Presidents and Economics: George Washington and the First Revenues
A lot of Presidents had tough economies to deal with, but George Washington had to start from scratch. Washington was inaugurated as President on April 30, 1789 at Federal Hall, near New York's financial district. To address all of the problems that came with nationhood, Washington realized that he needed finances. To raise funds he needed a team of trusted advisers and consultants. In the Revolutionary War, his senior aide-de-camp had been a West Indies born New York artillery captain named Alexander Hamilton. It was Hamilton that Washington would turn to and bestow great responsibility upon in shaping the econonomic structure of the new nation.
Following the ratification of the Constitution, the United States had severe financial problems. First, there were both domestic and foreign debts which remained from the Revolutionary War. A hotly debated question was how the new government would raise revenue both to meet its debt obligations, as well as pay for the cost of government. Washington was not a member of any political party, and he hoped that they would not be formed. But this was wishful thinking, as factions soon formed over such matters as whether or not a strong central government was required. Washington's closest advisors became divided into two camps, beginning the cycle that would continue throughout history.
For the job of Secretary of Treasury, Washington selected his former aide-de-camp Alexander Hamilton. Hamilton had a grand vision and bold plans to establish the nation's credit and build a financially powerful nation. Hamilton's first proposals were for the United States to assume the war debts of the states incurred during the Revolutionary War. He believed that this type of control would give the nation credibility internationally. But to achieve this type of system, it was necessary to create a national bank. Hamilton envisioned that a national bank would make loans, handle government funds, issue financial notes, provide national currency, and generally help the national government to accurately and efficiently govern financially. Hamilton planned for the government to be financed by tariffs on imported goods, and a tax on liquor. Much of the revenue collected would be used to pay off the large Revolutionary War debt.
In his first two years on the job, Hamilton submitted five reports outlining how he saw the nation achieving this fiscal transition. These were (1) the First Report on the Public Credit (sent to the House of Representatives on January 14, 1790); (2) the Report on Operations of the Act Laying Duties on Imports (sent to the House on April 23, 1790); (3) the Second Report on Public Credit: a Report on a National Bank (sent to the House on December 14, 1790); (4) the Report on the Establishment of a Mint (sent to the House on January 28, 1791) and (5) the Report on Manufactures (sent to the House on December 5, 1791). Hamilton proposed support for new factories because he believed industry would grow the economy. But he failed to secure appropriate legislation, due in part to a contrary view from his chief rival, Thomas Jefferson.
Jefferson, who was Washington's Secretary of State, opposes Hamilton on many economic matters, as did another future President, James Madison. They argued that a central bank would be used by the federal government to dispense corrupt patronage. The also argued that the creation of a central bank was not explicitly mentioned in the Constitution and took a strict constructionist position on the issue. Jefferson worried that cities like London and Paris would overpower the banking industry, and in turn would assert control over the nation. He was also strongly opposed to industrialization. Jefferson preferred the notion of the yeoman farmer who could think independently, as opposed to the city worker who would do what his bosses ordered.
Washington had intended to remain neutral in the argument between Jefferson and Hamilton but he realized that in order to achieve his own vision of a strong nation, the federalist approach would work best. He eventually used executive power to pursue federalist policies. This led to Jefferson and Madison eventually making a deal with Hamilton that had Hamilton use his influence to place the permanent capital of the nation on the Potomac River, in return for which Jefferson and Madison would encourage their friends to back Hamilton's economic plan. Hamilton's proposals for funding the debt were passed in Congress and became law.
In 1791, the First Bank of the United States was created. According to Hamilton's plan, the United States Mint and the Revenue-Marine were also 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, what little cooperation there had been between Hamilton and Jefferson had disappeared. What Washington had hoped would not happen did: his administration split into two rival factions, one headed by Jefferson, which would later become the Democratic-Republican Party, and the Federalist faction headed by Hamilton. These two factions disagreed on most aspects of domestic and foreign policy, and much of Washington's time was spent in mediating disputes between them. Hamilton prevailed on almost all major points, largely due to Washington's similar thinking.
One aspect of government revenue needed to pay the national debt met with some resistance by the people. By December 1790, Hamilton believed that import duties, which were the government's primary source of revenue, had been raised as high as was feasible. To supplement government revenue, Hamilton promoted passage of an excise tax on domestically distilled spirits. This was to be the first tax levied by the national government on a domestic product. Congress approved of the tax and Washington signed the bill into law in 1791.
Hamilton believed the whiskey excise was a luxury tax that would be the least objectionable tax the government could levy. This was supported by some social reformers, who hoped a "sin tax" would raise public awareness about the harmful effects of alcohol. The whiskey excise act, sometimes known as the "Whiskey Act", became law in March 1791. Washington defined the revenue districts, appointed the revenue supervisors and inspectors for these districts.
But the tax on whiskey was strongly opposed on the frontier from the day it was passed. Western farmers considered it to be both unfair and discriminatory. By the summer of 1794, tensions reached a peak along the western frontier. Finally the protest became an armed rebellion. The first shots were fired at the Oliver Miller Homestead in present-day South Park Township, Pennsylvania, about ten miles south of Pittsburgh. As word of the rebellion spread across the frontier, a whole series of resistance measures began. These included robbing the mail, stopping court proceedings, and the threat of an assault on Pittsburgh. One group disguised as women assaulted a tax collector, cropped his hair, coated him with tar and feathers, and stole his horse. Another group attacked the estate of the tax collector John Neville, a friend of George Washington.
Washington saw the Whiskey Rebellion as a threat to the nation's existence. Washington ordered the federal marshals to serve court orders requiring the tax protesters to appear in federal district court. Due to the small size of the federal army Washington also invoked the Militia Law of 1792 to summon the militias of Pennsylvania, Virginia and several other states. The Governors sent the troops and Washington took command as Commander-in-Chief, marching into the rebellious districts, leading the militia against the Whiskey Rebellion.
Washington commanded a militia force of 13,000 men, roughly the same size of the Continental Army he previously commanded during the Revolutionary War. Under the personal command of Washington, Hamilton and Revolutionary War hero General Henry "Lighthorse Harry" Lee, the army assembled in Harrisburg and marched into Western Pennsylvania (to what is now Monongahela, Pennsylvania) in October 1794. The insurrection collapsed quickly with little violence, and the resistance movements disbanded.
Washington's forceful action was a powerful precedent. It was the first time under the new constitution that the federal government used strong military force to exert authority over the states and citizens. The men arrested for rebellion were imprisoned. Two were convicted of treason and sentenced to death by hanging. Later, Washington pardoned all the men involved.
Washington believed that a fine line between liberty and order needed to be established. In putting down the rebelling and establishing order, he had given his government a base of support: the necessary revenue to fund its operations, pay its debts and establish credibility on an international stage.
Following the ratification of the Constitution, the United States had severe financial problems. First, there were both domestic and foreign debts which remained from the Revolutionary War. A hotly debated question was how the new government would raise revenue both to meet its debt obligations, as well as pay for the cost of government. Washington was not a member of any political party, and he hoped that they would not be formed. But this was wishful thinking, as factions soon formed over such matters as whether or not a strong central government was required. Washington's closest advisors became divided into two camps, beginning the cycle that would continue throughout history.
For the job of Secretary of Treasury, Washington selected his former aide-de-camp Alexander Hamilton. Hamilton had a grand vision and bold plans to establish the nation's credit and build a financially powerful nation. Hamilton's first proposals were for the United States to assume the war debts of the states incurred during the Revolutionary War. He believed that this type of control would give the nation credibility internationally. But to achieve this type of system, it was necessary to create a national bank. Hamilton envisioned that a national bank would make loans, handle government funds, issue financial notes, provide national currency, and generally help the national government to accurately and efficiently govern financially. Hamilton planned for the government to be financed by tariffs on imported goods, and a tax on liquor. Much of the revenue collected would be used to pay off the large Revolutionary War debt.
In his first two years on the job, Hamilton submitted five reports outlining how he saw the nation achieving this fiscal transition. These were (1) the First Report on the Public Credit (sent to the House of Representatives on January 14, 1790); (2) the Report on Operations of the Act Laying Duties on Imports (sent to the House on April 23, 1790); (3) the Second Report on Public Credit: a Report on a National Bank (sent to the House on December 14, 1790); (4) the Report on the Establishment of a Mint (sent to the House on January 28, 1791) and (5) the Report on Manufactures (sent to the House on December 5, 1791). Hamilton proposed support for new factories because he believed industry would grow the economy. But he failed to secure appropriate legislation, due in part to a contrary view from his chief rival, Thomas Jefferson.
Jefferson, who was Washington's Secretary of State, opposes Hamilton on many economic matters, as did another future President, James Madison. They argued that a central bank would be used by the federal government to dispense corrupt patronage. The also argued that the creation of a central bank was not explicitly mentioned in the Constitution and took a strict constructionist position on the issue. Jefferson worried that cities like London and Paris would overpower the banking industry, and in turn would assert control over the nation. He was also strongly opposed to industrialization. Jefferson preferred the notion of the yeoman farmer who could think independently, as opposed to the city worker who would do what his bosses ordered.
Washington had intended to remain neutral in the argument between Jefferson and Hamilton but he realized that in order to achieve his own vision of a strong nation, the federalist approach would work best. He eventually used executive power to pursue federalist policies. This led to Jefferson and Madison eventually making a deal with Hamilton that had Hamilton use his influence to place the permanent capital of the nation on the Potomac River, in return for which Jefferson and Madison would encourage their friends to back Hamilton's economic plan. Hamilton's proposals for funding the debt were passed in Congress and became law.
In 1791, the First Bank of the United States was created. According to Hamilton's plan, the United States Mint and the Revenue-Marine were also 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, what little cooperation there had been between Hamilton and Jefferson had disappeared. What Washington had hoped would not happen did: his administration split into two rival factions, one headed by Jefferson, which would later become the Democratic-Republican Party, and the Federalist faction headed by Hamilton. These two factions disagreed on most aspects of domestic and foreign policy, and much of Washington's time was spent in mediating disputes between them. Hamilton prevailed on almost all major points, largely due to Washington's similar thinking.
One aspect of government revenue needed to pay the national debt met with some resistance by the people. By December 1790, Hamilton believed that import duties, which were the government's primary source of revenue, had been raised as high as was feasible. To supplement government revenue, Hamilton promoted passage of an excise tax on domestically distilled spirits. This was to be the first tax levied by the national government on a domestic product. Congress approved of the tax and Washington signed the bill into law in 1791.
Hamilton believed the whiskey excise was a luxury tax that would be the least objectionable tax the government could levy. This was supported by some social reformers, who hoped a "sin tax" would raise public awareness about the harmful effects of alcohol. The whiskey excise act, sometimes known as the "Whiskey Act", became law in March 1791. Washington defined the revenue districts, appointed the revenue supervisors and inspectors for these districts.
But the tax on whiskey was strongly opposed on the frontier from the day it was passed. Western farmers considered it to be both unfair and discriminatory. By the summer of 1794, tensions reached a peak along the western frontier. Finally the protest became an armed rebellion. The first shots were fired at the Oliver Miller Homestead in present-day South Park Township, Pennsylvania, about ten miles south of Pittsburgh. As word of the rebellion spread across the frontier, a whole series of resistance measures began. These included robbing the mail, stopping court proceedings, and the threat of an assault on Pittsburgh. One group disguised as women assaulted a tax collector, cropped his hair, coated him with tar and feathers, and stole his horse. Another group attacked the estate of the tax collector John Neville, a friend of George Washington.
Washington saw the Whiskey Rebellion as a threat to the nation's existence. Washington ordered the federal marshals to serve court orders requiring the tax protesters to appear in federal district court. Due to the small size of the federal army Washington also invoked the Militia Law of 1792 to summon the militias of Pennsylvania, Virginia and several other states. The Governors sent the troops and Washington took command as Commander-in-Chief, marching into the rebellious districts, leading the militia against the Whiskey Rebellion.
Washington commanded a militia force of 13,000 men, roughly the same size of the Continental Army he previously commanded during the Revolutionary War. Under the personal command of Washington, Hamilton and Revolutionary War hero General Henry "Lighthorse Harry" Lee, the army assembled in Harrisburg and marched into Western Pennsylvania (to what is now Monongahela, Pennsylvania) in October 1794. The insurrection collapsed quickly with little violence, and the resistance movements disbanded.
Washington's forceful action was a powerful precedent. It was the first time under the new constitution that the federal government used strong military force to exert authority over the states and citizens. The men arrested for rebellion were imprisoned. Two were convicted of treason and sentenced to death by hanging. Later, Washington pardoned all the men involved.
Washington believed that a fine line between liberty and order needed to be established. In putting down the rebelling and establishing order, he had given his government a base of support: the necessary revenue to fund its operations, pay its debts and establish credibility on an international stage.