3.1 Establishing the Federal Government & Federalist vs. Republican Rivalry (1789–1800)

Launching the Constitutional Executive (1789–1793)

When George Washington took the oath of office as the first President of the United States on April 30, 1789, on the balcony of Federal Hall in New York City, the U.S. Constitution was merely a legal blueprint. The new government possessed no established administrative apparatus, no federal court system, no tax revenue, and a mountain of revolutionary war debt. Washington recognized that every action he took would establish enduring executive precedents for future generations. He purposefully insisted on dignified executive decorum, accepted the simple title of "Mr. President" rather than monarchical alternatives, served two four-year terms to prevent presidential autocracy, and created the presidential cabinet by calling together the heads of the executive departments for systematic consultation.

To organize the executive branch, Congress created three primary departments and an advisory legal post. Washington appointed a politically diverse group of brilliant leaders to these positions:

• Secretary of State: Thomas Jefferson, tasked with managing foreign affairs and diplomacy.
• Secretary of the Treasury: Alexander Hamilton, responsible for national finance, currency, and public revenue.
• Secretary of War: Henry Knox, charged with overseeing national defense and Indian affairs.
• Attorney General: Edmund Randolph, designated as the chief legal advisor to the executive branch.

Concurrently, Congress enacted the landmark Judiciary Act of 1789 to fulfill Article III of the Constitution. Authored primarily by Senator Oliver Ellsworth, the act structured the federal court system by creating a Supreme Court consisting of a Chief Justice and five Associate Justices (appointing John Jay as the first Chief Justice). It established 13 district courts and 3 circuit courts across the nation. Crucially, Section 25 of the Judiciary Act empowered the Supreme Court to review state court rulings that involved federal constitutional issues or federal treaties, firmly establishing federal judicial supremacy over state jurisprudence.

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Alexander Hamilton’s Financial Program

As Treasury Secretary, Alexander Hamilton believed that financial stability and a powerful central government were inextricably linked. Between 1790 and 1791, Hamilton submitted a series of comprehensive state papers to Congress designed to transform the agrarian United States into a commercial and industrial powerhouse, secure international credit, and bind wealthy merchants and investors to the national government.

                    ┌──────────────────────────────────────────────┐
                    │   Alexander Hamilton's Financial Program     │
                    └──────────────────────┬───────────────────────┘
                                           │
         ┌─────────────────────────────────┼─────────────────────────────────┐
         ▼                                 ▼                                 ▼
┌─────────────────┐               ┌─────────────────┐               ┌─────────────────┐
│ Report on       │               │ Report on a     │               │ Report on       │
│ Public Credit   │               │ National Bank   │               │ Manufactures    │
│ (1790)          │               │ (1790)          │               │ (1791)          │
└────────┬────────┘               └────────┬────────┘               └────────┬────────┘
         │                                 │                                 │
  • Funding at Par                  • Bank of the U.S.                • Protective Tariffs
  • State Debt Assumption             (20-year charter)                 (rejected by Congress)
  • Capital Compromise              • Strict vs. Loose                • Excise Tax on Whiskey
    (Potomac River site)              Construction                      (enacted 1791)

1. Report on Public Credit (1790)

Hamilton addressed the staggering Revolutionary War debt, which exceeded $54 million at the national level alongside $21 million owed by individual states. Hamilton proposed two controversial measures:

• Funding at Par: The federal government would pay off all outstanding national war bonds at full face value, plus accumulated interest. Critics, led by James Madison, argued this rewarded wealthy northern speculators who had bought bonds for pennies on the dollar from impoverished revolutionary soldiers. Hamilton countered that paying full value was vital to establish rock-solid national credit.
• Assumption of State Debts: The federal government would assume all remaining state war debts. Southern states (like Virginia and Maryland), which had largely paid off their war debts, fiercely opposed assuming the debts of northern states (like Massachusetts). To break the congressional deadlock in the summer of 1790, Hamilton reached a famous dinner table compromise with Jefferson and Madison: Southern congressmen voted for assumption in exchange for relocating the permanent national capital to a southern site along the Potomac River (future Washington, D.C.).

2. Report on a National Bank (1790)

Hamilton proposed chartering the Bank of the United States (BUS)—a national commercial bank modeled on the Bank of England. The bank would be a public-private corporation capitalized at $10 million (80% privately owned, 20% government owned). It would store federal revenues, issue stable paper bank notes as a national currency, and make loans to government agencies and private businesses.

The bank proposal sparked a profound constitutional debate between strict construction and loose construction:

• Strict Construction (Thomas Jefferson & James Madison): Argued that the Constitution did not explicitly grant Congress the power to charter a private bank. Jefferson insisted under the Tenth Amendment that all ungranted powers were reserved to the states or the people.
• Loose Construction (Alexander Hamilton): Invoked the Necessary and Proper Clause (Article I, Section 8, Clause 18), often called the "Elastic Clause." Hamilton argued that Congress possessed implied powers to carry out its enumerated powers (such as collecting taxes and regulating commerce). The bank was necessary to manage federal finances. Washington sided with Hamilton and signed the bank charter in 1791 for a 20-year term.

3. Report on Manufactures (1791)

Hamilton urged Congress to adopt protective tariffs on foreign imports and direct government subsidies (bounties) to protect fledgling domestic manufacturing industries. Congress rejected protective tariffs, preferring low revenue tariffs, but enacted Hamilton's requested excise tax on whiskey in 1791 to generate additional federal revenue and assert federal taxing authority on the western frontier.

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The Whiskey Rebellion (1794)

Hamilton's 1791 excise tax on distilled spirits fell heavily on frontier farmers in western Pennsylvania. Transporting bulky grain across the Appalachian Mountains to eastern markets was cost-prohibitive, so western farmers routinely distilled corn and rye into whiskey, which served as a compact, high-value liquid trade good and informal currency. Farmers viewed the excise tax as an unjust economic burden imposed by eastern commercial elites.

Protests escalated into armed insurrection in the summer of 1794. Western Pennsylvanians tarred and feathered federal tax collectors, burned the home of regional tax inspector John Neville, and threatened to attack Pittsburgh.

President Washington determined that armed defiance of federal law could not be tolerated in a constitutional republic. Exercising his authority under the Militia Act of 1792, Washington federalized a force of nearly 13,000 militia troops from Virginia, Maryland, Pennsylvania, and New Jersey. Washington personally rode at the head of the army into western Pennsylvania alongside Hamilton—the only time a sitting U.S. president has led troops in the field. Confronted by overwhelming federal military force, the rebellion collapsed without major bloodshed; two ringleaders were convicted of treason but subsequently pardoned by Washington.

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The Emergence of the First Party System

Despite the Framers' deep aversion to political parties, the bitter ideological and economic policy disputes of the 1790s produced the First Party System, pitting the Federalists against the Democratic-Republicans (often called Republicans or Jeffersonians).

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Washington’s Farewell Address (1796)

Deciding not to seek a third presidential term in 1796, Washington drafted his Farewell Address with assistance from Alexander Hamilton. Published in Philadelphia's Daily Advertiser on September 19, 1796, the address served as a solemn political testament to the American people.

Washington articulated two foundational warnings that shaped American political culture for over a century:

1. Warning Against Foreign Entanglements: Washington urged the nation to steer clear of permanent political alliances with foreign powers, particularly European monarchies embroiled in recurring wars. He advocated commercial trade relations while preserving absolute diplomatic neutrality.
2. Warning Against Partisan Factionalism: Washington warned that geographic and ideological political parties ("factions") would destroy national unity, foster spirit of revenge, and open the door to foreign influence and domestic despotism.