Hamiltonian Economics

Alexander Hamilton's Economic Program

Date: Early 1790s

• First off, who was Alexander Hamilton? He was Washington's Secretary of Treasury. Young, hot (just take a look at the $10 bill if you don't believe me), brilliant, and a radical conservative Federalist, no one can disagree that he was an economic genius.
• His basic economic plan was to shape fiscal policies to where they favored wealthier groups. Then, they would lend the government monetary and political support. The upper classes would grow, and prosperity would trickle down to the masses. (If the wealthy are doing well, everyone's doing well).
• Hamilton believed a national debt would tie the states together, and a little bit of debt was a good thing, so he urged Congress to fund entire national debt (passed 1790) and assume all state debts. If the federal government took over state debts, states would feel indebted to federal government and strenghthen the central government (this rocked for Hamilton, being an extreme Federalist). States in a lot of debt, like Massachusetts, loved this idea. Virgina, with little debt, was not as happy with this. To compensate Virginia, Washington DC would be located along the Potomac. The national assumption of state debts program was carried through in 1790.
• National debt swelled to $75 million, but Hamilton, "Father of National Debt," wasn't worried. He thought of debt as an asset. To pay off this debt, Hamilton established an 8% tariff on imports (passed in Congress 1789). This tariff would protect infant industries (Hamilton supported manufacturing).
• 1791, Congress enacted an excise tax on a few domestic items like whiskey.
• Pivotal in Hamilton's economic program was the establishment of a national bank. (Read topic of Strict and Loose Construction for more information about bank). Bank was created in 1791. It was to have a capital of $10 million, one-fifth owned by federal government. Stock open to public sale.
• Significance of Hamilton's economic programs: Even though Jefferson opposed the bank, he kept it when he became president, showing how necessary the bank actually was. Washington DC placed on the Potomac. Issue of bank & tariffs split the parties. Hamilton established the first financial system in America: it would be greatly changed in the future, but for now it gave the federal government much power and set a precedent for the future.

http://www.studyapush.com/2009/10/alexander-hamiltons-economic-program.html

Footnote by the Blog Author

There’s more to Hamiltonian economics than the idea of helping the wealthy and allowing the largesse to trickle down to the working classes.  Hamilton was hand-picked by George Washington himself, and Washington strictly agreed with Hamilton’s plans.  Many in Congress and in the states did not like this centralization of money and banking power, but Washington won the revolution and was politically invulnerable.

What Washington had in mind goes back to the hard days of the Revolutionary War.  Though local farmers and merchants joined the fight when a battle was near their location, the permanent army under Washington numbered only about 3,000 men.  Of those personnel, the Scotch, Irish and Scotch-Irish of the western frontier were over-represented.  They had no successful career or big-city business to lose or neglect by joining the revolution full-time.  Also over-represented were free-state black volunteers.  They also had nothing to lose by staying with the revolutionary army through the duration of the conflict.

Washington wanted to pay them back and pay back their descendants.  The capital was located in America’s largest town (then as now, New York City, which Washington himself correctly prophesied would be the “seat of empire.”)  Therefore Washington had Hamilton devise an economic system that would promote rapid growth and support a healthy business climate, an environment that would be advantageous to those who served with him through the duration of the war.  The slave-owning states were cool-to-cold on this proposal, but Washington had the political power to push it through and the integrity to award his most loyal subordinates from the war.