Hamilton and National Finances Chapter 7, Section 2 Pages 238 - 242

Financial Problems Alexander Hamilton, as secretary of the treasury, tried to find a way to strengthen the country’s financial problems. He proposed the Hamilton Plan. It stated that the new government should pay off the millions of dollars in debts owed by the Confederate government to other counties and to individual citizens. The nation should pay for the cost of their help. Furthermore, by the federal government assuming the states’ debts, this would giver the states a strong interest in the success of the new government.

Financial Problems --- Opposition Grows There was opposition to Hamilton’s plan. Congress agreed to pay money to other nations, but they could not agree to pay off the debt to American citizens. When the government borrowed money during the war, it issued bonds, or paper notes, promising to repay the money in a given period of time. Speculators bought many of the original bonds for less than their value. Hamilton’s plan proposed paying off these bonds at their original value, and opponents said this would make the speculators rich.

Financial Problems --- Opposition Grows The original bond owners were also opposed because they had lost money on their bonds and the new bond owners had made money, only to make more if Hamilton’s plan was enacted. The Southern states also presented opposition because their state debt was less than the Northern states, and they would have to pay more than their share under Hamilton’s plan.

Moving the Capital Hamilton proposed a compromise plan. He agreed to a proposal by Southern leaders to move the nation’s capital from New York City to a special district in the South between Virginia and Maryland. This became Washington, D.C. The Southerners then agreed to support his plan to pay off state debts.

Washington, D.C.

Jefferson Opposes Hamilton Hamilton and Jefferson began to disagree about how to define the authority of the central government. Hamilton believed in a strong federal government. Jefferson want to protect the powers of the states.

Jefferson Opposes Hamilton Hamilton wanted a strong central government that balanced power between the “mass of people” and the wealthier citizens. Jefferson strongly disagreed – he believed that it was the right of the people to rule the country.

Economic Differences Hamilton wanted new forms of economic growth – he wanted to promote manufacturing and business. Hamilton also wanted to pass higher tariffs – would force people to buy “American made” products. Jefferson wanted to help farmers by keeping the costs of good they bought low. Lower tariffs would help keep prices low.

A National Bank Hamilton also proposed the creation of a national bank, the Bank of the United States. James Madison and Thomas Jefferson opposed the idea of a national bank, saying that it would benefit the wealthy and was unconstitutional. Hamilton said that Congress had the power to create a bank even though the Constitution had no such provision. The president signed the bill, creating the Bank of the United States.

Jefferson Opposes the Bank Both Jefferson and Madison believed that Hamilton’s plans for the economy gave too much power to the federal government. They thought the U.S. Constitution did not give Congress the power to create a national bank. Hamilton quoted the elastics clause, which states that Congress can “make all laws which shall be necessary and proper” to govern the nation.

Interpretation of the Government Hamilton believed in a “loose construction” of the Constitution, meaning that the federal government can take reasonable actions that the Constitution does not specifically forbid. Jefferson believed that the people favored a “strict construction,” thinking that the federal government should do only what the Constitution specifically says it can do.

National Bank President Washington and Congress agreed with Hamilton. In February 1791 Congress enacted the charter for the Bank of the United States – the country’s first national bank. The bank played an important role in making the U.S. economy more stable.