As Hamilton presented his financial plan, intense debate broke out over its constitutionality and the role of the federal government. The biggest debate was over the national bank. The Constitution did not specifically say Congress could create a bank. Jefferson argued this meant the government had no right to build one. He believed the Tenth Amendment supported his position. If a power was not listed in the Constitution, it belonged to the states. This became known as strict construction, meaning the Constitution should be followed exactly as written.
Hamilton disagreed. He argued that the Constitution gave Congress implied powers, meaning the ability to take actions not specifically listed, as long as those actions helped the government do its job. He believed a national bank was necessary to manage taxes, issue currency, and support trade. This position became known as loose construction. President Washington sided with Hamilton, and Congress established the First Bank of the United States in 1791. The debate over strict versus loose construction would shape American politics for generations.
Hamilton's plan also created a deadlock in Congress over two separate issues: whether the federal government should assume the states' war debts, and where to locate the permanent national capital. Southern states such as Virginia had already paid most of their debts and did not want to help pay for others. Northern states supported debt assumption. Neither side would budge.
To break the deadlock, Jefferson hosted a private dinner on June 20, 1790, bringing Hamilton and Madison together. They reached a compromise. Madison agreed not to block debt assumption, and Hamilton agreed to support placing the new capital along the Potomac River. Congress passed both measures shortly after. This deal became known as the Compromise of 1790, or the dinner table bargain.
Though the compromise paved the way for the national bank and federal assumption of state debts, Hamilton now needed a way to pay for those debts. He pushed for a tax on whiskey to raise the necessary revenue. Western farmers who depended on whiskey production were outraged. They had little cash to pay the tax and felt the government was targeting them unfairly. Their anger eventually boiled over into open rebellion, a crisis that would test the strength of the new federal government.
Glossary
assumption: the act of taking responsibility for something that belonged to another
