Chapter 34

DOMESTIC QUESTIONS OF WASHINGTON'S ADMINISTRATIONS

[1790-1791]

I. Tariff.--Upon declaring their independence the United States threw open their ports, inviting trade from all nations. During the Revolution foreign commerce had become an important interest, and at its close the inclination of all, the more so from memory of England's accursed navigation acts, would have been to leave it untrammelled. Several motives, however, induced resort to a restrictive policy which, beginning with 1789, and for years expected to be temporary, has been pursued with little deviation ever since. Of course the Government needed revenue, and the readiest means of securing this was a tax on imports. Rates were made low, averaging until 1808 only 11-1/4 per cent. As a consequence the revenues were large.

The movers of this first tariff, especially Hamilton, also wished by means of it to make the central Government felt as a positive power throughout the land. It had this effect. All custom-houses passed to the United States, and United States officers appeared at every port, having an authority, in its kind, paramount to that of state functionaries.

A stronger consideration still was to retaliate against England. In spite of America's political independence the old country was determined to retain for her merchant marine its former monopoly here. Orders in council practically limited all the commerce of England and her remaining colonies with this country to English ships, although, from the relations of the two lands and the nature of their productions, our chief foreign trade must still be with England. There was no way to meet this selfish policy but to show that it was a game which we too could play.

Besides, however we behaved toward the mother-land, we needed to be prepared for war, because it was evident that George III. and his ministers had only too good a will to reduce us again to subjection if opportunity offered. Should we, by taxing imports, become independent in the production of war material, a fresh struggle for life would be much more hopeful than if we continued dependent upon foreign lands for military supplies.

II. Funding the Debt.--In the first years after they had set up their new constitution the people of this country staggered under a terrible financial load. Besides the current expenses of Government, there were: 1, the federal debt due abroad, over thirteen million dollars, including arrears; 2, the federal debt held at home, about forty-two and one-half million; 3, the state revolutionary debts, aggregating nearly twenty-five million. Each of these sums was largely made up of unpaid interest.

The foreign debt Congress unanimously determined to pay in full. In respect to the domestic federal debt two opinions prevailed. Hamilton was for liquidating this also to the last copper. But these securities had mostly changed hands since issue, so that dollar for dollar payment would not advantage original holders but only speculators. As soon as Hamilton's recommendation became public this class of paper rose from about fifteen cents per dollar to fifty cents, and enterprising New York firms hurried their couriers, relay horses, and swift packets to remote parts of the Union to buy it up. Madison, supported by a strong party, proposed, therefore, to pay only original debtors at par, allowing secondary holders barely the highest market value previous to the opening of the question in Congress. He was overruled, however, and this part of the debt, too, was ordered paid according to its literal terms.

Even the motion that the United States should assume and discharge the state debts finally prevailed, though against most violent and resolute opposition. This came especially from Virginia, who had gone far in the payment of her own war debt, and thought it unjust to have to help the delinquent States. Her objection was strengthened by the fact that most of the debt was owned in the North. The victory was secured by what is now termed a "deal," northern votes being promised in favor of a southern location for the national capital, in return for enough southern votes to pass the bill assuming state debts.

These gigantic measures had origin in the mind of Hamilton. To many they appeared and appear today like a grand government job. But they worked well, laying the foundation of our national credit. Interest arrears and back installments of the foreign debt were to be paid at once with the proceeds of a fresh loan, supplemented by income from customs and tonnage. The remaining debt was to be refunded. Federal stocks shot up in value, moneyed interests became attached to the Government, and the nation began to be looked to as a more reliable bulwark of sound finance than any of the States.