Washington [426]
Until the publication of Hamilton’s report, James Madison had been Washington’s most confidential adviser. That began to erode on February 11, 1790, when Madison rose in the House and, in a surprising volte-face, denounced the idea that speculators should benefit from Hamilton’s program. It was a stunning shot across the bow of the administration. Madison favored a policy of so-called discrimination—that original holders of the debt, mostly former soldiers, should share in the windfall as the price of government paper soared. Many Americans found it hard to see speculators rewarded instead of veterans, and Madison’s speech tapped a powerful vein of discontent. Speculation in government debt, Madison affirmed, was “wrong, radically and morally and politically wrong.”8 As a Virginia congressman and budding advocate of states’ rights, Madison was moving away from the continental perspective that had united him with Hamilton when they co-authored The Federalist. For Madison, the funded debt and the expanding ranks of Treasury employees were far too reminiscent of the British model. Feeling betrayed by Madison, Hamilton argued that his former comrade’s discrimination proposal was simply unworkable. To track down the original holders of securities and parcel out their shares of the profits would be a bureaucratic nightmare. He also considered speculation to be an inescapable, if unsavory, aspect of functioning financial markets.
As the hero of the old soldiers, Washington confronted a ticklish dilemma, and Madison later attested that the president’s mind was “strongly exercised” by the debate. 9 On the one hand, Washington sympathized with veterans who had unloaded their IOUs to “unfeeling, avaricious speculators.”10 At the same time, he had warned his men at the end of the war not to part with these certificates, telling them bluntly in general orders in May 1783: “The General thinks it necessary to caution the soldiers against the foolish practice . . . of disposing of their notes and securities of pay at a very great discount, when it is evident the speculators on those securities must hereafter obtain the full payment of their nominal value.”11 Washington’s words had been prophetic. Because Congress had ordered Hamilton’s report, Washington did not want to overstep his bounds by lobbying for it, and he remained cagey in discussing it. To David Stuart, he wrote circumspectly, “Mr Madison, on the question of discrimination, was actuated, I am persuaded, by the purest motives and most heartfelt conviction. But the subject was delicate and perhaps had better not have been stirred.”12
While Washington introduced no ringing opinion during the debate, his silence was tantamount to approval of the Hamiltonian system. At this point he was still a sacred figure in American politics, making Hamilton a convenient lightning rod for protests. It was also expedient for Washington to allow Hamilton to engage in the rough-and-tumble of political bargaining, while he himself held fast to the ceremonial trappings of the presidency. Taken aback by Madison’s defection and the vehement schism provoked by the public credit report, Washington was especially disheartened that the country had split along geographic lines, placing him at odds with the South. He wrote privately that if the northern states moved “in a solid phalanx” and the southern states were “less tenacious of their interest,” then the latter had only themselves to blame.13
The debate over the