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Following the War of Independence, the United States had severe financial problems. There were both domestic and foreign debts from the war, and the issue of how to raise revenue for government was a controversial subject. Washington was not a member of any political party, and personally he was against the formation of such a thing. But the economic crisis caused his supporters to divide into two factions, which would ultimately lead to the creation of political parties.
Treasury Secretary Alexander Hamilton wanted to establish national credit and build a financially powerful nation. Secretary of State Thomas Jefferson, and James Madison organized an opposing faction. Hamilton wanted the nation to assume the war debts of the states incurred during the Revolutionary War and to create a national bank. Hamilton believed that a national bank would make loans, handle government funds, issue financial notes, provide national currency, and overall considerably help the national government to govern. Hamilton planned to finance the government through tariffs on imported goods, and a tax on liquor.
Washington, as a General during the war, had been frustrated with having to look to a weak central Continental Congress for support. He sided with Hamilton about the need for a strong central government and in turn a national bank. Much of the revenue collected as Hamilton proposed was used to pay off the large Revolutionary War debt.
Jefferson and Madison opposed most of Hamilton’s proposals. They opposed the idea of a central bank, believing it would be used by the federal government to dispense corrupt patronage and that it was not explicitly mentioned in the Constitution. Though Washington tried to keep out of this conflict, he eventually came around to Hamilton's way of thinking. In 1791, the First Bank of the United States was created. The United States Mint and the Revenue-Marine were established. The Revenue-Marine’s responsibility was to enforce tariffs and all other maritime laws. Later, the Revenue-Marine would become the United States Coast Guard.
By the midpoint of Washington's first term, cooperation between Hamilton and Jefferson had disappeared. Washington's administration had split into two rival factions: one headed by Jefferson, which would later become the Democratic-Republican Party, and the Federalist faction headed by Hamilton. They disagreed on virtually all aspects of domestic and foreign policy, and from then on, much of Washington’s time was spent in refereeing disputes between them.
