Washington knew that, as first president, he would set a precedent with every deed. He won an even greater respect than his generalship had earned him. Political considerations entered into his appointments of the men who were soon collectively known as the cabinet. The most important cabinet post was secretary of the treasury--Alexander Hamilton. Hamilton’s proposal to pay American creditors the face value of the Confederation paper they held met stiff resistance in Congress. Hamilton also proposed that the federal government assume responsibility for and fund the debts that the states had contracted since independence. In order to facilitate its passage, Hamilton agreed to support the construction of a permanent capital on the Potomac River. In 1791, he further proposed that Congress charter a Bank of the United States (BUS) patterned on the Bank of England. In the bank debate, Jefferson and Hamilton formulated fundamentally different theories of what the Constitution permitted the federal government to do and what it forbade. Congress rejected Hamilton's proposed protective tariff.
In 1789, France exploded in revolution. During the “Reign of Terror” that followed, radicals guillotined thousands of nobles and their political rivals. France’s declaration of war on Great Britain early in 1793 presented the United States with a touchy diplomatic problem. Washington announced that the United States would be neutral. In April 1793, a new French minister began commissioning Americans as French privateers, sending them to sea to seize British ships. Washington ordered him to return to France. Washington rushed Chief Justice John Jay across the Atlantic to appeal to the British for a settlement, which ended in the much-hated Jay's Treaty. The furor over the treaty exhibited the first signs that two political parties were beginning to organize in the United States. Neither the early Federalists nor the early Jefferson Republicans believed they were creating permanent institutions. The Treaty of San Lorenzo (or Pinckney’s Treaty) was a major triumph for the Washington administration.
The white settlers out west were in near-constant conflict with the Indians there. In 1794, "Mad Anthony" Wayne defeated Indians from several tribes at the Battle of Fallen Timbers. In the Treaty of Greenville that followed, the battered tribes ceded the southern half of Ohio and a sliver of Indiana to the United States. The Whiskey Rebellion of 1791 was easily suppressed but with political repercussions for the Federalists.
In the election of 1796, John Adams won the presidency with Thomas Jefferson as his vice president. Like Washington, Adams faced the threat of war, but with France rather than Britain. The XYZ Affair heightened war fever in the United States. The Federalist Congress responded to criticism with a series of laws called the Alien and Sedition Acts. The Virginia and Kentucky Resolutions, in response, proclaimed that the federal government was a compact of sovereign states. If Congress enacted a law that a state deemed unconstitutional, that state had the right and the power to forbid its enforcement within the state’s boundaries.