Alexander Hamilton, elected as the first treasury secretary of the United States by George Washington, well known as one of the main authors of The Federalist Papers, assisted in the ratification of the United States Constitution. Hamilton held an important role in planning and controlling the financial affairs of the Federal government. As a result of the Revolutionary War, the United States of America was left with a debt of $25 million dollars from the states and a $54 million dollars of National debt. As the treasury secretary, Alexander Hamilton established a financial system for the government of America. His plan consisted of four main parts: collecting state debts by issuing bonds that bore interest, trying to get the new government to pay off the full debts of the states, placing tariffs for internationally imported and England imported goods, and establishing a new private National bank. Although Alexander Hamilton’s plan did not directly aid in the development of the United States Constitution due to it being seen as unconstitutional, he is considered by many to be the father of the U.S.
banking and economic system since he developed the Hamilton Financial Plan in order to mend the credit of the United States of America by providing ways for paying off the debts of the nation. At last, Hamilton’s Financial Plan was successful and fulfilled his goal of fortifying unionized control over the American economy.In 1783, after the Revolutionary War had just ended, Alexander Hamilton was the first to step in when the United States of America was left with an enormous debt.
One way Hamilton established the credit of the United States was by exchanging old war bonds. This displayed that the United States was paying off its debts responsibly in the eyes of other countries so it allowed the US to borrow money from other countries in order to establish good credit once again. “Such action would dramatically enhance the legitimacy of the new central government.
” Exchanging old war bonds was a way that could potentially increase the concreteness and credibility of the new Federal government that had just been created. This way, the central government would be able to start off with a fresh slate. Paying off the debts as efficiently as quickly as possible was extremely important to the United States because it was essentially the groundwork and support system in order for foreign trade. The exchangement of capital, goods, and services across international territories was crucial for the advancement of the economy. Without the lowering of the largely acquired debt, the US would not be able to borrow money, fund businesses, or be able to keep a stable economy. Another one of Hamilton’s bold ideas was that the Federal government should pay for the debts of the states at face value, meaning that interests were excluded. However, this method was seen as unconstitutional by people such as James Madison because he thought that this plan would give too many benefits to wealthy investors and Madison was not interested in doing such a thing.
Madison argued that Congress should not help out with the debt of America because they have a different priority. He also argued that there are plenty of other ways that could be implemented in order to pay off this immense debt. One such way that Madison suggested was that “Congress should set aside money for the original owners of the debts who tended to be ordinary Americans and not new investors.” Although this idea would have been more productive than Hamilton’s idea of the Federal Government paying full face value, Madison’s idea would not have been easy to apply. “Nearly half the members of Congress invested in public securities. They stood to benefit financially from Hamilton’s plan.” Therefore, since it was evident that the Congress would benefit from Hamilton’s plan, it was put into effect instead of being stopped, which is what Madison had wanted.
A third way that Hamilton proposed to pay the debts was to raise money through increasing taxes on imported goods. The imported goods that seemed to be the most targeted were the exclusive items such as whiskey in the year of 1791. The division into two sets of opinions was heightened when Hamilton proposed a whiskey tax and “Political polarization was further intensified by the outbreak of popular protests in western Pennsylvania against Hamilton’s financial program.” This disapproval was shown through the Whiskey Rebellion of 1794, where up to 500 farmers set fire on a tax collector’s house and many other disastrous events occured. “…
farmers regarded tax on whiskey the same way that the colonists had regarded Britain’s stamp tax.” 7000 people rebelled against Hamilton’s initiation of the tax for this alcohol. Although the previous plan of the Federal government paying off the debts at full face value was seen as unconstitutional, this part of Hamilton’s plan, however, was completely constitutional on all grounds and terms.
This was because it specifically states in the United States Constitution that “The Congress shall have Power To lay and collect Taxes… to pay the Debts and provide for the common Defense and general Welfare of the United States”. Although Hamilton already placed a tax on imported goods, he decided it would be more efficient if we put to a high tariff, or tax, on goods brought into the United States of America specifically from England. Hamilton had a liking of American businessmen and truly longed for them to become rich, but it was indisputable that most people were buying goods of British creation due to their high quality.
He also knew that “if Americans bought American goods, then American factory owners would become richer.” Hamilton did not wish for any one specific business to have more power over others. So, the idea was that people were so interested in buying higher quality items from England anyways, so adding or increasing the tax on these goods would lead to quicker redemption of the United States of America. Not only would the US be able to pay off their debt quickly, but all the businesses would be on the same level and would not overpower others. “In 1792, the federal government imposed a tax on tea to pay off the nation’s debts from the American Revolution. The tax, which was payable only in cash, was particularly hard on small frontier farmers, who bartered and did not have access to hard currency.” His plan affected the average citizen because most farmers who were affected then did not have hard cash in order to pay their taxes. This was considered unconstitutional because of one part that was not approved by Congress.
This part was to provide funding to manufacturers, in order to boost production and the economy. This failed in the end because of opposition from the South. The overall plan for exchanging war bonds and arranging tariffs for imported goods as well as whiskey and tea was one of the effective ways that the debts of the United States of America was fulfilled. Another way that Alexander Hamilton helped in combating the debt was by creating a private National bank owned by the US.
“Hamilton’s objective was to create a bank… modeled after the Bank of England.” Hamilton was convinced that the British way of running the bank was the correct way. He wanted to create a bank similar to the British system in order to “collect taxes,…
regulate the nation’s financial system,…
and handle government debt payments to foreign and domestic creditors.” However, this part of the plan gained major backlash, just like the paying back debt situation, and unleashed a storm of protest. “Critics charged that the bank threatened the nation’s republican values.” These banks were seen as too secretive, and therefore, corrupt. These same critics denounced the idea of private banks because they argued that such a bank was unconstitutional.
Nowhere in the Constitution did it declare that Congress had the power to create a bank. Some things the national bank did were that it established credit in the country as well as overseas. Not only did the England-like bank establish better credit, but “a central bank would help make the new nation’s economy dynamic through a more stable paper currency.” Many feared that these types of banks would fall under the influence of northerners who were overseas. However, In the end, with the support of George Washington, this idea of bank was authorized with its first headquarters situated in Philadelphia.
At the end, banks were finalized as a good decision made by Alexander Hamilton and most of them continue to exist today.Similar to the 1790s, Federal Bonds are still issued by the government today. The bond is acquired and later matures into a larger amount and benefits the investor. They are quite similar to stocks, because a person invests in them and the stock will slowly grow and profit the holder. This grants the government the ability to handle the money owned by the bondholder for themselves. However, this can only last until the bond is cashed in. The main goal of his plan was to provide for the payment of the national and state debts and establish Federal control over the American economy. He did this by issuing bonds, creating a tax for foreign and specifically England imported goods, and creating a private national bank to control the US money in order to pay back the debts of the states and the nation debts.
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