Chapter 7, Section 2

Hamilton and National Finance

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

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

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

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

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

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

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

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.

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

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

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

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

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

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

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