A School History of the United States by John Bach McMaster

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%213. The Origin of the National Debt.%--As soon as Hamilton was made
Secretary of the Treasury, it became his duty, in accordance with an
order from Congress, to prepare a plan for the payment of the debts
contracted by the Continental Congress. When that body was unexpectedly
called on, in May, 1775, to conduct the war, it had nothing with which
to pay expenses, and was forced to use all sorts of means to
raise money.

[Illustrations: Continental money]

%214. Paper Money.%--The first resort was the issue, during 1775 and
1776, of six batches of Continental "bills of credit," amounting in all
to $36,000,000. These "bills" were rudely engraved bits of paper,
stating on their face that "This bill entitles the bearer to receive
---- Spanish milled dollars, or the value thereof in gold or silver."
They were issued in sums of various denominations, from one sixth of a
dollar up, and were to be redeemed by the states. The amount assigned
each state for redemption was in proportion to the supposed number of
its inhabitants.

%215. Loan-office Certificates.%--In 1776 Congress tried another
means. It opened a loan office in each state and called on patriotic
people to come forward and loan it money, receiving in return pieces of
paper called "loan-office certificates." Interest was to be paid on
these; but after a while Congress, having no money with which to pay
interest, was forced to resort to another form of paper, called
"interest indents."

%216. The Congress Lottery.%--The loan office having failed to bring
in as much money as was needed, Congress, toward the close of 1776, was
driven to seek some other way, and resorted to a lottery. A certain
number of tickets were sold, after which a drawing took place, and all
who drew prizes were given certificates payable at the end of
five years.

%217. More Bills of Credit.%--But the sale of tickets went off so
slowly that Congress had to go back to the issue of bills of credit. In
1777, therefore, the printing press was again put to work, and issues
were made in rapid succession, till more than $200,000,000 in
Continental paper were in circulation.

%218. The "New Tenor".%--Then the Continental bills ceased to
circulate, and in March, 1780, Congress called in the old money and
offered to exchange it for a new issue, giving one dollar of the new
paper money, or "new tenor," for forty dollars of the old. But the
attempt to restore credit by such means was a failure, and by the end of
the year 1781 all paper money ceased to circulate.

%219. Certificates.%--Long before this time officials had been forced
to pay debts contracted in the name of Congress with other kinds of
paper, called certificates, and known as treasury, commissary,
quartermaster, marine, and hospital certificates, according to the
department issuing them. To these must be added the "final settlements,"
or certificates given to the soldiers at the end of the war in payment
of their services.

%220. Foreign Debt.%--Besides the debt thus contracted at home,
Congress had borrowed a great sum in Europe.

%221. The National Debt in 1790.%--Thus the debt contracted by the
Continental Congress consisted of two parts. 1. The foreign debt, due to
France, Holland, and Spain, and amounting, Hamilton found, to
$11,700,000. 2. The domestic or home debt, of $42,000,000. But the
states had also fallen into debt because of their exertions in the war.
Just how great the state debts were could not be determined, but they
were estimated to be $21,500,000.

%222. Assumption and Funding.%--For the redemption of this debt
Hamilton prepared two measures,--the funding, or, as we should say, the
bonding, of the foreign and Continental debt, and the assuming and
funding of the state debts. This was done, and Congress ordered stock
bearing interest to be issued in exchange for the old debts, and so
established our national debt, which in 1790 amounted to $75,000,000.

%223. The National Capital.%--Funding the state debts was strongly
opposed by many congressmen, and was not carried till a bargain was made
by which it was agreed that if enough members from Virginia and
Pennsylvania would support the measure to secure its passage through the
House of Representatives, the national government should be removed from
New York to Philadelphia for ten years, and after that to a city to be
built on the Potomac. This was faithfully carried out, and in the summer
of 1790 the government offices were removed to Philadelphia, where they
remained till the summer of 1800, when they were removed to Washington
in the District of Columbia.

%224. The Bank of the United States.%--The troublesome questions of
funding and assumption thus disposed of, Congress called on Hamilton for
a report on the further support of public credit, and when it met in the
session of 1790-91, received a plan for a great National Bank, with a
capital of $10,000,000. The United States was to raise $2,000,000; the
rest was to be subscribed for by the people. The bank was to keep the
public revenues, was to aid the government in making payments all over
the country. To do this, power was given to the parent bank (which must
be at Philadelphia) to establish branches in the chief cities and towns,
and to issue bank bills which should be received all over the United
States for public lands, taxes, duties, postage, and in payment of any
debt due the government. Great opposition was made; but the charter was
granted for twenty years, and in 1791 the Bank of the United States
began business.

The effect of these two measures, funding the debt and establishing a
bank, was immediate. Confidence and credit were restored. Money that the
people had long been hiding away was brought out and invested in all
sorts of new enterprises, such as banks, canal companies, manufacturing
companies, and turnpike companies.

[Illustration: The first Bank of the United States]

%225. "Federalists" and "Republicans."%--When the Constitution was
before the people for acceptance or rejection in 1788, they were divided
into two bodies. Those who wanted a strong and vigorous federal
government, who wanted Congress to have plenty of power to regulate
trade, pay the debts of the country, and raise revenue, supported the
Constitution just as it was and were called "Federalists."

Others, who wanted the old Articles of Confederation preserved and
amended so as to give Congress a revenue and only a little more power,
opposed the Constitution and wanted it altered. To please these
"Anti-Federalists," as they were a large part of the people, Congress,
in 1789, drew up twelve amendments to the Constitution and sent them to
the states.

With the ratification of ten of these amendments, opposition to the
Constitution ceased. But as soon as Congress began to pass laws,
difference of opinion as to the expediency of them, and even as to the
right of Congress to pass them, divided the people again into two
parties, and sent a good many Federalists into the Anti-Federalist
party.

A very large number of men, for instance, opposed the funding of the
Continental Congress debt at its face value, because the people never
had taken a bill at the value expressed on its face, but at a very much
less value; some opposed the assumption of the state debts, because
Congress, they said, had power to pay the debt of the United States, but
not state debts; others opposed the National Bank because the
Constitution did not give Congress express power in so many words to
charter a bank. Others complained that the interest on the national debt
and the great salary of the President ($25,000 a year) and the pay of
Congressmen ($6 a day) and the hundreds of tax collectors made taxes too
heavy. They complained again that men in office showed an undemocratic
fondness for aristocratic customs. The President, they said, was too
exclusive, and owned too fine a coach. The Justices of the Supreme Court
must have black silk gowns, with red, white, and blue scarfs. The Senate
for some years to come held its daily session in secret; not even a
newspaper reporter was allowed to be present.

As early as 1792 there were thus a very great number of men in all parts
of the country who were much opposed to the measures of Congress and the
President, and who accused the Federalists of wishing to set up a
monarchy. A great national debt, they said, a funding system, a national
bank, and heavy internal taxes are all monarchical institutions, and if
you have the institutions, it will not be long before you have the
monarchy. They began therefore in 1792 to organize for election
purposes, and as they were opposed to a monarchy, they called themselves
"Republicans." [1] Their great leaders were Jefferson, Madison, Monroe,
John Randolph, and Albert Gallatin.

[Footnote 1: This party was the forerunner of the present Democratic
party.]

%226. The Whisky Rebellion, 1794.%--One of the taxes to which the
Republicans objected, that on whisky, led to the first rebellion against
the government of the United States. In those days, 1791, the farmers
living in the region around Pittsburg could not send grain or flour down
the Ohio and the Mississippi, because Spain had shut the Mississippi to
navigation by Americans. They could not send their flour over the
mountains to Philadelphia or Baltimore, because it cost more to haul it
there than it would sell for. Instead, therefore, of making flour, they
grew rye and made whisky on their own farms. This found a ready sale.
Now, when the United States collectors attempted to collect the whisky
tax, the farmers of western Pennsylvania drove them away. An appeal was
then made to the courts; but when the marshal came to make arrests he,
too, was driven away. Under the Articles of Confederation this would
have been submitted to. But the Constitution and the acts of Congress
were now "the supreme law of the land," and Washington in his oath of
office had sworn to see them executed. To accomplish this, he used the
power given him by an act of Congress, and called out 12,900 militia
from the neighboring states and marched them to Pittsburg. Then the
people yielded. Two of the leaders were tried and convicted of treason;
but Washington pardoned them.

The insurrection or rebellion was a small affair. But the principles at
stake were great. It was now shown that the Constitution and the laws
must be obeyed; that it was treason to resist them by force, and that if
necessary the people would, at the call of the President, turn out and
put down rebellion by force of arms.[1]

[Footnote 1: Read McMaster's _History of the People of the United
States_, Vol. II., pp. 189-204; Findley's _History of the Insurrection
in Pennsylvania_.]

SUMMARY

1. As soon as Washington was inaugurated, Congress proceeded to organize
the new government.

2. The Supreme Court and circuit and district courts were established.

3. The departments of State, War, and Treasury were formed.

4. Twelve amendments to the Constitution were proposed.

5. Three financial measures were adopted:
A. A tariff act was passed.
B. The debts of the states were assumed, and, with that of the
Continental Congress, funded.
C. A national bank was chartered.

6. The price of funding was the ultimate location of the national
capital on the Potomac.

7. The first census was taken in 1790.

8. The result of the financial measures of Congress was the rise of the
Republican party (the forerunner of the present Democratic party).

THE ORIGIN OF POLITICAL PARTIES
/--------------------------------------------------------------------\

Funding the
Continental Debt.
/------------\
/ Money borrowed in \ Shall it be \
Foreign debt. | France, Holland, | funded at | Yes ------+
\ and Spain. / face value? / |
|
/ Bills of credit. \ |
| Loan-office | |
| certificates. | Shall it be \ |
| Lottery | funded at | Yes ----+ |
Domestic debt. | certificates. | face value / | |
| Interest indents. | or market \ | |
| New tenor. | value? / Yes --+ | |
| Certificates of | | | |
| officials. | | | |
\ Final settlements. / | | | \
| | | |
Assumption of / Yes ---------------------------------------+-+ |[1]
state debts. \ No ----------------------------------+ | | |
| | | /
Establishment / Yes -----------------------------------------+
of a national | | |
bank. \ No ------------------------------------+ |
| | |
Internal revenue / Too heavy ----------------------- \ | | |
taxes. \ | | | |
| | | |
/ / President too | | | |
| | exclusive. | | | | \
| Aristocratic | Secret sessions | | | | |
Administration | customs. | of the Senate. |--+-+-+ |[2]
not democratic. | | Gowns of the | |
| \ justices. | /
| Monarchial / Great debt. |
| institutions. | National bank. |
\ \ Heavy taxes. /

\ / Leaders.
[1]---| Federalists | Washington.
/ | Adams.
\ Hamilton.

\ / Leaders.
| | Jefferson.
[2]---| Republicans | Madison.
| | Monroe.
| | Randolph.
/ \ Gallatin.

CHAPTER XVI

THE STRUGGLE FOR NEUTRALITY

%227. Trouble with Great Britain and France.%--From the congressional
election in 1792 we may date the beginning of organized political
parties in the United States. They sprang from differences of opinion as
to domestic matters. But on a sudden in 1793 Federalists and Republicans
became divided on questions of foreign affairs.

Ever since 1789 France had been in a state of revolution, and at last
(in 1792) the people established the French Republic, cut off the heads
of the King and Queen (in 1793), and declared war on England and sent a
minister, Genet, to the United States. At that time we had no treaty
with Great Britain except the treaty of peace. With France, however, we
had two treaties,--one of alliance, and one of amity and commerce. The
treaty of alliance bound us to guarantee to France "the possessions of
the crown of France in America," by which were meant the French West
Indian Islands. When Washington heard that war had been declared by
France, and that a French minister was on his way to America, he became
alarmed lest this minister should call on him to make good the guarantee
by sending a fleet to the Indies. On consulting his secretaries, they
advised him that the guarantee applied only when France was attacked,
and not when she was the attacking party. The President thereupon issued
a proclamation of neutrality; that is, declared that the United States
would not side with either party in the war, but would treat both alike.

%228. Sympathy for France; the French Craze.%--Then began a long
struggle for neutrality. The Republicans were very angry at Washington
and denounced him violently. France, they said, had been our old friend;
Great Britain had been our old enemy. We had a treaty with France; we
had none with Great Britain. To treat her on the same footing with
France was therefore a piece of base ingratitude to France. A wave of
sympathy for France swept over the country. The French dress, customs,
manners, came into use. Republicans ceased to address each other as Mr.
Smith, Mr. Jones, Sir, or "Your Honor," and used Citizen Smith and
Citizen Jones. The French tricolor with the red liberty cap was hung up
in taverns and coffeehouses, which were the clubhouses of that day.
Every French victory was made the occasion of a "civic feast," while the
anniversaries of the fall of the Bastile and of the founding of the
Republic were kept in every great city.[1]

[Footnote 1: Read McMaster's _History of the People of the United
States_, Vol. II., pp. 89-96; _Harpers Magazine_, April, 1897.]

%229. England seizes our Ships; the Rule of 1756%.--To preserve
neutrality in the face of such a public sentiment was hard enough; but
Great Britain made it more difficult yet. When war was declared, France
opened the ports of her West Indian Islands and invited neutral nations
to trade with them. This she did because she knew that the British navy
could drive her merchantmen from the sea, and that all trade between
herself and her colonies must be carried on in the ships of
neutral nations.

Now the merchants of the United States had never been allowed to trade
with the French Indies to an unlimited extent. The moment, therefore,
they were allowed to do so, they gladly began to trade, and during the
summer of 1793 hundreds of ships went to the islands. There were at that
time four questions of dispute between us and Great Britain:

1. Great Britain held that she might seize any kind of food going to a
French port in our ships. We held that only military stores might be
so seized.

2. Great Britain held that when a port had been declared to be
blockaded, a ship bound to that port might be seized even on the high
seas. We held that no port was blockaded unless there was a fleet
actually stationed at it to prevent ships from entering or leaving it.

3. Great Britain held that our ships might be captured if they had
French goods on board. We held that "free ships made free goods," and
that our ships were not subject to capture, no matter whose goods they
had on board.

4. Great Britain in 1756 had adopted a rule that no neutral should have
in time of war a trade she did not have in time of peace.

The United States was now enjoying a trade in time of war she did not
have in time of peace, and Great Britain began to enforce her rule.
British ships were ordered to stop American vessels going to or coming
from the French West Indies, and if they contained provisions, to seize
them. This was done, and in the autumn of 1793 great numbers of American
ships were captured.

%230. Our Sailors impressed.%--All this was bad enough and excited
the people against our old enemy, who made matters a thousand times
worse by a course of action to which we could not possibly submit. She
claimed the right to stop any of our ships on the sea, send an officer
on board, force the captain to muster the crew on the deck, and then
search for British subjects. If one was found, he was seized and carried
away. If none were found, and the British ships wanted men, native-born
Americans were taken off under the pretext that one could not tell an
American from an English sailor. Our fathers could stand a great deal,
but this was too much, and a cry for war went up from all parts of
the country.

But Washington did not want war, and took two measures to prevent it.
He persuaded Congress to lay an embargo for thirty days, that is, forbid
all ships to leave our ports, and induced the Senate to let him send
John Jay, the Chief Justice, to London to make a treaty of amity and
commerce with Great Britain.

%231. Jay's Treaty, 1794.%--In this mission Jay succeeded; and though
the treaty was far from what Washington wanted, it was the best that
could be had, and he approved it.[1] At this the Republicans grew
furious. They burned copies of the treaty at mass meetings and hung Jay
in effigy. Yet the treaty had some good features. By it the King agreed
to withdraw his troops from Oswego and Detroit and Mackinaw, which
really belonged to us but were still occupied by the English. By it our
merchants were allowed for the first time to trade with the British West
Indies, and some compensation was made for the damage done by the
capture of ships in the West Indies.

[Footnote 1: The Senate ratified this treaty in the summer of 1795.]

%232. Treaty with Spain.%--About the same time (October, 1795) we
made our first treaty with Spain, and induced her to accept the
thirty-first degree of latitude as the south boundary of our country,
and to consent to open the Mississippi to trade. As Spain owned both
banks at the mouth of the river, she claimed that American ships had no
right to go in or out without her consent, and so prevented the people
of Kentucky and Tennessee from trading in foreign markets. She now
agreed that they might float their produce to New Orleans and pay a
small duty, and then ship it wherever they pleased.

%233. The Election of Adams and Jefferson, 1796%.--Washington had
been reelected President in 1792, but he was now tired of office, and in
September, 1796, issued his "Farewell Address," in which he declined to
be the candidate for a third presidential term. In those days there were
no national conventions to nominate candidates, yet it was well
understood that John Adams, the Vice President, was the candidate of the
Federalists, and Thomas Jefferson, of the Republicans. When the votes
were counted in Congress, it was found that Adams had 71 electoral
votes, and Jefferson 68; so they became President and Vice President.

[Illustration: John Adams]

%234. Trouble with France.%--Adams was inaugurated on March 4, 1797,
and three days later heard that C. C. Pinckney, our minister to the
French Republic, had been driven from France. Pinckney had been sent to
France by Washington in 1796, but the French Directory (as the five men
who then governed France were called) had taken great offense at Jay's
treaty: first because it was favorable to Great Britain, and in the
second place because it put an end for the present to all hope of war
between her and the United States. The Directory, therefore, refused to
receive Pinckney until the French grievances were redressed.

The President was very angry at the insult, and summoned Congress to
meet and take such action as, said he, "shall convince France and the
whole world that we are not a degraded people humiliated under a
colonial spirit of fear and sense of inferiority." But the Republicans
declared so vigorously that if a special mission were sent to France all
would be made right, that Adams yielded, and sent John Marshall and
Elbridge Gerry to join Pinckney as envoys extraordinary. On reaching
Paris, three men acting as agents for the Directory met them, and
declared that before they could be received as ministers they must do
three things:

1. Apologize for Adams's denunciation of the conduct of France.
2. Pay each Director $50,000.
3. Pay tribute to France.

When the President reported this demand to Congress, the names of the
three French agents were suppressed, and instead they were called Mr. X,
Mr. Y, Mr. Z. This gave the mission the nickname "X, Y, Z mission."

%235. "Millions for Defense, not a Cent for Tribute."%--As the
newspapers published these dispatches, a roar of indignation, in which
the Federalists and Republicans alike joined, went up from the whole
country. "Millions for defense, not a cent for tribute," became the
watchword of the hour. Opposition in Congress ceased, and preparations
were at once made for war. The French treaties were suspended. The Navy
Department was created, and a Secretary of the Navy appointed. Frigates
were ordered to be built, money was voted for arms, a provisional army
was formed, and Washington was again made commander in chief, with the
rank of lieutenant general. The young men associated for defense, the
people in the seaports built frigates or sloops of war, and gave their
services to erect forts and earthworks. Every French flag was now pulled
down from the coffeehouses, and the black cockade of our own
Revolutionary days was once more worn as the badge of patriotism. Then
was written, by Joseph Hopkinson of Philadelphia,[1] and sung for the
first time, our national song _Hail, Columbia!_

[Footnote 1: The music to which we sing _Hail, Columbia!_ was called
_The President's March_, and was played for the first time when the
people of Trenton were welcoming Washington on his way to be inaugurated
President in 1789. For an account of the trouble with France read
McMaster's _History of the People of the United States_, Vol. II, pp.
207-416, 427-476.]

%236. The Alien and Sedition Acts.%--Carried away by the excitement
of the hour, the Federalists now passed two most unwise laws. Many of
the active leaders and very many of the members of the Republican party
were men born abroad and naturalized in this country. Generally they
were Irishmen or Frenchmen, and as such had good reason to hate England,
and therefore hated the Federalists, who they believed were too friendly
to her. To prevent such becoming voters, and so taking an active part in
politics, the Federalists passed a new naturalization law, which forbade
any foreigner to become an American citizen until he had lived fourteen
years in our country. Lest this should not be enough to keep them
quiet, a second law was passed by which the President had power for two
years to send any alien (any of these men who for fourteen years could
not become citizens) out of the country whenever he thought it proper.
This law Adams never used.

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