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 a low value in hopes the value would rise) – purchased the bonds from individuals for below value prices

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 didn’t have their best interest in mind

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

Jefferson & Madison Opposed this Hamilton’s 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 Southerners were convinced to vote for Hamilton’s plan in return for the relocation of the U.S. capital to a southern location called the District of Columbia

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 bank’s stock Madison felt Congress couldn’t est. a bank because it was not with in the Constitution’s enumerated powers – powers specifically mentioned in the Constitution

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

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

Whiskey Rebellion

Hamilton Vs. Jefferson The split in Congress over Hamilton’s financial plan resulted in the formation of two political parties: Federalist & Democratic-Republicans.

The Federalists The Federalists Alexander Hamilton Alexander HamiltonDemocratic-Republicans Thomas Jefferson 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 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.

Views on 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 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.

Federalist vs. Republicans, cont.