Alexander Hamilton (66 page)

In reality, Philadelphia was a cosmopolitan city, praised by a highborn British visitor as “one of the wonders of the world,” “the first town in America,” and one that “bids fair to rival almost any in Europe.”
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Larger than either New York or Boston, it supported ten newspapers and thirty bookshops. Largely through the civic imagination of Benjamin Franklin, it boasted an astounding panoply of cultural and civic institutions, including two theaters, a subscription library, a volunteer fire company, and a hospital.

As chieftain of the biggest government department, Hamilton executed the shift to Philadelphia with almost martial precision. In early August, he secured a twostory brick building on Third Street, between Chestnut and Walnut Streets. Though now headquarters of the most powerful government ministry, the building had a curiously makeshift air, as noted by the visitors Hamilton received between 9:00 and 12:00 each morning. One French caller, Moreau de St. Méry, was “astounded that the official lodgings of a minister could be so poor.” He was surprised when a shuffling old retainer answered the front door. And of Hamilton’s plain groundfloor office he wrote, “His desk was a plain pine table covered with a green cloth. Planks and trestles held records and papers, and at one end was a little imitation Chinese vase and a plate with glasses on it....In a word,I felt I saw Spartan customs all about me.”
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From modest origins, the Treasury offices proliferated until they occupied the entire block. The 1791 city directory gives an anatomy of this burgeoning department, with 8 employees in Hamilton’s office, 13 in the comptroller’s, 15 in the auditor’s, 19 in the register’s, 3 in the treasurer’s, 14 in the office for settling accounts between the federal government and the states, and 21 in the customs office on Second Street, with an additional 122 customs collectors and surveyors scattered in various ports. By the standards of the day, this represented a prodigious bureaucracy. For its critics, it was a monster in the making, inciting fears that the department would become the Treasury secretary’s personal spy force and military machine. Swollen by the Customs Service, the Treasury Department payroll ballooned to more than five hundred employees under Hamilton, while Henry Knox had a mere dozen civilian employees in the War Department and Jefferson a paltry six at State, along with two chargés d’affaires in Europe. The corpulent Knox and his entire staff were squeezed into tiny New Hall, just west of the mighty Treasury complex. Inevitably, the man heading a bureaucracy many times larger than the rest of the government combined would arouse opposition, no matter how prudent his style.

The hardworking secretary informed merchant Walter Stewart that he wanted a house for his family “as near my destined office as possible.” Reared in the tropics, he was now a confirmed resident of the northern latitudes and had taken on the identity of a New Yorker. “A cool situation and exposure will of course be a very material point to a New Yorker,” he advised Stewart. “The house must have at least six rooms. Good dining and drawing rooms are material articles. I like elbow room in a yard. As to the rent, the lower the better, consistently with the acquisition of a proper house.”
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By October 14, Hamilton had taken a home at Third and Walnut, just down the block from his office, as if he wished to stumble from bed straight into his office. The move was indicative of how conscientious he was and how crowded his schedule.

History has celebrated his Treasury tenure for his masterful state papers, but probably nothing devoured more of his time during his first year than creating the Customs Service. This towering intellect scrawled more mundane letters about lighthouse construction than about any other single topic. This preoccupation seems peculiar until it is recalled that import duties accounted for 90 percent of government revenues: no customs revenue, no government programs—hence Hamilton’s unceasing vigilance about everything pertaining to trade.

Congress had authorized Hamilton to keep “in good repair the lighthouses, beacons, buoys, and public piers in the several states,” and he hired and supervised those assigned to care for them.
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He also wielded huge patronage powers in awarding contracts for these navigational aids. In creating a string of beacons, buoys, and lighthouses along the Atlantic seaboard, Hamilton reviewed each contract and got Washington’s approval—an administrative routine that stifled the two men with maddening minutiae. On the day after the famous dinner deal on assumption and the nation’s capital, Hamilton asked Washington to initial a contract “for timber, boards, nails and workmanship” for a beacon near the Sandy Hook lighthouse outside New York harbor.
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Hamilton became expert on such excruciating banalities as the best whale oil, wicks, and candles to brighten lighthouse beams.

Before the Revolution, smuggling had been a form of patriotic defiance against Britain, and colonists had cordially detested customs collectors. Now Hamilton had to correct these lawless habits. He asked Congress in April 1790 to commission a fleet of single-masted vessels called revenue cutters that would patrol offshore waters and intercept contraband. By early August, Washington had signed a bill setting up this service, later known as the Coast Guard. Hamilton advised Washington to avoid regional favoritism by constructing the first ten revenue cutters in “different parts of the Union.”
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Previewing his upcoming industrial policy, he recommended using homegrown cloth for sails rather than foreign fabrics. Once again, an instinct for executive leadership, an innate capacity to command, surfaced in Hamilton. He issued directives of breathtaking specificity, requiring that each cutter possess ten muskets and bayonets, twenty pistols, two chisels, one broadax, and two lanterns. Showing a detailed knowledge of seafaring ways that surely dated back to his Caribbean days, he instructed customs collectors that since cutters might be blown off course “even to the West Indies, it will be always proper that they have salted meat with biscuit and water on board sufficient to subsist them in case of such an accident.”
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In constructing the Coast Guard, Hamilton insisted on rigorous professionalism and irreproachable conduct. He knew that if revenue-cutter captains searched vessels in an overbearing fashion, this high-handed behavior might sap public support, so he urged firmness tempered with restraint. He reminded skippers to “always keep in mind that their countrymen are free men and as such are impatient of everything that bears the least mark of a domineering spirit. [You] will therefore refrain...from whatever has the semblance of haughtiness, rudeness, or insult.”
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So masterly was Hamilton’s directive about boarding foreign vessels that it was still being applied during the 1962 Cuban missile crisis.

Hamilton’s power as head of customs extended beyond his legion of employees. Equally important was the comprehensive view of economic activity that he gained in a large country hobbled by primitive communications. Seven of every eight Treasury Department employees worked outside the capital, supplying Hamilton with an unending stream of valuable intelligence. One of Jefferson’s chief political operatives, John Beckley, reviled this network as an “organized system of espionage through the medium of revenue officers.”
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To monitor government receipts, Hamilton insisted upon weekly reports from collectors, enabling him to track every ship passing through American ports. With his insatiable curiosity—he wanted to know the size, strength, and construction of ships, their schedules and trading routes and cargoes—he pioneered questionnaires to gather such data.

Hamilton also arbitrated innumerable disputes that arose with shippers, often wading into arcane legal issues. At one point, the Baltimore customs collector asked whether import duties should be levied on horses, and Hamilton decided that horses and livestock qualified as taxable objects of trade. He then made this further observation: “I think it, however, necessary to observe that I consider negroes to be exempted from duties on importation.”
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It is a sorry commentary that the question of imposing duties on horses immediately posed the question of how to treat slaves.

The Customs Service also invested Hamilton with huge influence over the monetary system, with tremendous sums passing through his hands. One apprehensive Virginian warned Madison, “I am not unacquainted personally with that
gentleman
at the head of that department of the revenue and...I tremble at the thought of his being at the head of such an immense sum as 86 millions of dollars—and the annual revenue of the Union.”
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In fact, Hamilton handled the cash flow in an impeccable manner.

Three quarters of the revenues gathered by the Treasury Department came from commerce with Great Britain. Trade with the former mother country was the crux of everything Hamilton did in government. To fund the debt, bolster banks, promote manufacturing, and strengthen government, Hamilton needed to preserve good trade relations with Great Britain. He understood the displeasure with Britain’s trade policy, which excluded American ships from its West Indian colonies and allowed American vessels to carry only American goods into British ports. For Hamilton these irritating obstacles were overshadowed by larger policy considerations. America had decided to rely on customs duties, which meant reliance on British trade. This central economic truth caused Hamilton repeatedly to poach on Jefferson’s turf at the State Department. The overlapping concerns of Treasury and State were to foster no end of mischief between the two men.

Hamilton hoped to diversify the revenue stream with domestic taxes. By the time he reported to Congress in December 1790 on the need for additional taxes, he feared that import duties were as high as they could reasonably go. The time had come to spread the pain more evenly, especially since import duties injured seaboard merchants who were part of Hamilton’s social circle and political base in New York.

No immediate crisis spawned a need for fresh money. By late 1790, Hamilton had actually amassed a sizable government surplus. Government securities had tripled in value under his tutelage, and compared to the disarray under the Articles of Confederation his policies had produced a healthy burst of economic growth. One Boston correspondent said, “It appears to me that there never was a period when the United States had a brighter sunshine of prosperity....It is pleasing indeed to see the general satisfaction which reigns among every class of citizens in this part of the Union.... [O]ur agricultural interest smiles, our commerce is blessed, our manufactures flourish.”
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But at Hamilton’s urging the federal government had now assumed state debts, and Hamilton did not see how he could service them without a secondary source of income. He was boxed in, however, by the already ingrained American aversion to taxation. Direct taxation, whether of people or houses, was anathema to many, and, given the strength of agricultural interests and real-estate speculators, a land tax could never have been enacted. So what was there left to tax?

In December 1790, with other options foreclosed, Hamilton revived a proposal he had floated in his
Report on Public Credit:
an excise tax on whiskey and other domestic spirits. He knew the measure would be loathed in rural areas that thrived on moonshine, but he thought this might be more palatable to farmers than a land tax. Hamilton confessed to Washington an ulterior political motive for this liquor tax: he wanted to lay “hold of so valuable a resource of revenue before it was generally preoccupied by the state governments.” As with assumption, he wanted to starve the states of revenue and shore up the federal government. Jefferson did not exaggerate Hamilton’s canny capacity to clothe political objectives in technical garb. There
were
hidden agendas buried inside Hamilton’s economic program, agendas that he tended to share with high-level colleagues but not always with the public.

To Hamilton’s delight, Madison supported the excise tax on distilled spirits, agreeing that no plausible alternative existed. Madison averred that “as direct taxes would be still more generally obnoxious and as imports are already loaded as far as they will bear, an excise is the only resource and of all articles distilled spirits are least objectionable.”
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Madison thought the whiskey tax might even have collateral social benefits, since it would increase “sobriety and thereby prevent disease and untimely deaths.”
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In perhaps the first distant rumble of the Whiskey Rebellion that flared up a few years later, the Pennsylvania House of Representatives passed a motion protesting Hamilton’s tax. In the mountain hollows of western Pennsylvania, homemade brew was a time-honored part of local culture, and government interference was fiercely resented. As Hamilton worked to pass his liquor tax, William Maclay again saw him as the evil wizard of Congress, flitting from the House of Representatives on the first floor of Congress Hall to the Senate chamber on the second, dictating policy to his legislative myrmidons. When Maclay tried to present statistics on domestic stills to legislators, he found Hamilton there ahead of him: “I went to the door of the committee room...but finding Hamilton still with them, I returned.”
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When the Senate passed the excise tax, Maclay made a chillingly accurate prediction in his journal: “War and bloodshed are the most likely consequence of all this.”
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As he noted, even the Pennsylvania legislature had been unable to enforce excise taxes in the lawless hinterlands of the western counties.

Hamilton labored under no illusions about resistance to the whiskey tax and was prepared to equip a small army of inspectors with stiff enforcement powers. In his
Report on Public Credit,
he had outlined sweeping powers for such inspectors, including allowing them to enter homes and warehouses at any hour to seize hidden spirits. Dealers in spirits, even ramshackle one-man operations, would be required to present proper certificates and maintain accurate records. In a circular issued in May 1791, Hamilton promulgated rules that seemed excessively detailed, especially in a country with a congenital dislike of tax collectors. He wanted inspectors to visit all distilleries “
at least
twice a day” and file weekly reports, “specifying in these returns the name of each owner or manager of a distillery, the city, town or village . . . and the county in which such distillery is situated, the number of stills at each, and their capacity in gallons... the materials from which they usually distill, and the time for which they are usually employed.”
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