Sunday, April 4, 2010

Alexander Hamilton Creates American Capitalism.

Once the Constitution was ratified, and Washington was President, his Treasury Secretary Alexander Hamilton was bent on making the United States safe from foreign threats, capable of protecting its commerce, and strong enough to secure and even expand it's boundaries. Hamilton understood that national power would grow as manufacturing did. He longed to use the resources of the national government to aid the establishment of mills and factories. His first problem was to deal with the 76 million dollar debt that the nation and states had from the war. He knew that revenue was needed, and he favored tariff that would fall equally on imported items from all nations, and an excise tax on distilled liquor.

It was going to take more than taxes to achieve what Hamilton wanted to create. He knew that private investment was essential, and that most would have to come from overseas since the United States was nearly destitute of capital. His plans were to get most of the needed capital from British investors. A key element of his plan was to have the national government to assume the debts of the states, a step that would set in motion the liquidation of those debts, and would demonstrate the ability of the new national government to accomplish something that was beyond the capacity of most states. This was just the beginning of Hamiltonianism.

The revenue from the taxes and tariffs would in part be applied to debt reduction, but it would also help capitalize American entrepreneurs, and jump start the economy and industry. Hamilton had discovered through the British model a way to increase wealth. He wanted to refinance debt, foreign, national, and state, by issuing new securities to replace the old. The sale of national securities would immediately produce capital to be applied against the debt and the certificates themselves would constitute a lucrative investment. The possessors of these securities would be tied to the new national government, whose viability alone guaranteed their investments.

Hamilton hoped to mend fences with Great Britain to end the strain going back to the Stamp Act of 1765. If he could get a more friendly relationship with England, he was convinced, would reap many benefits. Britain's imports would increase, its ports would be opened to American merchants, and its capitalists would be enticed to invest within the United States. This was truly an amazing visionary at his best, it was such an innovative concept that now through the benefit of hindsight we see that it constructed the superstructure of America's modern economic system.

In January of 1790 Hamilton began asking that all the state debts be funded through the national government. This alone was a scheme for the complete transformation of the American economy into capitalism, since his plan would infuse the economy with capital. It came at no surprise when his plan found fervent opposition. However, what did surprise Hamilton was his old partner in selling the Constitution and co-author of the Federalist Papers, James Madison, led the opposition. Jefferson said that Madison was "very little acquainted with the world."

Madison was acting to mend fences in Virginia due to his leadership of the Nationalists during the Constitutional Congress and ratification, it had cost him dearly politically and he lost the Senate seat he wanted, and to position the debate so that they could get the National Capital located into the South. His goal was to rally sufficient southern opposition to stalemate Hamilton's proposals, with this he hoped to work another compromise like those reached in the Constitutional Convention. The deal he dreamed of now was to allow the northern commercial interests to get the Hamiltonian financial program and for the South to get the Nation's capital.

Jefferson was crossing the Atlantic while Hamilton was drawing up his plans. Our next blog will pick up his return.

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