Transcript Chapter 7, Section 2

Chapter 7, Section 2
Hamilton and National Finance
Settling the Debt
 Alexander Hamilton
 Brilliant economist
 Not too good at dueling
 As a teenager, helped manage a shipping
company in the West Indies (Caribbean)
 Sent to American colonies by his family to
receive a formal education
 Married into a wealthy NY family and became a
lawyer
 Served as an aide to George Washington and
delegate to 4 Continential Congresses
National Debt
 Hamilton as Secretary of Treasury
 Biggest challenge was to pay off the
national debt (money owed by the
United States) accumulated by the
Revolutionary War
 11.7 million to foreign countries
 40.4 million to United States citizens
National Debt
 Money was raised during the war with
bonds
 Certificates of debt that promise to buy
back bonds at a higher price
 New government could not afford to keep
the promise because bondholders who
needed money sold their bonds for less
than the original value to speculators
 People who buy low with the expectation of
selling high
National Debt
 Alexander Hamilton wanted to pay
the foreign debt immediately and
gradually repay the total value of all
bonds
 The second part of his plan caused
disagreements because it allowed
speculators to turn a profit
 Thomas Jefferson disagreed because he
felt that the original bondholder was
cheated
States’ Debt
 States owed 25 million for the war
 Hamilton wanted the federal government
to pay 21.5 million of this debt
 Believed that it would help the federal
government by increasing the national
economy
 Debtor states would not have to spend so
much on repayment and would be able to
develop business and trade
 Increased business would put money back
into the national economy
States’ Debt
 Southern states were opposed to
Hamilton’s plan
 Virginia and North Carolina did not have
high war debts
 Hamilton knew that he needed the
support of Southern State leaders in
order to gain approval for his plan
Moving the Capital
 Southern states wanted the capital of the
new nation moved
 Felt that New York City as the capital gave
northern states too much power
 Alexander Hamilton, Thomas Jefferson, and
James Madison met in June 1790
 Hamilton promised to convince northern
Congress members to move the capital in return
for southern support of his economic plan
Moving the Capital
 Compromise was a success
 Capital was moved from New York City to
Philadelphia for 10 years
 George Washington chose a place on
the Potomac River that included part
of Maryland and Virginia
 Eventually would become Washington
D.C.
Jefferson Opposes Hamilton
 Alexander Hamilton and Thomas
Jefferson did not cooperate for long
 Disagreed over how to define authority
of the central government
 Hamilton: believed in a strong federal
government
 Jefferson: believed in states’ rights
Differing Views
 Alexander Hamilton favored a strong
central government that created a balance
of power between the common man and
the wealthy
 He believed that this approach would protect
individual liberties while keeping the people from
gaining too much power
 Thomas Jefferson believed that political
power rested in the hands of the common
man
 Admitted that not all people of the day were well
informed
Economic Differences
 Alexander Hamilton favored new forms of
economic growth
 Manufacturing and business
 Favored higher tariffs
 “Protective tariffs” to raise the prices of foreign
products to stimulate interests in domestic
goods
 Thomas Jefferson worried about depending
too much on manufacturing and business
 Believed farmers were the most independent
voters
A National Bank
 Hamilton’s Plan for a National Bank
 Alexander Hamilton wanted to create a national bank
where the nation could safely deposit its money
 Hamilton also wanted a national mint (a place to
make coins)
 Hamilton knew that people who wanted to protect
states’ rights might have a strong reaction to a
national bank
 Suggested limiting it to a 20 yr charter, after such
time Congress would decide whether to extend the
charter
 Asked each state to create their own bank to prevent
the national bank from becoming a monopoly
Jefferson Opposes the Bank
 Thomas Jefferson and James Madison
believed that Alexander Hamilton’s
plan for the economy gave the central
government too much power
 Believed that the Constitution did not
grant Congress the power to create such
an institution
 Hamilton quoted the elastic clause, which
states that Congress can “make all laws
which shall be necessary and proper” to
govern the nation
Jefferson Opposes the Bank
 Alexander Hamilton believed in loose
construction of the Constitution
 The federal government may take reasonable
actions that the Constitution does not
specifically forbid
 Thomas Jefferson thought that the elastic
clause should only be used in special casesfavored strict construction of the
Constitution
 The federal government may only do what the
Constitution says it may
Jefferson Opposes the Bank
 President George Washington agreed
with Alexander Hamilton
 Hoped that the creation of a national
bank would offer stability for the new
United States economy
 February 1791
 Bank of the United States
 Country’s first national bank