10.2 A Nation in Debt pp. 329-331

Objective: Identify plans the new nation made to pay debts.

Review: 1. Who was unanimously elected as the nation’s first President? 2. What city served as our first national capital under the new administration? 3. A President’s official advisors are collectively known by what term? 4. Identify the members of Washington’s cabinet and the offices they held. 5. What legislation set up the organization of the Supreme Court and the lower federal court system? 6. Define unconstitutional— 7. Who was the nation’s first Chief Justice of the Supreme Court?

A. A Nation in Debt (p. 329) The most serious challenge the U.S. faced in the 1790s was the large debt from the Revolutionary War. The total amount a government owes on money it has borrowed is called the national debt. Treasury Secretary Alexander Hamilton developed a plan to deal with the nation’s debt and provide a secure base of credit for the country.

B. Restoring the Nation’s Credit [Brace Map] -Funding—the federal govt. would pay off the national debt -Assumption—the federal govt. would pay off the debts of the individual states Paying Off the Debt Hamilton’s Plan It would handle the federal govt.’s money, collect tax money, issue paper money, and give loans to businesses National Bank -Excise taxes—taxes on goods made, sold, and used within the country (e.g. alcohol) -Tariffs—taxes on certain goods brought into the country Taxes Textbook pages 329-331

C. Opposition to Hamilton’s Plan (p. 330) Some Americans opposed funding--the plan to redeem government-issued bonds (IOU’s) at their face value. Many soldiers who had been paid in bonds had pawned them to speculators for a fraction of their face value; these speculators could now swap out the old bonds at face value for new interest-bearing bonds. Similarly, people from Southern states that had already paid off much of their debts objected to the federal government assuming, or paying off, the debts of the Northern states.

D. Compromise (p. 330) Southerners would agree to payment of state debts in return for a promise to locate the new national capital in the South. It would be built in a special territory to be called the District of Columbia. While waiting for the new Capitol to be built, Congress made Philadelphia the capital city.

E. The Whiskey Rebellion (p. 331) Hamilton’s new excise tax on whiskey angered Western frontier farmers, who often converted their excess grain crop to whiskey in order to make it easier to transport. The resulting Whiskey Rebellion (1794) was a test of the new federal government’s power. Responding angrily, Washington led a huge military force that crushed the rebellion.

Review: 8. Define national debt— 9. What were the three parts of Hamilton’s plan to get the nation on a sound economic footing (see brace map)? 10. Define excise taxes— 11. Define tariffs— 12. Why did Southern states object to Hamilton’s plan for paying off state debts (i.e. assumption)? 13. What was promised to Southern states in exchange for their support in paying off Northern state debts? 14. Washington demonstrated the strength of the new federal government by crushing what rebellion?