When James Madison entered the House of Representatives in 1789, he found himself playing a singular role in America's new regime. Alongside President George Washington, Vice President John Adams, Secretary of State Thomas Jefferson, and Secretary of the Treasury Alexander Hamilton, Madison was viewed as a leader in the government. In the House, he often served as Washington's floor leader and right-hand man. In Congress, he was known by his colleagues as "our first man."

In addition to his important work for the drafting and passage of the Bill of Rights, Madison also had many important objectives for the government regarding commerce and trade. First, he wished to fight British influence over American trade. He also wished to encourage American shipping and navigation and to see new markets open up as part of the free trade situation spurred on by America's alliance with the French. He believed it was the duty of the national government to pursue these objectives.

Madison's ambitions for American commerce and trade, however, were severely checked after Alexander Hamilton presented his very ambitious Report on Public Credit to the Congress early in 1790. Hamilton proposed that the national government assume all the debt which had been incurred by the governments of the thirteen states, and Madison thought that this plan went much too far in the extent to which the government would be involved in economic matters. Although he had firmly supported Hamilton's elevation as Secretary of the Treasury, Madison soon found himself acting as the primary voice of opposition to the Hamiltonian Federalists. To his dismay, a modified version of Hamilton's proposal for national assumption of state debts was passed by both houses of Congress in July 1790.

Madison's fight with Hamilton was just beginning. In the fall of 1790, Hamilton proposed the setting up the First National Bank, after the model of Great Britain's, which would harness the interests of private enterprise for the benefit of the public welfare. It would circulate large quantities of paper money in order to stimulate the nation's economy. Madison objected outright to the plan, arguing that it plan was unconstitutional–that the legislature did not have the power to form such an incorporated institution as a national bank. He led the opposition to the bank proposal in the House of Representatives. The bill passed and became law, however, on February 25, 1791, after President Washington had rejected the Madison's strict constructionist interpretation of the Constitution in favor of Hamilton's doctrine of implied powers.

Hamilton followed up his success with the bank with his presentation of the Report on Manufactures to the Congress, which proposed a centralized system of economic development whereby the national government would actively encourage trade and manufacturing throughout and American nation which was still very largely agricultural. Madison led the opposition to this idea. He argued that Hamilton's doctrines subverted "the fundamental and characteristic principle" of the federal government, which was the limitation of mixed powers. "If Congress can do whatever in their discretion can be done by money," he wrote, "and will promote the General Welfare, the Government is no longer a limited one, possessing enumerated powers, but an indefinite one, subject to particular exceptions."

These controversies over finance and commerce laid the groundwork for partisan divisions in the government. Madison, finding himself in a very different role from the one he played at the Constitutional Convention, was now arguing for a less active federal government. By 1792, congressmen were speaking of "Mr. Madison's party," and the Federalists were condemning him for his opposition to Hamilton's influence over the Administration. He felt a very strong need, however, to defend his conception of republican government against the "powerful combination" of financial speculation, mercantilism, manufacturing, and Anglican religion in the government of which Hamilton was a chief representative. Madison's old friend Thomas Jefferson, the Secretary of State, found himself sympathizing. He and Madison created a new political party, the Democratic- Republicans, in opposition to the Federalists.

Party divisions were deepened by differing ideological interpretations of the French Revolution which was raging on the other side of the Atlantic Ocean. Madison and Jefferson saw the French Revolution as similar to the American Revolution, a position that conflicted with that of John Adams, Alexander Hamilton, and President Washington. Despite Federalist opposition to the French revolutionary ideology, however, enthusiasm for the French Revolution spread around the country, and in 1792, the Madisonian and Jeffersonian Republicans scored major gains.

By the beginning of 1793, the French were at war with Great Britain, and the two American parties were split over which side they should favor–if any at all–in the fight. The following year, on April 22, President Washington issued the Proclamation of Neutrality, which prevented the Americans from taking sides in the Anglo-French conflict. Madison was incensed by the decision, since he felt that the policy gave an "anglified complexion" to the government. His confidence in Washington's leadership was shaken by this disappointment.

Over the next several years, Madison became more embittered by the Administration's foreign policy. In November 1794, his former ally from the Constitutional Convention, John Jay, signed a treaty with the British over trade questions. In this treaty, Britain was granted "most favored nation" status, even after the country had been breaking agreements in its heavy-handed treatment of American merchant ships on the high seas. The Senate approved the treaty in June 1795. After long months of waiting for President Washington to send it to the House, Congress gave its stamp of approval in March 1796. Madison had been a key figure in the Republican opposition.

The long fight over Jay's treaty split open partisan hostilities, and the atmosphere surrounding the fall presidential election was very strained. The Federalists chose John Adams as their candidate. Thomas Jefferson tried to persuade Madison to run as the Republican candidate, but Madison would not. Jefferson got the Republican nod, but was defeated by Adams in November.

Tired, and disgusted with politics, Madison left Congress in 1797. He returned home to Virginia, where represented his state's opposition to the Adams Administration. That administration eventually became the target of widespread Republican opposition with the passage of the Alien and Sedition Acts in 1798. These acts inspired Madison to draft the Virginia Resolutions, which denounced Adams's statutes as violations of the First Amendment of the Constitution, and which also claimed a right for the states "to interpose for arresting the progress of the evil" which he perceived in the national government's actions. These strong words which suggested a doctrine of states' rights would come back to haunt Madison during his retirement, when the nation was experiencing the first pangs of pre-Civil War sectionalism.

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