130 likes | 135 Views
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
E N D
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 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 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
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
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
Hamilton Vs. Jefferson The split in Congress over Hamilton’s financial plan resulted in the formation of two political parties: Federalist & Democratic-Republicans.