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Washington in New York -- Chs 13-16


If you’re staying at a bed-and-breakfast in New England and the sign over the door reads, “George Washington Slept Here,” chances are it’s true.

In the fall of 1789, President George Washington slept in 18 inns between New York and Maine, most of them country houses.  Many are still standing today.

When Congress adjourned in late September, legislators packed their bags and headed home.  Not the President.  As much as he longed to return to Mount Vernon, Washington decided to stay in New York for the three months Congress was in recess.  He intended to spend one of those months touring New England.  He discussed the idea with his closest advisors: Hamilton, Jay, Knox, and Madison.  His diary entries for October 5 - 7, when the decision was made, reads in part:

“Monday 5th. Exercised on horse back between the Hours of 9 and 11 in the forenoon and between 5 and 6 in the Afternoon. on foot. Had conversation with Colo. Hamilton on the propriety of my making a tour of the Eastern states during the recess of Congress to acquire knowledge of the face of the Country the growth and Agriculture there of and the temper and disposition of the Inhabitants toward the new government . . . .

“Tuesday 6th. Exercised in a Carriage with Mrs. Washington in the forenoon. Conversed with (Secretary of War) Genl Knox on the above tour who also recommend it accordingly. . . .

“Wednesday 7th. Exercised on horseback; & called on the Vice President (Washington fails to mention if he consulted with Adams about the trip). In the afternoon walked an hour. Upon consulting Mr. Jay on the propriety of my intended tour into the Eastern States, he highly approved it. . . .”

Washington had another reason for taking the trip. He wanted to see firsthand New England's growing textile industry. Like Hamilton, he believed America's future economic prosperity lay not with agriculture but with industry.


Accompanying Washington on his trip were two personal secretaries (Tobias Lear and Major William Jackson), and six servants: two coachmen, two footmen, an outrider, and a valet.  The servants maintained the coach, tended to the horses (eight in all), and handled the luggage. The valet cleaned and pressed Washington's clothing, polished his boots, and each morning combed his hair and helped him dress.  The outrider scouted the network of roads ahead and arranged dining and sleeping accommodations in advance. The daily routine was to depart at dawn, log in 10 to 15 miles before stopping for breakfast, travel another 20 miles, stop for dinner between two and three in the afternoon, proceed for another ten miles and stop for the night.

Washington began his journey on Thursday, October 15.  Day One was uneventful.  Day Two, approaching Stratford, Washington was met on the road by a military retinue that escorted him into town.  It was a pattern that would be repeated in town after town: the local townspeople would send a welcoming party out to meet him, entertain him at the local assembly hall with speeches and dinner, and afterward escort him out of town.

The next stop was New Haven.  Washington attended Sunday church service and toured his first textile mill.  At Wallingford and Mansfield, where the cultivation of silkworms was a cottage industry, he visited a mill that specialized in silken fabric. He spent a full day in Hartford, toured a textile plant that specialized in wool, and ordered a new suit of clothes.

On the 21st, Washington entered Massachusetts, and stopped for the night in Springfield.  He wrote in his journal: "There is a great equality in the People of this State--Few or no opulent Men and no poor...."  He saw none of the large land holdings that comprised much of his native Virginia. "The farms ... are small not averaging more than 100 acres."

The next morning he received a letter from John Hancock: the governor of Massachusetts was inviting him to lodge at the governor’s mansion.  Washington sent a reply by outrider declining the governor's invitation.  The reply read in part: ”From a wish to avoid giving trouble to private families, I determined, on leaving New York, to decline the honor of any invitation to quarters which I might receive while on my journey--and with a view to observe the rule, I had requested a Gentleman to engage lodgings for me during my stay in Boston."

Entering Worcester on the twenty-third, he was greeted by a 13-gun salute.  The same day he received another letter from Hancock: an invitation to dine with the governor the following evening.  Washington accepted. That night he lodged in Weston.

Arriving in Cambridge the next morning, Washington was greeted by town dignitaries and the local militia who escorted him to Boston.  In Boston, Washington was met with "parade and ceremony."  Hancock, however, was nowhere to be seen.  Vice president John Adams, having traveled to Boston himself, welcomed him.  Later, Washington received word that Hancock was too ill to meet him but that the invitation for dinner was still on.  Following protocol, Washington assumed the governor--ill or not--would call on him first, prior to dinner.   Hancock never showed and Washington dined alone.  Why hadn't Hancock followed protocol?  Was he too ill or merely being a prima donna?  The next day Hancock finally showed and assured the President he had indeed been ill, and that, yes, ill or not, it was improper of him to expect the president to call on him first.  Word of the incident leaked out and to the governor’s embarrassment was reported in the local newspaper.

The following day, Monday, October 26th, a rainstorm swept through Boston.  Washington, who was fighting a cold, spent the day in his room.  On Tuesday, the President was feeling better and met with local clergy, the town council, and the president of Harvard College.  That afternoon, Washington dined at historic Fanuiel Hall, the Boston marketplace where revolutionary speakers Sam Adams and James Otis once called for American independence.

On Wednesday, Washington toured two textile mills: the Card Manufactory, which employed 900 workers; and the Boston Sailcloth Manufactory, one of the first mills to harness water to power the looms.  Most of the workers were women.  An observer reported that the President "made himself merry on this Occasion, telling the overseer he believed he collected the prettiest girls in Boston."

On Thursday, Washington met up again with John Adams and the two toured Harvard College together.  In the afternoon, Washington traveled on to Marblehead, where the local industry was fishing, and spent the night in Salem.  Attending a reception at the Salem Town Courthouse, an observer noted: "(Washington) looked oppressed by the attention that was paid him, and as he cast his eye around, I thought it seemed to sink him at the notice he attracted. When he had got to the Court House, and had patiently listened to the ditty they sung at him, and heard the shouts of the multitudes he bowed very low, and as if he could bear no more turned hastily around and went into the house."

On Friday, Washington toured another textile mill, the Beverly Cotton Manufactory, and in his journal wrote: "In this manufactory they have the New Invented Carding and Spinning Machines--one of the first supplies the work; and four of the latter; one of which spins 84 threads at a time by one person."  That afternoon, approaching Newburyport, he was met by town leaders and another military regiment.  He liked what he saw in Newburyport and wrote: "This place is pleasantly situated on the Merrimack River, and appears to have carried on (here & about) the Ship-building business to a grt extent."

The next day was Saturday, October 31.  Town leaders and businessmen escorted him to the New Hampshire border where he was met by the president and vice president of New Hampshire, both Senators, and the state militia. They accompanied him to Portsmouth, near the mouth of the Piscataqua River, where he was "received with every token of respect and appearance of Cordiality under a discharge of Artillery."

On Sunday, November 1, Washington attended two church services: one at a Episcopal church, the second at a Presbyterian church.  He spent the afternoon in his room writing letters.

Monday morning, Washington was taken aboard a ship and spent the day deep sea fishing off the coast of New Hampshire.

Tuesday, November 3, the President attended another reception, this one at the Portsmouth town assembly hall.  Noted Washington: "The Assembly Room ... is one of the best I have seen any where in the United States." The same day he changed his travel itinerary.  Winter was approaching.  Due to recent snow, he decided not to travel through Vermont to Albany and then follow the Hudson back to New York City as planned.  Instead, he would take the shortest route possible, by making a southwesterly diagonal cut across Massachusetts and Connecticut.


Washington’s journal entry for Wednesday, November 4 reads: "I left Portsmouth, quietly & without any attendance, having earnestly entreated that all parade & ceremony might be avoided on my return."  He reached Haverhill, Massachusetts, in mid-afternoon, and spent the night.

Thursday, the fifth, having stopped in Lexington, he "viewed the Spot on which the first blood was spilt in the dispute with great Britain on the 19th of April 1775."  That night he lodged in Watertown.

On Friday, November 6, despite rain mixed with snow, Washington logged in 36 miles prior to nightfall and spent the night in Uxbridge.  His journal entries, which until now had been upbeat, began to show the strain of the journey.  He was now critical of nearly everything he saw.  "The Roads in every part of this State are amazingly crooked, to suit the convenience of every Man’s fields; & the directions you receive from the People equally blind & ignorant; for instead of going to Waltham we should in 13 Miles have saved at least six...."  As for the Uxbridge tavern, the owner and staff "were obliging, (but their) entertainment was not very inviting."

Saturday the 7th, Washington logged in 35 miles, crossed into Connecticut, and roomed in Ashford.  Due to a local ordinance which prohibited Sunday travel, the President was forced to spend the day there.  The inn, Washington concluded, "is not a good one," while the sermon delivered at the local church was "very lame."

The following day, Monday, November 9, Washington "set out about 7 O’clock and for the first 24 Miles had hilly rocky and disagreeable Roads. Arrived in Hartford a little before four."

Tuesday the 10th. Washington departed at dawn, logged 26 miles and arrived in New Haven "about half an hour before Sun-down."

Wednesday the 11th was another day spent on the road.  That night he slept at an inn somewhere between Fairfield and Stamford, and it was "Not a good one."

Thursday the 12th, Washington departed before dawn intending to reach New York by nightfall but was delayed at Rye “by lame horses." His last night on the road was spent where he slept the first night of his trip, at Mrs. Haviland's Tavern, which was  “agreeable.”

The following day, Washington arrived back at the Palace Mansion on 1 Cherry Street, where he "found Mrs. Washington and the rest of the family all well."


While Washington was away, Hamilton had been busy.  Treasury Secretary was a job he had been preparing for all of his adult life.  While in the army, amid his regular duties at headquarters he found time not only to read extensively but to compose a series of letters that today are classified as state papers.  In this category were a seven-thousand-word letter to James Duane in 1780 with a plan for the creation of a national bank, a longer letter to Robert Morris in 1781 outlining a complete system of national finance, and a series of six essays entitled "The Continentalist," published in the New York Packet in 1781 and 1782, giving a whole set of political and economic prescriptions for imparting strength and energy to the national government.

As newly appointed Secretary of the Treasury, Hamilton now had the opportunity to put his ideas into action.  “I’m sure he couldn’t get there fast enough, sit down and begin,” says Yale historian Joanne B. Freeman.  “What’s confronting him is lack of order.  There’s chaos, there’s not good records, nobody quite knows what’s going on.  So actually, for most people, I think, it would have been a remarkably terrifying thing to walk into.  I think for him it was like a little Hamiltonian paradise--you know, ‘omigod, it’s disordered, and I’m going to order it!’”


Wall Street, 1789: at one end was Murray's Wharf with its tall ships, at the other end was Trinity Church with its majestic 200-foot steeple.

In between were Federal Hall, New York Bank, an insurance company, police headquarters, the post office, a grocery store, a tavern, Merchant’s Coffee House (where much of the city’s investment business was transacted), a goldsmith’s shop, and the townhouses of two of New York's leading attorneys:  Alexander Hamilton and Aaron Burr.  In 1789, Wall Street was New York’s marketplace.

Within three years 24 stockbrokers would meet under a buttonwood tree on Wall Street, join forces and create what today is the New York Stock Exchange. The Buttonwood Agreement as it was known would transform New York's marketplace into the nation's marketplace, and eventually into the world’s marketplace.

The person responsible for this remarkable transformation was Alexander Hamilton.  As Daniel Webster put it, "He touched the dead corpse of the public credit, and it sprung to its feet. The fabled birth of Minerva from the brain of Jove was hardly more sudden or more perfect than the financial system of the United States as it burst forth, from the conception of Alexander Hamilton."

From near-worthless paper, Hamilton turned public securities into something akin to gold.  Everyone wanted to own them.  The Buttonwood Agreement was a direct result of the demand.  In England--America's erstwhile enemy--demand for U.S. Securities was so great they were trading at ten-percent over par.  In three years, the credit of the United States went from the world’s worst to the world’s best.

At the root of what Hamilton did was to change public perception.  Money and what it involved--finance, investment, banking--was a matter of what people believed.  At worst, it was an illusion, a con game.  Banks, however grand their outward appearance--their marble columns and imposing bulk--kept very little hard currency inside.  They did business with paper.  Was a mere IOU money, with nothing behind it but a promise to pay? It was if people believed it was.  In English the root of “credit” is credo, the Latin for “I believe.”  Where most American leaders saw the Revolutionary War debt as a liability, a curse, something to be paid off quickly, or to be repudiated, Hamilton saw opportunity. If "funded" properly, the debt was a vast resource of liquid capital that could be used for business investment to spur economic growth.

With someone in charge who possessed the genius to create the necessary financial system to manage it, the public debt was, in Hamilton’s words, "a national blessing".  Coupled with a national bank, funding would legitimize mere paper promises, and U.S. bonds would trade hands almost as easily as gold and silver coins. Just such a financial system had made the Netherlands the world’s banker and Great Britain the world’s most powerful nation.  Hamilton believed it would do as much and more for the United States.

Hamilton began studying economics as early as 1777, as aide-de-camp to General George Washington.  At that early stage of the Revolutionarily War, the nation's financial underpinnings already were becoming unraveled. Again and again, Washington pleaded to Congress for more ammunition, more clothes, blankets, medical supplies, and especially for more money, to pay his army.  Without a revenue stream, Congress printed money, or Continentals, as they were called, which depreciated quickly.  Next, Congress issued bonds. Without taxation, interest payments could not be made and these bonds depreciated quickly, too.

When Robert Morris stepped in as Superintendent of Finance, he was forced to use his personal fortune as collateral to borrow money.  Had Morris not arranged for payment in specie--in silver Half Crowns--Washington's army would not have fought the British at Yorktown and the war likely would have dragged on for several more years, and ultimately been lost.  It was a lesson not lost on Hamilton.  If the new nation was to succeed and become a world power, it would need a sound financial system to support it. Words like “liberty” and “democracy” sounded nice, but they didn’t pay the bills.  Money, fluid and plentiful, was the stuff that made liberty and democracy possible.

The new nation did not have gold and silver reserves. What it did have was something more valuable, a people willing to work hard to get ahead.  What Hamilton hoped to foster was an economy that would reward initiative.  The young republic was well on the road to becoming an aristocracy, with wealth concentrated in the hands of a few; Hamilton wanted to make the nation a meritocracy.

What economic treatises did Hamilton study?  Primarily the books of three Enlightenment philosophers, all Scots: “Inquiry into the Principles of Political Economy” by James Denham-Steuart; “Political Discourses” by David Hume; and “The Wealth of Nations” by Adam Smith.  Hamilton also studied the financial doings of Robert Walpole, England's First Lord of the Treasury, and Jacques Necker, France's Director-General of Finance.

The study of economics was a creation of the Enlightenment.  It started more-or-less with a book of doggerel poetry entitled, "The Fable of the Bees."


It was not the first treatise on economics, but it was the first to have attitude.  It was a poem written by a Dutch moralist named Bernard Mandeville, published in 1705. It was an allegory of a beehive in which everyone was motivated by unquenchable desires and yet, because of the mysterious workings of the social structure, the result was prosperity for all:

Millions endeavoring to supply

Each other's Lust and Vanity . . .

Thus every Part was full of Vice,

Yet the whole Mass a Paradise.

All was well until the bees prayed to be made virtuous. Their prayers were answered.  Avarice, luxury, competition, waste, intemperance, suddenly disappeared; and as suddenly, millions were unemployed. Prosperity, Mandeville was saying, depended not on the designs of the state nor upon the benevolence of individuals, but upon individuals acting freely in their own self-interest.

Mandeville's poem was attacked at the time as cynical, degrading and false.  Nevertheless it proved to be influential.  One of those influenced was Adam Smith as the following passage attests, from “The Wealth of Nations”:  “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.  We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”

By some strange coincidence, “The Wealth of Nations” was published the same year as America's independence--1776. The publisher told Smith it was unlikely his book would be widely read.  He could not have been more wrong.  Smith's book was an instant best-seller.  Within six months, a second printing was ordered to meet demand.  “The Wealth of Nations” sold well in the United States.  Nearly every one of the 55 delegates at the Constitutional Convention had read it, or were familiar with it.

Alexander Hamilton probably read “The Wealth of Nations” during the war.  Hamilton displayed a remarkable grasp of advanced economic principles as early as 1781, in a letter addressed to financier Robert Morris: "No paper credit can be substantial, or durable, which has no funds, and which does not unite, immediately, the interest and influence of the moneyed men, in its establishment and preservation," wrote Hamilton. "A credit begun on this basis, will, in process of time, greatly exceed its funds: but this requires time and a well-settled opinion in its favor."  Time and opinion, as Hamilton uses these words, are intangibles, and a vital part of money management that increases wealth.  The letter contains one of Hamilton's oft-quoted lines: "A national debt, if it is not excessive, will be to us a national blessing.”

The full title of Adam Smith's book is: “An inquiry into the Nature and Causes of the Wealth of Nations.”  Smith makes the case that a nation's wealth resides not with precious metals nor with natural resources, but with individual self-interest.  All people want to live better than they do.  Smith finds a "desire of bettering our condition, a desire which, though generally calm and dispassionate, comes with us from the womb, and never leaves us till the grave."  Smith argues that society should exploit these natural drives, not repress them.  Self-interest is itself a rich natural resource, and the true source of a nation's wealth.   As proof, Smith need point no farther than to the Netherlands. With little usable land and no natural resources, the Netherlands grew to become one of the richest countries in the world.  In Smith’s time, the Netherlands was banker to the world.  It was no coincidence that the Netherlands also was one of the freest countries in Europe, and the most tolerant. The Dutch were free to pursue their self-interests, without government restriction or centralized market planning to hinder them, and the nation benefitted as a whole.  As a counter-example, Smith could point to Spain which had glutted itself on the silver it had mined in South America, and destroyed its economy in the process.

With everyone pursuing their own self-interests, why doesn't anarchy result? Because an "invisible hand" guides the whole. Smith had studied astronomy and embraced the idea of a natural harmony in the planets, even if each planet moved in its own orbit.  People, he believed, could move in different paths yet harmonize and help each other, though not intentionally.  "He . . . neither intends to promote the public interest, nor knows how much he is promoting it . . . he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.

"Free market competition leads a self-interested person to produce not what he wants, but what others want; not in the quantities he prefers, but in the quantities his neighbors prefer; not at the price he dreams of charging, but at a price reflecting how much his neighbors value what he has done."

Hamilton was not content with merely restoring the nation's credit; he wanted to change the rules of the game so that it rewarded work and ingenuity, and promoted manufacturing over farming.  Other ideas of Smith's that Hamilton found useful:

-- Slavery had to go. Not only was it morally wrong, it was costly. Wrote Smith:  "The experience of all ages and nations, I believe, demonstrates that the work done by slaves, though it appears to cost only their maintenance, is in the end the dearest of any.  A person who can acquire no property, can have no other interest but to eat as much, and to labour as little as possible."

-- Military power depends on economic success.  "Fleets and armies are maintained, not with gold and silver, but with consumable goods."

-- Economic success depends on freedom. "No regulation of commerce can increase the quantity of industry in any society . . . It can only divert a part of it into a direction into which it might not otherwise have gone." Indeed, democracy only flourishes where there is a free-market economy.

-- Money is imaginary.  "Money is neither a material to work upon, nor a tool to work with . . . money, by means of which the whole revenue of the society is regularly distributed among all its different members, makes itself no part of that revenue."  Being imaginary, it can't.  "The great wheel of circulation is altogether different from the goods which are circulated by means of it."

-- Liberty and property rights go hand-in-hand. "The property which every man has in his own labour, as it is the original foundation of all other property, so it is the most sacred and inviolable."  Writer P.J. O'Rourke, in his commentary on “The Wealth of Nations,” puts it this way. "Any definition of liberty, that is not based on a right to property and a right to the same rights as all other people have is meaningless. What we have is ours, and nobody can push us around. This is practically all we mean when we say we are free.  Other rights derive from these, when we even bother with those other rights . . . Property rights are the deed we have to ownership of ourselves."


As advanced as Adam Smith's economic theories were, they fell short on public finance.  Smith thought capital could be accumulated only by frugality, and he failed to recognize the most potent source of capital formation was the public debt.  To Smith, the United States' public debt was an economic liability, to be dispensed with as quickly as possible.  To Smith's fellow Scottish economist James Steuart, the public debt was no less than an economic gold mine.  Steuart was, it turns out, a thorn in Adam Smith's side.  Smith wrote “The Wealth of Nations” partly to refute Steuart's 1767 economic treatise, “Inquiry into the Principles of Political Economy.”   Among their differences, Steuart advocated mercantilism as a means of protecting and nourishing domestic economic markets, while Smith, a laissez-faire economist, favored free trade.

Hamilton read Steuart's book to learn about monetizing the public debt.  A monetized public debt, if managed properly, would create a large pool of liquid capital that would foster economic growth and create wealth.  It had been done before, in England.  Like the United States, England had run up a huge war debt, in the late seventeenth century.  The war exhausted traditional sources of deficit financing and forced the government to find new sources of financing.  As a result, Parliament authorized a group of London businessmen to set up the Bank of England and granted the bank special privileges.  With a capitalization of 1.2 million pounds, the bank bought up state debts and issued them as interest-bearing annuities.  These annuities were guaranteed by the government and backed by income from various taxes.  Growing doubt among investors that the debt would in fact never be paid off, coupled with increasing speculation, however, put the scheme in grave danger.

To stabilize the system, in 1717 Sir Robert Walpole, the Chancellor of the Exchequer (alias secretary of the treasury), devised a “sinking fund” or cash reserve drawn from fixed taxes from which annuities would be repaid.  Or so it would appear to investors.  In fact, Walpole had no intention of paying off the debt.  The sinking fund was created only to convince the public that the debt would be repaid.  Investors bought it--literally.  Sales of annuities began to climb again and interest rates stabilized.  To enhance the illusion, the Bank of England began buying and selling annuities like any other large business interest.  Investor confidence increased and the result was a permanent and functioning securities market.  The outcome was that business investors--whether in London, Amsterdam, Geneva, or Paris--were now convinced that state bonds could be exchanged at any time at face value, and paid in specie (gold and silver).  As a result, the Bank of England could issue notes which, like hard currency, could be spent or invested as if they were hard currency.  Government bonds--the annuities in the portfolio of the Bank of England--thus joined gold as acceptable security for large-scale business transactions.  As a result, annuities and bank notes, as business investment instruments, functioned interchangeably. Thus the national debt was monetized.  As the national debt grew larger, which it did by leaps and bounds, the money supply grew with it.  The result was no less than a financial revolution. Where landholding had once been the source of wealth and of political power, money in its many forms was the new source of wealth and power.  Not even the forthcoming industrial revolution would create as much wealth.


If you were planning to buy a new car, Adam Smith would have you save up until you had enough money to pay for it; James Steuart would have you buying the car on credit and making monthly payments.  Which is better for you?  Which is better for automobile sales, for auto makers, for the creation of new jobs, for the economy, alas, for increasing national wealth?  Adam Smith’s “The Wealth of Nations” is among the 100 most influential books ever written, but when it came to debt Smith was a scrooge.  His advice: pay it off as quickly as possible.  Good advice for individuals perhaps, but not good advice for nations.  As advanced as Smith's ideas were, he lacked Steuart's grasp of the principles of public finance.  The "Father of Capitalism" as Smith has been called, stated "the practice of funding (public debts) has gradually enfeebled every state which has adopted it."  Not England; funding made England filthy rich.

It was, therefore, James Steuart that Alexander Hamilton turned to for advice on monetizing the public debt.  Steuart's 1767 economic treatise “Inquiry into the Principles of Political Economy” makes two points that Hamilton would embrace:

One: Mere coins are not only awkward to handle but ultimately inadequate as a viable money supply. Therefore, provision must be made for paper money in all its forms. This is done by developing institutionalized forms of credit, whereby "solid property" is monetized, made liquid in the form of bonds, notes, mortgages, accounts, and other instruments. Steuart calls such financial instruments "symbolic money." The result has a leveling effect on society, between haves and have-nots, of spreading wealth around and benefitting the many, as opposed to hoarding and benefiting the few. One example: people with money deposit it in a bank, and the bank in turn lends it to those who need it.  Writes Steuart: "(symbolic money) enables those who have effects, which by their nature cannot circulate (and which, by-the-bye, are the principle cause of inequality), to give, to the full extent of all their worth, an adequate circulating equivalent for the services they demand.  In other words, it is a method of melting down, as it were, the very causes of inequality, and of rendering fortunes equal."  Another example is gold.  Gold that is molded into religious icons or secular objects represents wealth taken out of circulation.  It benefits the few.  Melted down and minted into coins, it increases the money supply: loans are easier to get, interest rates are lower, and therefore more people can partake of the benefits.

Two: The most efficacious means of creating symbolic money is to monetize the public debt, which will create a vast fund of symbolic money that can supply the means with which banks and other financial institutions can "melt down" the rest.  Steuart illustrates his observation with a detailed account of how the British system evolved and turned England into one of the world's wealthiest and most powerful nations on earth.

There was one final piece of the financial scheme that Hamilton was planning, and that would be supplied by David Hume, the same David Hume who had fueled the ideas behind James Madison’s Virginia Plan at the Constitutional Convention.


While Congress was in recess, Alexander Hamilton did something the previous three-man Board of Treasury had failed to do--determine the amount of the public debt.  It was $76 million. At the time, the nation’s entire amount of money in circulation was less than $6 million.

Hamilton opposed paying off the debt as soon as feasible, as some were advocating.  To do so would result in oppressive taxation, deplete the nation’s money supply, and further burden the nation's already-ailing economy.  Still others were advocating repudiation of the debt in order to start over with a clean slate.  Hamilton opposed that too, knowing such rashness would destroy the nation's ability to borrow money on favorable terms for a generation at the very least.

In funding the debt, as Hamilton proposed, the nation's money supply of gold and silver coins would remain in circulation.  If funded properly, the debt would stabilize and public securities could be used in business transactions much like bank notes.  Coupled with a national bank, the funded debt would be available as investment capital to grow the economy.  As the economy grew the money supply would grow with it, and in time the $76 million public debt would shrink in proportion to the money supply and be less costly to pay off. Hamilton's plan called for retiring the debt in 20 years.

In 1789 America, few people actually dealt in hard currency.  Most business was transacted by means of barter, or with the use of IOUs, or with a line of credit at, say, the local dry goods store.  In the southern states, warehouse receipts for tobacco often circulated as money. There was another form of money and that was the Bills of Exchange used in ports where international trade held sway.  More a form of credit than money, it was the means by which importers and exporters conducted business with overseas traders around the world.

There were but three banks in America in 1789--all commercial banks--one in Philadelphia, one in New York, and one in Boston.  It was in these northern port cities where commerce was king and coins were in greater circulation.  Every spring, as ships arrived from Europe, the supply of coins in circulation greatly increased. Most were of British and Spanish mintage. The most widely-circulated coin was the Spanish milled silver dollar, which, in order to make change, was cut into eight pieces, or bits, as they were called.  One bit would get you a glass of ale and something to eat at the corner grog house. The terminology is still used today: a Quarter Dollar is still known as  "two-bits."

Hamilton did not want to merely increase the nation's money supply. He wanted everyone to know the feel of having coins jingling in their pockets.  Hamilton's goal was to transform the nation's economy from one of land and agriculture, which benefited the few, to one of money and industry, that benefited the many.  He wanted the United States to be a place where everyone had the desire for a better life and had the opportunity of attaining it.  To accomplish this, Hamilton drew upon the writings of yet another Scottish economist, David Hume.


A taste for the better life.  Once indulged, people will work harder, arts and learning will flourish, the nation will grow richer, and liberty and equality will abound. In a nutshell that is the economic philosophy of David Hume.  Hume did not write a weighty tome to express his economic views, as with so many economists then and now. He did not produce a lengthy treatise, but a series of short essays.  Published in 1752, his seven essays on economics run to 97 pages. The most quoted is Essay II , "Of Refinement in the Arts," all of 13 pages.

While many eighteenth-century thinkers romanticized the notion of "the noble savage" Hume would have none of it.  Life in hunting-and-gathering societies was crude, violent, and short.  "I believe every man would think his life or fortune much less secure in the hands of a Moor or Tartar, than in those of a French or English gentleman."  As a youth, Hume had seen his share of the sloth and poverty in Scotland at a time when it subsisted off the land, and he didn't like it.  The philosophers who espoused such notions had never known what it meant to forage and hunt from dawn to dusk, twenty-four-seven. In his lifetime, Scotland had been transformed into a vital and thriving nation by a rising class of merchants, manufacturers, and artisans.  As he grew older, he saw his life become easier, less precarious, and more comfortable, with better and more plentiful food, more plentiful and affordable goods, and an increase in learning and in the arts.  Eke out a living tilling the soil? Forget it.  The good society was one in which commerce was king.

If Alexander Hamilton was looking for justification for transforming the American economy from one of agriculture in to one of commerce, David Hume supplied it.  In his first essay, "Of Commerce," Hume made a strong case for commerce over agriculture.  A society that is predominantly agricultural tends to produce at a level little beyond than to sustain itself.  With few consumer goods available, the incentive to work harder to raise a surplus is limited.  In a time of crisis the very act of raising an army would mean the removal of essential labor and thus force the economy below the level of subsistence.

On the other hand, a society that enjoys a prosperous commerce and industry could create the same measure of military strength without making comparable demands on society.  With the promise of luxuries and amenities, people are motivated to work harder to get ahead, resulting in higher productivity in both commerce and in agriculture.  Eventually a substantial portion of the population would be engaged in the production of goods and services that fulfill wants beyond mere subsistence.  Similarly motivated, farmers and artisans would seek ways to increase their efforts until the basic needs of society were provided by a fraction of the labor force.  In time of war those devoted to the production of luxuries represents a surplus that can be tapped.  They can be re-employed in the production of armaments without affecting the basic needs of society.

In his essay "Of Refinement in the Arts" Hume states that commerce and industry not only make a nation stronger militarily, but also better socially and intellectually.  It’s the prosperous commercial state rather than the pinched rustic one that produces humane, sociable, and virtuous people. "The same age, which produces great philosophers and politicians, renowned generals and poets, usually abounds with skillful weavers, and ship carpenters."  As commerce increases, refinement in the arts advances, and people become more sociable. "They flock into cities; love to receive and communicate knowledge; to show their wit or their breeding; their taste in conversation or living, in clothes or furniture.  Curiosity allures the wise; vanity the foolish; and pleasure both."  Thus "industry, knowledge and humanity are linked together by an indissoluble chain. . . ."

Hume goes one step farther.  "If we consider the matter in a proper light, we shall find, that progress in the arts is rather favorable to liberty, and has a natural tendency to preserve, if not produce a free government."  However, where commerce is neglected, "all labour is bestowed on the cultivation of the ground."  Society becomes divided into two classes: landowners and tenants.  Land owners have all the power and run the affairs of state, while those working the land have no power and are fit subjects for slavery.

Where "luxury nourishes commerce and industry, the peasants, by a proper cultivation of the land, become rich and independent; while the tradesmen and merchants acquire a share of property, and draw authority and consideration of the middling rank of men, who are the best and firmest basis of public liberty."   This "middling rank" is, of course, the middle class.  And who should comprise the membership of the House Commons?  Why, the English middle class, the very safeguard of British liberty and equality.

Hamilton studied the works of Adam Smith, James Steuart, Jacques Necker, and the like, but he absorbed the ideas of David Hume and made them his own.

Hamilton saw his economic principles as having a great leveling effect on society.  He did not want money hoarded by the wealthy few, but free-flowing and ever-changing hands, rewarding the initiative of anyone willing to work hard to get ahead.  Hamilton was among the nation’s first abolitionists.  He may have spoken like an elitist, but his economic policies were color-blind and class free, and therefore democratic.


Hamilton’s first job as Treasury Secretary was to secure a short-term loan.  The government was in need of $100,000 to meet operating expenses. Hamilton arranged two loans, one with the Bank of New York, for $50,000, and the second with the Bank of North America, in Philadelphia, for $50,000. The loan with the New York bank Hamilton arranged personally on his first day in office, on Sunday, September 13th; the loan with the Philadelphia bank he arranged by letter, sent overnight by special courier to be in the hands of the bank president when the bank opened for business on Monday morning.  (Both loans would be paid in full by the following March.)  Hamilton then instructed all state tax collectors that they were to accept the bank notes of the two banks for tax payments in place of gold or silver because of the limited supply of hard currency.

In the following days Hamilton met with the French minister, the Comte de Mousier, about servicing the American debt to France.  From one of the commissioners who had been appointed to settle the public accounts during the Revolution, he asked for information on the current state of those accounts.  He sought additional information from the state governors on their states' indebtedness. He also prepared a special letter to help gather vital information concerning import and export activity. The letter, dated October 15, 1789, concerned shipping and consisted of seven broad questions, each of which invited an essay-answer as well as hard facts and figures. The letter was sent to customs collectors and to everyone else Hamilton had reason to believe had useful information. The replies provided him with a wealth of data and practical wisdom, much of which was contrary to common assumptions. When all the returns were in and Hamilton had digested them, he knew more about the ordinary business of his fellow citizens than anyone else in the country.

"I hazard much," Hamilton said of his new job in a letter to his friend Lafayette in Paris, "but I thought it an occasion that called upon me to hazard. I have no doubt that the reasonable expectation of the public may be satisfied, if I am properly supported by the Legislature, and in this respect, I stand at present on the most encouraging ground." Hamilton was counting on the support of his friend James Madison.  However, even at this early date, there were signs that Madison was having second thoughts concerning Hamilton’s approach to resolving the public debt.

While the two remained friends, Hamilton knew of Madison's discrimination scheme against British shipping, and Madison surely suspected Hamilton’s role in the Senate’s revision of the tariff bill.  To his surprise and disappointment, Hamilton learned the Virginian had remained in town a full week after Congress adjourned without telling him.  Later, in an exchange of letters, Hamilton suggested that a meeting between the two would have been advantageous and certainly appropriate prior to Madison's departure.

In his letter, Hamilton asked the Virginian for his opinions on ways of increasing government revenue and in making provision for the public debt.  Writing from his home in Orange County, Virginia, Madison recommended an excise tax on home distilleries, a higher duty on imported liquor, and a tax on land.  Regarding the debt, Madison suggested in vague terms that it be extinguished as quickly as feasible, rather than be perpetuated.  His reasoning?  “The public expected as much,” and because he feared that if the public debt were funded it might fall into the hands of foreigners and somehow be used against American interests.

Hamilton was perplexed at Madison's recent behavior, and admitted as much to British agent George Beckwith, who was in New York at the time.  Beckwith replied by saying he too was surprised that Madison, a man "of good sense" should be "so decidedly hostile to us" by wanting to discriminate against British shipping.  It was bad for business on both sides of the Atlantic and certainly didn’t help the healing process that was taking place between the two nations.

While "a clever man, he is very little Acquainted with the (business) world," Hamilton said. Despite their recent differences, he told Beckwith not to worry. Ever the optimist, Hamilton said he and the Virginian had a good working relationship and he expected that to continue.  "That (Madison) is Uncorrupted and Incorruptible I have not a doubt,” Hamilton said.  “He has the same End in view that I have,  And so have those gentlemen, who Act with him, but their mode of attaining it is very different."

Hamilton was mistaken, as he would soon discover. Due to political pressure at home, Madison was evolving into an anti-Federalist and in fact no longer shared Hamilton's political and economic views.


Early to bed, early to rise: that was the farmer in George Washington.

Each day, the President rose before dawn, shaved by candlelight, dressed with the help of his valet, and while the house was quiet he read several newspapers and did correspondence work.  After two hours, he stopped for a breakfast of hoe cakes smothered in butter and honey and chased with several cups of tea, taken with milk.

After breakfast, he studied state papers, signed documents, met with staff and, as necessary, met with advisors, cabinet members, congressmen, and foreign ministers.  At two in the afternoon, he stopped for dinner.  Dinner consisted of various meat dishes: fish, fowl, ham, beef steak, accompanied with a variety of fruits and vegetables and rounded off with lavish deserts.  Washington usually dined on a single entree and afterward drank champagne or Madeira wine while conversing with guests and friends.  Later, he went for a walk, usually to the Battery and back, or rode on horseback, or took a carriage ride with Mrs. Washington. When he could get away for an extended period--such as on the weekends--he rode "The Fourteen Miles Round" Manhattan Island.

In the evenings, as often as he could, he attended the theater.  There was one theater in New York City, the John Street Theater, where the President was often seen in the company of dignitaries, cabinet members, Congressmen, family and friends.  After the theater, and on most nights, Washington would eat a light supper and go to bed.  Most nights he was in bed by nine.

George Washington loved the theater. He appreciated its power, not merely to entertain, but to communicate ideas. He enjoyed Shakespeare’s plays, particularly “Julius Caesar.”  During the bleak winter at Valley Forge, he staged a play for his soldiers, one with an unmistakable message, entitled "Cato."  Cato was a Roman patriot and staunch supporter of the Roman Republic who opposed Caesar.  Rather than capitulate to a tyrant and give up his freedom, he commits suicide in the end.  The message: freedom was more precious than life itself.

Washington's journal entry for Tuesday, November 24, 1789 reads: "A good deal of Company at the Levee to day.  Went to the Play in the Evening."  What did he see?  A comedy entitled, “The Toy; or A Trip to Hampton Court.”  A newspaper reported: "On the appearance of The President, the audience rose, and received him with the warmest acclamations."  The play must have been very funny because this was said to have been the only pubic occasion at which George Washington was seen to laugh.

It was around this time Washington received word that North Carolina had ratified the Constitution, thus becoming the twelfth state to join the Union.  The only hold-out now was Rhode Island.  The first of the original 13 colonies to declare independence from British rule, Rhode Island would be the last of the original 13 to join the union.

Thanksgiving was celebrated that year, on November 26.  In his journal Washington wrote: "Being the day appointed for a Thanksgiving I went to St. Paul’s Chapel though it was most inclement and stormy--but few people at the church."  In honor of the day, he contributed seven pounds, ten shillings out of his own pocket to purchase "provision & beer" for inmates at the City's debtor prison.  Before adjourning in September, Congress had resolved that the president should proclaim a national day of thanksgiving.  Thus, on October 3, Washington issued a proclamation assigning November 26 as Thanksgiving Day.  This was the first national day of thanksgiving to be celebrated in the United States.

Going forward, Thanksgiving would be celebrated irregularly.  For example, the next thanksgiving day was not proclaimed until 1795.  Washington’s successor, John Adams, would proclaim but two Thanksgiving Days; Thomas Jefferson none at all.  Thanksgiving would not become an annual national holiday until 1863 when President Abraham Lincoln instituted Thanksgiving as a yearly event.

On Christmas day, 1789, Washington wrote in his journal: "Went to St. Paul’s in the forenoon. The visitors to Mrs. Washington this afternoon were not numerous but respectable.”


New Year's Day, 1790 was typically cold, a day for sleeping late and spending the day with family in the living room, before a roaring fire.  For the most public man in North America, however, it was business as usual.  Washington wrote in his journal: "The Vice-President, the Governor--Senators, Members of the House of Representatives in Town--Foreign public characters and the respectable Citizens came between the hours of 12 & 3 o’clock to pay the compliments of the Season to me--and in the Afternoon a great number of Gentlemen & Ladies visited Mrs. Washington on the same occasion."

The following day, Saturday, January 2, Hamilton presented Washington with a copy of his “Report on Public Credit,” which he had just completed.  Coupled with appendices and a proposed change to the tax law, the report comprised a total of 40,000 words: some light reading for the president.

Washington and Hamilton were both due to appear before Congress in the coming days: on January 8, Washington would present the first Annual Message to Congress (a.k.a. the State of the Union Address); and on January 14, Hamilton would present to the House of Representatives his "Report on Public Credit."

As Hamilton turned to leave the President asked him to wait a moment.  "Alex, I have a favor to ask,” said the President.  “I want you to write the Annual Message to Congress.  Madison is not here, and there is no one else I can trust to do it. Can you write a few words appropriate for the occasion?"

The preceding is conjecture, but something like it probably did occur.  Of all the public documents Washington issued as president, authorship of the first Annual Message to Congress is unknown.  There is no tale-tell correspondence--no smoking gun as it were--to indicate authorship.  Hamilton wrote many of Washington's official documents and letters during the Revolution, and Hamilton, Madison and Jefferson wrote many of Washington's state papers while the General was President.  Madison was out of town throughout the Fall of 1789, and for much of that time was in Virginia bedridden with illness.  He did not return to New York until after the Annual Message was given. Thomas Jefferson was not yet a part of Washington's administration;  he didn't accept his appointment as Secretary of State until late February. That leaves Hamilton.

To be sure, Hamilton had his hands full organizing the treasury department, doing research, and composing the “Report on Public Credit.”  Having completed the report before the first of the year, he had time to write it. The Annual Message is not long.  The two men likely talked, Washington's expressed his ideas, and Hamilton returned to his office to write it.  He was known for his quickness with a pen, and likely had a draft ready for the president by the following morning.  As important, Hamilton knew how to express Washington's ideas better than anyone.


Friday, January 8, 1790 was yet another cold day in New York.  That morning, waiting outside the Palace Mansion, were horses and coaches, uniformed coachmen and footmen, and the New York State Militia. At 10:30 the front door of the Palace Mansion swung open and out stepped the President and his administrative officers and staff, having previously shared tea and light conversation.  Dressed warmly in overcoats, they filed out and took their assigned places.

At the head of the procession, astride two of Washington's finest white horses, were the president’s personal secretaries: Colonel David Humphreys and Major William Jackson. Next was President George Washington, seated alone inside a yellow coach drawn by six white horses.  Next in line, aboard a chariot, were secretary Tobias Lear, and junior secretary Thomas Nelson.  Behind them, on horseback, was presidential aid Robert Lewis.   After him, alone inside three separate carriages, were Chief Justice John Jay, Treasury Secretary Alexander Hamilton, and Secretary of War Henry Knox.

At half-past ten the procession proceeded south on Pearl Street as far as Broad Street, turned sharply right, passed by the Fraunces Tavern (where General George Washington had bid farewell to his army officers at the close of the Revolutionary War), and headed toward what looked like a Greek Temple at the top of the street.  This was Federal Hall.  At the appointed hour of eleven the procession stopped in front of Federal Hall.  Looking resplendent in dark blue, Washington emerged from the coach and entered the building.

"I was met by the Doorkeepers of the Senate and House and conducted to the Door of the Senate Chamber,” Washington wrote in his journal, “and passing from thence to the Chair through the Senate on the right, & House of representatives on the left, I took my Seat. The Gentlemen who attended me followed & took their stand behind the Senators; the whole rising as I entered. After being seated, at which time the members of both Houses also sat, I rose (as they also did) and made my Speech."

President Washington's First Annual Message to Congress took all of ten minutes to read.  Eight months earlier, delivering his Inaugural Address, Washington had but one request of Congress--to draw up a bill of rights. This time he asked for a number of things that the Constitution specifically delegated Congress to do: to provide a uniform currency, set a standard of weights and measures, develop a system of patents for inventions, give copyrights in science and literature, ascertain a uniform rule of naturalization, and further develop the postal service and expand the network of postal roads to facilitate "the intercourse between the distant parts of our Country."  He then asked Congress to pass without delay Hamilton’s financial recommendations as outlined in the “Report on Public Credit.”  In closing, he made a case for public education: "Knowledge is in every Country the surest basis of public happiness . . . every valuable end of Government is best answered by the enlightened confidence of the people: and by teaching the people themselves to know and to value their own rights. . . ."

Everyone there could feel good about the new government and its many accomplishments: passage of the 1789 Tariff Act, creation of the Supreme Court and federal judiciary system, creation of the Executive Departments of State, Treasury and War, and passage of the Bill of Rights.  No Congress ever again would achieve as much as the First Congress had in the first six months.  Then, too, no subsequent Congress ever again would feel as compelled to act as the First Congress had, when the very existence of the republic was at stake.

The first session of the First Congress had been a test of unity, and it was that very unity that produced such remarkable results.  The second session of the First Congress, beginning in January 1790, would test that unity to the breaking point, as congressmen debated three highly divisive issues: Hamilton’s financial plan, the abolition of slavery, and the Residency Bill.

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