system of public finance such as what Hamilton was offering.46 That these ideas, in the main, constituted the economic thinking of the later Whig and Lincolnian Republican parties for the whole of the nineteenth century is a testament to his far-sightedness.
It also signals his culpability in the rise of partisan politics, for these policies provoked heated backlash, at least in due course. According to historian Ron Chernow, by the summer of 1791 Hamilton had become the “enfant terrible of the early republic, and a substantial minority of the country was mobilized against him.”47 There were a host of reasons for this opposition; Hamilton’s proposals tended to favor the Northeast over the West and South, indebted states like Massachusetts over fiscally responsible ones like Virginia, commercial interests over poor farmers, and so on. Even so, these issues, while certainly salient, do not really capture the essence of the critique against Hamilton, which was universal in scope, rather than merely dependent on one’s geographic or socioeconomic status, and was symbolized by the name his opponents chose for themselves—that of the Republicans.
Today, this party is often called the “Democratic-Republican” Party, to distinguish it from the modern Republican Party and to signal that it eventually became the modern Democratic Party. Here, we are going to avoid this term and stick with “Republicans” or “Jeffersonian Republicans.” “Democratic-Republican” is not generally what they called themselves, and anyway the modern Democratic Party was just one off-shoot from a later split within the Jeffersonian Republicans. The other off-shoot became the National Republican Party for a time, then finally the Whig Party. The Whigs did form the basis for the modern Republican Party.48
The cluster of views that historian Lance Banning calls the “Republican persuasion” did not develop immediately; opposition to the early elements of Hamilton’s plan was present, but usually followed regional lines.49 In fact Jefferson—Hamilton’s eventual archrival—helped broker a deal to bring about the federal assumption of state debts. It was only after Hamilton proposed the Bank that the Republicans began to put together a systematic critique.
Some of their arguments were antiquated; for instance, their commonplace fears of banks as institutions belied a lack of knowledge of public finance and leaned heavily on the simple prejudices of the age. Some were paranoid; for instance, many were convinced that Hamilton and his friends were looking to establish an American monarchy.50 Some were too influenced by the hyperbole of Britain’s Country Party; the most radical Republicans were ready, willing, and able to interpret any trifling insult as a portent of the republic’s impending doom.51 But amidst these unpersuasive claims, the Republicans leveled some extremely cogent assertions that ring true even today. Three interrelated complaints stand out in particular.
First, in Madison’s view, Hamilton was going against the plain meaning of the Constitution as understood at the time of ratification. Though Madison himself had proposed at the Constitutional Convention a power for Congress to grant charters, such as the Bank’s, the Convention had voted it down.52 Moreover, the clauses in the Constitution that Hamilton was using to justify the Bank’s legality (the General Welfare and Necessary and Proper Clauses) were ones that the advocates of the Constitution had assured its opponents during the ratification debate would not lead to unlimited legislative power.53 Many observers at the time, and indeed historians ever since, have strained to reconcile Madison’s constitutional interpretation of the 1790s to his advocacy for vast federal powers in 1787. But that misses the point. Madison had long been worried about the capacity for government—especially the legislative branch—to overstep its legal boundaries, which is exactly what he thought was happening here. Regardless of what he wanted in 1787, he believed that what the government was doing was contrary to the guarantees about the Constitution that its advocates made during the ratification debates, and therefore what the people thought it meant when their representatives assented to it.54 From this perspective, it is easy to appreciate why Madison would fear this power grab, even if it was a power he thought the government should have, as a sign that the Constitution’s republican balance, which was his paramount concern, was being disrupted.
Second, the Republicans worried that Hamilton’s program was showering benefits upon a select few, notably friends of Hamilton as well as the commercial interests in the Northeast. In point of fact, the Republicans were absolutely correct. Though Hamilton himself did not become wealthy due to his economic policy, many people with connections to him most certainly did. For instance, rumors of Hamilton’s funding plan were so widely known in certain circles before he released its details that a speculator as far away as Amsterdam had advance warning. Ultimately, this facilitated a transfer of wealth from the South and West to the Northeast, as speculators who were in the know sent their agents to the back areas of the country to snatch up as much government paper as they could.55
Nobody was more culpable in this corruption than William Duer, Hamilton’s friend and first assistant secretary of the treasury. Previously a business partner of Hamilton’s wealthy father-in-law, William Schuyler, Duer was well positioned to collect information about Hamilton’s intentions, and when he left the Treasury Department he put his knowledge to good use. In late 1791 and early 1792, Duer and members of a speculative company tried to corner the market on U.S. debt securities, and in so doing overextended their credit lines. When they couldn’t pay their creditors, a panic began and a run on Bank deposits threatened to bring the whole American financial system down. It was only through the acumen of Hamilton, who directed some $100,000 in Bank open-market purchases of securities, that the credit crisis was quelled.56
Ultimately, the core driver of the Republican complaint on this front was essentially the provision of a government rent to those who had the means to take advantage. With the new government backing the Bank, it was a sure-fire winner. Writing to Jefferson from New York City in the summer of 1791, Madison was appalled by the speculative frenzy that had been launched:
It seems admitted on all hands now that the plan of the institution gives a moral certainty of gain to the Subscribers with scarce a physical possibility of loss. The subscriptions are consequently a mere scramble for so much public plunder which will be engrossed by those already loaded with the spoils of individuals. . . . It pretty clearly appears also in what proportions the public debt lies in the Country. What sort of hands hold it, and by whom the people of the U.S. are to be governed.57
A month later, Madison wrote his friend once again:
It is said that packet boats & expresses are again sent from this place to the Southern States, to buy up the paper of all sorts which has risen in the market here. These & other abuses make it a problem whether the system of the old paper under a bad Government, or of the new under a good one, be chargeable with the greater substantial injustice. The true difference seems to be that by the former the few were the victims to the many; by the latter the many to the few.58
In the view of the Republicans, this was precisely the sort of occurrence that a good government was supposed to prevent. How can one region of the nation, one class of society, or one clique with insider information profit at the expense of the rest of the citizenry? The answer, they believed, was that the republic had been corrupted, in much the same way they believed that Rome and England had been transformed from republics into something much worse.59 Per Madison, this result was just as bad as that which had occurred under the Articles of Confederation. In the 1780s, fractious majorities in the states legislated against the rights of the minority and the good of all; now, however a northeastern minority was violating private rights and public good.
How could a minority possibly get away with plundering a majority like this? The answer lies in the Republicans’ third cogent attack on the Hamiltonian system: it had employed the Bank to buy off a faction within the legislature, much as the Republicans believed King George III had done with the Parliament. To buttress these claims, the Republicans relied heavily on the accounts of John Beckley, the first clerk of the House of Representatives and a staunch ally of Jefferson and Madison. In late winter of 1793, Beckley had reported to Jefferson that some nineteen members of the House, plus an additional seven in the Senate, were “paper men” (i.e., had invested heavily in Bank shares). Beckley also reported to Jefferson rumors of Hamilton