Transcript The Federalist Era

The Federalist Era
Alexander Hamilton – Treasury Secretary
Native of the British West Indies
Genius
Critics claimed he loved his adopted country
more that his countrymen
Regarded himself as a prime minister to
Washington’s cabinet
On occasion thrusting his hands into the affairs of
other departments.
Including Thomas Jefferson’s department (Sect. of
State) (archrivals)
The Federalist Era
Alexander Hamilton – Treasury Secretary
Financial wizard
Set out to shape the fiscal policies of the
administration to benefit the wealthy
He believed they would in turn lend the
government monetary and political support.
Federal regime would thrive, propertied classes
would fatten, and prosperity would then flow down
to the masses
The Federalist Era
Alexander Hamilton – Treasury Secretary
First Objective
Bolster national credit
W/out public confidence in the government Hamilton
could not secure the funds needed to float his risky
schemes.
He boldly asked Congress to “fund” the entire
national debt “at par” and
Funding at par – the federal government would pay
off its debts at face value, plus accumulated interest – a
then enormous total of more than $54 million.
Assume completely the debts incurred by the
states during the recent war
The Federalist Era
Alexander Hamilton – Treasury Secretary
First Objective
To raise the $54 million he proposed selling an
equal sum in new securities.
Purchasers would chose from several
combinations of federal “stock” and western lands.
Those who wished could retain their original
bonds and earn 4% interest
Reducing interest payments on the debt from the
full 6% set by the Confederation Congress
The Federalist Era
Alexander Hamilton – Treasury Secretary
Speculators held fistfuls of the government bonds
1790 Congress passes Hamilton’s measure
Speculators ride into rural areas ahead of the news
buying more of the devalued bonds from unknowing
farmers, war veterans, and widows
The Federalist Era
Alexander Hamilton – Treasury Secretary
Second Objective – Congress should assume the
debts of the states, totaling $21.5 million.
Assumption – national government assumes debt of state
governments
He believed that “assumption” would tie the states
more closely to the “federal chariot”
Move attachment of wealthy creditors from state to
federal government
Support of the rich was a crucial link in Hamilton’s
political strategy of strengthening the central government
The Federalist Era
Alexander Hamilton – Treasury Secretary
States with high debt (Massachusetts) were
delighted
States with small debts (Virginia) were less
charmed
Virginia wanted new federal district to be located on
the Potomac River
Jefferson just home from France was persuaded to
line up votes in Congress for the “assumption” in
return for the federal district in Virginia
The Federalist Era
Customs Duties and Excise Taxes
The new state was dangerously overloaded
National debt $75million
Avoiding $13 million in back interest and the state debt
entirely would have changed the debt balance considerably
Hamilton believed that the national debt was a
“national blessing”
Debt (ordinarily a liability) = an asset for vitalizing
the financial system as well as the government itself
The Federalist Era
Customs Duties and Excise Taxes
Where would the money come from to pay the interest on
the huge debt and run the government?
Customs duties – derived from a tariff
Foreign Trade – another crucial link in Hamilton’s plan
1st Tariff law – low tax of 8 % on the value of dutiable imports was
quickly passed by Congress in 1789.
This tariff was also meant to place a low protective wall around infant
industries. (Industries wanted more)
Hamilton wanted the Industrial Revolution to reach the U.S.
He argued for more protection for the well-to-do manufacturing
groups
The Federalist Era
Customs Duties and Excise Taxes
3rd Vital part of Hamilton Plan – Protection of wellto-do manufacturing groups
Hamilton wanted the Industrial Revolution to reach the
U.S.
Congress was still dominated by the agricultural and
commercial interests
Voted only two slight increases in the tariff during
Washington’s administration
The Federalist Era
Customs Duties and Excise Taxes
Excise Tax on Whiskey
Seeking additional internal revenue Hamilton in
1791 secured from Congress an excise tax on a few
domestic items (whiskey)
Distillers in the backcountry had to pay seven cents a
gallon
Bad roads forced farmers to reduce bulky bushels of
grain to horseback proportion
Whiskey was even used as money
The Federalist Era
Hamilton Battles Jefferson for a Bank
Capstone for his financial system, Hamilton
proposes a Bank of the United States
Modeled after the Bank of England
Powerful Private institution, which the government would
be the major stockholder and the federal treasury would
deposit its surplus monies.
Central Government would have a convenient strongbox
Federal funds would stimulate business by remaining in
circulation
Bank would print urgently needed paper money and provide
a sound and stable national currency
Useful but was it Constitutional?
The Federalist Era
Hamilton Battles Jefferson for a Bank
Jefferson answering Washington’s questions argues
against the Bank of the United States.
No provisions in Constitutions for such a financial octopus.
Jefferson was convinced that all powers not reserved or
specifically granted to the central government were
reserved to the states, as provided in the about to be ratified
Bill of Rights.
He concluded states not Congress had the right to charter banks.
Constitution should be interpreted “literally” or “strictly”
Jefferson and his states’ rights disciples zealously
embraced the theory of “strict construction”
The Federalist Era
Hamilton Battles Jefferson for a Bank
Hamilton answering Washington’s questions
prepares a reasoned reply to Jefferson’s
arguments.
Hamilton –What the constitution did not forbid it
permitted.
Jefferson – what it did not permit it forbade.
Hamilton invoked the “necessary and proper
clause” – stipulates that Congress may pass any laws
necessary and proper to carry out the powers vested
in the various government agencies.
Empowered to collect taxes and regulate trade – in
carrying out these basic functions a national bank would be
not only “proper” but “necessary”.
The Federalist Era
Hamilton Battles Jefferson for a Bank
Hamilton – By virtue of “implied powers” – Congress
would be fully justified in establishing the Bank of the
United States
Hamilton contended for a “loose” or “broad”
interpretation of the constitution.
His followers evolved the theory of “loose construction”
by invoking the “elastic clause” a precedent of enormous
federal powers.
Hamilton’s eloquence prevailed with Washington who
reluctantly signed the Bank measure into law.
Support coming from the commercial and financial centers of
the North
Opposition arose from the agricultural South
The Federalist Era
Hamilton Battles Jefferson for a Bank
Bank of the United States – created by congress
in 1791
Chartered for 20 years
Located in Philadelphia
Capital of $10 million
1/5 of it owned by the federal government
Stock thrown open to Public for sale
Crowd oversubscribed to stock purchase in less than
two hours
The Federalist Era
Hamilton Battles Jefferson for a Bank
Whiskey Rebellion – southern Pennsylvania in
1794
Hamilton’s high excise tax was hard on pioneer
farmers
Farmers saw it not as a tax on a frivolous luxury,
but as a burden on an economic necessity and a
medium of exchange.
Even preachers were paid in “Old Monongahela
rye”.
Defiant distillers finally erected whiskey poles,
similar to the liberty poles of anti-stamp tax days in
1765
Cried, “Liberty and No Excise.”
The Federalist Era
Hamilton Battles Jefferson for a Bank
Whiskey Rebellion
Farmers tarred and feathered revenue officers, bringing
tax collections to a halt
Washington alarmed by, “self-created societies.”
Encouraged by Hamilton, Washington summoned
the militia of several states.
Anxious moments waiting after the call, (would
the men answer?) needed to crush rebellion in
sister state.
13,000 marched in wide spread columns until
slowed by knee deep mud
Found no insurrection – “Whiskey Boys” were
overawed, dispersed, or captured. (later pardoned)
The Federalist Era
Hamilton Battles Jefferson for a Bank
Whiskey Rebellion
Only 3 rebels were killed, but its consequences were
mighty.
George Washington’s government strengthened,
commanded a new respect
Foes condemned its brutal display of force, using a
sledge hammer to kill a gnat.