Chapter 10 Section 2 Notes

Hamilton and National Finances

Chapter 10 Section 2 Terms

National DebtBondsSpeculatorsProtective TariffStrict ConstructionLoose ConstructionBank of the United States

Settling the Debt

Hamilton served as Washington’s Sec’y of the Treasury

Number One problem: Settling the national debt (the amount of money owed by the US to various creditors)

Some debt was in the form of bonds, which private citizens purchased from the government to help the Revolutionary War

Settling the Debt Continued

The government promised to buy back the bonds at a higher price, but now couldn’t afford it.

People who bought the bonds were desperate to get the money back so they sold them to speculators (investors who buy things at a fraction of their value).

Hamilton was worried that citizens and foreign nations would think the country was not trustworthy if the debt didn’t get paid off.

Hamilton decided to start buying back the bonds (from speculators and those original owners who kept them) although Jefferson thought it was cheating the people who were forced to sell their bonds to speculators because they didn’t get a cent.

The States’ Debts

The second part of Hamilton’s plan was called “debt assumption”. He thought that the federal government should take over and pay off the states’ debts.

Hamilton thought that it would make the states support the federal government

Some states like Mass. had high Revolutionary War debt and some states like Virginia had hardly any

The Southern states were angry that they had to help pay for the debts of other states

To appease the Southern states, Congress moved the National Capital from New York to Washington DC

Hamilton Versus Jefferson

Hamilton believed in a strong central government, had little faith in the “common man” and looked to Britain as a model. He also supported manufacturing as the best direction for the nation to go.

He wanted to establish a protective tariff on imported goods to raise their prices, that way more people would buy good made within America than outside of it

Hamilton Versus Jefferson Continued

Jefferson was suspicious of strong government and favored state governments. He also had a great deal of faith in the “masses” or “common” people

He thought that the model American was the “virtuous” independent small farmer and wanted America to stay agricultural

The Debate Over the Bank

Hamilton wanted to create a national bank “BUS” – Bank of the United States, that would be a secure place for government funds and a reliable source for loans

He thought that states could make their own state banks to keep a check on the national one

The Debate Over the Bank ContinuedJefferson and Madison thought this was a bad idea

because it consolidated so much power to the national level

They both also thought that the Constitution did NOT give the federal government the power to create a bank

Hamilton argued that the Const. did allow it because of the clause in Article 1, Sec. 8 which stated that Congress has the right to make all laws which are “necessary and proper” for running the nation

Strict Versus Loose Construction

Strict Construction means that the federal government could do ONLY what the Constitution SPECIFICALLY said it could do. (Jefferson and Madison believed this)

Loose Construction means that the federal government could do something reasonable that the Constitution didn’t specifically forbid.

The BUS is here

In February of 1791, Washington approved the Bank of the United States on a 20 year charter

The bank helped to establish stability and helped to develop the US economy