We use the term “federal government” all the time, now, to refer to our central, national government, but “federal” is a word as misunderstood as “republic.” A republic, to review, vests power in the people (hopefully a moral, responsible citizenry) who elect representatives who make laws. Our republic has a federal system, which means that the state governments still exist and share power with the national government. Modern Americans may find it hard to believe that the definition of our style of government since the ratification of the United States Constitution actually limits the power of the national government by reminding it that it must share power with state governments that are by no means obsolete. Getting the Constitution ratified was a process that went on in the states, and the wrangling to get nine of the thirteen states created our two-party political system.
The first political party in America was known as the Federalist Party. You will not be surprised to learn that the second party in America was the Anti-Federalist Party. Federalists said they were creating an entirely new government in Philadelphia. This statement frightened enough people to form the nucleus of the Anti-Federalists who claimed the Constitution marked an anti-Revolution revolution. One of the most important political concepts you must learn as a student of US history, especially if you are a citizen, is that in the controversy over the changes in the government a balance was struck between the two parties that permitted the establishment of a stable government. That dynamic is continually operating throughout the rest of America’s story even though the authors of the Constitution disliked parties and hope they would never take root on American soil.
Federalists claimed they had achieved the “impossible.” A vast domain was controlled by a stable government yet with power vested in the people. The key to their success was found in the opening words of the Preamble. Who is sovereign in America? “We the People. . .” The federal nature of the new government divided that power between the national government and the states to the amazement of the world. David Hume, a Scottish philosopher, thought a republic might work better in a large country, and James Madison agreed. Madison pointed to Rhode Island (who wasn’t there to defend itself) and said they were the smallest government in America yet the most factionalized.
Madison, Alexander Hamilton, and John Jay took a leading role from 1787 to 1788 while the states digested the Constitution in the ratification process. These three men published editorials anonymously in New York newspapers under the pseudonym, Publius. The editorials carefully tried to explain the Constitution and to answer arguments against it. Now these papers are bound together in the crucial work, The Federalist Papers, a required work for anyone wanting to understand constitutional law because three major contributors to the Constitution went on record about the meaning of the document. We know from stylistic analysis that of the 85 essays, Madison and Hamilton each wrote 40 and Jay wrote five. The most famous is Madison’s “Federalist No. 10” in which Madison explained why a republic was best for ruling a large country, contrary to the political science fashions of the day. He said a large country will produce many factions which will prevent any one faction from dominating. Furthermore, having only a few representatives from a large population will insure that only the best would go to serve in the national government.
The Anti-Federalists rallied around the cry, “Monarchy, again!” They claimed that since Americans were already so diverse, the government would have to become tyrannical to preserve order. The Constitution’s being “the supreme law of the land” unnerved them and made them think the United States were on their way to becoming one state. In the debate, however, the less educated Anti-Federalists were unable to prevail over the more talented Federalists. Furthermore, only twelve of the roughly 100 newspapers in America were edited with an Anti-Federalist slant. And the Federalists had George Washington! In the final analysis, the fact that so many people could disagree with George Washington’s party revealed a spirit of challenge and of independent thinking. The Anti-Federalists would be back.
The states of North Carolina and Rhode Island rejected the Constitution outright until such a time as a Bill of Rights would be added. Madison began to push the first ten amendments to the Constitution through the House of Representatives having penned the first draft himself. The first nine addressed the fear of the loss of individual rights, while the tenth amendment said that whatever powers were not specifically granted to the federal government devolved upon the states (the “states’ rights” amendment). Exercising its rights, New Hampshire cast the necessary ninth vote for ratification before the Bill of Rights was added (in 1791).
Our focus must necessarily now turn to Alexander Hamilton. Hamilton served under Washington during the War for Independence, and Washington quickly learned the young man from New York was brilliant. He was later said to quip that he kept Hamilton nearby at all times “. . .to do my thinking for me.” As Washington was unanimously elected the first President, he chose Hamilton as the first Secretary of the Treasury, but Hamilton became much more.
The country enjoyed consensus on the Constitution from 1789-1790, then wild disagreement erupted. Hamilton took the initiative to forge the pattern of government from the beginning. As Washington’s trusted adviser, he also organized the Federalist Party. He knew that his boss was setting key presidential precedents, and Hamilton knew that with his own brains and Washington’s Indispensable-Man status, they could make the new government work. Historians agree that Hamilton is more responsible than any other individual for turning the piece of paper known as the US Constitution into a working government. Cryptically however, Hamilton once said, “This American world was not made for me.” Born in the West Indies and deeply aristocratic, even elitist, Hamilton wrestled all his life with the fact that he was an illegitimate child. Among other precedents he set, he is the first major American figure to publicly acknowledge that he kept a mistress. I am not holding him up as a paragon of virtue, but his influence is so strong that we will eventually have to discuss what historians call the “Hamiltonian Program.”
Hamilton had good clay with which to sculpt a president. Why is George Washington known as the Indispensable Man? He was everyone’s model of a classical hero. The country rallied around him as the General, and they rallied around him (and the Constitution) as the first president. Can you imagine a man elected unanimously by the electoral college today? Tall, strong, patient, and dignified, he had mastered his violent temper of his red-headed youth. He had the fantastically moving quality of not wanting to be a hero. He did not want to be the general, but he consented. He did not want to be president, but he consented. He definitely did not want to be president for a second term, but they begged him, and he consented. Having found himself elected president, he and Hamilton realized that virtually everything he did would set a precedent and be followed for years. I can think of only one that didn’t take—he adopted the habit of bowing to people. Shaking hands had become an American trademark of social equality, but Washington refused to do it while president. Can you imagine a politician that refused to shake hands today?
Alexander Hamilton had other duties than establishing a government and making a president. The phrase, “Hamiltonian Program,” refers mainly to his task as Secretary of the Treasury. It fell upon him to both pay the national debt incurred during the war and to establish the credit of the United States of America. For his services, he was placed on the ten dollar bill. The debt does not seem large by today’s standards, but at the time it was a staggering amount. The US owed foreign creditors $12 million. Domestic debt amounted to $42 million. $25 million was still owed by individual states because of the war, and Hamilton insisted on the federal government’s paying of those debts in a policy called assumption. The United States, therefore, started out $79 million dollars in the hole. Hamilton, amazingly, said this much debt for a young country was a good thing. He called it a “useful cement of union,” saying that the country would pull together because of this burden all citizens shared.
The most controversial Hamiltonian policy, however, was funding at par. Hamilton insisted that if the US was ever going to be able to borrow money in a crisis again, all of the bonds issued by the Congress to fund the war must be paid back at face value. This policy was a problem because most bonds had been sold at low points in the War for Independence to rich speculators who bought them for pennies on the dollar. In other words, a bond is a loan a private citizen makes to his government. He “buys” it for say, $10. If he holds it for a specified amount of time, until it “matures,” he can be paid back for it by the government for say, $50. Presumably the government would have weathered whatever storm prompted it to sell bonds, and in better times money would abound. When the war looked bleak, however, those who held bonds sold them for, say, $1, to rich people who advertised in newspapers and bought up thousands of bonds at ten percent of their value. Now Hamilton wanted to pay those rich folks the full mature value of their investments as a reward for believing in the future of the country. Many citizens, especially those who had sold their bonds, were outraged. Hamilton wanted to “buy” rich friends for the government, however, so he did.
To make payments on the debt, Hamilton asked for four sources of revenue. Keep in mind that Hamilton did not want to completely pay off the national debt, merely to fund it. The sources of revenue he proposed included customs duties (tariffs) and excise taxes. Excise taxes are taxes on particular products. Stay tuned for what product Hamilton purposefully chose to tax. Hamilton also issued new bonds to jump-start the economy, and because the US now had a good “credit-rating,” people bought them up. Finally, the most lucrative source of income for the federal government was in land sales.
These transactions brought up the question of how the federal government was going to handle money and fulfill its constitutional obligation to issue a currency. Hamilton looked to the British example and proposed a Bank of the United States (BUS). He designed the BUS to be a part public/part private venture with branches in selected cities. The Bank was to hold government deposits, perform the task of bargaining for credit both at home and abroad, and issue the currency.
This last point is the key to how Hamilton envisioned the federal government’s controlling banking and the rest of the American economy. He used the currency as a sort of throttle for the economy. If the economy was soaring high, teetering on the edge of a crash, he would stop issuing currency. If the economy dipped, he would open the throttle and flood the country with currency making it more readily available for banks to loan out to people who would invest in the economy and turn it around. In a slightly different way, this is still how the government controls the economy today.
Hamilton was so farseeing as to be almost a prophet. He believed America could rise up to become a great power in the world, but in order to do so the country needed to boost domestic manufacturing. While deftly courting Great Britain in an informal economic alliance, he sought to provide incentives for American manufacturers. Hamilton was the Founding Father who set industrialization and capitalism as long-term goals. He did not believe in the virtue of the population, but with capitalism could harness the self-interest of people pursuing the American Dream to take America along with them (paying taxes). Hamilton definitely subscribed to the notion that what was good for business was good for America. He even recognized a weakness in his own plan, that it was too dependent on customs duties for revenue. He therefore had to keep American and British manufacturers happy.
To create his program and to get it through Congress, Hamilton had to rely heavily on the elastic clause of the Constitution. He also developed the constitutional doctrine of implied powers. There were several duties, especially for the legislative branch, that were hinted at in the Constitution. Hamilton pointed to the phrase that Congress could do whatever was “necessary and proper” to carry out its duties, or the elastic clause. For example, Congress was supposed to issue a currency. To facilitate this process, Hamilton chose the Bank of the United States as the mechanism even though the Constitution does not say there can be a BUS. Hamilton said that the Constitution also did not say there could not be a BUS. This type of wrangling in between the lines of the Constitution is known as loose construction, or loose interpretation. Anti-Federalists hated this concept and advocated strict construction or interpretation, the idea that if the Constitution does not specifically say it, the government can’t do it. The foundation for the two-party system of American politics rests on this debate.