After years of economic strife, Alexander Hamilton turns to the seemingly herculean task of rebuilding the economy.

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Foreign.

Hello, and welcome to the political history of the United States.

Episode 5.23 the treasury okay, it has taken us a few weeks, but we have now more or less set up the new government.

There was now a Supreme Court and a federal judiciary, and the Bill of Rights, although not the top priority for many, had been delivered out to the states.

There does remain, however, one major thing that needed to be hammered out.

After years of disruption, it was finally, finally time to work on fixing the broken economy.

We know that the economy had proven to be the single biggest problem plaguing the Confederation.

So many of the other problems came down to the simple fact that the young United States lacked the necessary funding to do anything about many of its most serious problems.

Issues like Spanish encroachment in the west, the British refusing to abandon all their holdings, and the inability of the government to respond to Shay's rebellion acted as the underpinnings in the collapse of the old system.

Of course, it was not as though the Confederation had not tried to make dramatic course corrections.

For many years, there had been advocates for the need of an imposter to provide funding directly to the national government.

As it was, the present system of requisitions proved to be wildly ineffective, limiting the national government to little more than going to the states and asking for some money, pretty please.

However, in theory, all of that is now.

In our past, the Confederation was well and truly dead.

And in its place was the new constitutional system with a far more energetic executive and critically, the ability of the national government to extract money from the member states.

While having a new government that had the ability to fund itself was great, there still remained the task of actually getting down to business.

This job is going to largely fall into the hands of Washington's old aide de camp and as early as September, the new Secretary of the Treasury, Alexander Hamilton.

This is not a story that we are going to conclude today, or indeed anytime soon.

Hamilton's task of establishing the economy is going to send ripples throughout the entire government.

Hamilton's reach will extend into the very structures of the government and would help to set the political course of the country for the next decade.

As we are going to see, though, not everybody is going to be a huge fan of Hamilton's Reform, including some old friends of his.

As people begin to fall into two camps, those in favor of the Hamiltonian reforms and those opposed, the country will see itself fragment for the first time into political parties centered around Hamilton and his soon to be arch rival, Thomas Jefferson.

Now, you may be saying that we have had political parties for a while.

More recently we had the battles between the Federalists and the anti Federalists.

However, these groups were not exactly political parties in the modern sense.

These were groups that existed as a response to a single, albeit important issue.

However, as we have seen a few times, even within these groups there remained a lot of differences politically.

So much so that these single issue proto parties are not exactly what one thinks of when they think of political parties in the modern sense.

Those parties are coming, and it is the issues that we begin talking about today that they are going to ultimately coalesce around.

Before we can jump into what remains one of the most bitter inter cabinet conflicts in US history, we must first start at the beginning.

Simply put, the United States was flat broke.

Although in relatively short order, it is going to become a project that we are going to come to associate with Hamilton.

The initial work began prior to his appointment with his current friend and soon to be adversary, James Madison at the helm.

On its face, the solution to the present economic crisis seemed obvious.

Since the end of the revolution, the goal had long been the establishment of an impost on imported goods.

This proposed tariff had been the subject of years worth of debate, much of which we discussed here on this podcast, and was seen as the solution to the economic difficulties.

This effort was of course, stymied by the requirement under the Confederation for unanimous consent.

Now, though, there was renewed hope that passing the impost would prove much easier.

There had always been general acceptance of the proposed imposter, only one or two states ever holding out the majority of the time.

With the Constitution abandoning the need for unanimity, the passage of the impost must have seemed like a far less daunting feat.

In fact, as soon as the House had called to session and organized itself, it was the very first problem that Madison brought to the floor.

Rather, he would add an addendum that added tonnage duties These duties, simply put, were taxes placed on the capacity of ships entering into American ports.

Now, what made this so critical is that if one took a close look at those duties, it was clear what their aim was, and that was to give preferential trade to France to the detriment of Great Britain.

Even on the concept of the impost itself, there had been back and forth debates, questions over what things would be included and what would be excluded.

However, these questions were influenced by local concerns, which, although they should not be totally dismissed, were not about to send everybody down a path of questioning what their relationship with foreign powers should be.

The question of tonnage, however, struck at that very question of what the relationship of the United States should be with her former overlords.

Madison, seemingly knowing that this might be a big deal, tried to quietly sneak it in.

What the act stated was that ships coming into the United States would pay an additional tax based on their tonnage.

This tax was tiered, with American ships paying the lowest amount, countries with trade agreements paying just a bit more, and everybody without any kind of commercial relationship paying the highest tax.

Of course, when we are talking about countries that have a commercial relationship with the United States, we are specifically speaking about the French.

Great Britain falls into that category of everybody else, meaning that under this plan, Madison was explicitly favoring French trade over British trade.

The initial pushback on this came from the south, who, although they didn't much care about who the discrimination was against, worried that having any kind of discriminatory trade behaviors would increase the cost to move American goods on foreign ships.

Northern states worried far less about this, largely because they exported far less, ultimately setting up a regional battle over the issue.

In short order, though, Madison was able to force this bill through the House.

When the bill hit the Senate, though, they felt differently.

Simply put, the Senate had absolutely no appetite for a trade war with Great Britain and promptly dropped Madison's tonnage levels from the agreement.

Madison tried to force the bill back through, but the Senate was no more interested in backing down than was Madison.

After a few more attempts, the wind had clearly gone out of the sails for Madison's plan in the House, and his votes began to quickly slip away.

Much to his frustration, as historians Stanley Elkins and Eric McKittrick point out, Madison here was laying out his vision of the country as a Virginian Madison was keenly aware of the various complaints of the local planter class being forced into working with a middleman, most often the Scottish, who acted as an intermediary.

The last thing that Virginians wanted to do was to go back to a state of dependence on Great Britain for their trade.

What Madison either neglected or possibly ignored is that this was only one side of the argument for the northern cities.

Trade between the British and the Americans had generally lacked that same intermediary and had been direct with the mother country.

It was a situation that many of those northern merchants were happy with because it was predictable and stable.

As pointed out by Elkins and McKittrick, these regional differences here brought up the much deeper question of exactly what the national interest actually was.

Madison's argument here was that Great Britain needed to be taken down a peg and that, as is, they were already too large of a share of American trade.

Madison argued that, sure, the British manufacturers do have a momentary advantage.

However, American manufacturing was quickly coming along and soon goods that actively required import would be produced domestically.

The merchant class balked at this, complaining that a trade war was the last thing that anybody needed.

It was that merchant class in the Senate that killed the bill and, unsurprisingly, had no plans to back down.

The final result, therefore, was a tonnage bill that gave an advantage to American shipping, taxing them at $0.06 per ton, and all other shipping would be taxed at $0.50 per ton, thus eliminating the preferred trading partner tier.

To be completely fair to Madison here, he had good reasons to want to stick it to the British.

It is not as though the British were not themselves hampering American trade.

We have talked previously about how the American vessels were banned from the West Indie ports.

From the British perspective, they felt little need to accommodate American commercial interests, reasoning that the United States was going to be dependent upon British trade, regardless of whatever the British hit the Americans with.

Therefore, what was the point in backing down?

Thomas Jefferson, who in very short order is going to be in the middle of all of this, would remain a big proponent of breaking up the British trade monopoly by working with other European states.

The problem with the United States wanting to shake her dependence on Great Britain, however, is that this is all coming at a time when British manufacturing was expanding, further fueling demand for their products in the United States.

Meanwhile, despite the preferred status of the French, trade with them consistently remained slow.

Instead, they were in a crippling depression that left the nation pretty much flat broke.

Although the initial reforms to the economy would come months before Alexander Hamilton would be named the Secretary of the treasury, it was always pretty clear that these were more of a placeholder than anything else.

These changes by Hamilton were going to extend beyond simply writing the ship and will extend deep into the politics of the nation as we are going to see.

A major reason for this comes down to how Hamilton viewed the economy.

Sure, he did want to get things onto stable footing, but it was always more than that.

Through economic reforms, Hamilton believed that he could influence the very direction of the nation.

Hamilton came into office with a very clear vision in mind for what he believed the United States should be.

He thought that the United States could become a great power akin to the major European powers.

As historian Gordon Wood writes in his book Empire of Liberty, Hamilton viewed his role as an emulation of former British Lord of the treasury and first Prime Minister Robert Walpole.

Through his policies, Walpole had built Great Britain into the global power that it was at the beginning of the Seven Years War.

In this fashion, Hamilton viewed himself as something like a quasi Prime Minister to Washington, who in those roles was going to be playing the King.

What allowed Hamilton to feel justified in claiming such wide reaching powers was the fact that he fully believed that money was the thing that all other things revolved around.

It is not exactly hard either to see where this worldview came from for Hamilton.

So many of the problems that had doomed the Confederation had boiled down to it being broke.

Hamilton saw firsthand the forced impotence that such an inability to raise revenue had caused.

And now that he was in the position to do something about it, he was determined not to make the same mistakes.

Yet simply not repeating the same mistakes was not enough for him.

He wanted so much more from his position at the helm of Treasury.

Hamilton believed that he had a clear path to effectuate these policies.

This begs the question of exactly why Washington allowed Hamilton to have so much power.

The answer is that in some ways, Washington agreed.

Now, I don't think that Washington necessarily saw himself playing the role of the head of state to Hamilton's head of the government.

And any insinuation that he was in that role would be patently untrue.

However, it is impossible to ignore the fact that Washington did indeed give far wider leeway to Hamilton than he did to either Jefferson or Knox in their roles.

Part of this comes down to how the departments were created.

For both the State and the War Department, it was clearly stated that those departments were to do what the President required.

For treasury, however, the mandate was different, instead instructing that secretary to report to Congress.

From a public policy perspective, this makes sense.

You don't want to give the executive the power of the purse.

For Washington, though, it changed how he viewed the office.

Washington believed that although Hamilton would be part of his Cabinet, direct oversight of the department belonged to the legislative branch.

Congress, for their part, seemed okay with this arrangement.

Congress had, earlier in the year, created a Ways and Means Committee to keep them appraised on the financial state of the nation.

However, with Hamilton's ascension, they went ahead and disbanded the department.

It is worth mentioning that when Hamilton did eventually resign, the Ways and Means Committee would be resurrected.

Before Hamilton could begin trying to remake the United States into what he wanted, he first had to wrap his head around a economic system that was, to put it mildly, a complete and total dumpster fire.

There was nothing resembling standardization of reporting, meaning that when reports did roll in, they were often disorganized.

And that is when reports did come in at all, which was far from a guarantee.

This posed a dual problem for Hamilton.

He fully understood the necessity of getting accurate reporting from the customs officials.

The United States could not function without necessary data.

But at the same time, too much information would completely overwhelm the system.

In response to this, Hamilton would spend much of his time in the office standardizing the reporting process.

What he wanted to be able to do was to show solid statistical evidence of exactly what kind of funding the nation had available.

While accuracy was great and all, what Hamilton really needed was to show consistency in reporting.

When dealing with the European powers and trying to convince them that extending credit to the United States was a safe proposition, something that it had not been during the dark days of the Confederation.

The ability to show consistent reporting of income was critical.

Hamilton went so far as explicitly laying out that even if nothing moved in or out of a port, he still wanted the report saying so.

A report that indicated that no commerce through a particular port was just that.

A lack of any such report to indicate a lack of trade through report represented a missing document.

This, unsurprisingly, meant that there was now a huge amount of paperwork flooding the Treasury.

These departments during the early government were small and were anything but the behemoth that we know today.

Not including the customs officials spread around the country.

There were only 39 people actually working in treasury, which actually made it the single biggest executive department in the government by a pretty good margin.

The State Department had a whopping six people, Thomas Jefferson included, working for it at the outset in order to make use of the information coming in.

He wanted these reports to be simple and designed for quick review and digestion without anything cluttering them up.

These forms didn't include room for comments, and in fact, Hamilton didn't even want to see the math, just nice, plain, predictable reporting that could easily be sifted through by the treasury staff.

He made sure that all his officials knew that although correspondence is fine, it was not to be included on the official forms.

I can fully understand if the creation of a national bureaucracy might not be the most exciting topic that I've ever covered on this show, but it is critically important.

Hamilton believed that through the world of finance and money, the United States could and indeed would become a major power on the world stage.

In order for this to be realized, though, he was going to have to forge a legitimacy to the United States that was lacking during the preceding decade.

This legitimacy was largely crafted through the confidence that a well run bureaucracy and the treasury could provide to foreign powers and creditors alike.

Not that any of this was easy, and indeed Hamilton would quickly find that at a micro level, there was plenty of politics at play.

The local customs officials enjoyed their power and the ports all enjoyed a degree of sovereignty that they were very hesitant to give up.

For those customs officials, the law was not always clear on exactly what they were meant to be doing.

And even in cases where it was clear what they should do, oftentimes customs officials were deviating from the guidance provided.

This was a bit of a dangerous situation for Hamilton because very quickly he was going to need to figure out just how to strictly enforce the new laws.

This wasn't merely some abstract danger either, but indeed was something rooted in the very lived experience for most Americans.

Think back to the imperial crisis for a moment and just how much of the strife had originated at the ports.

We talked numerous times about the British customs officers coming in and substantially deviating from the accepted norms of the ports in question.

The law was often on the side of the customs officials.

However, for the Americans dealing with things in real time, it was just another example of the government overreaching well during the imperial crisis, many of these specific situations were merely pretext to achieve another end, like giving justification to search a suspect ship.

Where little other proof of malfeasance existed, it still made the population very touchy.

Alexander Hamilton recognized that a delicate balance existed between enforcing regulations and making sure that things kept moving along smoothly.

Hamilton, to his credit, proved quite capable of towing this line.

While he would issue circular orders to all the customs officials, he avoided using terms like orders, which left at least some flexibility at a local level.

His method of sending out these circular orders also meant that when an issue did arise, rather than calling out any particular individual and risking the associated bad blood as a result, Hamilton could effectively make a uniform request to correct the problem.

When deviations did occur that strayed too far outside of what Hamilton could tolerate, he was quick to reign the officials back in.

His position at the head of treasury would give Hamilton a considerable amount of power.

On the surface alone, however, what Hamilton proved to be adept at was using this network of people to ensure.

But he had a finger pressed tightly on the pulse of the nation through these customs houses.

Hamilton had employees in every single state.

He knew the commercial activity of the country through his reports.

But what made the position so powerful was Hamilton's utilization of these newly created networks to understand the national mood at large.

As Congress passed new taxes and experimented with their own powers, it was Hamilton who would often be the first to learn how the merchants were taking it.

Was there grumbling about too much tax burden or complaints about the government handling of things through these networks that he had established?

Hamilton would know.

In this way, Hamilton would prove to be a huge piece of Washington's first administration, and himself could provide intelligence as to the mood of the nation better than the other Cabinet members.

Indeed, they had literally overthrown their previous overlords over the question of taxation just a decade and a half earlier.

His knowledge, therefore, of the national mood when it came to economic matters, meant that he could better provide Washington himself with the information that he needed, thus making Hamilton perhaps the most valuable member of the cabinet.

During our next episode, we are going to get into the details of Hamilton's report on Public Credit, a document that would lay out his grand vision for the emerging economy.

Really, this is going to prove to be such a critical part of who Hamilton is and how he would approach his office.

He came into the office with a very clear vision of what he believed the United States could become.

An image that he was determined to create.

As we have already started seeing here today, at the center of the entire plan for Hamilton was the merchants.

He knew well that they were going to be the driving force in the nation's economy.

They had the resources to develop the manufacturing that would in turn drive more revenue to them as well as generate revenue for the economy at large.

A few minutes ago, we discussed the large number of customs agents who were all feeding Hamilton information about the pulse of the nation.

Those specific people that he wanted to keep a constant gauge on were the merchants.

We are going to leave things here for now a bit shorter than usual.

From the moment he took control of the treasury in September, Hamilton would quickly work to both stabilize the young economy, a process that, it is worth noting, indeed did take years.

At the same time, he was focused on setting the nation on a path for future growth.

Whereas this week we focused on Hamilton's efforts to stabilize the economy.

We are going to soon see just how much more he had in mind.

Next time we are going to stick with Hamilton and his plans for the economy and indeed for the long term future of the United States.

This would be articulated through the aforementioned report on public credit.

Until then, I hope you all have a wonderful two weeks.

I hope that you are staying healthy and that you are staying safe.

And I will see you all back here next time.

As Hamilton lays out his vision for the future.