The Federalist Era

1. The Federalist Era Alexander Hamilton – Treasury Secretary Native of the British West Indies Genius Critics claimed he loved his adopted country more that his countrymen Regarded himself as a prime minister to Washington’s cabinet On occasion thrusting his hands into the affairs of other departments. Including Thomas Jefferson’s department (Sect. of State) (archrivals)

2. The Federalist Era Alexander Hamilton – Treasury Secretary Financial wizard Set out to shape the fiscal policies of the administration to benefit the wealthy He believed they would in turn lend the government monetary and political support. Federal regime would thrive, propertied classes would fatten, and prosperity would then flow down to the masses

3. The Federalist Era Alexander Hamilton – Treasury Secretary First Objective Bolster national credit W/out public confidence in the government Hamilton could not secure the funds needed to float his risky schemes. He boldly asked Congress to “fund” the entire national debt “at par” and Funding at par – the federal government would pay off its debts at face value, plus accumulated interest – a then enormous total of more than $54 million. Assume completely the debts incurred by the states during the recent war

4. The Federalist Era Alexander Hamilton – Treasury Secretary First Objective To raise the $54 million he proposed selling an equal sum in new securities. Purchasers would chose from several combinations of federal “stock” and western lands. Those who wished could retain their original bonds and earn 4% interest Reducing interest payments on the debt from the full 6% set by the Confederation Congress

5. The Federalist Era Alexander Hamilton – Treasury Secretary Speculators held fistfuls of the government bonds 1790 Congress passes Hamilton’s measure Speculators ride into rural areas ahead of the news buying more of the devalued bonds from unknowing farmers, war veterans, and widows

6. The Federalist Era Alexander Hamilton – Treasury Secretary Second Objective – Congress should assume the debts of the states, totaling $21.5 million. Assumption – national government assumes debt of state governments He believed that “assumption” would tie the states more closely to the “federal chariot” Move attachment of wealthy creditors from state to federal government Support of the rich was a crucial link in Hamilton’s political strategy of strengthening the central government

7. The Federalist Era Alexander Hamilton – Treasury Secretary States with high debt (Massachusetts) were delighted States with small debts (Virginia) were less charmed Virginia wanted new federal district to be located on the Potomac River Jefferson just home from France was persuaded to line up votes in Congress for the “assumption” in return for the federal district in Virginia

8. The Federalist Era Customs Duties and Excise Taxes The new state was dangerously overloaded National debt $75million Avoiding $13 million in back interest and the state debt entirely would have changed the debt balance considerably Hamilton believed that the national debt was a “national blessing” Debt (ordinarily a liability) = an asset for vitalizing the financial system as well as the government itself

9. The Federalist Era Customs Duties and Excise Taxes Where would the money come from to pay the interest on the huge debt and run the government? Customs duties – derived from a tariff Foreign Trade – another crucial link in Hamilton’s plan 1st Tariff law – low tax of 8 % on the value of dutiable imports was quickly passed by Congress in 1789. This tariff was also meant to place a low protective wall around infant industries. (Industries wanted more) Hamilton wanted the Industrial Revolution to reach the U.S. He argued for more protection for the well-to-do manufacturing groups

10. The Federalist Era Customs Duties and Excise Taxes 3rd Vital part of Hamilton Plan – Protection of well-to-do manufacturing groups Hamilton wanted the Industrial Revolution to reach the U.S. Congress was still dominated by the agricultural and commercial interests Voted only two slight increases in the tariff during Washington’s administration

11. The Federalist Era Customs Duties and Excise Taxes Excise Tax on Whiskey Seeking additional internal revenue Hamilton in 1791 secured from Congress an excise tax on a few domestic items (whiskey) Distillers in the backcountry had to pay seven cents a gallon Bad roads forced farmers to reduce bulky bushels of grain to horseback proportion Whiskey was even used as money

12. The Federalist Era Hamilton Battles Jefferson for a Bank Capstone for his financial system, Hamilton proposes a Bank of the United States Modeled after the Bank of England Powerful Private institution, which the government would be the major stockholder and the federal treasury would deposit its surplus monies. Central Government would have a convenient strongbox Federal funds would stimulate business by remaining in circulation Bank would print urgently needed paper money and provide a sound and stable national currency Useful but was it Constitutional?

13. The Federalist Era Hamilton Battles Jefferson for a Bank Jefferson answering Washington’s questions argues against the Bank of the United States. No provisions in Constitutions for such a financial octopus. Jefferson was convinced that all powers not reserved or specifically granted to the central government were reserved to the states, as provided in the about to be ratified Bill of Rights. He concluded states not Congress had the right to charter banks. Constitution should be interpreted “literally” or “strictly” Jefferson and his states’ rights disciples zealously embraced the theory of “strict construction”

14. The Federalist Era Hamilton Battles Jefferson for a Bank Hamilton answering Washington’s questions prepares a reasoned reply to Jefferson’s arguments. Hamilton –What the constitution did not forbid it permitted. Jefferson – what it did not permit it forbade. Hamilton invoked the “necessary and proper clause” – stipulates that Congress may pass any laws necessary and proper to carry out the powers vested in the various government agencies. Empowered to collect taxes and regulate trade – in carrying out these basic functions a national bank would be not only “proper” but “necessary”.

15. The Federalist Era Hamilton Battles Jefferson for a Bank Hamilton – By virtue of “implied powers” – Congress would be fully justified in establishing the Bank of the United States Hamilton contended for a “loose” or “broad” interpretation of the constitution. His followers evolved the theory of “loose construction” by invoking the “elastic clause” a precedent of enormous federal powers. Hamilton’s eloquence prevailed with Washington who reluctantly signed the Bank measure into law. Support coming from the commercial and financial centers of the North Opposition arose from the agricultural South

16. The Federalist Era Hamilton Battles Jefferson for a Bank Bank of the United States – created by congress in 1791 Chartered for 20 years Located in Philadelphia Capital of $10 million 1/5 of it owned by the federal government Stock thrown open to Public for sale Crowd oversubscribed to stock purchase in less than two hours

17. The Federalist Era Hamilton Battles Jefferson for a Bank Whiskey Rebellion – southern Pennsylvania in 1794 Hamilton’s high excise tax was hard on pioneer farmers Farmers saw it not as a tax on a frivolous luxury, but as a burden on an economic necessity and a medium of exchange. Even preachers were paid in “Old Monongahela rye”. Defiant distillers finally erected whiskey poles, similar to the liberty poles of anti-stamp tax days in 1765 Cried, “Liberty and No Excise.”

18. The Federalist Era Hamilton Battles Jefferson for a Bank Whiskey Rebellion Farmers tarred and feathered revenue officers, bringing tax collections to a halt Washington alarmed by, “self-created societies.” Encouraged by Hamilton, Washington summoned the militia of several states. Anxious moments waiting after the call, (would the men answer?) needed to crush rebellion in sister state. 13,000 marched in wide spread columns until slowed by knee deep mud Found no insurrection – “Whiskey Boys” were overawed, dispersed, or captured. (later pardoned)

19. The Federalist Era Hamilton Battles Jefferson for a Bank Whiskey Rebellion Only 3 rebels were killed, but its consequences were mighty. George Washington’s government strengthened, commanded a new respect Foes condemned its brutal display of force, using a sledge hammer to kill a gnat.