Oct. 31, Hamilton’s Economic Plan (Domestic Policy) 1790-1791

1. Assumption of State Debts

  • National government takes over all state war debts.

  • Purpose: unite the states under one economy.

  • Problem: some states already paid their debts and thought it was unfair.

  • Benefit: businesses that are owed money now depend on the success of the federal government → gives them a reason to support it.

2. Tax Policy

  • Congress can now lay and collect taxes under the Constitution.

  • Taxes used to:

    • Pay off war debt.

    • Fund industrial growth.

3. Industry vs. Agriculture

  • Hamilton: wanted an industrial economy like England (world’s top power).

    • Believed finished goods bring more money than raw materials.

  • Jefferson: wanted an agricultural nation.

    • Distrusted industry and preferred small farms.

    • Thought cities and factories corrupted virtue.

4. Government Bonds

  • Citizens loan money to the government → government pays it back later with interest.

  • Builds trust and investment in the government’s success.

  • Example: War bonds, savings bonds.

5. National Bank (Biggest Controversy)

  • Hamilton wanted a Bank of the United States to:

    • Store government funds.

    • Make paying debts easier.

    • Provide a stable national currency.

  • Jefferson and Madison opposed it:

    • Said it was unconstitutional (strict interpretation).

  • Hamilton argued:

    • The Necessary and Proper Clause gives Congress implied powers to create a bank.

    • Constitution is a flexible (elastic) document that can adapt over time.

Strict vs. Loose Interpretation

Person

Interpretation

Belief

Jefferson

Strict Construction

Gov. can only do what the Constitution explicitly says.

Hamilton

Loose Construction

Gov. can do anything not directly forbidden. (Implied powers)

Compromise of 1790

  • Conflict: Hamilton wants his financial plan; Jefferson and Madison oppose.

  • Meeting: Hamilton, Jefferson, and Madison meet for dinner and compromise.

  • Deal:

    • Hamilton gets his economic plan (including the Bank).

    • Jefferson and Madison get the nation’s capital moved south → to Washington, D.C. (between Maryland and Virginia).

  • Purpose: balance power between North (industry) and South (agriculture).

Results

  • Hamilton’s plan sets the U.S. on the path to economic success.

  • By late 1800s, U.S. becomes world’s #1 economy.

  • The disagreement between Hamilton and Jefferson leads to political parties:

    • Federalists → support Hamilton (strong central government, industry).

    • Democratic-Republicans → support Jefferson (states’ rights, farming).