Said and Done: Chapter 3 attempts to contextualize (I hate that word) the role and activities of the federal government in a bottoms-up approach to state and local economic development policy-making. From that perspective, the federal government is an actor in its environment, and a sub-member of its policy system. In that through history the role and intensity of its activities in state and local government has been inconsistent and uneven–and arguably even a trend line is zig-zag. In this Chapter we begin the tale, as the Federal Government jump-starts the Early Republic and Breaks Away from the Articles of Confederation.

Constructing a Policy System from Scratch

In 1789-90, Washington took more or less a back seat in the Public Credit, Residence Act, and National Bank Congressional debate. I will argue that James Madison, Alexander Hamilton, and later, Thomas Jefferson “carried his water” for him–until the last moment when events forced his hand and he had to take a position. The tale we now tell in this module is, in my opinion, one of the most important case studies in our history of the Early Republic period. It partially explains why our history begins with Washington and his commitment to the nexus of ED strategies encapsulated within his Patowmack Canal developmental transportation infrastructure project. That project clothed itself in the form of the determination of a site for the national capitol (the Residence Act);  In Washington’s thinking the Potomac site bound together North and South, but the new city would serve as port city for Virginia and his Patowmack Canal–then under serious construction, and the Potomac River being cleared by funds paid for by the State of Virginia. In this module we see it come to fruition; Washington’s adult life commitment to that project nexus will be achieved. That story, however, is secondary to a much larger tale.

The larger, more complex, and more important tale includes three distinct dynamics that got caught up in the politics associated with Washington’s first order Patowmack priority: (1) sectionalism as a defining characteristic of American S&L ED and the centrality of political culture, slavery and distinctive economic; bases that ensured its durability as a first order causal variable in American ED S&L policy-making;  (2) the capitalist nation/state-building institutionalization started by Robert Morris and continued by his protege, Alexander Hamilton was successfully achieved at the path-breaking national level because of its association with Patowmack politics; and (3) the fragility of the tenuous and informal consensus that underlie the Federalist Tribe was quickly torn asunder, revealing/unleashing the core fabric of the clashes of culture and the outlines of future partisan conflict which reinforced both sectionalism and conversely led to the formation of America’s first formal party system–a mass-based political party system whose evolution continues to the present-day Contemporary Era–effectively destroying, BTW, in its wake the Federalist Tribe. That all combined to tilt in their own way our future evolution to a Civil War–which exerted its own distinctive bend in the “twig” or tree, our metaphor, for the path followed for the last two-hundred and fifty or so years by American S&L ED.

These are no small matters. This largely unknown and confused Congressional Patowmack and Nation-building Institutionalization policy-making processes, which persisted through the three sessions of the Early Republic’s First Congress (March 4, 1789 to March 4, 1791), the first two years of Washington’s First Administration, was not planned, or even foreseen, by anyone but became evident, inevitable probably, as a national Congress set together in two rooms, one above the other, mostly in the same New York City building (the now demolished Federal Hall on Wall Street) and simply tired to approve legislation required of a brand-new national government. In the process of almost housekeeping-like bills, the core cultural schisms, regional distinctions, clashing economic future paths, personal ambitions and dreams deeply embedded with the image of a future great Republic interacted, forcing policy actors to make priorities among legislation, and then compromise these priorities so to achieve a “half loaf of bread” for all. In so doing, in its very first Congress, the genius of the American Republic, the bottom line that underlay its alleged exceptionalism among all countries of the world, was revealed in the form of limited government, checks and balances, separation of powers through branches of government, dual federalism of nation and states, and the reliance on representative democracy–which inherently, and inescapably, meant a policy system whose bottom layer was a distinction between elites (economic and political) and masses (the American People, which we shall label “populism”.

There are a lot of moving parts in that last couple of paragraphs. I cannot avoid it. I also depart from the customary manner in which this subject is treated by historians. Without singling out any particular historian, I observe that there is in my view a dominating tendency to describe the politics, i.e. policy process that surrounds this case study, in terms of a personal conflict among key Founding Fathers (Washington, Jefferson, Hamilton and, of course Madison. Without doubt Washington administration “office politics” did occur and its impact on the outcome was huge. As a catalyst for the rupture of Washington and Jefferson’s long-time friendship (and the congruent alliance of Madison with Jefferson, and the effective ending of Madison’s role as the House’s link to the Washington administration) the personal and political animosity that manifested itself in the policy-making associated with this case study, one can see Washington separated himself from the Virginia delegation’s consensus, leaving a vacuum that Jefferson filled by formally organizing a the Democratic-Republican political party and commencing a media war against the Administration and Federalist orthodoxy.

That the conflict and animosity unleashed in this very early policy conflict was more than troublesome to Washington personally; it probably was the cause of his serious disillusionment with politics, and his ever intense wish to return to Mount Vernon. I believe there is little doubt that Washington did not function well in the increasingly bitter partisan debate that followed this policy case study–through the Adams administration also. That federal-state economic development-related policies were core to this decisiveness reflects that policy area’s centrality, its key ranking in the policy agenda, during the 1790’s “birth of the new American Republic”. Conversely, such politics–and clashing political cultures as well as personalities–fractured the Federalist consensus, thereby carving out the future path of politics and the formation of state and local policy systems which dramatically impacted the course and events of our S&L ED history. That economic development played such an important (but not exclusive) role in that tale makes that policy area a very useful shorthand for outlining the essentials which describe the evolution of our Republic through time and change. The debate, and the controversy associated with these interwoven bills directly involved key ED strategies (DTIS, city-building led by the federal government, and the key Early Republic EDO, the state, and now national chartered corporation. The Bank and Public Credit were of course the institutional expressions of not only a functioning capitalist economy, but necessary for the financing–and construction of internal improvements.

A final word concerning my sources used to assess and describe the debate, decisions, and the motivation behind the First Federal Congress. The reader will note my use of Fergus Bordewich and his First Federal Congress throughout this module and the next. Bordewich bases his book on the primary materials drawn from George Washington University’s First Federal Congress Project, led by Kenneth R. Bowling, which produced the multi-volume Documentary History of the First Federal Congress (DHFFC). That source includes the primary materials relevant to that Congress, amassed over a number of years by many excellent scholars. Including memoirs as well as the official records and correspondence of the Congress and its members. Bordewich’s work is the first, in my opinion, comprehensive description of that Congress. Published in 2016 Bordewich is no doubt the first shot in what hopefully will be a sustained analysis of the birth of our Republic. In any case, in many, perhaps most, instances where I cite Bordewich, I am using his direct quotes from writings of the participants–the specific source of which can be found in Dr. Bordewich’s footnotes referred to on the page listed. I follow, reasonably faithfully, along Bordewich’s time frame and sequence of deliberations, and embrace his sense of how the different policy deliberations conducted more or less simultaneously, overlapped and intruded into each other. Forget about analytical reconstructs–this description is based on basic primary documents from the players themselves.

the Twig is Bent for the First Time

Early in 1789 (February, almost two months previous to his official election as President)), Washington , writing to Jefferson (Ambassador to France), stated his highest priorities for his first Administration: “the greatest and most important objects of [domestic] concern, which at present occupy the public mind, are manufactures and inland navigation. Manufactures, like the Constitution, … strengthen the country and help it achieve true independence” [1]. It was important to note what was wasn’t listed: a national bank, a capitalist currency, credit and debt system, and there was no assertion of national government over state. The latter policy positions originated from Robert Morris and his Philadelphia-based urban financial, trade, and commercial elites–which Washington as a Tidewater plantation owner and real estate speculator was perhaps somewhat conflicted. The fight over Morris’s state commercial bank, even if successful, and Shays Rebellion injected a measure of caution as well. When through a good deal of its first year deliberations, the First Congress included representatives from eleven of the thirteen states–two had not yet approved the Constitution, never mind elect representatives.

What was obvious in retrospect was that the Articles of Confederation era policy debate that served as a Bunsen Burner for a Federalist Tribe policy agenda for their first administration under a new constitution, was both loose and informal–no specific written platform existed–and was in aggregate a list of non-prioritized policies, most of which were associated with a new national government, and closely tied to the establishment of an economy resembling that of the United Kingdom. Underneath these various policies were a series of informal coalitions of supporters, unevenly distributed among the states, masking a variance in priorities between North and South, and a surging Anti-Federalist resistance that questioned the proposed strength of a national government over states, and which had been pacified by the construction of what later was called the Bill of Rights–a series of amendments (initially there were at least eighteen) to the Constitution which strengthened or made clear symbolically a core of individual rights, freedoms and liberties, left unmentioned in the basic document.

Best Laid Plans of Mice and Federalists: Policy-Making is Not What its Cracked Up to be in the Textbooks

That Bill of Rights had little to do with economic development per se, but was arguably the highest priority for initial federal action by a goodly number of the new House and Senate representatives taking office alongside Washington. Although Federalists dominated the new Congress, a active and vocal minority of Anti-Federalists made it clear early on that not only was the Bill of Rights a top priority, but that the amendments  which dealt with individual rights alone, did not go far enough and, in particular, did not tackle an equally key issue: national versus state sovereignty. Hidden in plain sight was another massive reality: Congress was the dominant institution of this new policy system (which in its first year had no judiciary, and aside from Washington and Vice-President Adams, virtually no bureaucracy. Even more crippling was that the new federal government had no money, budget, or revenues, for anything including Congressional salaries. In fact, step outside the New York City Federal Hall on Wall Street (which housed the Senate upstairs and the House downstairs–from which the Senate as the “upper” house originated) there was no federal government at all. Worse, it took the better part of two months for Congress to muster a quorum, before it could even elect Washington, who took his Oath of Office in early May.

Literally Congress had to elect (cast electoral ballots) to create the executive branch, and then move onto the judicial. Even before that it had to tackle the revenue problem, because without revenues, i.e. a taxes or fees, there was no budget for anything. In short the Federalist priorities, whatever they might have been were lost in housekeeping, figuring our various precedents (how to address the new President, for example, and whether that new President had the right to fire his cabinet appointments–which after all the Senate approved–or whether the President’s nominations could, or should be rejected by the Congress at all. That latter issue brought Washington directly into Senate debate, resulting both times in his frustration, the last of which he voiced as he stormed out of Federal Hall saying he never would return. The point being made is that economic development, nearly the entire Federalist agenda, aside from those elements tied to revenue producing federal income, were lost in basic housekeeping and federal institutionalization associated with a absolutely brand new government starting from scratch. Almost all of the entire Washington First Administration–if not much of the Second as well–was tied to setting up and operating a new government. Establishing a policy system from scratch is its own first and top priority.

Another issue, unanticipated, also seriously affected what little formal policy-making that occurred in Washington first two administration was Washington himself.

Not only did the mechanics and civilities of how the Executive Branch was to work with the Legislative Branch have to be worked out, but Washington was profoundly reluctant to assert the himself and the Executive Branch–over Congress, which Washington believed to be the institutional embodiment of national sovereignty. The Imperial Presidency was more than a century in the future, more like a century and a half, and the new federal policy system was  constitutionally dominated by its legislature–the judiciary was not yet in existence in the federal departments had yet to be created. There was no Speaker of the House, and the Senate was “presided over” by the Vice-President, who had become about the only matter which a consensus existed–respecting him but strongly disliking him and resolved to keeping him out of legislative debate and policy-making to the extent possible. If Washington was sensitive to the centrality of Congress in this new Republic, he never, I suggest, intended to be a passive figurehead. He knew his mind on policy, was no dummy, anything but impulsive and he wanted to participate in policy-making as he believed appropriate to the time and situation [22] see Thomas Fleming, the Great Divide: the Conflict between Washington and Jefferson that Defined a Nation (Da Capo Press 2015), pp. 69-70.. Washington also elevated his role as a national non-partisan unifier, above that of being an active involved policy-maker–in fact the two were in tension with each other.

Washington in the first session of the First Congress especially, but as a matter of how he viewed the Presidency in his relationship to Congress throughout his two Administrations was not passive, but preferred to act through intermediaries (especially when his first several appearances before the Congress resulted in personal displeasure and temper with their results), and indirectly with behind the scenes social and one-on-one meetings. It is not likely he would have used Twitter if it had been available. Washington relied primarily on his popularity and on a public image that truly made him into a national political celebrity. To most American citizens of that period, Washington was the personification, the living embodiment of the American Revolution and its new Republic. As our case study begins, Washington in the first session turned to a much younger friend, now a Congressional delegate from Virginia, a friend closely involved in his Patowmack project–in fact had been his agent in the Virginia legislature advancing its initiatives successfully–who by happenstance had been a chief writer of the new Constitution and an author in the Federalist Papers which had philosophically defined that document and was instrumental in its ratification: the future President, James Madison.

Madison (whose knowledge of the Constitution and its meaning was preeminent in Congress), in that vacuum, emerged as the chief driver of the legislative agenda–and the unofficial spokesperson of Washington. He was not the Speaker, but was powerful in its deliberations. As a practical politician, despite his legacy today, Madison did have some weak points. He was no Lyndon Johnson. Neither was he an effective orator, nor did he exert a commanding presence or personality. He advocated and had devised a significant role for the national government, but, retained considerable ties to Virginia and was a key leader in its delegation. All that is to say, Madison was cross-pressured in many policy issues. Young Madison will evolve through several of our future modules–and he will be a very key player in this one.

Back to Washington. I think of Washington as America’s first businessman, and/or America’s first military leader as President. Washington had considerable political experience, but never principally as a politician. Not only was he aggressively nonpartisan, but was fundamentally apolitical. He also had a temper, and by this time, was approaching old age and not in perfect health. In his first term, his mother–with whom he had a “harsh” relationship–died of cancer. Martha was not happy in New York City. Immobilized for nearly two months (two carbuncles the size of fists) he disappeared from public view, to the point he rumor was he was dying. More enduring was Washington’s leadership style, relying on delegation (to cabinet members once they created a department and he got someone to head it–which took almost two years). Washington inserted himself only after policy formulation was finished, and only then in behind-the-scenes activities. When he presented his first Inaugural Speech to Congress, he was visibly shaking, and in spots inarticulate. It consisted of only 135 words in four sentences.

Given his reluctance to assert leadership over Congress, and his unwillingness to even go there, policy execution fell to his Cabinet (including Hamilton in Treasury, and Jefferson, Secretary of State which included a portfolio of domestic policies beyond foreign affairs. What should not be lost in this distant apolitical policy leader was that he knew what he wanted and didn’t want. He had established long-standing positions, even on matters such as the national bank and currency, well before he was President. He was never the “dupe” of his subordinates, and legislation submitted by the Executive Branch, with rare exceptions, was congruent with his personal values and positions.  He was incredibly honest to a fault, and firmly by the standards of his day, resistant to conflicts of interest.

As we shall see in a future module, Washington’s “hot button” was to build a new national capital in a location of his choosing to serve in part as the port city for his home state Virginia. Eventually, he even left the national capital and operated out of the fields and swamps of the designated national capital for months at a time. Worse than all of this, Washington was very uncomfortable with politics, political factions (which were fast emerging), infighting and power-jockeying, debate, patience and even compromise were not his forte. He was used to giving orders, or being deferred to, not for the give and take, the use of symbols, etc., the tools of politicians. More than anything perhaps, he hated the increasingly bitter battle within his Cabinet–Hamilton and Jefferson. He wanted them to work it out–and for the most part they didn’t. By the time Jefferson left office, the Hamilton and Jefferson were bitter enemies–what is less known, was that Jefferson and Washington were well on the road to becoming enemies as well. Washington (and Martha) believed Jefferson was conspiring against him and his policies–he was. Washington’s only other hot button proved to be his personal leadership of an army of 15,000 against the insurgents associated with the populist Whiskey Rebellion in 1796. Jefferson had come to believe Washington was a “dupe” for Hamilton, tired, too simple, and too old for the Presidency, and an “agent of a foreign nation” (the national government following an English economic model) that was attempting to subvert the truly sovereign nations {the Thirteen States} of America. All this played out by the end of 1792 (or so).

He did go on several extended tours of the nation, I suspect as much to get out of the capitol as to personalize the federal government to its new citizens. Never really wanting to be President in the first place, there was no real fire in his belly for the office; he had to be talked into a second term. In any case, whatever his great and considerable merits were, our greatest President and first economic developer, was not a natural policy-maker, and the Federalist agenda was worse for the wear. It got even worse, when Adams followed him.

His time at President aged him. By the time he left office in March 1797, he looked, and was, exhausted–in less than three years he was dead at 67.

It is worth note, that Martha wrote in her diary that the two worst days in her life (she lost two children BTW) was the day Washington died, and the second worst when Jefferson came to Mount Vernon to offer his “sincere” condolences. She was every bit as furious at Jefferson as Abigail Adams was during these years. However much rationality, expertise, and policy merits are core to policy making, even believe it or not ED policy-making, such matters as personality and emotion are also central as well. I dwell on this caveat to ED policy-making throughout this history because if nothing else history dispels notions that economic determinism, inevitable progress, policy rationality and good intentioned planning can adequately describe the course of our ED history.


In essence, Federalist Tribe policy-making did not work out as all hoped.However important economic development was to the overall Federalist consensus, it failed, for what should have been obvious reasons, to place high on the First Congress policy agenda. But before the Congress adjourned at the end of September, it had approved several significant pieces of legislation. It forged a series of constitutional amendments (ten), approved them, and sent them to the states for ratification: our present-day Bill of Rights. Congress created the Third Branch of Government with its Judiciary Act of 1789. Washington subsequently nominated Chief Justice John Jay–a prominent Federalist, who received nearly unanimous approval from the Senate. It enacted the nation’s first tariff on merchandise and ships entering American ports, and staffed a system of custom or tax collectors (BTW, the tariff was viewed as a source of revenue to fund the national government, indeed nearly the only source of revenue that could garner the necessary votes. Its role in the protection of manufacturers lay ahead in the next session. Also a list of what were crimes against the federal government was approved–and specified that murderers bodies should be sent for dissection. Finally, Congress created several major departments, the heads of which would constitute the President’s Cabinet (Attorney General, Secretary of State, Secretary of War, and Secretary of Treasury. Each cabinet officer nominated by Washington was approved, the most controversial being Alexander Hamilton. Washington had offered that position to Senator Morris, but the latter deferred and strongly advocated for Alexander Hamilton. Hamilton strolled into his office in late September–serving until January 1795. Jefferson in France, did not take office until the new session in January 1790. He served into 1793.

Hamilton labored during the Congressional interlude. He headed the largest of the new departments: “Treasury employed thirty-nine clerks … dozens of revenue collectors and inspectors in ports,… [Hamilton himself] had to invent bookkeeping and auditing systems, create a system of seagoing monitors to suppress smuggling [the future Coast Guard], erect lighthouses and [install channel] buoys to secure the coastline for commercial shipping, and issue trustworthy paper money to facilitate business … But with revenue at a trickle, his first, supremely urgent duty was to raise money just to keep the government running” . On his second day on the job, he arranged a $50,000 loan from the Bank of New York–one of the three existing commercial banks in the United States, the one which he was a founder. Just before it left for recess, Congress instructed him to prepare a report on a public credit system to be ready when it returned in January. That task more easily said than done was done in an age when economics and finance were not commonly known or appreciated–indeed the opposite was more likely. In a letter written in light of this report by Benjamin Rush, a founding father, Rush described public credit (i.e. “borrowing money”, “as to nation’s what private Credit & loan offices are to individuals. It begets debt–extravagance–vice–& bankruptcy” [27] Bordewich p. 168-9 . One wonders if Hamilton was able to do his Christmas shopping that year?

[1] Stuart Bruchey, Roots of American Economic Growth, 1607-1861 (Harper Torch Book, 1968), p. 10.