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Posts Tagged ‘Alexander Hamilton’

Poor William Duer.  I don’t mean “poor” in the sympathetic way, where we feel sorry for him.  I mean “poor” as in flat broke.  He didn’t start out that way, but that’s how he ended up.  He was a member of the Continental Congress and signer of the Articles of Confederation.  He served as Alexander Hamilton’s Assistant Secretary at Treasury.  And a year later, he was languishing in debtor’s prison, lucky to have remained alive long enough to get there.  And in prison he would remain until death released him in 1799, seven years later.

So what happened?

The simple answer is that Duer was a gambler…he liked to speculate.  His compulsive behavior was unbounded.  We have already seen, through a glass darkly, the role he played in the first “stock market crash” back in 1791.  Fortunately, that crash had been contained by quick action.  But even before that, the economic system built by Hamilton was gaining momentum.  Exports were rising, companies were starting up, money was changing hands, and European countries were buying up American bonds.  And now with a disaster averted, confidence soared.

And William Duer could not be contained.  He was warned by numerous people that his rampant speculation would land him in trouble.  His wife Lady Kitty chided him, saying, “…your mind will be too much harassed with the variety of business and speculations you undertake to allow you…inward quiet.”

But her husband was on a roll.  Already the biggest fish in the New York financial pool, he hooked up with a land speculator (Alexander Macomb) on a scheme to corner the market in government bonds and bank shares.  He borrowed massive amounts of money to finance his deals, drawing other players into his “Six Per Cent Club”, named for the 6% government securities he was attempting to control.

New banks were started to help finance these schemes, with their bank shares selling at unsustainable values.  Where 1791 had seen “Scrippomania”, January of 1792 had “Bancomania”.  Hamilton and other rational thinkers were aghast at what was happening, and vehemently warned these men that they were treading on extremely dangerous ground.

For a bit, it was euphoria for investors.  People made tons of money on outrageously inflated bank and government securities.  And then guess what?  Just like 1791, the sudden realization that prices might be over-extended took hold, and the slide began.  Duer borrowed more money to cover himself, getting it from local townspeople and shopkeepers.

By March 9th, Duer’s credit was exhausted…his covering for himself was done.  But the damage wasn’t limited to him alone.  His fingers were all over the financial system, and he wiped out gobs of people.  As in the previous year, the Treasury stepped in again, purchasing securities off the market to steady the system, but for many, Duer had ruined them just as he had ruined himself.

The mobs of financially devastated people descended on the jail where he was (and Macomb was soon to join him), hurling stones and looking to lynch the man who had taken everything from them.  The Panic of 1792 (as it came to be known) had deep repercussions.  Anti-Federalists like Jefferson blamed Hamilton for creating a financial monstrosity.  Hamilton was left to defend a basically sound system that was ruined by carelessness, subtle manipulation, wild speculation, and unchecked greed.

I recount this episode, not just for the sake of the story, but for what came from it.  Once again, I’m forced to submit to the incredible writing of Ron Chernow.  “William Duer’s downfall exposed the magnitude of the securities market that Hamilton had opened up.  It also showed how easily the market for government bonds could be rigged by swindlers planting false rumors and expoiting the auction system for stock trades.”

From this came the Buttonwood Agreement.  A group of two dozen brokers gathered on May 17, 1792 at 68 Wall Street (under a buttonwood tree) and set the boundaries for securities trading.  And friends, this agreement is the foundation of the modern New York Stock Exchange.  Chernow continues, “It attested to the extraordinary, if sometimes combustible, vigor of the capital markets that Hamilton had singlehandedly brought into being. … Henceforth, Wall Street would signal much more that a short, narrow lane in lower Manhattan.  It would symbolize an industry, a sector of the economy, a state of mind, and it became synonymous with American finance itself.”

The safeguards put in place nearly 220 years ago can still be misused to do damage, small and great.  It might be an Ivan Boesky dabbling too heavily in junk bonds.  It could be a CEO like Ken Lay, fudging balance sheets to maintain stock prices.  Or maybe its Bernie Madoff, bilking people of billions.  These people we will always have with us.

But those safeguards have kept the U.S. financial markets one of the very best places to “play the lottery” with your money, despite the presence of a William Duer or two.

Recommended Reading: Alexander Hamilton

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 The Constitutional  Convention that ended in September of 1787 certainly ended differently than the one that began in May.  In fact, it’s only known as the “Constitutional” Convention because of the results.  It began as a “Foederal” Convention.  But actually, it kind of began before that.

In 1785, Maryland and Virginia got into a heated argument over navigation on the Potomac River, and representatives from each state decided to meet at Mount Vernon to reconcile the issue.  Using this as a springboard issue, the commission was enlarged and met instead in Annapolis, Maryland in September of 1786.

But Alexander Hamilton, long a champion of a modified charter (to the Articles of Confederation), suggested to Congress that all thirteen states gather for even broader-reaching discussions…as he wrote, “to take into consideration the trade and commerce of the United States.”  Since all things financial were Hamilton’s specialty, and commerce was very weakly addressed in the Articles, it made sense to him.

To many, however, the Articles of Confederation were perfect because they strictly limited the power of any federal government.  All this talk of “trade and commerce” sounded way too far-reaching and more like a trashing of the Articles than a modification.  In the end, Congress resolved that the convention meet “for the sole and express purpose of revising the Articles of Confederation.”

The meeting place was appropriately Independence Hall (where the Declaration was signed eleven years prior) in Philadelphia, and the start date was May 14, 1787.  Seventy-four delegates were named, of which fifty-five showed up.  Of course, transportation wasn’t what it is now, and the spring of 1787 had been particularly wet, so delegates kind of mucked their way into Philadelphia.  The ever-punctual James Madison arrived on the 3rd of May, but others would straggle in.

Rhode Island sent no one, and was resolutely against any measures that forced them to give up the financial racket they had built using their own currency.  “Rogue Island” it was often called.  One man said that “Rhode Island has acted a part which would cause the savages of the wilderness to blush.”  George Washington wrote that “Rhode Island still perseveres in the impolitic – unjust – and one might add without much impropriety scandalous conduct, which seems to have marked all her public councils of late.”  Harsh rhetoric, to be sure, coming from a man of guarded words.

And what of Washington?  Well, he arrived on May 13, 1787 to a hero’s welcome.  The bells chimed (and not just because it was Sunday morning), artillery was fired, and the General was escorted through Philadelphia by the City Troop.

The Federal Convention was about to begin…

Recommended Reading:  Miracle at Philadelphia – As I’ve been plowing through Ketcham’s book on James Madison, I’ve been taking little tangents for related material.  This is one of them.

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It is no real secret that John Adams had a difficult Presidency.  The reasons are many.  He followed in the shadow of the revered George Washington.  He was fully exposed to the unbridled fury of the press which, as we have seen before, showed little restraint and an even more fleeting adherence to the truth.  His enemies were numerous and powerful, reading like a “who’s-who” of the Founders.  Jefferson (his own VP).  Madison.  Hamilton.  Even Washington, the great diplomat, didn’t get on well with John Adams.  Just before the end of the 18th century, there was a war brewing between the U.S. and France, and Adams’ enemies were certain that he was leading them towards it.  Of course, they knew that Adams had sent a peace delegation to France to negotiate a treaty (a treaty that would eventually be signed), but again, that mattered little.

And while Adams had his own issues (a raucous temper and a pronounced arrogance), there is small doubt that external forces really had it in for the 2nd President.  Today we focus on another of his problems…his Cabinet.  When Adams was elected, there was no precedent for how to handle Cabinet members, so Adams simply carried them over, and it turned out to be his biggest mistake.

We talked about it before, but when Washington was President, his real #2 man was not Adams (the VP), but Treasury Secretary Alexander Hamilton.  And Hamilton got on well with all of Washington’s circle…except Adams.  When Adams took over as President (Hamilton had resigned by then), there was no room for Hamilton in his world.  So Hamilton worked through Adams’ Cabinet, influencing their decisions and generally getting in Adams’ way.  All three of the primary Secretaries (Pickering, James McHenry, and Wolcott) were under the sway of Hamilton.  Adams would prospose policy, Hamilton would be informed, who would then offer his opinions, which would influence the Cabinet.

If Donald Rumsfeld (former Defense Secretary in President Bush’s Cabinet) was quietly directing members of President Obama’s Cabinet, you can imagine that the President would take pretty strong exception to it.  Well, Adams did, too.  But he didn’t really do anything about it.

Until May 5, 1800.

With his 1st term winding down and Jefferson looking more and more like the 3rd President, Adams had finally had enough.  That evening, as an insignificant meeting between Adams and War Secretary James McHenry (shown above) was ending, something McHenry said or some attitude he showed (no one knows for sure) set the President off.  He accused McHenry of working with Hamilton (which was true) to undercut his administration (which was less true, but had merit).  And while Adams actually liked War Secretary personally, he thought he was incompetent (which also had merit) and finished with, “You cannot, sir, remain longer in office.”

When McHenry offered to resign, Adams became quite apologetic, and he later badly regretted his outburst.  But, as David McCullough writes in his biography of our 2nd President, “…nothing he had said was untrue, nor was his anger without justification.  In firing McHenry he had done what he should have done well before this.”

As it turns out, he fired Secretary of State Pickering a few days later, and Wolcott was out at Treasury just before Adams’ term ended.

We see turnover in Cabinets pretty regularly now, so we’re kind of used to it.  But as far as I can tell, this incident was the first in U.S. history where a President fired a Cabinet Secretary.

Recommended Reading: John Adams

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Back in February, we looked at Aaron Burr’s collaboration with Alexander Hamilton to form the Manhattan Company.  This privately held entity would take on the task of bringing fresh water to the residents of New York City.  It was believed that fouled water was to blame for the devastating outbreaks of yellow fever, which was partially true, especially if you factored in the myriads of mosquitoes that lived there and actually spread the disease.  If you want, you can go back and read it for some background.

The need was great, the solution seemed reasonable, and Hamilton (a man often at odds with the ambitious Burr) had given a splendid presentation.  Milton Lomask, in the first book of his two-volume biography of Aaron Burr, went so far as to say that “…no member of the committee of six worked harder to make possible Aaron Burr’s upcoming triumph in the New York legislature.”

But Aaron Burr was lying to everyone about the Manhattan Company.  Burr cared nothing about water, nor about piping it to residents of New York City (or any other city for the matter), nor about combating yellow fever.

Aaron Burr wanted a bank.

As the first Secretary of the Treasury, Alexander Hamilton had pushed for the first National Bank way back in 1790.  It was a very controversial move with no shortage of detractors.  But the bank had been approved in early 1791 with a 20-year charter.  If you recall, over-speculation in the bank’s stock had led to the first “stock market crash” late that summer.

But that was 1791, and time had passed.  President John Adams was now struggling through his first term, and Hamilton had long since stepped down as Treasury Secretary.

The banks, however, were still around, and as they were products of Hamiltonian thinking, they were predominantly controlled by Federalists.  Both the Bank of New York and the local branch of the Bank of the United States (the lone banks in New York City) were greatly disliked by Republican businessmen, who believed they were discriminated against when it came to lending.  And while there seems to be precious little evidence that such exclusions persisted, the perception was clearly there.

Alexander Hamilton opposed the idea of state banks, but not simply because they weren’t a Federalist idea.  With his keen financial sense, he realized that local banks would become competitive for clients and, in their zeal for the most business, would dilute credit and resort to suspect lending practices to gain more accounts.  This could ultimately lead to a melt-down of the financial system…doesn’t this sound vaguely familiar 210 years later?

Anyways, when the New York legislators saw the final bill, they failed to notice that Burr had removed all language dealing with reparing streets damaged by laying pipes and providing water for fire protection.

The Manhattan Company had become a front company.  In place of the removed text, Burr added the proviso “that it shall and may be lawful for the said company to employ all such surplus capital as may belong or accrue to the said company in the purchase of public or other stock or in any other monied transactions of operations.”

Ron Chernow (who’s probably going to demand royalties for as many times as I’ve quoted him, but his biography of Hamilton is that good) writes, “The ‘surplus capital’ loophole would allow Burr to use the Manhattan Company as a bank or any other kind of financial institution.”

And on April 2, 1799, New York Governor John Jay unwittingly signed into law the creation of a bank able to compete with the Bank of the United States.

Aaron Burr had pulled off “the perfect crime”, and had done so in brilliant fashion.  He manipulated his brother-in-law’s idea about bad water, used Alexander Hamilton as his mouthpiece, and duped New York’s legislature and governor.

Hamilton, of course, was furious.  Calling Burr on his hypocrisy, he said, “I have been present when he has contended against banking systems with earnestness and with the same arguments that Jefferson would use…Yet he has lately by a trick established a bank, a perfect monster in its principles, but a very convenient instrument of profit and influence.”

But anger wasn’t limited to the Federalists alone.  The general public was aghast at Burr’s lies and, as he was up for re-election in the Assembly, they shunned him at the ballot box.  Even some Republicans, who may have admired his cheek and cunning, disapproved of the subterfuge and deception he perpetrated on them as fellow legislators.  And what of Dr. Joseph Browne, Burr’s brother-in-law?…the doctor who desperately wanted to help fight yellow fever?  He wrote to Burr, “I expect and hope that enough will be done to satisfy the public and particularly the legislature that the institution is not a speculating job.”  He would hope in vain as, by the time the company went public, all pretense to a water company had been dropped completely.

The summer of 1799 would see yellow fever rage through New York, and impure water being given to sick residents.

It’s little wonder that, less than two years later, when Jefferson and Burr were deadlocked in the Presidential election, Hamilton unabashedly wrote, “As to Burr, there is nothing in his favour…He is bankrupt beyond redemption, except by the plunder of his country.”

Recommended Reading: Alexander Hamilton

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The winter of 1779-1780 was a pretty bad one for thirteen Colonies struggling to free themselves from cross-Atlantic control.  First off, the weather was miserable.  “Washington’s army, encamped at Morristown, New Jersey, suffered more than it had at Valley Forge from severe frosts and six-foot banks of snow.”  Those words, from Ralph Ketcham’s extensive biography of James Madison, succinctly summarize some of the worst conditions anyone could remember.  Even the British, with a recent run of successes, called a halt to operations.

A young Madison (shown above), snowbound in Virginia, took the time to investigate the Colonies’ second problem:  money.  The Colonies had lots of money floating around…roughly $200 million in paper currency.  The real issue was that it wasn’t worth the paper on which it was printed.  The previous couple of years had seen currency values fall, in some cases, to less than 1% of their face value.  And James Madison came to some interesting conclusions.

After extensive reading, he determined that the value of money…well, let’s just quote him directly.  “…does not depend on its quantity.  It depends on the credit of the state issuing it, and on the time of its redemption; and is not otherwise affected by the quantity, than as the quantity may be supposed to endanger or postpone the redemption.”

Of course, a good many people disagree with that premise, even today.  Many times, we’ll say things like, “If the government has trouble paying its bills, they’ll just print more money.”  It’s a derisive statement that implies the following:  if the government prints more money, there are more dollars in the system for the same amount of goods and services.  This serves to make dollars less valuable and, by extension, goods and services more expensive.  I’m no economist, so while that line of thinking resonates with me and seems to make sense, I have no idea as to whether things really operate like that.

Anyways, Madison’s thoughts flew in the face of conventional wisdom during the Revolution as well.  So it’s not surprising that he disagreed with the rest of the Continental Congress when, on March 18, 1780, that body resolved to reduce the $200 million of outstanding currency to just $5 million with a 1:40 reverse monetary split.  Ketcham writes, “It was hoped the new currency would escape depreciation and thus stabilize Congressional finances…Yet the act stopping the Continental currency presses took power from Congress precisely when it needed more to prosecute the war.”

James Madison was despondant.  Writing to Thomas Jefferson, his new (and eventual life-long) confidant, his depressed pen would write, “It is to be observed that the situation of Congress has undergone a total change from what it originally was.  Whilst they exercised the indefinite power of emitting money on the credit of their constituents they had the whole wealth and resources of the continent within their command, and could go on with their affairs independently and as they pleased.  Since the resolution passed for shutting the press, this power has been entirly given up and they are now as dependent on the States as the King of England is on the Parliament.”

General Washington, from his vantage point in an army that, to this point, was largely unpaid and very poorly-provisioned, said, “I see one head gradually changing into thirteen…I see the power of Congress declining for the consideration and respect which is due to them as the grand representative body of America, and am fearful of the consequences.”

A twenty-something Alexander Hamilton, now part of Washington’s military staff, pored over the situation and partially agreed with Madison, though he strongly believed that foreign loans were the best solution.  He would write, “The quantity of money in circulation is certainly a chief cause of its decline.  But we find it is depreciated more than fives times as much as it ought to be. … The excess is derived from opinion, a want of confidence.”  These words were part of a letter, more than six-thousand words in length, that outlined a financial system and was composed under a pseudonym and sent to a congressman (Robert Morris).

But for the time being, the devaluation of the currency was a painful decision, and wiped out the savings of many Americans.  And 1780 was only 3 months old, and much more hardship was in the works.

Recommended Reading:  Alexander Hamilton’s letter to Robert Morris – It’s hard to believe he was just 23 years old when he penned this.

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On February 18, 1776, a young Alexander Hamilton sent a letter to the Royal Danish-American Gazette that he was joining the military.  Big news?  I’m not sure it was at the time and, in the subsequent 235 years, millions of men and women have made the same honorable decision.

Hamilton, having arrived in the Colonies less than four years before, was now a student, a writer, and a budding revolutionist.  He was entrenched at King’s College and, as a young man of just 19 (or so, depending on his exact date of birth), had already studied enough to receive a bachelor’s degree and begin advanced law studies.  He was also an avid writer, publishing a series of articles (anonymously) called “The Monitor” in the New-York Tribune from November of 1775 to early February 1776, as the Colonies were by now in a declared (by the Crown) state of rebellion, and full-out war loomed.

So his decision may have come as a surprise to some, but Hamilton was fascinated with the order of the military, its command structure, the drills, and the precision of it all…even though he saw much more of those things in the British Redcoat formations than in the Colonial militias.  In fact, he was already serving in a volunteer militia company.  And when New York’s Provincial Congress announced the formation of an artillery company to defend New York, Hamilton jumped at the chance to join.

In his letter, which he did not sign, he wrote, “It is uncertain whether it may ever be in my power to send you another line…I am going into the army and perhaps ere long may be destined to seal with my blood the sentiments defended by my pen.  Be it so, if heaven decree it.  I was born to die and my reason and conscience tell me it is impossible to die in a better or more important cause.”

And on March 14, 1776, Hamilton was assigned to lead the artillery company with the rank of Captain.  The (good) fallout from this event is extensive.  Alexander Hamilton trained his men well, he dressed them well (partly at his own expense), and he worked them into a cohesive unit that served with distinction as open conflict with the British heated up.

His conduct got him noticed by General George Washington, who eventually added the young Captain to his staff (with a new rank of Lieutenant Colonel).  And of course, the rest is history, as the two would go on to form one of the strongest tandems in the Revolution and in the formation of a young America.

And it all began with Hamilton’s good work as the “Captain of a Company of Artillery.”

Recommended Reading: Alexander Hamilton

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The other day, we looked at the close shave that was the 1800 Presidential election.  Both Thomas Jefferson and Aaron Burr received an equal number of Electoral College votes.  This cast the election into the House, where it took 36 ballots (and a week) to determine a winner.

In the midst of that, we saw some intense campaigning by Alexander Hamilton (shown on the left, a Federalist) against Aaron Burr (shown on the right, also a Federalist) and for Thomas Jefferson (an Anti-Federalist), one of his biggest rivals.

Over the years, much has been made of the animosity between Hamilton and Burr, a dislike that would eventually lead to gun-play and Hamilton’s untimely death.  But they weren’t always sworn enemies.  While their ideologies and passions were largely opposed to each other, they still found common ground on occasion.

As they did in 1799, when they worked on a project together.

The summer of 1798 had seen a terrible epidemic of yellow fever decimate New York.  Mosquitoes, given a perfect breeding ground in the stagnant swamps and pools, spread the disease with a speed that killed upwards of 50 people a day.  Burr’s brother-in-law, Dr. Joseph Browne, theorized that contaminated well water was causing the outbreaks.

Browne consulted with Burr, and came up with a plan to pull fresh water from the Bronx River.  The plan, submitted to the Common Council for consideration, involved the creation of a private water corporation that would be responsible for piping the water that would not only alleviate the yellow fever, but also help fight fires and provide improved sanitation.

The Council liked the idea, but suggested that a public company be formed to run the business.  So Burr went to work, building a bipartisan coalition of six supporters – three Republicans (as the Anti-Federalists were coming to be called) and three Federalists – to back the proposal of a private water company.

One of those Federalists was Alexander Hamilton.  As a survivor of yellow fever, he had immediate sympathy for the idea.  Furthermore, his wife’s sister (Angelica Church) had a husband (John Church) who had recently returned from England and needed something to do.  He would do well as a director of the Manhattan Company (and the water project came to be known).

On February 22, 1799, Burr and Hamilton entered the office of Mayor Richard Varick and, together, pitched the Manhattan Company’s case to the mayor and the Council.  The Council, persuaded by Hamilton’s impressive presentation, sent the proposal to the state legislature, where it would easily pass in March and be signed into law by Governor John Jay in early April.

At that point, the truth about the Manhattan Company would come to light, and what little relationship Hamilton had with Burr would be destroyed by the deception, subterfuge, and lies perpetrated by Burr.  From this point on, ideological disagreement turned to outright hostility.  Both men were now walking the road to Weehawken.

But what was so devious about something as beneficial as a water company?  We’ll answer that question on April 2nd.

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America’s first two elections were basically uncontested.  Everyone knew George Washington would be elected to the top post, and his 100% tally in both Electoral College votes bore that out.  The election of 1796, won by John Adams, was the first election that showed just how divided a country, recently united by Revolution and victory, could become.  It also gave us some insight into the power of a muck-raking press not conditioned to the niceties of 21st-century subtlety.

Which brings us to the election of 1800, which may have been the most dramatic in the country’s history.  There was little doubt who wasn’t going to win.  President John Adams had been demonized by the Anti-Federalist Party and marginalized by his own Federalist Party.  The threat of open war with France had split the powers in government into two camps.  The Anti-Federalists, led by Thomas Jefferson and James Madison, wanted peace with France…the Federalists, war.

President Adams’ envoys to France brokered peace, but the “slow boat to America” brought news of the treaty too late to act as the catalyst that almost surely would have garnered Adams another term.  So it came down to Thomas Jefferson and Aaron Burr.  Everyone knew the election would end in an Electoral College tie, and that was verified when the ballots were opened on February 11th, 1801.  The vote would go to the House of Representatives, a chamber dominated by Federalists, which spelled doom for Jefferson.

But not so fast.

Aaron Burr was a pretty unpopular fellow amongst those in power.  And one of his biggest rivals was Alexander Hamilton.  The two had engaged in an on-again-off-again cycle of trust, distrust, collaboration, and outright hatred that boggles the senses.  Hamilton saw Burr as a two-faced hypocrite, who swapped allegiances and ideologies to suit whatever constituency gave him the most power.  He (correctly) saw Burr as a man of exceeding ambition who, if he couldn’t gain power by rightful election, was capable of using any means necessary.

Burr, for his part, was initially gracious about the tie, stating that “It is highly improbable that I shall have an equal number of votes with Mr. Jefferson, but if such should be the result, every man who knows me ought to know that I should utterly disclaim all competition.”  Some Federalists were inclined to favor the ever-ambitious Burr over Jefferson.

Alexander Hamilton was horrified. He and Thomas Jefferson had also been bitter rivals for years, but in this case, Burr was the bigger evil, as we’ll begin to unravel in a few days.  As always, he let his pen do the talking, writing to Congressional Federalists that “As to Burr, there is nothing in his favour…He is bankrupt beyond redemption, except by the plunder of his country.  His pubilc principles have no other spring or aim than his own aggrandizement…If he can, he will certainly disturb our institutions to secure to himself permanent power…”

The irony here is startling…Hamilton defending Jefferson by saying of Burr the same things Jefferson said of Hamilton…read that carefully.  President John Adams, relegated to spectator status in this and a recipient of Hamilton’s ire just prior to the election, laughed at the situation.  “The very man – the very two men – of all the world that he was most jealous of are now placed above him.”

Thirty-five ballots were cast in the House over a week’s time.  And thirty-five times the deadlock remained.  The politiking in the House grew as electors looked for any leeway that could break the deadlock.  That leeway came to Delaware’s James Bayard.  Possibly influenced by Hamilton’s constant letters to Congress, this anti-Jefferson Federalist met with Jefferson supporters and set forth a few requirements which, if promised by Jefferson, could likely win Bayard’s vote.

What Bayard heard in response must have been enough, because the thirty-sixth vote, taken on February 17, 1801, saw Bayard cast a blank ballot, removing Delaware from Burr’s column.  Thomas Jefferson had a new title…President of the United States.

Recommended Reading: Alexander Hamilton

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When Thomas Jefferson sat down as part of a five-man committee and began drafting a declaration of independence, he probably had little idea how exceptional that first of American documents would become.  But by the time he had written the second sentence, he probably had a pretty good idea of how accusatory it would be.

The words of the second sentence are incredibly famous, we pretty much know them by heart.  “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.”

They are indeed lofty, full of promise for a people weighed down by an oppressive regime an ocean away.  For the men who composed it, and for those that endorsed it in July of 1776, it was a immense release…a throwing off of the proverbial shackles, leaving a perceived plantation, and starting anew.

But, what about those in the Colonies for whom the shackles were real?  What about those for whom the “plantation” was not an ethereal concept discussed in the halls and taverns, but an everyday, back-breaking reality?  Where was their “declaration of independence?”

The men that brought freedom to America through pen and sword had to grapple with the finger of hypocrisy that pointed at many of them.  They preached “freedom” to their countrymen, while simultaneously endorsing the scourge of slavery.

A good number of the Founding Fathers were very much against slavery.  Men like John Adams and Alexander Hamilton spent most (or all) of their lives abhorring the practice.  But many others were, at the very least, conflicted.  George Washington had many slaves his entire life and, while he was relatively good to them (and freed them when he died), he was still a slave owner.  As was Thomas Jefferson.  Eliza Hamilton’s side of the family owned them.  Benjamin Franklin brokered slaves and didn’t become an abolitionist until later in life.  James Madison owned more than 100.

Slavery was an intensely divisive issue (as secession and the Civil War would prove), and a dangerous one for politicians to touch.  Though the early Presidents largely spoke out against the practice, they did little to push for change, because the southern states thoroughly endorsed it, and they were an immensely powerful voting block.  And while it’s easy to look at lower part of the map and say slavery was “the South’s demon”, we have to recognize that a good number of Northerners owned slaves as well.  Passing legislation through a House and Senate that contained a significant pro-slavery contingent would have been very difficult.

As a result, early abolitionist movements had to start in a “low” place.  Small groups of people had to get together and begin acting on their own to change the situation.  The New York Society for Promoting the Manumission of Slavery was one such group.  It met for the first time on January 25, 1785, at an inn owned by John Simmons.  For the 19 men in attendance, their goal was to battle against slavery in the state of New York and, ultimately, the emancipation of all the state’s slaves.

But even within the New York Manumission Society (its abbreviated name), there were those that owned at least one slave.  Robert Troup owned a couple.  John Jay (shown above), a long-time abolitionist and the Society’s first chairman, owned five.  Aaron Burr, an early abolitionist and supporter, owned several.  In fact, while all the members were against slavery, at least half the members were slave owners.

The Society spoke out against slavery, printed essays and pamphlets, and created a register of all freed slaves to prevent them from being re-enslaved.  The African Free School, set up by the Society, offered education, training, and apprenticeship for freed slaves.  They pushed for state legislation to outlaw slavery which, given how widespread the practice was even in the North, didn’t get very far.

The New York Manumission Society did a lot of good things and worked hard to keep free men free, but the double standards of many of its members not only “stained” the Society’s good intentions, they clearly reflected the conflicted nature of  the issue in the 1780’s, where citizens believed strongly in freedom, but pandered to (or fully supported) slavery.

Recommended Reading: Alexander Hamilton

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I’ve been away from the electronic “pen” far too long.  There were topics on my list for the days I missed, but I didn’t really make the time for the research necessary to do them justice.  Of course, I could have just gone to some other site, paraphrased/copied some material, and called it good, but the research part is often as enjoyable as the typing.  So I apologize for being ill-prepared this last week of the year.

But as we exit 2009, I want to briefly discuss another exit…the one made by Thomas Jefferson.  When President Washington had announced the first presidential cabinet in American history, it was no surprise that Jefferson was among the selections.  Author of the Declaration and an ambassador to France with John Adams during the Revolution, Jefferson certainly possessed the talents and initiative to help guide the States through their infancy.  He became the country’s first Secretary of State.

But it didn’t take long for this new appointee to start opposing not only other cabinet members, most particularly the Treasury Secretary Alexander Hamilton, but the President himself.  So often when we think of those first Presidents, we put the party system we have now out of our thinking.  There weren’t parties, we say to ourselves, and the Founding Fathers were largely in agreement on matters of policy, we might think.  We see old paintings of the Fathers standing together in the meetings halls as the Constitution was formed.  Together they grace the cover of many books.  Washington reposes right next to Jefferson on Mount Rushmore!!  Our natural inclination is to think of the Founding Fathers as “Founding Friends.”  Such is not the case.

Jefferson clashed badly – initially on ideological grounds, later on most everything – with Washington and Hamilton.  Before the President’s first term had ended, Jefferson had tried to resign.  In early 1792, he tried to quit, but was convinced by Washington to do otherwise.  In October of that same year, he again met with the President, and was less subtle in his “Hamiltonian” disfavor.  Jefferson told Washington that Hamilton had told him the “Constitution was a shilly-shally thing of mere milk and water, which could not last and was only good as a step to something better.”  The President had heard enough.  Pinning the Secretary of State with his own words, he responded sharply that “as to the idea of transforming this government into a monarchy, he did not believe there were ten men in the United States whose opinions were worth attention who entertained such a thought.”  Ouch!!  Jefferson’s take-away was that Washington was now too old and weak to think and act for himself.  He again announced his intention to resign in March of 1793, when Washington’s term ended.  He ended up staying on into Washington’s second term.

Then Citizen Genet appeared on the scene – which we’ll discuss at some point, but in the meantime, go here for some great insight – and Jefferson, his ambition to rid the government of Hamilton all but destroying his wisdom and sound judgement, found himself on the wrong side of the mess Genet tried to, and partially did, create.  This time it was enough.  Jefferson agreed to stay on until the end of 1793 if the full story of Genet’s antics and misdeeds was not published until later.

On December 31, 1793, Jefferson “admitted defeat” to Washington and Hamilton and resigned his post.  He claimed he was overjoyed to be “liberated from the hated occupations of politics and sink into the bosom of my family, my farm, and my books.”  But, of course, Jefferson’s ambition meant retirement from politics was merely an attempt to direct the play from an agrarian stage.  Vice President Adams, never one to miss an opportunity to opine, said of Jefferson’s departure, “Jefferson thinks by this step to get the reputation as an humble, modest, meek man, wholly without ambition or vanity….  But if the prospect opens, the world will see and he will feel that he is as ambitious as Oliver Cromwell.”

Thomas Jefferson would be back.  And, ironically, it would be Adams that would provide the “prospect”.

I wish you all a wonderful, and safe, Happy New Year.

Recommended Reading: American Sphinx

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Alexander Hamilton was obsessed with his reputation.  As Treasury Secretary, he did everything possible to maintain the integrity of the office.  He was detailed, almost to a fault, with the records.  Every “i” was dotted and every “t” was crossed.  Nothing untoward interested Hamilton in the slightest.  The mere thought of impropriety was anathema to him.

His entire professional career was, almost without exception, lived above reproach.  When there was suspicion of wrong-doing, it was always unfounded.

So it comes as something of a surprise that Hamilton displayed such incredibly bad judgement when it came to Maria Reynolds.  The wife of James Reynolds (an acquaintance of the Secretary), Maria was 11 years younger than Hamilton.  She came to him as the distressed spouse of an abusive husband and mother of a young daughter.  Her desperation likely resonated with Hamilton who, as the son of a “fallen woman”, felt a greater sympathy to her plight as he remembered his mother’s struggles.

She asked for some money, and he offered to bring some by her home in the evening.  He would recount the events later when he penned, “…I put a bank bill in my pocket and went to the house.  I inquired for Mrs. Reynolds and was shown upstairs, at the head of which she met me and conducted me into a bedroom.  I took the bill out of my pocket and gave it to her.  Some conversation ensued from which it was quickly apparent that other than pecuniary consolation would be acceptable.”

It doesn’t take much imagination to figure out what, in 18th-century language, was being described here.

And so began an affair that lasted the better part of 3 years.  It only took a few months for Hamilton to realize he was making mess of things and try to extricate himself.  But James Reynolds was having none of it.  He truly was abusive and he was a rake, but he was also calculating and knew the Treasury Secretary was in a bad position.  Rather than fly into a rage or demand a duel, James began extorting Hamilton, threatening to expose the affair to Eliza (his wife) while essentially forcing him to maintain an illicit relationship.  Mr. Reynolds had become a pimp, and his wife the prostitute for hire.

Alexander Hamilton clearly knew he was in danger, but his weakness for women, his appetites, the obvious lure of Mrs. Reynolds, and her husband’s threats served to keep him hooked.

James wrote ridiculous letters, saying things like, “…you have acted the part of the Cruelist man in existence.  you have made a whole family miserable.  She ses there is no other man that she Care for in this world.  now Sir you have bin the Cause of Cooling her affections for me.”  Blackmail was Reynolds’ strong suit, grammar not so much.

In mid-December, Hamilton and James Reynolds met face-to-face, and the Treasury Secretary was informed that one thousand dollars would go a long ways to healing a husband’s “wounded honor”…not to mention keeping Eliza Hamilton out of the loop.

The following week, on December 22, 1791, made the first blackmail payment to James Reynolds.  He would make another a couple of weeks later.

Alexander Hamilton was a tremendous thinker and visionary, but his terrible decisions regarding Maria Reynolds would serve to sully his good name.

Recommended Reading: Alexander Hamilton

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Alexander Hamilton’s tenure as the country’s first Treasury Secretary was a stormy one.  In those 5 years, he had overseen the creation of America’s financial system and a national bank.  He had witnessed the first stock offering and, a few months later, the first stock market crash.  He had created a system by which the fledgling U.S. Government could pay down its debts and establish good credit with foreign powers.  Ultimately, he set in motion (in the 1790’s) many of the financial principles we still utilize today.

Alexander Hamilton had also made quite a few enemies.

His views (and his actions) produced, in the minds of his opponents, a stronger central government than was necessary or desired, and it brought him into sharp debate with them.  These “anti-federalists” (those against a strong federal government) argued long and loud against the “federalists”, claiming their final plan was a return to the hated monarchy.  And while Alexander Hamilton was not the leader of the Federalist party – that honor went to President Washington and Vice President Adams – Hamilton became the poster-child for all that was wrong with their philosophy.  He was the Anti-Federalist whipping boy.

His opponents scoured the “Hamiltonian landscape” for anything untoward…any kind of official misconduct that could form the noose of his political lynching.  For several years they peered into the records.  But Alexander Hamilton, as many of you know, was painstakingly precise with the books.  Any appearance of official misconduct was abhorrent to the young Secretary.  Anti-Federalists pored in vain over the ledgers and found nothing…until 1794.

In the spring of that year, they discovered what they thought to be the smoking gun.  Back in 1790, Congress had set aside monies to be used to pay overseas creditors.  Hamilton had diverted some of the funds to domestic spending, after consulting with the President…but Hamilton had no evidence to prove the meeting took place.  President Washington was consulted and, 5 years after the fact, had no evidence of the meeting, either…and no recollection that it had taken place.  The President was quick to add that, if the meeting had taken place, he was sure he would have advised Hamilton to do what was consistent with the Congressional directives of the legislation.

To some degree, the President had thrown his Secretary to the wolves.

The formal inquiry turned up Hamilton’s misconduct (which we’ll visit in a couple weeks), but none of it was official.  Hamilton ended up being exonerated of any misappropriation.  The damage, however, had been done.  The Secretary felt betrayed.  The character of his office had been called into question, and that was anathema to Hamilton.  And while he and the President would remain on good terms (Washington asked Hamilton to compose his Farewell Address just two years later), any blot on his integrity (real or implied) was too much.

But there was more.  Hamilton had just return from an exhausting trip west with the President as head of the army.  Their mission to squelch the Whiskey Rebellion had been successful, but had served to make Hamilton more hated among the “drinkers of hard liquor”, so much so that he required a six-man escort.  And Eliza, his devoted wife, had just suffered a miscarriage, which Alexander largely blamed on the stresses of his constant absence.

On December 1, 1794, America’s first Treasury Secretary announced his departure, effective January 31, 1795.  In accepting his Secretary’s resignation, Washington spared little of his most effusive praise.  Thinking back over their strong 20-year working relationship, the President cast aside the rantings of Jefferson and the ravings of Madison and wrote, “In every relation which you have borne to me, I have found that my confidence in your talents, exertions, and integrity has been well placed.  I the more freely render this testimony of my approbation, because I speak from opportunities of information which cannot deceive me and which furnish satisfactory proof of your title to public regard.  My most earnest wishes for your happiness will attend you in retirement.”

Recommended Reading: Alexander Hamilton

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“The immense house was still unfinished.  It reeked of wet plaster and wet paint.  Fires had to be kept blazing in every fireplace on the main floor to speed up the drying process.  Only a twisting back stair had been built between floors.  Closet doors were missing.  There were no bells to ring for service.  And though the furniture had arrived from Philadelphia, it looked lost in such enormous rooms.  Just one painting had been hung, a full-length portrait of Washington in his black velvet suit, by Gilbert Stuart, which had also been sent from Philadelphia.

The house stood in a weedy, wagon-rutted field with piles of stone and rubble about.  It all looked very raw and unkempt.”

I don’t usually borrow large chunks of text from books I read, but this seemed so appropriate.  Taken from David McCullough’s masterful John Adams, it shatters the stereotypical minds-eye view that we usually have when the White House is mentioned in conversation.  We see cherry trees in blossom, the impeccably manicured South Lawn, and the flower gardens.  Maybe we think of that big fence were people with a point to make (and signs to prove it) will often gather.  Possibly, we hear the “whump, whump” of Marine One as it prepares to touch down, pick up the President, and whisk him to Air Force One and more high-level meetings across the globe.

Whatever our image, it bears little resemblence to what McCullough described, and what President John Adams saw when arrived by unescorted stage to his new home shortly after 1pm on November 1, 1800.  But that’s what greeted Adams…a big house pretty much in the middle of nowhere.  One imagines that it was a lonely site for the 2nd President, which likely added to his own feelings of melancholy.

Adams had been largely marginalized by his own Federalist Party, trivialized by the opposition Anti-Federalist Party, and just weeks before, villianized by fellow Federalist Alexander Hamilton, who in a fit of I-don’t-know-what (rage, vengeance, jealousy, ??) published a 50+ page pamphlet that called the President everything but a deranged lunatic.  Even Anti-Federalists (to say nothing of the Federalists) were aghast at Hamilton’s stunning move, which was nothing short of political suicide.

What little chance Adams had against his opponent, the scheming Thomas Jefferson, in the upcoming election largely vaporized.  News of a peace treaty with France might have swayed the vote, but there was still no word, and the election was right around the corner.

McCullough’s thought continues…“Yet the great white-washed stone building, the largest house in America – as large as the half of the capital that had been erected – was truly a grand edifice, noble even in its present state.”

The words speak of better things to come, and apparently our country’s 2nd President largely saw that hope through the clouds of his own political despair.  The next morning, he would write to his wife back home those famous words:  “I pray heaven to bestow the best of blessings on this house and all that shall hereafter inhabit.  May none but honest and wise men ever rule under this roof.”

The Executive Mansion has been lived in, burned down, rebuilt, lived in, completely rennovated, and lived in some more.  But Adams’ words remain our desire, constant more than 200 years later.

Recommended Reading: John Adams

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As we saw a few months back, the ratification of the U.S. Constitution caused no end of debate among the Colonists.  The new charter called for a stronger central government than the Articles it replaced, albeit a three-sided government designed to hold itself in check.

But its passage, in September of 1787, had the effect of dividing the Colonies along political lines.  Hyperbole, foolish rhetoric, and exaggeration certainly aren’t exclusive to our day, and they were rampant as the second half of 1787’s September turned to October.  Chernow’s biography of Alexander Hamilton is immensely quotable, and his characterization of the time is most telling.

“The rancor ushered in a golden age of literary assassination in American politics. No etiquette had yet evolved to define the legitimate boundaries of dissent.  Poison-pen artists on both sides wrote vitriolic essays that were overtly partisan, often paid scant heed to accuracy, and sought a visceral impact.”

It was against this backdrop that Alexander Hamilton, already busy with the duties of an attorney, threw himself into a project of his own creation…defending the U.S. Constitution.  While Hamilton possessed a brilliant mind, he was smart enough to know that he couldn’t handle all aspects of a proper defense.  So he assembled a “dream team”.

John Jay, with his sharp intellect and strong integrity, was the first choice.  The two of them then selected three additional supporting writers.  James Madison and Gouverneur Morris were natural choices, as both had been at the Constitutional Convention and would most clearly understand the Framers’ intents.  The fifth was William Duer, with whom we are also familiar.

Morris really wanted to contribute, but was too busy.  Duer began a couple papers, but they weren’t finished and didn’t make the completed set.  That left Jay, Madison, and Hamilton.  Jay, with his expertise in foreign affairs (he had helped negotiate the Treaty of Paris in 1783), handled that arena.  Madison covered issues relating to the Republic itself.  Hamilton took the executive and judiciary sections, taxes, and the military.

In the end, John Jay’s rheumatism limited him to a mere 5 essays, so the Constitution’s defense became largely a two-man show.  James Madison wrote 29 essays, and Hamilton contributed the remaining 51.

The first of the essays, from Hamilton, appeared in The Independent Journal on October 27, 1787.  Over the next seven months, these writings, penned by the anonymous “Publius”, would lay the groundwork of “Constitutional” understanding to the public.

More than 200 years later, those same essays, published as The Federalist Papers, continue to give us insight into the hearts and minds of the creators of one of the most exceptional documents in written history.

Recommended Reading: The Federalist Papers – Every American citizen should read at least two works…the U.S. Constitution and The Federalist Papers.  I’ve read the first, but sadly, only a couple of essays from the second.  That will change.  I’m making The Federalist the first book on my 2010 reading schedule.  I challenge you to do the same.

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In their 25-year relationship, George Washington and Alexander Hamilton didn’t disagree on very many things.  But the differences they had were pronounced.  Over time, we’ll look at a couple of them.  Today, we’ll look at one.

The disposition of Major John André.

If you recall, André had been found with plans to the fort at West Point which had been given him by Benedict Arnold.  And once the Continental Army’s leadership discovered that it indeed was Arnold who committed treason and eluded capture, there was a combined feeling of intense sadness and rage at his actions.

But André was the guy they had captured, not Arnold himself.  A letter, likely originating from Hamilton’s pen, was quietly sent to the British requesting a trade of the popular André for Arnold, but that was refused.  Benedict Arnold probably heaved a sigh of relief, as he probably would have been lynched before he ever went to trial.

The disagreement between Washington and Hamilton had nothing to do with Major André’s fate…his execution was certain.  It had everything to do with its implementation.  If John was considered a spy, he would hang.  If he was categorized as an officer, he would be shot…a much more honorable death.

Hamilton argued that the Major had been lured behind enemy lines by Arnold against his wishes, and had not intended to take on the role of a spy.  Washington argued that John André had come ashore secretly, crossed enemy lines, worn civilian clothes, and used a pseudonym, all traits of a spy.

Washington won the argument.

Major André, for his own part, had little doubt of his fate.  He considered himself a loyal officer and preferred to die as one, but death is death, and he faced it like a man.

At 5:00pm, the prisoner was led from Yoast Mabie’s Tavern in Tappan, and mounted the wagon under the scaffold.  He placed the noose around his own neck and donned his own handkerchief.  When asked if he had anything to say, André reportedly replied, “Nothing but to request you will witness to the world that I die like a brave man.”

The wagon pulled away and, a short time later, Major John André was dead.  More than one Continental officer was impressed with André…his rapid ascent in the British Army surprised few that met him.

Alexander Hamilton would later recall his disagreement with the future First President with a certain amount of resignation when he wrote, “The death of André could not have been dispensed with, but it must still be viewed at a distance as an act of rigid justice.”

Recommended Reading: Alexander Hamilton

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There is little doubt that President George Washington could have held his position as Commander-in-Chief longer than he did.  The people, to some degree, revered him.  It’s true that, during his second term in office, the gloves of his political opponents had come off and a significant amount of venom had been spit at “His Excellency”.  But it’s also true that more than a little of that poison was directed at his second-in-command.

I don’t mean Vice President Adams, though he took his share of the heat.  The real #2 man in Washington’s Presidency was Treasury Secretary Alexander Hamilton.  In a relationship that spanned nearly 25 years, the two had become a de-facto team.  Washington was the steady, calm and collected leader.  Hamilton was the visionary, the brilliant and impetuous “idea man”.  The two of them laid the governmental landscape on the canvas of the American experience.

It also made them some powerful enemies.  Thomas Jefferson was one, having resigned his position as the first Secretary of State due to his intense dislike of the Treasury Secrtary and his (somewhat inaccurate) perception that the President simply bowed to Hamilton’s wishes.  Another was James Madison.  As a co-writer of The Federalist Papers with Hamilton, the two had, in less than 10 years, moved from pen-fellows in a common cause to bitter rivals.

For his part, Washington stayed above the fray, attempting to maintain working relationships with all these men, despite their passions.  But it was tough.  And when the war with the press was included, it was very wearing.  The anti-Federalist newspapers, hesitant to denigrate the President in his first term, came out swinging in the second.

In our day, controversial men and women sprinkle newspapers, internet sites, radio, and TV with what we consider to be libelous talk.  But many of these folks are amatuers in the art of “character assassination” when compared with men like Benjamin Franklin Bache in the late 18th Century.

President Washington had decided not to run for a second term 1792 and had asked Madison to compose a farewell address for him, but was “compelled” to stay on for an additional four years.  There was little debate, even among opponents, and 100% agreement in the Electoral College.  But in May of 1796, Washington was done.

As he prepared to announce his departure, he dug out the text Madison had prepared four years prior.  Looking it over, he decided that, in light of all that had changed, the document needed refreshing.  So he sent it, along with some ideas of his own, to…Alexander Hamilton.  Now himself out of government, Hamilton didn’t just modify the first address.  He wrote two farewell addresses, one a “Madison-modified” piece, the other completely his own.

The President preferred Hamilton’s work, but (like everything Hamilton wrote) he felt it was too long for a newspaper.  So Hamilton pared it down and returned it to the President, who did some final editing.  On September 19, 1796, just two months before the election, Washington’s farewell address appeared in Claypoole’s American Daily Advertiser.

America now had two months to prepare for its first real contested election.

Recommended Reading: His Excellency: George Washington

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In May of 1787, men from all over the United States (it probably still sounded a little strange to them) gathered in Philadelphia to discuss the Articles of Confederation.  As the country’s first constitution, it had met a need as the Revolution was winding down.  But there were weaknesses.  Issues like foreign and inter-state commerce, tax collection, and the whole concept of a central government weren’t adequately addressed.  Under the Articles, each state had complete veto power, meaning legislation that was good for the whole country would be impossible if one state’s delegates disagreed.  Changes needed to be made.

And these 55 men gathered to make them.  But among these men were some who simply thought the Articles had served their purpose and a completely new charter was necessary.  Numerous plans were considered.  Alexander Hamilton’s idea, put together with the meticulous detail only he could do, was lauded for its completeness, but looked a little too “British” in scope, with a central government that was deemed too strong.

The idea submitted by James Madison offered a “lower” house elected by the people, an “upper” house elected by the “lower”, and an executive elected by both.  But both houses would be proportional to population, which gave the larger states a distinct advantage in the power of their voice.  It didn’t help that Madison hailed from Virginia, the largest state at the time.

The smaller states quickly recognized this and called a “time-out”.  When play resumed, William Paterson, from the “small” state of New Jersey offered a plan.  He left the legislature as it currently stood under the Articles, which provided for a single house that gave small states the same power as large states.  The large states, of course, took exception.

They might still be arguing over this today, except that someone (in this case, Roger Sherman from Connecticut…a small state) solved the issue.  He proposed a lower body populated based on each state’s population, and an upper body of “one state, one vote”.

They hashed this idea out for another two weeks, and then the Great Compromise (as the Connecticut Compromise came to be known) passed on the June 23rd.  There was more haggling over issues (particularly the sticky, divisive issue of slavery which was ultimately shelved for the sake of the rest) and then there was the drafting of the language into a single document, handled by Gouverneur Morris’ (I love that name) Committee of Style and Arrangement.

The U.S. Constitution was submitted for signing and ratified by the Convention on September 17, 1787.  The sigh of relief for a job well done was short-lived, as each state’s delegates now had to persuade their home state to adopt the new document.  For some, that would be a most difficult task

Recommended Reading: Alexander Hamilton – I’m approaching the end of this massive, yet very readable book.

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As you might know, I’ve been working through Ron Chernow’s biography of Alexander Hamilton.  At my current pace, I probably won’t have it finished before the end of the year.  But if I speed it up, I might have it done…by the end of the year.  At better than 700 pages, it’s a bit daunting, but the quality of the work makes it a worthy task.  And as a guy who’s always looking for the specific date an event occurred, Chernow has accomodated me nicely. I’ve gots tons of stuff, like this…

On September 2, 1789, Congress acted to create the Department of the Treasury.  The responsibility of this department was pretty simple:  manage the government’s money.  Well, it sounds simple, but there’s a lot more to it than that.  Collecting taxes, managing government accounts, handling debt, supervising the banks, and paying the government’s bills are all part of job.  And there’s the crime-fighting role, going after evaders and cheats and such.  It’s probably a “25-hour-a-day” job.

Anyways, in 1789, when President Washington was looking to fill the position, he selected Robert Morris.  A Pennsylvanian who was a signer of the Declaration of Independence and a strong backer of the Constitution, Morris had an important role in the finances of the Revolutionary War.  When the Revolution ended, he was appointed Superintendent of Finance, though mostly what he managed was war debt.  What I’m getting at is that Morris was a pretty good candidate.

So it comes as something of a surprise that he refused the job.  It wasn’t due to health reasons, hidden scandal, or ambitions of his own (a bigger surprise, since that’s usually why one refuses the President).  Robert Morris refused because he believed he wasn’t the best man for the job (the biggest surprise of all, since people in these situations tend to let their egos rule the day).  His choice was Alexander Hamilton, and Morris told the President that Hamilton should be his selection, too.

Washington listened, and he had a history with Hamilton that reached back to the Revolution, when Hamilton had served on then-General Washington’s staff.  They had a good relationship and a strong respect for each other, though they didn’t always agree (a subject we will cover down the road).  And nine days later when Hamilton walked into an empty office, he probably had little idea of how much that space would shape his legacy.

Recommended Reading: Alexander Hamilton

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Today, banks are a part of everyday life.  Our money is deposited there (usually via electronic transfer), we draw on it to buy stuff (usually via electronic transfer), and if there’s enough in our accounts, we might even draw a bit of income in the form of interest paid.  But unless there’s a discrepancy or our identity is stolen or we lose our cash card, we really don’t give banks a second thought.

Back in 1790, however, banks were not a part of everyday life.  Many people in the infantile United States looked on banks with intense suspicion.  And when Alexander Hamilton, the 30-something Treasury Secretary, proposed a government-run “central bank”, one didn’t have to go to the woods to see the fur fly.  As a leading Federalist, the bank was one of many ideas that Hamilton proposed to strengthen the central government, establish good credit with trading partners, pay down debts, and create a uniform U.S. currency.

Others, however, saw it as Hamilton grasping for greater and greater power and, ultimately, the return of a monarchy.  When the Bank was proposed, Secretary of State Thomas Jefferson and James Madison spoke for this group in a strongly-worded letter to President Washington, castigating the “bank” concept and warning of Hamilton’s ambitions.  Hamilton, as usual, wrote a massive response that swept opposition away.  As the primary defender of the U.S. Constitution when writing The Federalist Papers, he fully understood the importance of the existing government and had no desire to revert to a monarchy.

In February of 1791, the Bank of the United States was created with a 20-year charter.  Carpenter Hall (shown above), located in Philadelphia and meeting place for the First Continental Congress, was selected as the Bank’s location.  On July 4th of the same year, the country’s first official “IPO” (Initial Public Offering) took place, when stock in the Bank was sold to the public.  And for all their fears and concerns, the stock sale created a frenzy.  All the stock sold in an hour, and the rumor of double-digit returns in interest sparked a frenzied speculation that simply overran people’s sensibilities.

People began trading their shares, called scrip, driving the price through the roof.  They stopped working, they stopped running their businesses, and newspapers came out less frequently.  An angry Jefferson wrote, “Stock and scrip are the sole domestic subjects of conversation. . . . Ships are lying idle at the wharfs, buildings are stopped, capital withdrawn from commerce, manufacturers, arts and agriculture to be employed in gambling.”  People gave themselves over to the “baser angels of their nature” and simply went nuts.  It was “Scrippomania”.

Much of the speculation was led by Hamilton’s former Assistant Treasury Secretary, William Duer.  He conjured up all kinds of speculation schemes to drive prices up.  Many people, including Duer, completed their purchases with the help of loans from the smaller national banks, which horrified Hamilton.  On several occasions, he warned the public on the dangers of using credit to make such volatile purchases.  He warned Duer specifically about this, adding that his former position in the Treasury Department made him susceptible to charges of “insider trading”.  On almost all counts, Hamilton was ignored.

Within weeks, stock prices had climbed from $25 to more than $300 per share.  It was not sustainable, and the Treasury Secretary knew it.  On August 11, 1791, the runup ended in dramatic fashion.  Smaller banks refused to extend any more credit to people wanting to trade the scrip.  This frightened investors, who now realized that the stock they held was valued at far more than it was worth.  A frantic sell-off ensued, the price plummeted, and people lost their fortunes.  A good number of people were poorer now than they were when the Bank of the United States stock was first issued back in July.

The United States, just a few years old, had experienced its first Stock Market crash.

Recommended Reading:  The American Heritage Website – Alternatively, subscribe to the magazine.

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As President Washington’s first term of office got under way, the United States was pretty much broke.  The Revolution, while great for the soul, had been awful on the back pocket.  War loans from the French and the Dutch were hanging over the government, there were other war debts still outstanding, and there were new bills being created as the government ramped up.  And, of course, there was precious little money to pay for any of it.

In 1790, there wasn’t any income tax.  There weren’t taxes on capital gains, nor were there taxes on estates, gasoline, phones, or cars that used too much fuel.  But the one area where the government could collect some “money off the top” was imports.  Goods coming into the States had to come through the harbors, so officials would be there to assess the duties on all the stuff shipped from Britain, France, the West Indies, and other places.

But guess what?  People hated taxes in the 18th century, too.  And because loopholes in the “tax code” didn’t yet exist, the Colonists-turned-Americans simply returned to the methods they used when circumventing the British tariff system.  A smuggling racket was born (or reborn), whereby product was spirited into the country, beyond the eyes and, more importantly, beyond the reach of the taxing bodies that awaited it.

The government needed to do something, as it could only run on good will (and a mediocre credit rating) for so long.  The newly-appointed Treasury Secretary, ultimately responsible for the money, had an idea.  Alexander Hamilton suggested a small fleet of single-masted vessels, called “revenue cutters”, be built to patrol offshore and intercept vessels that seemed to be heading toward land, but avoiding the ports.

And on August 4, 1790, President Washington signed the bill creating the Revenue-Marine.  And Hamilton’s penchant for precision meant he had most of the details of the service already on paper, right down to the number of muskets, bayonets, and foodstuffs each boat should carry.

The Secretary of the Treasury also created a rigorous code of conduct for the captains and crews, because the power these men wielded needed to be tempered, lest the public become inflamed against it.  Hamilton said crews need “always keep in mind that their countrymen are free men and as such are impatient of everything that bears the least mark of a domineering spirit.”  And the men were trained to “refrain from whatever has the semblance of haughtiness, rudeness, or insult.”

It was a success as the Revenue-Marine.  It was a success when it became the Revenue Cutter Service in the late 19th Century.  And it remains a success today…as the United States Coast Guard.

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