor and middling classes, of which he was eminently one. Madison and Jefferson urged him to come to Philadelphia and launch a newspaper that would express their mutual fear and detestation of the Treasury Secretary’s attempt to shape the federal government along British lines.

The penniless Freneau, with a growing family and no means of support but some unproductive acres of farmland in South Jersey, first said yes, then changed his mind a month later. Jefferson was so disappointed, he journeyed back to New York and spent an entire day trying to repersuade the indecisive poet. It would take another effort by Madison to convince him to enter the political fray. Whereupon a delighted Jefferson offered Freneau a job as a translator in the office of the secretary of state. This was—and remains—a unique performance—giving a newsman a government salary to attack the administration in which his patron was supposedly a loyal partner.17

Over the next twelve months, Madison, in close and constant consultation with Jefferson, contributed eighteen unsigned essays to Freneau’s paper, the National Gazette. All were attacks on Hamilton’s program. President Washington remained unaware of this secret assault on his administration by a man whom he still considered his closest advisor. In the same month of October 1791 that Freneau began publishing his paper in Philadelphia, Madison drafted Washington’s annual message to Congress and chaired the committee that responded to it. A few days later, in the first edition of the National Gazette, Freneau accused Alexander Hamilton of being the head of a “monarchist” group plotting to destroy the republic. He also hailed Thomas Jefferson as a “colossus of liberty.”18

Perhaps we should pause here to puzzle over Madison’s duplicity. In most of the dealings of his long life, he was an honorable and honest man. The best explanation for his becoming two-faced in his relationship to President Washington may well be Thomas Jefferson’s role in the Congressman’s political and personal life. From the earliest days of their relationship Jefferson had been the leader, Madison his intelligent, but usually subordinate, advisor.

This did not mean subservience. We have seen how Madison tactfully disagreed with some of Jefferson’s wilder ideas, such as the earth belongs to the living. But Jefferson’s current role in Washington’s cabinet fused with his fame as the drafter of the Declaration of Independence and his experience as ambassador to France to become an overpowering combination in 1791. Writing to Jefferson around this time, Madison assured him that he was always ready “to receive your commands with pleasure.”¹⁹

While Freneau published more and more biting attacks on Hamilton, Secretary of State Jefferson remained ostensibly neutral. A Philadelphia printer inadvertently destroyed this disguise. Jefferson had reacted with disgust and rage at Edmund Burke’s essay, “Reflections on the Revolution in France.” The Irish orator predicted the upheaval’s collapse into bloodshed and anarchy, ending in a dictatorship. The Secretary of State was doubly pleased when Thomas Paine responded with a vigorous assault on Burke, The Rights of Man.

Jefferson particularly liked Paine’s claim that “every age and generation must be free to act for itself in all cases… The vanity of governing beyond the grave is the most ridiculous and insolent of all tyrannies.” He also approved Paine’s condescending view of the British people as passive victims of “the feeble and crazy” George III. He was even more enthusiastic about Paine’s denunciation of the British centralized financial system, which resulted in “a monied interest [class]” that controlled the nation. “It is power, not principles, that Mr. Burke venerates,” Paine sneered.²⁰

Paine was so confident that he was enunciating American principles, he dedicated The Rights of Man to George Washington and shipped fifty copies of the polemic to the President. Jefferson sent a copy of the book to a Philadelphia printer with a covering letter expressing his pleasure “that something is at length to be said against the political heresies that have sprung up amongst us.” The printer converted the letter into an introduction to the book.

An uproar exploded. The agitated Secretary of State assured President Washington that he had never intended his letter to be made public. Jefferson claimed he was criticizing the essays that Vice President John Adams had been publishing in John Fenno’s Gazette of the United States about the long-dead historian, Enrico Davila. Recent essays had expressed grave doubts about relying on unstable public opinion and stubbornly called for a society ruled by rank and distinction, in which titles would be conferred on the “natural aristocracy” of America. No one had any trouble agreeing that this was a theory almost laughably wrong for the United States.

Into the uproar barged a talented Adams defender. A series of hard-hitting essays signed by someone using the pseudonym “Publicola” accused Jefferson of being the real heretic for backing Tom Paine’s ideas. Jefferson assured Paine that Publicola represented “a sect high in names but small in number.” The sarcasm suggests that he assumed Publicola was the Vice President. In fact, the writer was Adams’s son, twenty-four-year-old John Quincy Adams, making his first appearance on the public stage. He was writing without asking his father’s permission. His eleven Publicola essays were widely read and reprinted as a pamphlet in England, where they were very popular. That was not surprising. John Quincy agreed wholeheartedly with his father’s—and Edmund Burke’s—pessimistic view of the French Revolution.

Only when the controversy subsided two months later did Jefferson try to rescue his friendship with John Adams. He claimed his letter to the printer grew from his belief that “truth, between candid minds, can never do harm.” Adams coolly expressed surprise. He had no recollection of ever discussing theories of government with Jefferson. He also denied he was Publicola but assured Jefferson that their friendship was still “very dear to my heart.”21

Far more significant are the letters Jefferson exchanged with James Madison about this incident. Jefferson assured Madison that he believed Adams was a heretic, but “certainly never meant to step into a public newspaper with that in my mouth.” Then came more revealing words. Colonel Hamilton was “open-mouthed against me,” claiming that “it [the introductory letter for The Rights of Man] marks my opposition to the government.” In a pained tone, Jefferson claimed that Hamilton was attempting to turn on the government “those censures I meant for the enemies of the government, to wit, those who want to change it into a monarchy.”

Jefferson added that he “had reason to think he [Hamilton] has been unreserved in uttering these sentiments.” This was a glimpse of a distinction that would cause Jefferson trouble for the rest of his life. He drew a line between what he said in a private letter and what he said in public discourse. Hamilton had violated this rule by being “open-mouthed” with his opinion. But Jefferson constantly used private letters to influence public policy—and only retreated to the other meaning of private when his opinions stirred criticism or opposition. As a public man, he also refused to recognize that very little of what he said was a private matter.22

Madison replied that he had never entertained for a moment anything but a firm belief that Vice President Adams’s ideas were ridiculous. Hamilton’s pro-British views—and his growing power—was the heresy they had to fear. Madison said he saw nothing wrong with a public servant—Jefferson—endorsing a book (The Rights of Man) that defended “the principles on which ‘that Govt is founded’”—and Hamilton was violating.

In view of these convictions, it is not hard to imagine Jefferson’s and Madison’s reaction to a new report that Secretary of the Treasury Hamilton sent to Congress in mid-December 1791—a proposal to create a Society for the Establishing of Useful Manufactures that the federal government would help to fund, along with private investors. Hamilton wrote a prospectus, with the help of Assistant Secretary of the Treasury Tench Coxe, a strong advocate of an industrial America. The S.U.M. would encourage and promote factories that would launch the United States as an industrial power, aimed at challenging British dominance of this rapidly growing segment of the world’s economy. Hamilton summed it up with a bold sentence that was the equivalent of a war cry: “Both theory and experience conspire to prove that a nation…cannot possess active wealth but as a result of extensive manufactures.”

The Society called for the creation of a city devoted to manufacturing. It would be named Paterson, after the popular governor of New Jersey, who had persuaded his legislature to charter it. Would-be investors rushed to buy shares in the S.U.M, which could be paid for in part with stock in the Bank of the United States. The initial offering of $500,000 sold out almost immediately. Soon the shares were rising dramatically and Americans began discussing the prospect of producing the long list of goods that Hamilton mentioned in his prospectus, from paper to cotton and linen textiles to blankets and beer.23

For Jefferson and Madison, this was ultimate proof that Hamilton was determined to transform America along British lines, with an inevitable final touch—the crowning of a king. Soon a pseudonymous James Madison was telling readers of the National Gazette that Hamilton’s policies were based on “the principles of aristocracy and monarchy, in opposition to the Republican Principles of the Union, and the Republican spirit of the people.”²⁴

A war had begun—a struggle for the public mind—the political soul—of George Washington’s America. At stake was the future of the experiment in independence to which he had devoted his life.