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Launching the Nation: Federalists and Jeffersonians, The Debate over Federalism

Jeffersonians, private financiers, Treasury Alexander Hamilton, Whiskey Tax, Democratic Republicans

The new national government was dominated by men who had led the movement for the Constitution, most of whom called themselves Federalists. They were committed to making an authoritative and stable national state. This became clear early on when President Washington asked Secretary of the Treasury Alexander Hamilton to offer solutions to the problems of the national debt and government finances. Hamilton proposed that the federal government assume the revolutionary war debts of the states and combine them with the debt of the United States into one national debt. The federal government would pay off the parts of the debt that were owed to foreigners, thus establishing the international credit of the new government. But the new government would make the domestic debt permanent, selling government bonds that paid a guaranteed high interest rate. Hamilton also proposed a national bank to hold treasury funds and print and back the federal currency. The bank would be a government-chartered and government–regulated private corporation. The bank and the permanent debt would cement ties between private financiers and the government, and they would require an enlarged government bureaucracy and federal taxation. Hamilton asked for a federal excise tax on coffee, tea, wine, and spirits. The latter included whiskey, and the excise quickly became known as the Whiskey Tax. The tax would provide some of the funds to pay interest on the national debt. It would also announce to western farmers that they had a national government that could tax them. Hamilton’s plan increased the power of the national government.

Hamilton’s measures promised to stabilize government finances and to establish the government’s reputation internationally and its authority in every corner of the republic. They would also dramatically centralize power in the national government. Many citizens and members of Congress distrusted Hamilton’s plans. The assumption of state debts, the funding of the national debt, and stock sales for the Bank of the United States would reward commercial interests, nearly all of them from the Northeast, who invested in the bank and the bonds to pay the debt. Also, establishment of the bank required Congress to use the clause in the Constitution that empowers the legislature “to make all laws which shall be necessary and proper” to carry out its specified powers—a clause that some feared might allow Congress to do anything it wanted. Finally, the government would require a large civil service to administer the debt and collect taxes—a civil service that would be appointed by the executive. To Madison, Jefferson, and many others, Hamilton’s plans for the national government too closely duplicated the powerful, debt–driven, patronage–wielding British government against which they had fought the revolution.

Jefferson became the leader of a group that called themselves Democratic Republicans. They wanted the United States to remain a republic of the small, property-holding farmers who, they believed, were its most trustworthy citizens. Democratic Republicans envisioned a central government that was strong enough to protect property but not strong or active enough to threaten property or other republican rights. Jefferson feared the national debt, the federal taxes, and the enlarged civil service that Hamilton’s plans required.

When Jefferson was elected president in 1800, he paid off much of the debt that Hamilton had envisioned as a permanent fixture of government. The Jeffersonians then abolished federal taxes other than the tariff, reduced the number of government employees, and drastically reduced the size of the military. They did, however, retain the Bank of the United States. Internationally, the Jeffersonians had no ambitions other than free trade—the right of Americans to trade the produce of their plantations and farms for finished goods from other countries.

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