The Federalist era is important and interesting not only because the present constitutional foundation of the United States was laid in these years, but also because of the personalities who participated in this historic process. The first President of the United States, George Washington, was a man of simplicity and impeccable integrity; his Secretary of State, Thomas Jefferson, possessed democratic visions; and his Secretary of the Treasury, Alexander Hamilton, was an administrative genius. Washington’s Vice-President and successor as president, John Adams, added the leavening of political cynicism to the times, while the opportunistic scoundrel Aaron Burr lurked in the background. These men established a nation while at the same time embodying every possible political position and argument.
Hamilton was born and reared in the British West Indies, but had the good fortune to escape the sloth of those islands to enroll at King’s College (now Columbia) in New York City in 1773. There he began reading eighteenth century political and economic theory, which inspired him to write in favor of the revolutionary cause of the American colonists. He served in the Revolutionary War and, always anxious to connect himself with persons of importance, managed to get on Washington’s staff and to marry Elizabeth Schuyler, a member of a distinguished New York family. At the termination of the conflict, he set up a law practice in New York City, where he often defended loyalists attempting to recover property confiscated during the Revolution.
Hamilton was appalled by the chaotic and selfish nature of American society, which almost lost the revolutionary struggle to Britain, and all of his life he maintained a lively interest in political and economic debates occurring on both sides of the Atlantic. Naturally he entered political life. He participated in the Annapolis convention of 1786, was elected to the New York legislature in 1787, and attended the Philadelphia constitutional convention that same year. He did not take a central role in the drafting of the constitution, although his speeches at Philadelphia indicate that he favored a strong and centralized monarchical form of government for the United States. He was the author of approximately two-thirds of the essays in the Federalist, which sought to sway public opinion in favor of ratification of the constitution.
Washington was not a man of great intellect, but he was intelligent enough to know that he needed talented men to help him launch his administration and get the country off on the right foot. Hamilton had demonstrated his abilities while serving on Washington’s staff during the war, and hence the president called on him to head the treasury, an appointment which enabled Hamilton to put into effect many of the ideas he had gathered over the years. Hamilton wanted the new nation to repudiate its colonial heritage, wherein a handful of landowners and slaveowners, mostly on the basis of inherited wealth, presided over a stagnant and backward society; he envisioned a dynamic, commercialized, and industrialized country where persons with a talent for creating wealth would govern. He believed that the United States government, properly constituted and supported by propertied elements, would provide the vehicle to transform American society along the lines that he envisioned; hence he introduced initiatives at the treasury on public credit, a national bank, and on manufactures.
In his Reports on Public Credit (1790), Hamilton proposed to Congress that the United States government establish its credit by funding the debts of the states and of the defunct Confederation; that is, he wanted to pay the interest on the debts and gradually pay off the principal with a sinking fund. These debts had for all practical purposes been repudiated during the revolutionary period, leaving American money markets in chaos. Hamilton argued that funding them would at once establish the credit of the government and bind the creditor classes to the government, thus creating a permanent national debt. Such a debt would permanently establish machinery for the transfer of surplus private funds into public and, then in turn, private economic ventures. He also proposed the creation of a national currency in conjunction with the funding of the debts and sent Congress a Report on a National Bank (1790) proposing the establishment of a Bank of the United States, which would be charged with establishing a currency and credit system to aid the economic and financial development of the country. In 1791, his Report on Manufactures proposed a protective tariff to subsidize struggling American industries.
Money, banking, and credit are unfortunately subjects of passionate interest to most people, while few really understand...
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