No one at this time seemed to feel the potency of the protective principle in enlarging the power of the Union. It was unseen until fully developed some thirty years later. Yet to appreciate the full force of this tariff bill of July 4, 1789, with its protective preamble, as a sample of Union-making legislation, one need only consider the gratitude which the National Government has won through such protective measures; the attachment of leading men to the Union from guarding their interests; the accumulated strength of moneyed interests in time of danger to the Republic; the use made of the tariff in protecting workingmen; the revenue derived from high tariffs, which has been spent on public improvements; and the force of public opinion which has been frequently rallied by both employer and employee to the support of the execution of a national revenue law.
Above all members of the first administration, Hamilton stood for an efficient National Government. He saw opportunity in the administration and interpretation of the written document to correct the weak places which he had sought in vain to avoid when the frame was being made. A constructive genius by birth, a financier by study, a leader of men by nature, Hamilton had, in the Treasury Department, that function of the new Government which needed the most strengthening, and in its present condition the necessity which would support the strongest measures. Called upon by Congress at the time of its first adjournment to inform them of the exact financial condition of the country, he drew up an exhaustive report showing that the National and State governments together owed something like fifty-two millions of dollars. The national obligation to-day is twenty times that sum. Its proportion to eighty millions of people is not much less than the fifty-two millions were to the three and a half millions of people who faced the debt of Hamilton's time. But the debt now is of fixed form and assured payment before it is incurred. The debt which Hamilton presented to Congress was heterogeneous in form and without means of payment. Arguing that a national debt properly funded had contributed largely to the prosperity of Great Britain, Hamilton proposed to collect all these evidences of debt into a national obligation, which would bring interest to its holders until paid. The faith of the United States toward its creditors must be redeemed. To secure a revenue with which to pay this interest and evidently to redeem the principal in addition to meeting the running expenses of the Government was the first task. Hamilton proposed to place additional duties on imported goods and to lay a tonnage on vessels using American ports, the latter of which he estimated would yield more than a million dollars. He would also put an excise on distilled spirits manufactured in the United States and on those imported, both bringing in nearly three million dollars. The profits of the post-office he estimated at almost a million dollars annually, to be applied also to the national expenses.
[Illustration: CERTIFICATE OF DEBT AGAINST THE UNITED STATES. From the
Manuscript Division of the Library of Congress. This was one of the
Revolutionary obligations assumed and paid under Hamilton's financial
measures.]
The members of Congress, at the subsequent session, with remarkable unanimity, concurred in these recommendations of the Secretary of the Treasury for the redemption of the national obligations, including both the debt owed to foreign nations and that incurred to domestic holders during the exigencies of the war. But upon another proposition, that the United States should assume the debts incurred by the several States during the war, there was strong opposition. It was said that such action would lead to speculation and stock-jobbery in buying up these debts and converting them into new forms. The original holders had long since disposed of them to brokers, who would be enriched by national legislation. It was the old clash between the moneyed and the moneyless classes. Although the action would be a direct interference of the National Government with State affairs, the debates turned on economic rather than constitutional grounds. If Hamilton had the foresight with which he is credited by his admirers, if he saw that the allegiance of the people would gradually be won away from the States to the Central Government because the latter was redeeming promises which the States had long been endeavouring to meet, if he was taking advantage of the selfishness and cupidity of the deeply indebted States, there is no evidence to show that the States saw or appreciated the danger.
Virginia, whose representatives bore the brunt of the opposition, had a source of revenue in her western lands from which she could easily discharge her obligations, and naturally had no desire to share the liabilities of others. But her State Legislature, after Hamilton agreed with Jefferson to buy off the Virginia opposition in Congress by locating the national capital on the Potomac, protested in strong and exact terms against the State-debts-assumption proposition. These resolutions recited that the people of Virginia had adopted the Federal Constitution under the impression and upon positive condition that "every power not granted was retained," and that they had read the document in vain to find the right given to assume the debts of the States. Here, within two years after the adoption of the Constitution, was a State Legislature protesting against the usurpation of power under it. It was the first of many futile protests.
Hamilton, sending a copy of the Virginia resolutions to Jay, saw "the first symptom of a spirit which must either be killed or will kill the Constitution of the United States." He thought the collective weight of the different parts of the Government ought to be employed in exploding the principles they contained. Theoretically, the Legislature of Virginia may have been correct in its attitude; but no theoretical protest could avail against the worthy sentiment that the entire national credit must be restored, backed by the practical demands of the creditors, and by the desires of those who saw an opportunity of investment or speculation.
Those people, both officials and citizens, who took the stand in these formative days of political parties that the Federal Government should be restricted in its workings to the powers expressly given to it in the Constitution, a "strict construction" of that document, as they called it, were generally country bred, of the borrowing rather than the lending class, depending upon individual initiative rather than mass action, strangers to the paternal aspects and fostering hand of government, and inexperienced in the intricacies of finance. Gen. Henry Lee, of Virginia, complained to Madison of the complexity of Hamilton's plan. "It departs," replied Madison, "from that simplicity which ought to be preserved in finance more than anything else." Inability to comprehend naturally breeds suspicion.
Hamilton's followers were, for the most part, from the Northern and Middle States, city dwellers, money-lenders rather than borrowers, business men, and manufacturers, who saw no wrong in having the Government promote the general welfare by legislation. The sudden revival of business which followed the adoption of Hamilton's plan to redeem all the debts seemed to them both natural and legitimate. The other group looked upon the entire matter as a corrupt transaction, contrived by Hamilton, and a prostitution of government from its legitimate purposes. Madison wrote that just before the report came out the value of the various forms of debt rose from a few shillings to eight or ten shillings in the pound, and that emissaries were still exploring the interior and distant parts of the Union in order to take advantage of the ignorance of the holders. To meet the occasion Jefferson invented the phrases, "corrupt squadron," "stock-jobbing herd," and "votaries of the treasury," upon which he rang the changes during a long lifetime.
To this indignation was added dismay when the effects of national assumption of State obligations began to be appreciated; when creditors who had besieged the State treasury for years found the Union satisfying their just demands; when the evidences of national government, which had heretofore been confined to a wandering Congress, began to appear at every hearthstone. A realisation of these results brought from Jefferson the complaint that he had been duped by Hamilton in the assumption-capital bargain; that he had been "most innocently and most ignorantly made to hold the candle for a wicked scheme."
A similar aggrandisement of the National Government was the motive, according to the eulogists of Hamilton, which prompted him to make a suggestion for another novelty, a United States bank. Ostensibly he claimed that it would have the effect of bringing immediate financial relief, as well as safeguarding the future. The arguments presented by him to Congress for the incorporation of a bank in which the National Government should be a stockholder were purely utilitarian. The bank would benefit the public by offering an opportunity for the investment of capital. It would benefit the Government by lending it money in an emergency and by collecting its revenues. Its notes would also form a circulating medium. The bill drawn by Hamilton incorporating such a bank passed the Senate without material change and without a division. One Senator from Pennsylvania, suggesting amendments to his colleague, was informed that Hamilton's father-in-law, a Senator from New York, had said Hamilton did not wish the bill altered. The hopeless minority in the Senate claimed that the chances of subscribing to the proposed bank, guaranteeing an investment at six per cent, for twenty years, won many to its support. They also saw here another link in the chain which Hamilton was welding about the States. The debts having been assumed, the certificates would be accepted as subscriptions to bank stock. Thus one measure would be made to play into another.