Financing Our New Government

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

2. 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

3. 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 bonds @ 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

4. 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. • 1790 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

5. 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

6. 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

8. 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

9. Whiskey Rebellion

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

13. Federalist vs. Republicans, cont.