Alexander Hamilton The Money Man
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The Money Man
Presentation created by Robert Martinez Primary Source: America’s History (Henretta, Brody, Dumenil) Images as cited.
George Washington’s most important decision was his choice of Alexander Hamilton as secretary of treasury.
An ambitious self-made man of great charm and intelligence, Hamilton married into the Schuyler family, rich and influential Hudson River Valley landowners, and became a prominent lawyer in New York City.
As a delegate to the Philadelphia convention, Hamilton took a strongly conservative stance. He condemned the “amazing violence and turbulence of the democratic spirit” and called for an authoritarian government headed by a president with near-monarchial powers.
As treasury secretary, Hamilton devised bold policies to enhance national authority and to favor wealthy financiers and merchants.
He outlined his plans in three groundbreaking reports to Congress: on public credit (January 1790), on a national bank (December 1790), and on manufactures (December 1791).
Hamilton called on Congress to pay at face value the millions of dollars in securities issued by the Confederation government. He reasoned that, as an underdeveloped nation, the United States was heavily dependent on foreign loans and needed good credit to survive.
Hamilton proposed that the national government improve the public credit by assuming the war debts of the states. This plan would favor wealthy creditors. It unleashed a flurry of speculation and government corruption.
In December 1790, Hamilton issued a second report, which asked Congress to charter the Bank of the United States. The bank would be jointly owned by private stockholders and the national government.
Hamilton argued that the bank, by making loans to merchants, handling government funds, and issuing bills of credit, would provide financial stability and a respected currency for the speciestarved American economy.
These potential benefits persuaded Congress to charter Hamilton’s bank, for a period of twenty years, and send the legislation to the president for approval.
At this critical juncture, Secretary of State Thomas Jefferson joined the ranks with James Madison against Hamilton’s financial initiatives.
Jefferson had condemned the “corrupt squadron of paper dealer” who speculated in southern war bonds. Now he charged that Hamilton’s scheme for a national bank was unconstitutional.
Jefferson’s opinion on the National Bank. http://www.loc.gov/exhibits/jefferson/jefffed.html
“The incorporation of a Bank,” Jefferson told President Washington, was not a power expressly “delegated to the United States by the Constitution.” Jefferson’s argument rested on a strict interpretation of the national charter.
In response, Hamilton devised a loose interpretation of the Constitution, stating that Article I, Section 8, empowered Congress to make “all Laws which shall be necessary and proper” to carry out the provisions of the Constitution.
Agreeing with his treasury secretary, Washington signed the legislation.
Lastly, Hamilton concentrated on revenue to pay the annual interest on the national debt. At Hamilton’s insistence, Congress imposed a number of domestic excise taxes, including a duty on whiskey distilled in the United States.
Next, the treasury secretary proposed higher tariffs on foreign imports. Although he urged the nation to become self-sufficient in manufacturing, Hamilton did not support high protective tariffs that would exclude competing foreign products.
Instead, he advocated revenue tariffs that would pay the interest on the debt and defray the expenses of the national government.
Hamilton’s scheme worked brilliantly. As American trade increased, customs revenue rose steadily. Tariffs also had the unexpected effect of encouraging rapid settlement of the West, an outcome opposed by Hamilton and favored by his political opponents.
Because import duties brought in 90 percent of the U.S. government’s income from 1790 to 1820, the government was able to sell lands in the national domain at ever-lower prices.
All in all, Hamilton had devised a strikingly modern fiscal system that provided the new national government with financial flexibility and stability.