Decision Making: Hamilton s Economic Policies Part 1: The Debt PROBLEM The year is 1790, and George Washington has been President under the new national government, The Constitution, for about a year. A major problem facing the nation is financial. The United States had to borrow tons of money to finance the American Revolution. The federal debt is roughly 53 million dollars 13 million to foreign creditors (people who lend money, like banks) and 40 million is domestic (private American banks, states, and citizens). The interest is on this loan is 6% (over 3 million per year). The amount of money the United States is expected to collect this year in taxes is about 500,000 dollars. You are a senator from Massachusetts. You have just heard the Secretary of the Treasury, Alexander Hamilton, give his Report on the Public Credit. In this report, he offers his solution to the debt crisis. Your job as senator is to listen to his ideas and decide whether or not you want to support his suggestions. Funding the Debt: Hamilton suggested that the US pay off the foreign debt first. To do this, we would take the entire debt, refinance it, and borrow at a lower interest rate. This is like what your parents do if they refinance their mortgage. By paying a lower interest rate, they can pay the debt off faster. Basically, Hamilton wants to borrow money from new creditors to pay the creditors we already owe. Additionally, Hamilton wants to sell bonds to cover the rest of the debt. Bonds work like this: You buy a $50 bond for, say, $25, but in a certain number of years you can cash it in for the full value plus interest. Governments do this to make money quickly and people buy them as long-term investments. Bonds are frequently given to people when they have children. The government is under the assumption that when the bond matures (is worth the full value), it will have the money pay the full amount to the bondholder. Assumption of the State Debt: Unfortunately, the problem is more complicated because, in addition to the federal debt, most states also have debt. Hamilton wants to assume, or take over the debt of the states, so the states can start fresh. Hamilton wants the federal government to be supreme, so he wants to get rid of state bonds and he wants creditors in the states to invest in the federal government by buying federal bonds. He thinks this will be easier if the state debt becomes part of the federal debt. Hamilton recognizes that in order for this system to work, America has to raise taxes. He supports import duties (taxes on goods coming into the country) and excise taxes (taxes on the sale or distribution of goods). He likes the idea of an excise tax on whiskey, because he feels Americans drink too much. Ultimately, Hamilton proposes these two attempts to eliminate the debt because he believes that if we do not pay off our debts quickly, we will be seen by the world as dishonest and it will be difficult to borrow money in the future. Also, if our nation can not raise money, we will be weak forever. Not everyone agrees with Hamilton s plans. Funding the debt by borrowing more money is dangerous. What if we can not pay the second loan back? Additionally, there has been serious inflation in America (value of the money has gone down). What if people do not buy the new bonds? Many people do not like the idea of assuming the debts of the states. Some states, especially southern states, claim to have already paid off their debt. They do not think that it is fair. They feel like their tax money will be helping to pay off the debt of northerner states instead of helping southerners.
Will you vote to support Hamilton s plan to fund the national debt and assume the debts of the states? Note: you can vote for one, but not the other. Questions: 1. Do you think paying off the debt should be the nation s number one priority? 2. Do you agree with Hamilton that nations need to actively repaying their debts to be considered strong and trustworthy? 3. Do you think it is important that Europeans think the United States is strong and trustworthy? 4. What are the potential benefits and drawbacks to Hamilton s debt plan?
Decision Making: Hamilton s Economic Policies Part 1: The Debt OUTCOMES Funding: The plan to fund the debt passes in Congress pretty easily there is generally little controversy over this issue. The plan works well and the United States pays off the debt from the Revolutionary War quickly. The United States builds a positive credit relationship with foreign and domestic creditors. Assumption: Many southern states refuse to support the idea that the federal government assumes the debts. Also, many who fear a strong federal government believe that assumption will help the federal government become more powerful than the individual states. Hamilton realized that he need to compromise with the southern states in order to get his ideas to pass. He met with leaders from Virginia, Thomas Jefferson and James Madison. His suggestion was to build a new capital in the South, on the banks of the Potomac. This idea was popular among southerners, because they thought that if the capital was in their region, the government would be more likely to support their interests. The debt plan bill passed in 1790, and Congress authorized the construction of new capital, which would one day be called Washington D.C.
Britain and the Colonies: A Constitutional Debate Background: Representation and Britain s Constitution Representation: approx. 300,000 of the 15 million people in England could vote best in the world at the time Eligible voters in districts or boroughs elected representatives to Parliament who were supposed to make decisions for the good of England Parliament: legislative body bicameral (Lords and Commons) Constitution: unwritten based on common law, customs, Magna Carta Common law: developed by judges through court decisions rather than through legislative laws or executive branch action Customs: a set of generally accepted rules, norms, standards or criteria Magna Carta: written document-1215-placed limits on king s authority Significance: too much room for interpretation British Interpretation Colonies: conquered territory of Britain residents don t get to elect representatives to Parliament Virtual representation: The colonists by virtue of being British subjects are represented by the members of Parliament. Parliament will not hurt the colonists, because it defends the liberty of British subjects. Colonial Interpretation Colonies: lands settled by British subjects residents should be treated equally Actual representation: Colonists should be able to elect representatives to Parliament. There are checks and balances Parliament can be checked by the monarch Britain and the Colonies: A Constitutional Debate Background: Representation and Britain s Constitution
Representation: approx. 300,000 of the 15 million people in England could vote best in the world at the time Eligible voters in districts or boroughs: Parliament: legislative body bicameral (Lords and Commons) Constitution: unwritten based on common law, customs, Magna Carta Common law: Customs: Magna Carta: Significance: British Interpretation Colonies: conquered territory of Britain Virtual representation: Colonial Interpretation Colonies: lands settled by British subjects Actual representation:
Directions: Think about each term in the context of the lecture on British and Colonial interpretation of the British constitution. In each box, explain how each side would have justified or condemned the term according to their interpretation. Event British Interpretation Colonial Interpretation Proclamation of 1763 Stationing of troops in the colonies Sugar Act Stamp Act Stamp Act Congress Townshend Acts Seizure of The Liberty Boston Massacre Committees of Correspondence Tea Party Intolerable Acts: shut down Boston Harbor
Directions: Think about each term in the context of the lecture on British and Colonial interpretation of the British constitution. In each box, explain how each side would have justified or condemned the term according to their interpretation. Intolerable Acts: marital law Intolerable Acts: Quartering Act First Continental Congress Lexington/Concord Second Continental Congress Bunker Hill Olive Branch Petition Declaration of Independence