The most pressing problems facing the new government were economic. Due to the Revolution, the federal government had a $54 million debt. Foreign credit was unavailable.
As Treasury Secretary, Alexander Hamilton designed a financial system that made the United States the best credit risk in the western world.
Hamilton proposed that the government assume the entire debt of the federal government and the states. His plan was to borrow new money at a lower interest rate.
States like Maryland, Pennsylvania, North Carolina, and Virginia, which had already paid off their debts, saw no reason why they should be taxed by the federal government to pay off the debts of other states.
For six months, a bitter debate raged in Congress, until James Madison and Thomas Jefferson engineered a compromise. In exchange for southern votes, Hamilton promised to support locating the national capital on the banks of the Potomac River, the border between two southern states, Virginia and Maryland.
Hamilton's debt program was a huge success. By demonstrating Americans' willingness to repay their debts, he made the United States attractive to foreign investors. European investment capital poured into the new nation.
Hamilton's next wanted to create a Bank of the United States. A national bank would collect taxes, hold government funds, and make loans to the government and borrowers. The bank was opposed on constitutional grounds—Thomas Jefferson and James Madison charged that a national bank was unconstitutional since the Constitution did not specifically give Congress the power to create a bank.
Hamilton responded by arguing that Congress had the power to create a bank because the Constitution granted the federal government authority to do anything "necessary and proper" to carry out its constitutional functions (in this case its fiscal duties).
In 1791, Congress passed a bill creating a national bank for a term of 20 years, leaving the question of the bank's constitutionality up to President Washington, who reluctantly signed the measure as he believed a bank was necessary for the nation's financial well-being.
Hamilton hoped to break Britain's manufacturing hold on America through high tariffs designed to protect American industry from foreign competition, government subsidies, and government-financed transportation improvements,
Alexander Hamilton offered a modern economic vision based on investment, industry, and expanded commerce.
Source: Alexander Hamilton’s Financial Program
© Copyright 2016 Digital History