1. Hamilton and National Finance
Chapter 7, Section 2
Hamilton and National Finance

2. Settling the Debt Alexander Hamilton Brilliant economist
Not too good at dueling
As a teenager, helped manage a shipping company in the West Indies (Caribbean)
Sent to American colonies by his family to receive a formal education
Married into a wealthy NY family and became a lawyer
Served as an aide to George Washington and delegate to 4 Continential Congresses

3. National Debt Hamilton as Secretary of Treasury
Biggest challenge was to pay off the national debt (money owed by the United States) accumulated by the Revolutionary War
11.7 million to foreign countries
40.4 million to United States citizens

4. National Debt Money was raised during the war with bonds
Certificates of debt that promise to buy back bonds at a higher price
New government could not afford to keep the promise because bondholders who needed money sold their bonds for less than the original value to speculators
People who buy low with the expectation of selling high

5. National Debt
Alexander Hamilton wanted to pay the foreign debt immediately and gradually repay the total value of all bonds
The second part of his plan caused disagreements because it allowed speculators to turn a profit
Thomas Jefferson disagreed because he felt that the original bondholder was cheated

6. States’ Debt States owed 25 million for the war
Hamilton wanted the federal government to pay 21.5 million of this debt
Believed that it would help the federal government by increasing the national economy
Debtor states would not have to spend so much on repayment and would be able to develop business and trade
Increased business would put money back into the national economy

7. States’ Debt Southern states were opposed to Hamilton’s plan
Virginia and North Carolina did not have high war debts
Hamilton knew that he needed the support of Southern State leaders in order to gain approval for his plan

8. Moving the Capital
Southern states wanted the capital of the new nation moved
Felt that New York City as the capital gave northern states too much power
Alexander Hamilton, Thomas Jefferson, and James Madison met in June 1790
Hamilton promised to convince northern Congress members to move the capital in return for southern support of his economic plan

9. Moving the Capital Compromise was a success
Capital was moved from New York City to Philadelphia for 10 years
George Washington chose a place on the Potomac River that included part of Maryland and Virginia
Eventually would become Washington D.C.

10. Jefferson Opposes Hamilton
Alexander Hamilton and Thomas Jefferson did not cooperate for long
Disagreed over how to define authority of the central government
Hamilton: believed in a strong federal government
Jefferson: believed in states’ rights

11. Differing Views
Alexander Hamilton favored a strong central government that created a balance of power between the common man and the wealthy
He believed that this approach would protect individual liberties while keeping the people from gaining too much power
Thomas Jefferson believed that political power rested in the hands of the common man
Admitted that not all people of the day were well informed

12. Economic Differences
Alexander Hamilton favored new forms of economic growth
Manufacturing and business
Favored higher tariffs
“Protective tariffs” to raise the prices of foreign products to stimulate interests in domestic goods
Thomas Jefferson worried about depending too much on manufacturing and business
Believed farmers were the most independent voters

13. A National Bank Hamilton’s Plan for a National Bank
Alexander Hamilton wanted to create a national bank where the nation could safely deposit its money
Hamilton also wanted a national mint (a place to make coins)
Hamilton knew that people who wanted to protect states’ rights might have a strong reaction to a national bank
Suggested limiting it to a 20 yr charter, after such time Congress would decide whether to extend the charter
Asked each state to create their own bank to prevent the national bank from becoming a monopoly

14. Jefferson Opposes the Bank
Thomas Jefferson and James Madison believed that Alexander Hamilton’s plan for the economy gave the central government too much power
Believed that the Constitution did not grant Congress the power to create such an institution
Hamilton quoted the elastic clause, which states that Congress can “make all laws which shall be necessary and proper” to govern the nation

15. Jefferson Opposes the Bank
Alexander Hamilton believed in loose construction of the Constitution
The federal government may take reasonable actions that the Constitution does not specifically forbid
Thomas Jefferson thought that the elastic clause should only be used in special cases-favored strict construction of the Constitution
The federal government may only do what the Constitution says it may

16. Jefferson Opposes the Bank
President George Washington agreed with Alexander Hamilton
Hoped that the creation of a national bank would offer stability for the new United States economy
February 1791
Bank of the United States
Country’s first national bank