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CHAPTER 7 Hammering Out a Federal Republic, 1787%u20131820 259built along the Potomac River, where suspicious southerners could easily watch its operations. Such astute bargaining gave Hamilton the votes he needed to enact his redemption and assumption plans.Creating a National Bank Hamilton asked Congress to charter the Bank of the United States, which would be jointly owned by private stockholders and the national government. Hamilton argued that the bank would provide stability to the American economy, which was chronically short of capital, by making loans to merchants, handling government funds, and issuing bills of credit%u2014much as the Bank of England had done in Great Britain. These potential benefits persuaded Congress to grant Hamilton%u2019s bank a twenty-year charter, beginning in 1791, and to send the legislation to the president for his approval.At this critical juncture, Secretary of State Thomas Jefferson joined with James Madison to oppose Hamilton%u2019s financial initiatives. Jefferson charged that Hamilton%u2019s national bank was unconstitutional. %u201cThe incorporation of a Bank,%u201d Jefferson told President Washington, was not a power expressly %u201cdelegated to the United States by the Constitution.%u201d Jefferson%u2019s argument rested on a strict interpretation of the Constitution. Hamilton preferred a loose interpretation; he told Washington that Article 1, Section 8, empowered Congress to make %u201call Laws which shall be necessary and proper%u201d to carry out the provisions of the Constitution. Agreeing with Hamilton, the president signed the legislation.Raising Revenue Through Tariffs Hamilton now sought revenue to pay the annual interest on the national debt. At his insistence, Congress imposed excise taxes, including a duty on whiskey distilled in the United States. These taxes would yield $1 million a year. To raise another $4 million to $5 million, the treasury secretary proposed higher tariffs on foreign imports. Although Hamilton%u2019s Report on Manufactures (1791) urged the expansion of American manufacturing, he did not support high protective tariffs that would exclude foreign products. Rather, he advocated moderate revenue tariffs that would pay the interest on the debt and other government expenses.Hamilton%u2019s scheme worked brilliantly. As American trade increased, customs revenue rose steadily and paid down the national debt. Controversies notwithstanding, the treasury secretary had devised a strikingly modern and successful fiscal system; as entrepreneur Samuel Blodget Jr. declared in 1801, %u201cthe country prospered beyond all former example.%u201dJefferson%u2019s Agrarian VisionHamilton paid a high political price for his success. As Washington began his second four-year term in 1793, Hamilton%u2019s financial measures had split the Federalists into bitterly opposed factions. Most northern Federalists supported the treasury secretary, while most southern Federalists joined a group headed by Madison and Jefferson. By 1794, the two factions had acquired names. Hamiltonians remained Federalists; the allies of Madison and Jefferson called themselves Democratic-Republicans or simply Republicans.Thomas Jefferson spoke for southern planters and western farmers. Well-read in architecture, natural history, agricultural science, and political theory, Jefferson embraced the optimism of the Enlightenment. Bank of the United StatesA bank chartered in 1791 and jointly owned by private stockholders and the national government. Alexander Hamilton argued that the bank would provide stability to the American economy, which was chronically short of capital, by making loans to merchants, handling government funds, and issuing bills of credit.Report on ManufacturesA proposal by treasury secretary Alexander Hamilton in 1791 calling for the federal government to urge the expansion of American manufacturing while imposing tariffs on foreign imports.Two Men, Two Visions of America Thomas Jefferson (left) and Alexander Hamilton confront each other in these portraits, as they did in the political battles of the 1790s. Jefferson was pro-French, Hamilton pro-British. Jefferson favored farmers and artisans; Hamilton supported merchants and financiers. Jefferson believed in democracy and rule by legislative majorities; Hamilton argued for strong executives and judges. Still, in the contested presidential election of 1800, Hamilton (who detested candidate Aaron Burr) threw his support to Jefferson and secured the presidency for his longtime political foe. Left: National Portrait Gallery, Smithsonian Institution, bequest of Charles Francis Adams, frame conserved with funds from the Smithsonian Women%u2019s Committee; right: National Portrait Gallery, Smithsonian Institution, gift of Henry Cabot Lodge.%u00a9 Bedford, Freeman & Worth Publishers. For review purposes only. Do not distribute.