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 GrowsThe 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.