Alexander Hamilton's Financial Program
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most pressing problems facing the new government were economic. As a result of the revolution, the federal
government had acquired a huge debt: $54 million including interest. The states owed another $25 million. Papers money issued under the Continental
Congresses and Articles of Confederation was worthless. Foreign credit was
unavailable.
The
person assigned the task of resolving these problems was 32-year-old Alexander
Hamilton. Born out-of-wedlock in the
West Indies in 1757, he was sent to New York at the age of 15 for schooling.
One of New York's most influential attorneys, he played a leading role in the
Constitutional Convention and wrote 51 of the 85 Federalist Papers, urging
support for the new Constitution. As Treasury Secretary, Hamilton designed a
financial system that made the United States the best credit risk in the
western world.
The paramount problem facing Hamilton was a huge national debt. He proposed that the government assume the entire debt of the federal government and the states. His plan was to retire the old depreciated obligations by borrowing new money at a lower interest rate.
States
like Maryland, Pennsylvania, North Carolina, and Virginia, which had already
paid off their debts, saw no reason why they should be taxed by the federal
government to pay off the debts of other states like Massachusetts and South
Carolina. Hamilton's criticals claimed that his scheme because it would provide
enormous profits to speculators who had bought bonds from Revolutionary War
veterans for as little as 10 or 15 cents on the dollar.
For
six months, a bitter debate raged in Congress, until James Madison and Thomas
Jefferson engineered a compromise. In exchange for southern votes, Hamilton
promised to support locating the national capital on the banks of the Potomac
River, the border between two southern states, Virginia and Maryland.
Hamilton's
debt program was a remarkable success. By demonstrating Americans' willingness
to repay their debts, he made the United States attractive to foreign
investors. European investment capital
poured into the new nation in large amounts.
Hamilton's
next objective was to create a Bank of the United States, modeled after the Bank
of England. A national bank would collect taxes, hold government funds, and
make loans to the government and borrowers.
One
criticism directed against the bank was "unrepublican"--it would
encourage speculation and corruption. The bank was also opposed on
constitutional grounds. Adopting a position known as ``strict
constructionism,'' Thomas Jefferson and James Madison charged that a national
bank was unconstitutional since the Constitution did not specifically give
Congress the power to create a bank.
Hamilton
responded to the charge that a bank was unconstitutional by formulating the
doctrine of "implied powers." He argued that Congress had the power
to create a bank because the Constitution granted the federal government
authority to do anything "necessary and proper" to carry out its
constitutional functions (in this case its fiscal duties). In 1791, Congress
passed a bill creating a national bank for a term of 20 years, leaving the
question of the bank's constitutionality up to President Washington. The
president reluctantly decided to sign the measure out of a conviction that a
bank was necessary for the nation's financial well‑being.
Finally,
Hamilton proposed to aid the nation's infant industries. Through high tariffs
designed to protect American industry from foreign competition, government
subsidies, and government-financed transportation improvements, he hoped to
break Britain's manufacturing hold on America.
The
most eloquent opposition to Hamilton's proposals came from Thomas Jefferson, who
believed that manufacturing threatened the values of an agrarian way of life.
Hamilton's vision of America's future challenged Jefferson's ideal of a nation
of farmers, tilling the fields, communing with nature, and maintaining personal
freedom by virtue of landownership.
Alexander
Hamilton offered a remarkably modern economic vision based on investment,
industry, and expanded commerce. Most strikingly, it was an economic vision
that had no place for slavery. Before the 1790s, the American economy--North
and South--was intimately tied to a trans-Atlantic system of slavery. States south of Pennsylvania depended on
slave labor to produce tobacco, rice, indigo, and cotton. The northern states conducted their most
profitable trade with the slave colonies of the West Indies. A member of New York's first antislavery
society, Hamilton wanted to reorient the American economy away from slavery and
colonial trade.
Although
Hamilton's economic vision more closely anticipated America's future, by 1800
Jefferson and his vision had triumphed.
Jefferson's success resulted from many factors, but one of the most
important was his ability to paint Hamilton as an elitist defender of
deferential social order and an admirer of monarchical Britain, while picturing
himself as an ardent proponent of republicanism, equality, and economic
opportunity. Unlike Jefferson, Hamilton
doubted the capacity of common people to govern themselves.
Jefferson's vision of an egalitarian republic of small producers--of farmers, craftsmen, and small manufacturers--had powerful appeal for subsistence farmers and urban artisans fearful of factories and foreign competition. In increasing numbers, these voters began to join a new political party led by Jefferson.