America - past and present Vol. 1 to 1877 Chapters 7&8 What were the long term effects of Hamilton's financial plans?
As the first Secretary of the Treasury, Alexander Hamilton is credited with establishing the new nation on sound financial ground. His plan included the following:
- The payment of national and state war debt
- The raising of government revenues
- The creation of a National Bank
Through his creation of war bonds and a national currency, Hamilton helped the recovery of America's economy and the repayment of national debts. When the Southern states argued that they had paid all their war debts, Hamilton worked on a compromise in which the capital would be moved from New York to the South (what is now the District of Columbia) in return for the South's aid in paying the debts of other states. Further, the creation of war bonds encouraged Americans to invest in their country. By investing in these bonds, Americans spurred the economy with the circulation of what functioned as liquid capital and the interest on the bonds helped to pay the national debt. Furthermore, Hamilton firmly believed that government had to set aside revenues regularly in order to pay off interest and principal on the bonds it issued for America in order to maintain its credibility. In his Report on Public Credit, Hamilton wrote,
....In nothing are appearances of greater moment than in whatever regards credit. Opinion is the soul of it and this is affected by appearances as well as realities.
The establishment of a National Bank, although strongly opposed by Jefferson who thought it violated the Constitution, created a national currency that, once put into circulation, stimulated the economy of the young country. Another way in which Hamilton raised revenues and bolstered the economy of the new nation was through the use of tariffs. By having higher tariffs on goods coming into the country which Americans were also producing, he encouraged the citizens to purchase American products and thus aid the U.S. economy. This plan helped to make America self-sufficient.
Hamilton's financial plans were a resounding success as they continued to be evinced in modern history. During World War II, for instance, the sale of war bonds greatly bolstered the U.S. economy since by removing currency from circulation and thus controlling inflation. Through the selling of Liberty Bonds, the government raised $21.5 billion for the war effort in the 1940's.