Alexander Hamilton The Money Man

Presentation created by Robert MartinezPrimary 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.

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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.

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As treasury secretary, Hamilton devised bold policies to enhance

national authority and to favor wealthy financiers and merchants.

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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).

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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.

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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.

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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.

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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 specie-starved American economy.

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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.

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At this critical juncture, Secretary of State Thomas Jefferson joined the ranks with James Madison against

Hamilton’s financial initiatives.

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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.

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Jefferson’s opinionon the National Bank.

“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.

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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.

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Agreeing with his treasury secretary, Washington signed

the legislation.

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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.

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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.

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Instead, he advocated revenue tariffs that would pay the interest on the debt and defray the expenses of

the national government.

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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.

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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.

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All in all, Hamilton had devised a strikingly modern fiscal system that

provided the new national government with financial flexibility and stability.