In the late 18th
century, the early republic of the United States was facing financial problems that were dividing politicians. There was a large
national debt that had to be paid, numerous state debts as well, no national bank, and a strong dependence on other nations.
Alexander Hamilton had his own ideas about how to solve these problems, which he presented in a plan. This plan was not thoroughly agreed to by either
Thomas Jefferson or
James Madison.
The first issue that Hamilton addressed in his plan was the problem of the national debt, both domestic and foreign. Including interest, this debt was a massive $54,124,464.56. Much of the domestic portion of the debt was circulating in certificates issued as bonds or as pay to soldiers from the war. Hamilton thought that the money should be paid to whoever held the certificate, but Madison disagreed. It was his belief that only the original holders of the certificates should receive any payment for them. Even though Madison argued about this to the House of Representatives, this part of Hamilton’s plan was passed. Many of the people who knew this was going to pass had scrambled to buy certificates off of people to make a good profit.
The second part of Hamilton’s plan was directed towards the debts of the individual states. He wanted a national tax to take effect to pay off the combined state debts. Many of the states, however (particularly those in the South), had paid off all their debts. This outraged Madison, but he knew that complete rejection would just further ruin the national credit and cause the government itself to collapse. Hamilton did agree in 1790 to give an allowance to states that had paid large amounts of their debts. Even though the compromise between Hamilton and Jefferson and Madison was nice, it was just another instance to show how differently they thought.
The next issue was the creation of a National Bank. Capital for this bank was to be supplied jointly by private investors and the government. The bank’s notes would rest heavily on the national debt, because investors were paying for stock with government bonds. The purpose of this was to utilize the national debt to make it into an advantage. The notes issued by the bank were much in need, also, and would greatly help business and new commercial and industrial enterprise. In addition to working as a central exchange, this national bank would also handle government finances. This, again, was objected to by Madison who said that the Constitution didn’t give the government power to do this. The Elastic Clause was used on Hamilton’s behalf, and this part of the plan also passed.
The last part of Hamilton’s plan was a protective tariff. He believed that this was an effective way to motivate the American people to use the best of their resources, reduce foreign debt, and reduce reliance on foreign nations. The farmers who preferred free trade and the people who knew the government’s main source of income was from importation duties looked down upon this. This was the only rejection Congress gave Hamilton from his entire plan.
During this period of time, there was a lot of disagreement over how to handle the national debt. Hamilton’s plan addressed the problems of national debt, state debts, absence of a national bank, and reliance on other nations. There were heated arguments over these four points, and only one of Hamilton’s proposed solutions failed to come into effect.