Alexander Hamilton (57 page)

Few intervals of leisure relieved the work pressure of these first months. After Angelica left for England, Eliza and the children retreated to Albany, leaving Hamilton alone in New York, trapped beneath piles of work. “I am a solitary lost being without you all,” he wrote to Eliza, “and shall with increasing anxiety look forward to our reunion.”
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When Eliza returned later in the month, she and Alexander had the thrilling experience of going with George and Martha Washington to the John Street Theater to see Richard Brinsley Sheridan’s comedy
The Critic.
As the politicians entered, the orchestra struck up the “President’s March,” and the audience gave them a standing ovation. Eliza always remembered with amusement another time when a Miss McIvers showed up at one of Martha Washington’s receptions sporting an enormous headdress of ostrich feathers. When this fashion accessory caught fire from the chandelier, Major William Jackson, then an aide to the president, leaped to her side and extinguished the blaze by clapping the feathers between his hands.

Such outings were rare during Hamilton’s harried first days in office. He had to create a customs service on the spot, for customs duties were to be the main source of government revenue. During his second day in office, he issued a circular to all customs collectors, demanding exact figures of the duties accumulated in each state. When they sent back suspiciously low numbers, Hamilton, who knew something about smuggling from St. Croix, suspected that it must be rife along the eastern seaboard, leading him to the next logical step. “I have under consideration the business of establishing guard boats,” he told one correspondent in perhaps the first recorded allusion to what would turn into the Coast Guard.
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Hamilton’s appetite for information was bottomless. To his port wardens, he made minute inquiries about their lighthouses, beacons, and buoys. He asked customs collectors for ship manifests so he could ascertain the exact quantity and nature of cargo being exported. The whole statistical basis of government took shape under his command. In a significant decision, he decided that customs revenues could be paid not just in gold and silver but with notes from the Bank of New York and the Bank of North America, an innovation that began to steer the country away from use of coins and toward an efficient system of paper money.

Hamilton had always been punctual—“I hate procrastination in business,” he once said—and lost no time assembling a first-rate staff, imbued with a sense of public service.
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On the day he was nominated, five assistants, including auditor Oliver Wolcott, Jr., of Connecticut, were confirmed as well. When Samuel Meredith of Pennsylvania was appointed treasurer, the hard-driving secretary lectured him, “I need not observe to you how important it is that you should be on the ground as speedily as possible.”
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For his first assistant secretary, Hamilton picked his witty, elegant, vivacious friend William Duer, who had married Lord Stirling’s daughter, Lady Kitty. The choice of Duer was to have grievous consequences for Hamilton, for he was an inveterate speculator, and his later scandals besmirched Hamilton’s reputation. Duer had grown up in England and studied classics at Eton. After his father’s death, he worked as a teenager for the East India Company in Bengal, where the climate injured his health. After spending time on a family plantation in Antigua, he bought land in upstate New York, not far from the Schuyler property in Saratoga, and sold lumber to the British Navy. Because he had befriended Myles Cooper in England, Duer came to know Hamilton while he was still studying at King’s College.

The association with Duer became so supremely damaging to Hamilton that it later mystified many friends. But the two men were compatible in their political opinions and ebullient style, and Duer’s résumé amply qualified him for the job. While still in England, he had been an outspoken Whig who championed the colonists’ grievances and plumped for reforms to avert a revolt. During the Revolution, he supplied goods to the Continental Army, served in the Continental Congress, and attended the convention that drafted the New York State Constitution. He was smart enough that Hamilton had recruited him to write essays for
The Federalist,
only to reject his two submissions. At the time Hamilton picked him, Duer had just completed three years as secretary to the old Board of Treasury. In 1789, Hamilton cajoled him into staying on by creating the assistant secretary post expressly for him.

Unfortunately, William Duer suffered from a severe case of moral myopia and always found rather blurry the line between public service and private gain. That autumn, Hamilton was about to make decisions that would dramatically affect the value of outstanding government securities, so secrecy and integrity were obligatory among his colleagues. It later turned out that Duer had been assembling a huge stake in government securities for several years. Among other faults, the indiscreet Duer babbled to his cronies about Hamilton’s scheme for funding government debt—the sort of priceless insider gossip that moves markets. Just a week after Hamilton took office, Noah Webster sent to a speculator in Amsterdam secret details of the treasury secretary’s funding scheme, attributing them to “the outdoor talk of Col. Duer, the Vice-Secretary.”
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Senator William Maclay, a tireless if dyspeptic diarist, recorded rumors of congressmen speculating in state debt and said that “nobody doubts but all commotion originated from the Treasury. But the fault is laid on Duer.”
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Unfortunately, Duer’s actions fed unjust scuttlebutt that the new Treasury Department was a sink of corruption. In reality, as soon as he took office, Hamilton established high ethical standards and promulgated a policy that employees could not deal in government securities, setting a critical precedent for America’s civil service. Hamilton divested himself of any business investments that might create conflicts of interest. Even later, as a private citizen, he said that his own “scrupulousness” had prevented him from “being concerned in what is termed speculation.”
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This made his blindness to Duer’s shameless machinations the more bewildering. Hamilton was an extremely perceptive judge of character, and William Duer was one of the few cases in which his acute vision seems to have been blinkered.

Because Jefferson hadn’t yet arrived in New York to take up his duties as secretary of state, Hamilton wasn’t shy about acting as his surrogate. A British diplomat named Major George Beckwith, an aide to the governor-general of Canada, sounded out Philip Schuyler about an unofficial meeting with the new treasury secretary. Hamilton’s pro-British proclivities were well known. When Hamilton met secretly with Beckwith in October, they had to proceed cautiously, since Britain still lacked an official diplomatic presence in America. So the discussion qualified as unofficial, although Hamilton reassured Beckwith that his words reflected “the sentiments of the most enlightened men in this country. They are those of General Washington, I can confidently assure you, as well as of a great majority in the Senate.”
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For security reasons, Beckwith assigned Hamilton the code number “7” in reporting their talks back to London—a precaution that later led to preposterous charges that Hamilton was a British agent. In fact, Washington knew about some of these clandestine talks and received summaries from Hamilton.

In his wide-ranging chats with Beckwith, Hamilton touched upon the prospect of a commercial treaty with England and left little doubt about his sympathies: “I have always preferred a connection with you to that of any other country.
We think in English
and have a similarity of prejudices and of predilections.”
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He shared Beckwith’s chagrin over proposals that Madison had submitted to Congress to discriminate against British shipping. “The truth is,” Hamilton confided of Madison, “that although this gentleman is a clever man, he is very little acquainted with the world. That he is uncorrupted and incorruptible, I have not a doubt.”
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Hamilton’s projected vision of a commercial alliance between American and British commerce, far from being fawning, was laced with subtle threats and enticements. With his premonition of future American greatness, he made clear that Britain should reckon with American purchasing power: “I do think we are and shall be great consumers.”
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He foresaw that America, if now junior to Britain in status, would someday rival her as an economic power: “We are a young and growing empire with much enterprise and vigour, but undoubtedly are, and must be for years, rather an agricultural than a manufacturing people.”
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As a raw-materials producer, Hamilton noted, the United States currently formed a perfect fit with England, the manufacturing colossus. On the other hand, the northern states were making headway in manufacturing, and if Britain thwarted America, such threats to Britain’s dominance would grow apace. If spurned by England, the United States could also forge an alliance with France that would threaten British possessions in the West Indies.

Far from being a pro-British lackey, much less a high-level spy, Hamilton stubbornly defended U.S. interests at every turn. He was bargaining with Beckwith, not groveling. He insisted that the United States should be able to trade with the British West Indies. He wanted England to heed the peace treaty and relinquish its western forts in the Ohio River valley. The one place where Hamilton deviated from official policy was in applauding Britain’s refusal to hand over slaves who had defected during the Revolution. “To have given up these men to their masters, after the assurances of protection held out to them, was impossible,” Hamilton told Beckwith.
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At the end of their talk, Hamilton hinted that the United States would soon send an emissary to England to continue talks about the matters discussed. On October 7, Washington discussed such an appointment with Hamilton and Jay and accepted Hamilton’s suggestion that Gouverneur Morris go to England. Within weeks of his confirmation as treasury secretary, Hamilton had already staked out a position as the administration’s most influential figure on foreign policy.

That Hamilton had time to worry about foreign policy is a wonder. The meeting with Beckwith was a fleeting respite from the giant task that engrossed him that fall: the report on public credit that Congress wanted by January. He had to sum up America’s financial predicament and recommend corrective measures to deal with the enormous public debt left over from the Revolution. Hamilton solicited opinions, but his report was not the product of a committee. As with his fifty-one
Federalist
essays, he put in another sustained bout of solitary, herculean labor. Closeted in his study day after day, he scratched out a forty-thousand-word treatise—a short book—in slightly more than three months, performing all the complex mathematical calculations himself.

While other members of the revolutionary generation dreamed of an American Eden, Hamilton continued to ransack British and French history for ideas. He had inordinate admiration for Jacques Necker, the French finance minister who had argued that government borrowing could strengthen military prowess, but it was England that shone as Hamilton’s true lodestar in public finance. Back in the 1690s, the British had set up the Bank of England, enacted an excise tax on spirits, and funded its public debt—that is, pledged specific revenues to insure repayment of its debt. During the eighteenth century, it had vastly expanded that public debt. Far from weakening the country, it had produced manifold benefits. Public credit had enabled England to build up the Royal Navy, to prosecute wars around the world, to maintain a global commercial empire. At the same time, government bonds issued to pay for the debt galvanized the economy, since creditors could use them as collateral for loans. By imitating British practice, Hamilton did not intend to make America subservient to the former mother country, as critics claimed. His objective was to promote American prosperity and self-sufficiency and make the country ultimately
less
reliant on British capital. Hamilton wanted to use British methods to defeat Britain economically.

In preparing his report, Hamilton was eclectic in his sources. He had clearly plumbed David Hume’s
Political Discourses,
which admitted that public debt could vitalize business activity. Montesquieu had stressed that states should honor financial obligations, “as a breach in the public faith cannot be made on a certain number of subjects without seeming to be made on all.”
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Thomas Hobbes had emphasized the sacredness of contracts in transfers of securities, arguing that people entered into such transactions voluntarily and must accept all the consequences— a seemingly arcane point that shortly had explosive consequences for Hamilton’s career. During the Revolution, Hamilton had stuffed Malachy Postlethwayt’s
Universal Dictionary of Trade and Commerce
into his satchel, and now he used it once again. Postlethwayt stressed that no country could borrow money at attractive interest rates unless creditors could freely buy and sell its bonds: “Such is the nature of public credit, that nobody would lend their money to the support of the state, under the most pressing emergencies, unless they could have the privilege of buying and selling their property in the public funds, when their occasions required.”
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Inviolable property rights lay at the heart of the capitalist culture that Hamilton wished to enshrine in America.

As he toiled over the report, Hamilton queried several contemporaries, including John Witherspoon, the Princeton president who had rebuffed his request for accelerated study. Hamilton must have been amused by the educator’s deferential reply: “It is very flattering to me that you suppose I can render any assistance by advice in the important duties of your present station.”
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Aware that the American Revolution had produced a nation averse to taxes, Hamilton asked Madison, “What further taxes will be
least
unpopular?”
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At this point, Hamilton and Madison still shared a sense of political camaraderie. One lady remembered seeing them together that summer “turn and laugh and play with a monkey that was climbing in a neighbor’s yard.”
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But the letter that Madison now wrote to Hamilton gave the first preview of a fateful schism between them. Madison did not want a long-term government debt, fearing that such securities would fall into foreign hands: “As they have more money than the Americans and less productive ways of laying it out, they can and will pretty generally buy out the Americans.”
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When Madison registered this muted dissent, Hamilton had no idea that such differences of opinion were soon to demolish their friendship.