Financing Our New Government

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Financing Our New Government

• By 1789 the government needed additional monies
  to continue to operate
• Faced a national debt money the U.S. owed to
  lenders
• Owed 11.7 million to foreign creditors
• Owed 40.4 million to U.S. Citizens
• Some Revolutionary debt was in the form of
  bonds certificates that represent money
• These bonds had been issued w/ the promise of
  interest
• Bondholders feared that the government would not
  buy back the bonds
• Speculators (individuals who bought the bonds _at_
  a low value in hopes the value would rise)
  purchased the bonds from individuals for below
  value prices

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2 very different plans

• James Madison Alexander Hamilton developed 2
  very different plans to help finance the
  government
• James Madison felt the government should raise
  money by taxing imports from other countries
• Tariff of 1789
• Made all importers pay 5 of value of their
  cargo when they landed in the U.S.
• Shippers required to pay a tax depending on how
  much their ships carried
• Angered many Southern planters began feeling
  the government didnt have their best interest in
  mind

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Hamiltons Financial Program

• Born in the West Indies
• Went to American colonies for his education
• Practiced law
• Secretary of Treasurer under Washingtons
  administration
• Wanted to pay off the foreign debt immediately
• Buy back bonds _at_ full prices
• Bank of the U.S. (founded 1791, closed 1811)
• Believed that bond owners would have a stake in
  the governments success be willing to loan
  in the future
• Supported the Tariff of 1789
• Believed in the governments ability to borrow
  money

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Jefferson Madison

• Opposed this Hamiltons plan because they felt
  that paying full-value on bonds would reward
  the speculators
• Southerners were upset because Northerners owned
  the bonds while the tax money used to pay off the
  debt would come from the South.
• 1790 Southerners were convinced to vote for
  Hamiltons plan in return for the relocation of
  the U.S. capital to a southern location called
  the District of Columbia

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Hamilton's Plan Passes

• Hamilton also asked Congress to create a national
  bank so that the government could manage its
  debts interest payments
• Objections
• Southerners felt on the Northerners could afford
  the banks stock
• Madison felt Congress couldnt est. a bank
  because it was not with in the Constitutions
  enumerated powers powers specifically mentioned
  in the Constitution

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Bank of the United States

• Hamilton argued that the bank fell under the
  elastic clause (necessary proper clause)
  powers that are implied not specifically
  mentioned in the Constitution
• Congress passes the bill forming the bank

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Whiskey Rebellion

• 1791 Hamilton proposes a tax on the
  manufacturing of American whiskey
• Passed by Congress
• Outraged western farmers
• Result
• Whiskey Rebellion begins 1794
• Washington sent 13,000 troops to stop the
  rebellion

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Whiskey Rebellion
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Hamilton Vs. Jefferson
The split in Congress over Hamiltons financial
plan resulted in the formation of two political
parties Federalist Democratic-Republicans.
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The Federalists  Alexander Hamilton Democratic-Republicans Thomas Jefferson
Social Make- Up Social Make- Up
Merchants, Bankers, manufacturers, New England and Mid-Atlantic Coast Artists, shopkeepers, settlers, and southern plantation owners, small farm owners in the south and from western regions of the nation believe in the idea of agrarianism - idea if owning land which enabled them to become independent.
Attitude Toward Government Attitude Toward Government
Wanted to imitate British aristocracy (rule by the rich) but without a king. Saw the common people as unable govern themselves.  Willing to censor the press for political power. Wanted more democracy than in the  British Parliament. Common people were able to govern themselves. They wanted greater involvement by the people through lower voting qualification. Reduce government interference by decreasing numbers of federal officeholders. Favored freedom of speech press.
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Views on the Constitution Views on the Constitution Views on the Constitution
Held "loose constructionist" view that the Federal government had implied powers not listed in the Constitution. Held "loose constructionist" view that the Federal government had implied powers not listed in the Constitution. Held ''strict'' view of the constitution limit the powers of the central government and support states rights.
Foreign Policy Positions Foreign Policy Positions Foreign Policy Positions
Favored Britain in culture and trade as the basis of wealth. Distrusted Britain wanted closer relations with France, which had just been through a democratic revolution. Distrusted Britain wanted closer relations with France, which had just been through a democratic revolution.
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Federalist vs. Republicans, cont.