Ch. 7, Sec. 2 - Hamilton and National Finances
Alexander Hamilton
Native of the British West Indies - Helped run a shipping company in his teens - Came to
the colonies for his education - Married into a wealthy NY family and began practicing
law - Served as Washington’s aide and as a delegate to 4 Continental Congresses
Settling the Debt: National Debt
http://
www.usdebtclock.org/
•
National Debt - Money owed by the United
States to different countries, banks, private
citizens etc.
•
$11.7 million owed to foreign countries,
$40.4 million to U.S. citizens
•
Continental Congress paid for war through
bonds, certificates of debt that carry a
promise to buy back the bonds at a higher
price
•
New government couldn’t afford pay back
bonds
•
Bondholders in need of money sold their
bonds for less value to speculators, people
who buy items at lower prices in a hope to
make a profit in the future
•
Hamilton wanted to repay debt immediately,
gradually repay bonds in full value
•
Policy caused outrage because speculators
would make a profit
•
1790 - Government exchanged old bonds for
new, more reliable ones
States’ Debt
•
States owed $25 million after
war
•
Hamilton wanted the federal
government to pay for $21.5
million of that debt
•
Thought it would be good for
federal government to inherit
state debt, build credit
•
It would help states rebuild
their local economies
•
Southern states like North
Carolina and Virginia didn’t
have a lot of debt, didn’t think
it was fair to pay for debt of
Northern states
Moving the Capital
Southern officials didn’t like that capital of new nation was NY - Thought the North had too
much influence - Hamilton, Jefferson, and Madison agreed to help each other by supporting
Hamilton’s debt plan and moving the capital south to Philadelphia - Eventually Washington
chose a spot of land between Maryland and Virginia that became known as Washington D.C.
Jefferson Opposes Hamilton
•
Hamilton believed in a strong central
government and had little faith in the
average individual
•
He thought it helped strike a balance
between the elite (wealthier citizens) and
the “mass of the people”
•
Jefferson supported the rights of states
and in the sovereignty of the people
•
Hamilton wanted new forms of economic
growth (manufacturing and business) to
flourish (Suggested the government award
prizes for excellence in manufacturing)
•
Hamilton also wanted to pass higher tariffs
to raise the price of foreign products and
protect American manufacturing
•
Jefferson didn’t believe in emphasizing
manufacturing so much (Believed farmers
were the most independent voters)
•
Jefferson wanted lower tariffs to keep the
prices of goods low
A National Bank: Hamilton’s Plan
•
Hamilton wanted a national
bank so the government could
deposit money, make loans
•
Hamilton also wanted a
national mint to make coins,
issuing money
•
Limited to a 20-year charter
because state’s rights
supporters might oppose the
idea (Congress could decide
to extend the charter)
•
Hamilton asked each state to
start their own bank so the
national bank wouldn’t have a
monopoly
Jefferson Opposes the Bank
•
Jefferson, Madison believed
Hamilton’s plan gave too much power
to the federal government
•
Jefferson, Madison didn’t agree with
Hamilton’s use of the elastic clause,
stating Congress can “make all laws
which shall be necessary and proper”
to justify the bank
•
Loose construction (Hamilton) Interpretation of the law which allows
for adaptation of the law to special
circumstances
•
Strict construction (Jefferson) - Law
must be interpreted exactly according
to what is stated
•
Washington, Congress agreed with
Hamilton
•
February 1791 - Congress enacted
the charter for the Bank of the United
States