Alexander Hamilton - Shaping Our Nation

Alexander Hamilton

During America’s economic turmoil, Alexander Hamilton’s federalist approach towards shaping our nation had a tremendous effect on the American economy. He preserved the chaotic, post-war economy by following a financial plan that consisted of creating a national bank, establishing public credit, and developing a mercantilist economic policy. His ideologies lead to a more stable and centralized government in which America could thrive during its infancy. Under the circumstances that America had just been born and was more vulnerable to collapse, Alexander Hamilton favored a strong central government over the federal power of the states by establishing a centralized banking system that ultimately led to a more stabilized economy.

The inflation and war debts America faced after winning independence from Britain left the economy in a financial crisis, which called for the need of a more centralized government. America was suffering from a huge inflation caused by the shortage of goods from the British blockade, army and militia’s demand for supplies, and paper currency issued by the confederation congress (Borden). The inflation caused by the American Revolution turned into an economic depression because the federal government could not pay the huge debts caused by the war. Congress was also not able to raise taxes to pay off the debts since the states had the power to do so. Therefore, Hamilton proposed a national bank to pay off the debts, initiate a protective tariff, and raise money for the newly created government. However, Jefferson opposed his idea of a centralized bank because he believed in an agricultural society over the business dominated community that Hamilton wanted. He also strongly disliked manufacturing and commerce due to his belief that democracy thrives best in a rural society filled with small, independent farmers. Jefferson was a strict constructionist who wanted a small federal government in which the people and states had most of the power. Therefore, he had a “strict interpretation” of the Constitution and argued that a national bank can not be formed since the federal government did not permit it to do so. On the contrary, Hamilton was a broad constructionist who favored a powerful government that could enact a wide variety of the implied powers. He had a “loose interpretation” of the Constitution so he asserted that “Congress can make all laws necessary and proper for the execution of its power” (US Const. Amend. I, sec. 8). As a result, Hamilton’s national bank would ultimately help in collecting taxes, paying debts, and borrowing money sufficiently. Thus, Washington and Congress accepted Hamilton's view instead of Jefferson’s method of favoring the state’s rights. With Hamilton’s central bank, industry would be promoted and high tariffs would be placed on manufactured imports from Britain, solving the problem of inflation and the instability of the economy caused by the war (Pearson).

As Secretary of the Treasury, Hamilton took a more Federalist approach towards shaping the American economy by establishing his Financial plan, which enhanced national authority and assisted financers and merchants. The money borrowed to finance the American Revolution was nearly viewed as worthless, so Hamilton suggested that the federal government should pay off all state debts at full value. This was done by issuing securities bonds and allowing the federal government to impose taxes on foreign goods. For example, Hamilton imposed a federal tax on foreign imported whiskey, raising money for the assumption of state debts. American Financiers and Investors who purchased securities bonds were also able to make huge profits when the time came for the government to pay off these new debts. Additionally, Hamilton legitimized the newly created central government by establishing public credit. Public credit encouraged organization in the American economy, allowed Congress to increase federal revenue, and prompted business investments in manufacturing and agriculture. Hamilton believed that “an adequate provision for the support of the Public Credit is a matter of high importance to the honor and prosperity of the United States” (Hamilton 472), meaning that the establishment of public credit was necessary for businesses to effortlessly carry their taxes and provide revenue for national debt. Furthermore, Hamilton created a national bank modeled after the Bank of England that acted as a financial institution which allowed the federal government to borrow money for the funding of war debts. This national bank provided security to the American economy by strengthening its regulations and supplying credit to farmers and investors. Before its creation, each state had a different form of currency, which obstructed the government from funding the war debts. By creating a national