BACKGROUND | THREE GREAT REPORTS | THE CORPORATE EXAMPLE | THE DUEL
THREE GREAT REPORTS:
Portrait of Alexander Hamilton by John
Trumbull (c. 1806)
An amazing career carried Hamilton from obscure beginnings
on the island of Nevis to a distinguished position in American public life. By
1789 he had already won high reputation as a spokesman in the Revolutionary
debate, as General Washington's trusted military advisor, as an influential
promoter of the Constitutional Convention, and as co-author of the Federalist
papers. In 1782, shortly after leaving the army, he was admitted to legal
practice in New York City and became recognized as one of the leading lawyers in
Hamilton then became the guiding genius of the
administration of George Washington. He was a mere 32 years old when he assumed
his post as the nation's first Secretary of the Treasury. Much of the first
president's administration dealt with establishing effective operating
procedures in the new and complex political system of checks and balances among
the separate branches of government. President Washington also turned to
Hamilton to provide answers concerning public policy.
The "Federalism" of Hamilton centered much on the
need for a central authority strong and firm enough to "provide for the
common defense" and promote the national interest of the United States in
its relations with external powers. A burdensome public debt (the price of
independence), an uncertain tax revenue, a shortage of capital, and a
depreciated currency left the country in a perilous position. To place the new
government on firm ground, it was necessary to find economic remedies. Hamilton
advanced the broad use of federal powers to strengthen social-economic
opportunity for individuals and to stimulate and direct the economic development
of the country. He proposed a systematic policy for the Congress to follow based
on a bold conception of the role of central government in establishing public
credit and promoting economic development. Agriculture, commerce, industry and
finance would be integrated in an expanding national economy. This was a design
for prosperity with a design for national power.
Hamilton prepared three great reports to Congress that
defined the major policies of Washington's administration. These reports formed
a coherent plan for America's finances. The plan was to fortify America's credit
by settling its debts and using that credit to allow manufacturers to develop.
This, in turn, would create a diverse and flourishing economy, which would then
generate revenue that ensured the debt's proper funding.
Underlying the specific measures was a broad conception of
the relation between government and the economy. A poor and stagnant economic
society could not sustain a strong and secure nation. A flimsy government could
not maintain the property rights or promote the welfare of its citizens. In
Hamilton's view, a great nation, sound public finance and a highly developed
commercial economy were interdependent objects. To accomplish such objectives a
firm central government would have to take command.
Link to the U.S. Treasury
Report on Credit:
The first report, the "Report on Public Credit,"
was presented to the House on January 14, 1790. America's credit could only be
established by resolving the problem of its outstanding debts. These debts were
I.O.U.s given to soldiers during the Revolutionary War, which were being traded
at 20 to 25 percent of their face value, and wartime debts owed by the states.
Failure to meet the interest payments or provide for the retirement of the debt
had shaken the faith of public creditors. Hamilton proposed that the national
government assume the war debts of the states and suggested a schedule for
paying off the I.O.U.s by exchanging the depreciated certificates at face value
for long-term, interest-paying government bonds. Import duties and internal
excise taxes would provide the means for meeting interest charges. A sinking
fund would be formed to retire the bonds as they matured. He understood that
regular payments of America's debt would bolster its credit. Confidence in the
solvency and good faith of the government would raise property values and
stimulate business activity. In addition, the funded debt, in the form of
negotiable government bonds, would serve the holders as capital to finance new
enterprises. He knew that government securities could act as capital for a
cash-starved economy. His system was designed to channel the talents and
resources of men in trade and commerce into productive activities that served
the public interest. In sum, Hamilton proposed to strengthen the federal
government and promote national prosperity by setting the public finances in
James Madison of the House of Representatives opposed
Hamilton's plan for the federal government to take on, or assume, the
accumulated debts of the states. He saw this plan as unfair to the
southern states, including Virginia, that had already paid off most of their
wartime debts. He also saw it as the federal government seizing greater
power over the economies of the states. He and Secretary of State Thomas
Jefferson thought that the federal economic policy should be to get out of the
way to allow the natural laws of economic recovery and growth to proceed.
However, Hamilton saw his plan as a way to consolidate the states debts and
nationalize the economy for the benefit of all. He knew that North America
contained vast resources of natural riches that offered prospects of great
prosperity if economic development was advanced and managed by his proposed
policies on the national level.
Hamilton's plan did not make passage in Congress until a
deal was struck to pass the plan in exchange for moving the nation's
capital from New York City to a more central location along the Potomac River.
This was favored by the Virginians and especially by President Washington who
lived on the Potomac. Virginia was also looking for a more favorable settlement
of its wartime accounts, which Hamilton satisfied by reducing its total
obligation. Eventually, four congressmen, all of them from districts bordering
on the Potomac, changed their votes for "assumption." Since the
Potomac location was an uninhabited swamp at that time, Hamilton agreed to make
Philadelphia the interim site for ten years, soothing Pennsylvania's desire to
be the capital's site. This "Compromise of 1790" was finally realized
at a dinner party at Jefferson's lodgings at 75 Maiden Lane in New York
City. Both Madison and Hamilton attended. This compromise was
Hamilton's politicking at his best. Although he admitted that the price he paid
was high by trading away the New York location, he overwhelmingly confirmed his
primary commitment to the country's economic advancement. A political
crisis that threatened the survival of the new republic was averted.
Opinion on the Constitutionality of the Bank:
Establishment of the first Bank of the United States with
branches spread over the Union continued Hamilton's basic program. The Bank
would increase the capital available to the business community, support the
value of government bonds, provide a source of public loans, facilitate the
collection and disbursement of government funds and quicken the general
circulation of money. Hamilton's report was delivered in December of 1790,
calling for a bank with a capital of $10 Million. He recited for Congress the
advantages of a national bank: it could multiply its hard currency reserves by
making loans and could provide a source of loans to the government in case of
emergencies, such as war. President Washington, uncertain of the congressional
power to charter a banking corporation, requested a legal opinion from Hamilton
concerning this. Hamilton's "Opinion on the Constitutionality of the
Bank" persuaded Washington to sign the bank bill. The Bank of the United
States was chartered in 1791. Again, political strength and economic growth
would advance together under the guidance of national policy.
Report on Manufacturers:
On Jan. 15, 1790, the House of Representatives had directed
Hamilton to prepare a plan to make the United States "independent of other
nations…. for military supplies." As a Federalist, Hamilton believed that
the American government should be directly involved in an effort to transform
the largely agrarian society into a country with both agriculture and
industrialization. He saw this move as the only way America could guarantee its
freedom from dependence on Europe. This view was the opposite of that held by
Thomas Jefferson and others, who favored an agrarian economy. In the
"Report on Manufactures" he submitted to Congress, Hamilton provided
his vision for American manufacturing. He listed seven ways manufacturing added
to society, instead of merely diverting useful effort from agriculture:
The division of labor among artisans, and between artisans
and farmers, led to greater concentration and skill.
Machines were "an artificial force brought in aid of
the natural force of man" ("unencumbered," he noted, "by the
expense of maintaining the laborer").
Manufacturing encouraged the immigration of skilled workmen
and businessmen - an important point in a still-barren country.
Manufacturing increased "the surplus produce of the
Manufacturing pried the idle out of the home.
A diverse economy develops society.
A diverse economy develops individuals.
By a system of protective tariffs and other encouragements,
he hoped to create a diversified national economy in which factory and farm,
town and country, would exchange a growing number of commodities. The wealth of
the nation would increase with the development of mechanized industry and the
fuller employment of the labor force. Diverse economic interests would develop
in different parts of the country and would create a continental market economy.
In addition, national security would be served by providing a domestic source of
Although Hamilton's recommendations for a broad range of
tariffs and bounties to stimulate the growth of manufacturing were not adopted,
the "Report on Manufacturers" was Hamilton's most ambitious report and
had lasting importance. It was a passionate analysis of economic diversity that
echoes throughout history. As the poet William Carlos Williams wrote,
"(Y)ou wanted to organize the country so that we should all / stick
together and make a little money."
Collectively, Hamilton's financial programs succeeded in
restoring public credit and stimulating economic development. It united men of
commerce and finance and many others behind the national government. Hamilton
returned to New York City and public life at the beginning of 1795, after his 38 th birthday. The state of public affairs allowed him to retire. American finances
were in good order: by this time, the United State had the highest credit rating
in Europe of any nation, some of its bonds selling at 10 percent over par (in
other words, investors were paying premiums to hold them).
Hamilton became a national hero. Prosperity was so
widespread that for the first time in memory nearly everybody except the tobacco
planters was able to get out from under debt to Europe. Fresh capital was
pouring in from abroad and, together with the paper capital created by
system, it fueled an unprecedented burst of developmental energy. In New York,
the excess of money triggered a mania for getting rich quickly, but elsewhere
the money was translated into tangible improvements. Forty corporations - as
many as had been chartered in the colonial and Confederation periods
chartered by state legislatures in 1791—92, nine of them for banks, the
remainder for manufacturing and for canals, turnpike roads, and water works.
Farmers, too, were faring well, and not just because they were getting good
prices for their products. Before the Hamiltonian system was enacted,
Massachusetts and Virginia had been levying a million dollars a year in direct
taxes on land, Connecticut more than $200,000, Pennsylvania $600,000. Almost all
these taxes were for servicing public debts, since the "civil lists"
or regular expenditures in each state were nominal. After Hamilton’s system
was adopted, these tax burdens disappeared, and in most places ordinary
landowners became as free from taxation, except for modest local needs, as in
the halcyon days before 1763.
Washington, on his tour through the South in 1791, made a
point of sounding out the popular mood, especially in areas that had opposed
ratification of the Constitution, and learned that the people "appeared to
be happy, contented and satisfied" with the national government.
Source material for Three Great Reports:
"Alexander Hamilton, American," by Richard Brookhiser, 1999, Simon
& Schuster, New York, NY. Buy at Amazon.com .
BACKGROUND | THREE GREAT REPORTS | THE CORPORATE EXAMPLE | THE DUEL