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Alexander Hamilton’s Financial Program

Alexander Hamilton was to say in 1792, “Most of the important measures of every government are connected with the Treasury”. This simple yet profound axiom he had come to as a result of his reflections on the nature of statecraft and the obligations of government. Installed in office, he had accepted this as his guiding principle.

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The basic nature of public finance to assure stability and promote welfare has been alluded to in these observations again and again.

A government that keeps its own house in order both attracts and creates confidence: to the financing of its own obligations and for the support of those business ventures, or enterprises, without which a society cannot create employment and wealth. The Treasury at once became the largest and the leading office of the government. Its interests ramified into the whole economic life of the nation. It was intimately associated with commerce and shipping; with the commercial banks of the nation; with a large part of the country’s farming community.

It bought the army’s supplies, it sold the nation’s public lands, it negotiated with foreign governments. This was not usurpation: for Congress, in establishing the Treasury Department, had given it wide powers independent of the Executive. Hamilton was simply utilizing his opportunities. All this did not fail to create unease and then dissent. Madison, originally the Administration’s spokesman in the House of Representatives, left Hamilton’s side in the battle over the assumption of the state debts.

Jefferson, who at the start had expressed his satisfaction with the Constitution and Hamilton’s funding proposals, more and more saw their differences in terms of power: an energetic government could become an irresponsible, and therefore a dangerous, one. By the spring of 1792, there was an organized opposition to the Administration with Hamilton the chief focus of distrust. The charges against Hamilton ran the whole gamut from truth to falsity.

It was being said, he was consistently the friend of a speculative interest, he unduly favored commerce and finance at the expense of agriculture, he himself was personally involved in questionable practices. He was subverting democracy; he was preparing the way for a monarchy. These charges were both unkind and untrue. Hamilton was indignant at accusations directed against his personal rectitude; and he had every right to be. If there was a public servant in all of America’s annals who conducted himself with exact propriety, it was he.

From the vast operations in the public funds, neither he nor his family ever benefited; and he quit his post after more than five years in office a poor man. In one of his letters to Washington, he cried out against his detractors: “I have not fortitude enough always to hear with calmness calumnies which necessarily include me. . . . I trust I shall always be able to bear, as I ought, imputations of errors of judgment; but I acknowledge that I cannot be entirely patient under charges which impeach the integrity of my public motives or conduct. “

As for seeking to undermine democracy, it again must be noted that Hamilton was distrustful of democracy only in its equalitarian sense. He was not convinced of the equality of talents among men; he was realistic concerning their motives and knew how quickly they could be encouraged to yield to passion and enmity. He believed in government by the people, but on the representative principle, and he was prepared to accept the guidance of leaders as long as they regarded office as a public trust. The charge that he was a monarchist was a political one designed to embarrass him; it never had any foundation in fact.

Hamilton was against any kind of discrimination; the debt was to be purchased from those now in possession at full value. In the handling of a problem like this, Hamilton was at his best: he knew how to marshal arguments tellingly and present them simply. The carrying out of the details of a plan based on discrimination would be immense, the difficulties insurmountable. Further, discrimination was unconstitutional; it ran counter to the position of Congress, expressed as early as 1783. Most important of all:

The impolicy of a discrimination results from two considerations: one, that it proceeds upon a principle destructive of that quality of the public debt, or the stock of the nation, which is essential to its capacity for answering the purposes of money – that is, the security of transfer; the other, that, as well on this account as because it includes a breach of faith, it renders property in the funds less valuable, consequently it induces lenders to demand a higher premium for what they lend, and produces every other inconvenience of a bad state of public credit.

Hamilton then went into great detail on a number of technical matters: how the state debts were to be assumed; the different methods of funding; what sources of revenue could be tapped for interest payments and debt service. In connection with the last, he proposed to set aside receipts from duties on imports and tonnage, and impose new taxes on wines, spirits (including those distilled within the United States), teas and coffee. Wise politicians, he had noted in one of his earliest memoranda, ought to “march at the head of affairs,” and “produce the event”.

How then produce the event? He had, if possible, to contrive measures which should be immediately and strikingly effective, and at the same time provide a basis for permanent development. The exigencies of the moment, however, were decisive. To restore the public credit was the first step toward buttressing the national government. The measures Hamilton adopted, all directed to this one purpose. In his Report on Public Credit (1790) he advocated full payment of public debts, including those incurred by the States “as the sacred price of liberty.

” He would thus “cement the Union” by establishing the national credit, and by enlisting the support of all holders of public securities. In his Report on a National Bank (1790) he revived, in new form, the project of his Letter to Morris of 1781. He remembered how an English government, after a revolution, had chartered the Bank of England, in order to solve its financial difficulties, and at the same time to solidify the Whig mercantile interest in its support. By incorporating a similar syndicate he could accomplish the same purposes.

He must of course draw upon the “implied powers”; he had long since seen that only thus was it possible to meet the needs of government. In his famous Report on Manufactures ( 1791) he proposed government aid to “infant industries,” in order to assure in war a “national supply,” to establish economic along with political independence, and in general to develop the national resources. Contemplating a wise central management of the whole American estate, he foresaw local swallowed up by national interests in a country self-contained and self-sufficient.

In a letter written near the end of his career Hamilton struck an unusual note of despondency. “Mine,” he says, “is an odd destiny. Perhaps no man in the United States has sacrificed or done more for the present Constitution than myself; and contrary to all my anticipations of its fate, as you know from the very beginning, I am still laboring to prop the frail and worthless fabric…. Every day proves to me more and more that this American world was not made for me…. The time may ere long arrive,” he adds, “when the minds of men will be prepared to make an effort to recover the Constitution, but…

we must wait a while”. Hamilton was clearly undervaluing his own labors. If he seemed to fail, it was because he had gone too fast and had neglected elements of the problem which to the country seemed essential. Hamilton’s ideal conception of government was never realized, but it has perhaps made some contribution to the general theory of politics. By a recent writer it has been identified with that of Hobbes – the “leviathan state”. With this indeed it has something in common – in its outlook, even in its principles.

Hamilton believed in an undivided and indefeasible sovereignty, and in the subject’s duty of disciplined obedience. He believed it the duty of the sovereign jealously to protect its own sovereignty, and to provide for the subject’s welfare by well considered and strictly enforced laws. He believed in a wise and benevolent paternal government. Not, however, in an absolute one. Taking over the conception of the strong state as he found it in Hobbes and elsewhere, he modified it to suit his own purposes, by adapting it to American conditions, by attempting to make it at once strong and responsible.

He clearly added to it a new element in combining it with universal manhood suffrage. He took care to introduce also other principles of representation and carefully devised safeguards on the popular will. Thus he sought to make his state not only powerful and permanent, but balanced and responsible – indeed the more permanent because balanced and responsible. He attempted to reconcile apparently conflicting, but, as he thought, essential principles by turning the leviathan state into a republic.

Though not in its fulness realized, his conception has influenced the political thought not only of America but of Europe. Confidence had been destroyed under the Congress and the Confederation; and to its restoration Hamilton set to work at once. In less than three years, as the Secretary of the Treasury, as the result of a series of masterly reports all but one of which ended in legislation, Hamilton laid the basis of the financial integrity of the United States. His brilliant mind ranged over every aspect of the government’s needs.

He concerned himself with the debt – its assumption, consolidation, funding, and management and redemption; he watched the revenue inflow – recommending and obtaining new sources when government outlays increased; he pressed for and obtained the creation of a national bank – to act as a government depository and lender and to safeguard the money supply of the nation; he established a mint – thereby fixing the gold-silver ratio and assuring a bimetallic standard for the United States; he worked ceaselessly to attract foreign capital into the United States – to provide the funds for private banking institutions, public works projects, even manufacturing.