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Ali Ghafoori

America in the Aftermath of the Revolution (1783-1800)

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Lecture Date: February 20, 2008

Hamiltonian Federalism:

Alexander Hamilton was the first secretary of Treasury and built up the

Treasury Department as the largest department within the executive

branch.

Purpose of Hamiltonian Reforms Hamiltons fundamental vision was to

have a strong national government. His sole experience was working with

the national government and he had little affinity for the states since he had

not grown up in the states. Furthermore, he considered himself an

aristocrat by birth.

Philosophy Hamiltons approach was grounded in his elitist outlook.

According to this view men are motivated by love of money or love of

power. Furthermore, the people are divided into two groups: the mob and

the elite. The elite are educated and have interest in pursuing the public

good. Public good in his conception was a strong national government. So

he sat about building support for the national government amongst the

elite.

Report on the Public Credit, 1790:

8/14/2019 Lecture 4 - Hamiltonian Federalism Part 1

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Ali Ghafoori

America in the Aftermath of the Revolution (1783-1800)

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The US owed US $ 75 million in federal and state debts which were not

serviced because of Congresss inability to collect taxes. With no service for

the debts, government bonds had devalued to their 15 % original value.

While originally held by farmers and soldiers, the bonds were purchased by

speculators (mostly the rich elite). Hamilton introduced his Public Credit

report arguing that:

1. The US government needs credit.

2. Credit can be maintained by servicing and handling the debt.

3. The debt can be serviced/handled through funding and assumption.

Funding meant assuming more debt to pay off existing debts. He proposed

that all existing national debt be brought into the government and

exchanged for face value plus back interest for new debt. This tied the elite

holding the debt to the national government. The government could service

and pay-off the debt through taxation.

Assumption meant that the state debts will be transferred to the national

government. This centralized the finances of the state and made the

national government strong by increasing the stake people had in the

national government (especially the elite).

8/14/2019 Lecture 4 - Hamiltonian Federalism Part 1

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Ali Ghafoori

America in the Aftermath of the Revolution (1783-1800)

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There were two criticisms leveled at the Hamiltonian credit program:

1. It entailed payment of interest to speculators.

2. Some states had already paid off their debts and were unwilling to

assume the debts from other states.

To overcome criticism, Hamilton agreed to the transfer of capital from New

York to the south.

The outcomes of this program were:

1. It provided credit for the national government thereby strengthening

it further.

2. Gave the elite a stake in the government by tying their interest to the

survival of the national government.

To service the debt, new taxes were needed. The Whiskey Tax was

introduced which affected mostly Western states and involved taxing the

whiskey produced in more remote states for ease of transportation.