One of the Founding Fathers of the United States of America, Alexander Hamilton, most well known as the primary author of The Federalist Papers, assisted in the ratification of the United States Constitution, made an influence on American matters with his reports to Congress on the financial affairs of the Federal government. Hamilton is responsible for the financial system which helped unite the states into a nation, and proceeded to put that same nation on its path towards an industrial economy. After the Revolutionary War ended in 1783, the United States of America was left with a trembling debt of $25 million dollars from the individual states as well as a hefty $52 million dollars of National debt.
Hamilton put himself to the task of establishing a financial system for the government of America because he insisted that what the United States of America needs is order and stability His plan consisted of paying off the National debt, putting high taxes on imported goods, and creating a privately owned National bank. Although Alexander Hamilton’s plan did not aid in the development of the United States Constitution due to it being seen as unconstitutional in the eyes of Republicans such as Thomas Jefferson and James Madison, he is now considered by many to be the father of the U.S. banking and financial system since he developed a financial plan, called the Hamilton Financial Plan, in order to restore the credit of the United States of America by providing for the payment of the nation. Hamilton’s Financial Plan was successful and fulfilled the goal of establishing a sense of order and stability in the United States of America. After the end of the American Revolutionary war, America was left with a substantial National and individual state debt and America needed a way to pay off this debt as soon as possible.
This is where Alexander Hamilton stepped in. One way that Hamilton established the credit of the United States was by exchanging old war bonds for new Federal Reserve bonds and this showed that the United States was paying off its debts responsibly in the eyes of other countries so it allowed the US to borrow money from the other countries in order to establish good credit once again. “Such action would dramatically enhance the legitimacy of the new central government.” This quote shows that exchanging old war bonds is an action that would increase the legitimacy of the new Federal government that was created and this new government would be able to start off with a fresh slate due to it being seen as more of a “legit… central government”. Paying off the debts of America was extremely important to the United States because it was the basis for foreign trade, and this was necessary for growth of the economy . Without the removal of the largely acquired debt, the US could not borrow money, would not be able to fund businesses, and would not be able to keep a stable economy. Hamilton had another bold idea of the fact that the Federal government should pay off the debts of the Confederacy at full value. With this plan came new security bonds.
“Investors who had purchased these public securities could make enormous profits when the time came for the United States to pay off these new debts.” This method was seen as unconstitutional by some Republicans such as James Madison because he thought “that Congress should set aside some money for the original owners of the debts who tended to be ordinary Americans and not new investors and speculators.” Madison argued that Congress should not help out with the debt of America because they have a different priority. However, “On a pragmatic level Madison’s idea would have been difficult to implement. Nearly half the members of Congress invested in public securities. They stood to benefit financially from Hamilton’s plan. The passage of his was doubly assured.” Another way that Hamilton proposed to pay the debts was to raise money through increasing taxes on imported goods.
One such example is on exclusive items such as whiskey in the year of 1791. He knew that not too many people produced and sold whiskey. “Political polarization was further intensified by the outbreak of popular protests in western Pennsylvania against Hamilton’s financial program.” The division into two sharply contrasting groups or sets of opinions or beliefs was increased when Hamilton proposed a whiskey tax. This protestation was shown through the Whiskey Rebellion of 1794, where events such as up to 500 farmers setting fire on a tax collector’s house occurred. “Frontier farmers regarded a tax on whiskey the same way that the colonists had regarded Britain’s stamp tax.
Some 7000 frontier settlers marched on Pittsburgh to stop collection of the tax.” Thousands of people rebelled against Hamilton’s initiation of the tax for this alcohol. Though the previous plan of the Federal government paying off the Confederacy was seen as unconstitutional, this part of his plan, however, was completely constitutional on all grounds and terms., since it is one of the mentioned powers in the Constitution that Congress is allowed to collect taxes to pay off a debt. A third way that Hamilton thought would help the government get money for the debt was by putting a high tariff on goods brought into the United States of America from England. Hamilton liked American businessmen and wanted them to become rich but people were buying British goods because of their high quality. Also, he knew that “if Americans bought American goods, then American factory owners would become richer.” This raise in taxes affected the rich and the poor as well because the tax related to a variety of items which both the rich and the poor were consuming at the time.
“In 1792, the federal government imposed a tax on tea to pay off the nation’s debts from the American Revolution. The tax, which was payable only in cash, was particularly hard on small frontier farmers, who bartered and did not have access to hard currency.” His plan affected the average citizen because most farmers who were affected then did not have hard cash in order to pay their taxes. This was considered unconstitutional because of one part that was not approved by Congress. This part was to provide funding to manufacturers, in order to boost production and the economy. This failed in the end because of opposition from the South.
The overall plan for exchanging war bonds and arranging tariffs for imported goods as well as whiskey and tea was one of the effective ways that the debts of the United States of America was fulfilled. Another way that Alexander Hamilton helped in combating the debt was by creating a private National bank owned by the United States of America. “After his debt program was approved, Hamilton’s next objective was to create a Bank of the United States, modeled after the Bank of England, to issue currency, collect taxes, hold government securities, regulate the nation’s financial system, provide funds in the event of a national emergency, handle government debt payments to foreign and domestic creditors, and make loans to the government and private borrowers.” Hamilton was just too convinced that the British way of running the back was the correct way.
However, this part of the plan gained major backlash, just like the paying back debt situation, and unleashed a storm of protest. “Critics charged that the bank threatened the nation’s republican values by encouraging speculation and corruption. They also contended that the bank was unconstitutional, since the Constitution did not give Congress the power to create a bank.” Some things the national bank did were that it established a national currency and establish credit in the country and overseas. “Modeled along the lines of the Bank of England, a central bank would help make the new nation’s economy dynamic through a more stable paper currency.” The banks faced notable resistance and many feared it would fall under the influence of wealthy northerners from overseas, but in the end, with the support of George Washington, the bank was chartered with its first headquarters in Philadelphia.
However, at the end, banks were finalized as a good decision made by Alexander Hamilton and mostly continues to exist today.Hamilton’s Financial Plan still remains in effect today. Federal Bonds are still issued by the government.
A bond is purchased, and over a certain amount of time the bond matures into a larger amount at a profit to the holder. This allows the government to use the money owned by the bond holder until the bond is cashed in. These federal bonds now used in the 20th century were developed by Hamilton in the 1790. Alexander Hamilton created a financial plan to help establish the United State credit after the Revolutionary War. The main goal of his plan was to provide for the payment of the nation debts. He did this by issuing bonds, creating a tax for foreign goods and whiskey as well as tea in order to pay back the debts of the states and the nation debts, all while creating a national bank to control the US money. At the end, Hamilton’s Financial Plan was unable to directly affect the United Constitution, but the plan still remains in positive effect today.