Monday, March 3, 2008

Hamilton, Economics, and the Capital

The most important member of George Washington’s cabinet was arguably Alexander Hamilton. As Secretary of the Treasury, Hamilton faced the tremendous burden of tackling the nation's debt crisis. The Revolutionary War had left the states with massive debts, and many European nations were reluctant to establish credit with American merchants. To correct the problem, Hamilton proposed that the national government should assume the debts of the states, that a national bank be established, and that all holders of war bonds/securities be paid at face value. By assuming the states debts, Hamilton was essentially doing what he felt the national government had been given power to do. As Joseph Ellis points out, "the federal government was implicitly, even covertly, assuming sovereign authority over the economics of all the states."

Opponents of Hamilton's economic plan saw it as an evil scheme to wrestle power away from the people and to secure it for the national government. Some suggested that Hamilton was doing this by shifting the balance of power from the legislative branch (Congress) to the executive branch (the Presidency). Other opponents had a different take on Hamilton's economic plan. Many saw it as a carbon copy of England, which would benefit the rich at the expense of the poor. Many southern leaders interpreted the plan as "the prostration of agriculture at the feet of commerce."

There were also many in the public who lamented the fact that war bonds, which had been used to pay war veterans, were being bought up by rich speculators. These speculators were paying well below face value for the bonds, and then waiting for Hamilton's plan to go into effect. These speculators knew they stood to gain huge profits once Hamilton's plan was accepted. Critics argued that many veterans were being swindled out of their money. Congressman James Jackson called the speculators, "rapacious wolves seeking whom they may devour."

Eventually, opponents of Hamilton's plan (especially the Virginia elite) would lend their support for it, in exchange for the location of the new national capital to be located on the Potomac. Thomas Jefferson and James Madison used their political influence to sway public support in favor of Hamilton's plan. In return, the new capital of the nation was established in Virginia. Many leaders within the government felt that this compromise "gave birth to combinations, parties, intrigues, such a degree to give serious alarm to the friends of the government." Hamilton's economic plan served as one of the first hurdles for the infant nation to learn to overcome. Whether the compromise was seen as a good or bad thing, it did prove that politicians with differing opinions could find a way to come to a compromise and get things done.


jg325 said...

small copy edit oversight, hamilton was sec of the treasury, not state.

came across your blog yesterday...enjoy the variety of the posts! :)

David Mabry said...

The opinions over the bank bill presented to Washington by Hamilton and Jefferson are a wonderful insight into the argument over the power of the federal government. This was the heart of the difference of the visions oer the future of the United States which resulted in the formation of the first two political parties in the United States. Sorry, I am teaching again.
This was an important moment in American history. Hamilton's genius, his unique gifts were perfectly suited to hispost as the first Secretayr of Treasury. Joanne Freeman said in perfectly in the MAerican Experience episode on Hamilton, it was Hamiltonian paradise. An disorganized dissarry of accounts, debts and papers into which a Hamiltonian order can be imposed. The use ofpublic debt to maintain interest in the future of the government, genius!!!
Can you tell that I am a Hamiltonian? Amazing that he never served as president, in fact the Federalists offically held the office for only four years, while the Democratic-Republicans held the office through six terms!!!! And it is Hamilton's vision which prevails!!!

Brad said...

Oops! You are right JG325. Thanks for the correction. I acn't believe I never noticed it.

Lindsey Shuman said...

I love this story. It is wonderful that a hated person (in his time) like Hamilton could leave arguably the greatest impact on the course that the nation would take. Hamilton was a remarkable mind when it came to government, politics, and obviously economics.

Steve Becknall said...

I too love the "dinner party" compromises that Ellis talks about in "Founding Brothers." This story is sort of the preview for all the political debates and differences between Federalist and Democratic-Republican to come.

Raven said...

I like Hamilton, but Jefferson and Madison were right in the end, not Hamilton.

Brian Tubbs said...

Alexander Hamilton was right on the economy, right on slavery, and right on the need for the United States to have a strong central government.

Jefferson was wrong on the economy (he wanted the US to remain agrarian and eschewed banking, investing, etc. - at least he did early on), wrong on slavery (albeit he was morally conflicted on the issue), and MIXED on the issue of states' rights v. a strong central government.

I actually think Jefferson - as PRESIDENT - figured out some of those things. It's a shame Hamilton wasn't around to fully see Jefferson's change of heart.

sexy said...