Alexander Hamilton (70 page)

Hamilton also arbitrated innumerable disputes that arose with shippers, often wading into arcane legal issues. At one point, the Baltimore customs collector asked whether import duties should be levied on horses, and Hamilton decided that horses and livestock qualified as taxable objects of trade. He then made this further observation: “I think it, however, necessary to observe that I consider negroes to be exempted from duties on importation.”
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It is a sorry commentary that the question of imposing duties on horses immediately posed the question of how to treat slaves.

The Customs Service also invested Hamilton with huge influence over the monetary system, with tremendous sums passing through his hands. One apprehensive Virginian warned Madison, “I am not unacquainted personally with that
gentleman
at the head of that department of the revenue and…I tremble at the thought of his being at the head of such an immense sum as 86 millions of dollars—and the annual revenue of the Union.”
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In fact, Hamilton handled the cash flow in an impeccable manner.

Three quarters of the revenues gathered by the Treasury Department came from commerce with Great Britain. Trade with the former mother country was the crux of everything Hamilton did in government. To fund the debt, bolster banks, promote manufacturing, and strengthen government, Hamilton needed to preserve good trade relations with Great Britain. He understood the displeasure with Britain’s trade policy, which excluded American ships from its West Indian colonies and allowed American vessels to carry only American goods into British ports. For Hamilton these irritating obstacles were overshadowed by larger policy considerations. America had decided to rely on customs duties, which meant reliance on British trade. This central economic truth caused Hamilton repeatedly to poach on Jefferson’s turf at the State Department. The overlapping concerns of Treasury and State were to foster no end of mischief between the two men.

Hamilton hoped to diversify the revenue stream with domestic taxes. By the time he reported to Congress in December 1790 on the need for additional taxes, he feared that import duties were as high as they could reasonably go. The time had come to spread the pain more evenly, especially since import duties injured seaboard merchants who were part of Hamilton’s social circle and political base in New York.

No immediate crisis spawned a need for fresh money. By late 1790, Hamilton had actually amassed a sizable government surplus. Government securities had tripled in value under his tutelage, and compared to the disarray under the Articles of Confederation his policies had produced a healthy burst of economic growth. One Boston correspondent said, “It appears to me that there never was a period when the United States had a brighter sunshine of prosperity…. It is pleasing indeed to see the general satisfaction which reigns among every class of citizens in this part of the Union…. [O]ur agricultural interest smiles, our commerce is blessed, our manufactures flourish.”
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But at Hamilton’s urging the federal government had now assumed state debts, and Hamilton did not see how he could service them without a secondary source of income. He was boxed in, however, by the already ingrained American aversion to taxation. Direct taxation, whether of people or houses, was anathema to many, and, given the strength of agricultural interests and real-estate speculators, a land tax could never have been enacted. So what was there left to tax?

In December 1790, with other options foreclosed, Hamilton revived a proposal he had floated in his
Report on Public Credit:
an excise tax on whiskey and other domestic spirits. He knew the measure would be loathed in rural areas that thrived on moonshine, but he thought this might be more palatable to farmers than a land tax. Hamilton confessed to Washington an ulterior political motive for this liquor tax: he wanted to lay “hold of so valuable a resource of revenue before it was generally preoccupied by the state governments.” As with assumption, he wanted to starve the states of revenue and shore up the federal government. Jefferson did not exaggerate Hamilton’s canny capacity to clothe political objectives in technical garb. There
were
hidden agendas buried inside Hamilton’s economic program, agendas that he tended to share with high-level colleagues but not always with the public.

To Hamilton’s delight, Madison supported the excise tax on distilled spirits, agreeing that no plausible alternative existed. Madison averred that “as direct taxes would be still more generally obnoxious and as imports are already loaded as far as they will bear, an excise is the only resource and of all articles distilled spirits are least objectionable.”
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Madison thought the whiskey tax might even have collateral social benefits, since it would increase “sobriety and thereby prevent disease and untimely deaths.”
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In perhaps the first distant rumble of the Whiskey Rebellion that flared up a few years later, the Pennsylvania House of Representatives passed a motion protesting Hamilton’s tax. In the mountain hollows of western Pennsylvania, homemade brew was a time-honored part of local culture, and government interference was fiercely resented. As Hamilton worked to pass his liquor tax, William Maclay again saw him as the evil wizard of Congress, flitting from the House of Representatives on the first floor of Congress Hall to the Senate chamber on the second, dictating policy to his legislative myrmidons. When Maclay tried to present statistics on domestic stills to legislators, he found Hamilton there ahead of him: “I went to the door of the committee room…but finding Hamilton still with them, I returned.”
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When the Senate passed the excise tax, Maclay made a chillingly accurate prediction in his journal: “War and bloodshed are the most likely consequence of all this.”
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As he noted, even the Pennsylvania legislature had been unable to enforce excise taxes in the lawless hinterlands of the western counties.

Hamilton labored under no illusions about resistance to the whiskey tax and was prepared to equip a small army of inspectors with stiff enforcement powers. In his
Report on Public Credit,
he had outlined sweeping powers for such inspectors, including allowing them to enter homes and warehouses at any hour to seize hidden spirits. Dealers in spirits, even ramshackle one-man operations, would be required to present proper certificates and maintain accurate records. In a circular issued in May 1791, Hamilton promulgated rules that seemed excessively detailed, especially in a country with a congenital dislike of tax collectors. He wanted inspectors to visit all distilleries “
at least
twice a day” and file weekly reports, “specifying in these returns the name of each owner or manager of a distillery, the city, town or village…and the county in which such distillery is situated, the number of stills at each, and their capacity in gallons…the materials from which they usually distill, and the time for which they are usually employed.”
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It did not take long for stirrings of revolt to crop up in western Pennsylvania. As soon as the tax took effect in July 1791, locals began to shun or even threaten inspectors. Hamilton imagined that he had been scrupulous in circumscribing the powers of inspectors—they “can’t search and inspect
indiscriminately
all the houses and buildings of people engaged in the business”—but many distillers found their methods bullying and intrusive.
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As discontent with the liquor tax increased, the protesters began to broaden their critique, taking aim at Hamilton’s funding scheme and his entire gamut of policies.

Hamilton was caught on the horns of a dilemma. To prop up the federal government, he had to restore public credit. To restore public credit, he had to institute unpopular taxes, and this “gave a handle to its enemies to attack” the federal government, he later conceded.
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Yet all of the alternatives to the liquor tax would have proved even more unpopular. As reports drifted back to Philadelphia of disturbances in western Pennsylvania, Hamilton did not lighten up on enforcement. He thought it his duty to implement unpopular but necessary policies, even if they detracted from his own popularity. Hamilton was not the sort to tolerate lawbreaking and was not finished with the lengthy list of controversial policies he planned to introduce.

EIGHTEEN

OF AVARICE AND ENTERPRISE

O
n December 14, 1790, one day after he jolted Congress with his call for an excise tax on liquor, Alexander Hamilton submitted another trailblazing report, this one a clarion call to charter America’s first central bank. The country, still reeling from programs the treasury secretary had churned out in a mere fifteen months, was learning just how fertile Hamilton’s brain was. He was setting in place the building blocks for a powerful state: public credit, an efficient tax system, a customs service, and now a strong central bank. Of all his monumental programs, his proposal for the Bank of the United States raised the most searching constitutional questions.

The American Revolution and its aftermath coincided with two great transformations in the late eighteenth century. In the political sphere, there had been a repudiation of royal rule, fired by a new respect for individual freedom, majority rule, and limited government. If Hamilton made distinguished contributions in this sphere, so did Franklin, Adams, Jefferson, and Madison. In contrast, when it came to the parallel economic upheavals of the period—the industrial revolution, the expansion of global trade, the growth of banks and stock exchanges—Hamilton was an American prophet without peer. No other founding father straddled both of these revolutions—only Franklin even came close—and therein lay Hamilton’s novelty and greatness. He was the clear-eyed apostle of America’s economic future, setting forth a vision that many found enthralling, others unsettling, but that would ultimately prevail. He stood squarely on the modern side of a historical divide that seemed to separate him from other founders. Small wonder he aroused such fear and confusion.

Over the past two centuries, Hamilton’s reputation has waxed and waned as the country has glorified or debunked businessmen. Historian Gordon Wood has written, “Although late-nineteenth-century Americans honored Hamilton as the creator of American capitalism, that honor became a liability through much of the twentieth century.”
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All the conflicting emotions stirred up by capitalism—its bountiful efficiency, its crass inequities—have adhered to Hamilton’s image. As chief agent of a market economy, he had to spur acquisitive impulses, accepting self-interest as the mainspring of economic action. At the same time, he was never a mindless business booster and knew how the desire for lucre could shade over into noxious greed. In
Federalist
number 12, when discussing how prosperity abets the circulation of precious metals, he referred to gold and silver as “those darling objects of human avarice and enterprise”—a phrase that sums up neatly his ambivalence about the drive to amass personal wealth.

In a nation of self-made people, Hamilton became an emblematic figure because he believed that government ought to promote self-fulfillment, self-improvement, and self-reliance. His own life offered an extraordinary object lesson in social mobility, and his unstinting energy illustrated his devout belief in the salutary power of work to develop people’s minds and bodies. As treasury secretary, he wanted to make room for entrepreneurs, whom he regarded as the motive force of the economy. Like Franklin, he intuited America’s special genius for business: “As to whatever may depend on enterprise, we need not fear to be outdone by any people on earth. It may almost be said that enterprise is our element.”
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Hamilton did not create America’s market economy so much as foster the cultural and legal setting in which it flourished. A capitalist society requires certain preconditions. Among other things, it must establish a rule of law through enforceable contracts; respect private property; create a trustworthy bureaucracy to arbitrate legal disputes; and offer patents and other protections to promote invention. The abysmal failure of the Articles of Confederation to provide such an atmosphere was one of Hamilton’s principal motives for promoting the Constitution. “It is known,” he wrote, “that the relaxed conduct of the state governments in regard to property and credit was one of the most serious diseases under which the body politic laboured prior to the adoption of our present constitution and was a material cause of that state of public opinion which led to its adoption.”
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He converted the new Constitution into a flexible instrument for creating the legal framework necessary for economic growth. He did this by activating three still amorphous clauses—the necessary-and-proper clause, the general-welfare clause, and the commerce clause—making them the basis for government activism in economics.

Washington’s first term was devoted largely to the economic matters in which Hamilton excelled, and Woodrow Wilson justly observed that “we think of Mr. Hamilton rather than of President Washington when we look back to the policy of the first administration.”
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Hamilton had a storehouse of information that nobody else could match. Since the “science” of finance was new to America, Fisher Ames observed, “A gentleman may therefore propose the worst of measures with the best intentions.”
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Among the well-intentioned men who were woefully backward in finance, if forward-looking in politics, were Hamilton’s three most savage critics of the 1790s: Jefferson, Madison, and Adams. These founders adhered to a static, archaic worldview that scorned banks, credit, and stock markets. From this perspective, Hamilton was the progressive figure of the era, his critics the conservatives.