Federalists and Democratic Republicans

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Hamilton and Jefferson disagreed on most matters. Describe Hamilton’s financial plan and Jefferson’s opposition to those policies. What compromises were made to adopt Hamilton’s policies?

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Hamilton's economic plan was based on the founding of a federal banking system, the provision of credit for the growth of new businesses, and the encouragement and development of American manufacturing. In common with many opposed to the Federalists' economic program, Jefferson firmly believed that it gave too much power to centralized institutions of government. The proposal for the establishment of a federal bank was especially resented by Jefferson, who saw it as taking away powers that rightly belonged to state banks.

As the driving force behind the Declaration of Independence, Jefferson was a staunch advocate of radical republicanism, which entailed ultimate political and economic sovereignty residing with the states. He argued that Hamilton's economic plan violated the "Spirit of '76" by concentrating way too much power at the center. Furthermore, he decried what he saw as the damaging economic effects that the plan would have on the Southern landowners that he represented. Jefferson's vision of America was of a country whose wealth and political stability would be based on an agrarian economy, not the kind of industrialized system that Hamilton was keen to encourage. Jefferson felt that the proposed measures would take economic and political power away from large landowners such as himself and give it to the East coast banking and commercial elites whose interests were always so enthusiastically championed by Hamilton.

As Hamilton's plan proved so controversial, it was necessary to effect some sort of compromise to get it through Congress. In return for the federal government's taking over and paying state debt, the South would obtain the nation's capital. The assumption of state debt by the federal government was initially opposed by Jefferson and other opponents of the administration as it was perceived as an unwarranted infringement of states' rights. Hamilton, for his part, knew full well that, without the Treasury's being able to assume state debts, the whole basis of his proposed economic system would collapse. The ensuing compromise of 1790 gave the federal government more power, but crucially that government would now be based in the South.

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