Chapter 7: Section 2: Hamilton and National Finance

Alexander Hamilton -seemed born with a head for economics. While still in his teens, he helped run a shipping company in his native British West Indies. Family friends then sent him to the American colonies for an education. Hamilton eventually married into a wealthy New York family and began practicing law. He served as Washington’s aide and as a delegate to four Continental Congresses.

​As secretary of the treasury, Hamilton’s biggest challenge was paying off the national debt—money owed by the United States—from the Revolutionary War. The United States owed about $11.7 million to foreign countries and about $40.4 million to U.S. citizens. During the war the government raised money with bonds. Bonds are certificates of debt that carry a promise to buy back the bonds at a higher price. The new government could not afford to keep this promise. Bondholders who needed money sold their bonds for less than the original value to speculators, or people who buy items at low prices in the hope that the value will rise and they can sell the items for a profit.

​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 paying full value would allow speculators to make a profit. Hamilton thought this was fair.

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​Thomas Jefferson disagreed. He thought the idea cheated bondholders who had sold their bonds at low prices. Jefferson wrote, “Immense sums were thus filched [stolen] from the poor and ignorant.”

​1. Deal with the Debt

• Take on the foreign and domestic debt by replacing creditors' old, low-value bonds with new interest-bearing bonds

• Take over most of the states' $25 million war debts

​2. Gain Revenue

• Pass a tariff to both bring in revenue and help American manufacturers

​3. Stabilize the Banking System

• Create a national bank

• Create a national mint

​Hamilton and Jefferson did not cooperate for long. Instead, they began to disagree about how to define the authority of the central government. Hamilton believed in a strong federal government. Jefferson wanted to protect the powers of the states. Their conflict reflected basic differences in their opinions about democracy.

Alexander Hamilton thought that the average citizen had no interest in public affairs.

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​Thomas Jefferson believed that each citizen could work to better society.​

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​Hamilton wanted to start a national bank where the government could safely deposit its money. The bank would also make loans to the government and businesses. Hamilton also thought that the United States should build a national mint, a place to make coins. Then the country could begin issuing its own currency.

​Hamilton declared that the clause allowed the government to create a national bank. Hamilton believed in loose construction of the Constitution. Loose construction means that the federal government can take reasonable actions that the Constitution does not specifically forbid.

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Jefferson thought that the elastic clause should be used only in special cases. He wrote to President Washington, “The Constitution allows only the means which are ‘necessary,’ not those which are merely ‘convenient.’” Jefferson believed in strict construction of the Constitution. People who favor strict construction think that the federal government should do only what the Constitution specifically says it can do.

​President Washington and Congress agreed with Hamilton. They hoped a bank would offer stability for the U.S. economy. In February 1791 Congress enacted the charter for the Bank of the United States—the country’s first national bank. The bank played an important role in making the U.S. economy more stable.