How effective was Alexander Hamilton's financial plan for the United States?How effective was Alexander Hamilton's financial plan for the United States?

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santari | eNotes Employee

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Hamilton's plan was a resounding success.  It can mostly be found in his Report on Public Credit, which he toiled over for months upon becoming the first Secretary of the Treasury.  It is a remarkable work. Beyond the nuts and bolts of the financial matters it discusses, the report also lays out the broad political and economic foundations for the the fledgling government.  He argues that it be essential for government to honor its debts, because contracts form the basis for both public and private morality.  He realized that if properly handled, government debt could spur the economy.

At the time, money was scarce, and crippling the economy. He knew that government bonds could function as money and address the scarcity of liquid capital.  He knew that in order to avoid speculation on government bonds people had to be confident that they would be paid off.  Trust in the government was paramount:

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.

There is insight there that is applicable to the current financial crisis. Government can borrow as long as its creditors are confident they will be paid back. Hamilton believed government had to regularly set aside revenues to pay off interest and principal on the bonds it issued.  One of the discomfiting things about the current crisis is that the government is simply increasing its debt without any clear plan to fund the interest and principal, other than by simply printing more money, which can lead to inflation.

The real potential crisis could occur today if the government's creditors lost confidence in the fiat currency (paper), and instead demanded to be paid in something else, like gold. 

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ms-mcgregor | High School Teacher | (Level 1) Educator Emeritus

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Alexander Hamilton served as the first Secretary of the Treasury. He is credited with putting the new nation on a sound financial footing. In his first two years as Secretary of the Treasury, he organized America's finances,and established a National Bank. This was a tremendous achievement because the idea was opposed by Thomas Jefferson and other influential Americans. But the Bank helped stabilize American finances. He also developed a system whereby America could establish its own currency, the dollar, and not be forced to use the British Pound. He fought to pay off the debts of the United States so that it could establish credit with other nations. One of his toughest battles was getting Congress to authorize the money to pay off revolutionary bonds at full value and also pay off debts incurred by the states during the Revolutionary and Confederation periods. Speculators had bought up bonds and stood to make a tremendous profit if the bonds were paid off at face value. In addition, some states had already paid their debts and were not anxious to pay off other states' debts. However, by promising to move the capitol from New York to the south, he pushed through his proposal and put America on a firm financial footing.He also tried to encourage American manufacturing by raising tariffs, but most Americans were farmers at this time and they didn't see this as a priority. His strong leadership helped the United States remain a nation during a difficult period.

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alohaspirit | Middle School Teacher | (Level 2) Assistant Educator

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Alexander Hamilton not only established the first National Bank, but through his economic plan he created the idea of the bank selling national bonds to Americans, and through interest the federal government could start to build revenue to help pay off the national debt.  This system has carried through our government since the time of Hamilton, and has established a consistent plan of collecting money to build revenue.

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litteacher8 | High School Teacher | (Level 3) Distinguished Educator

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Hamilton was very effective. He was well ahead of his time in his financial innovations. We owe him our country's success, because without his fighting for what were sometimes unpopular ideas, the fledgling nation would have never been strong enough to survive the challenges to come.
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omni | College Teacher | (Level 3) eNoter

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I agree with the sentiments of Santari but would make the stipulation that most likely gold would only be a small part of what the Government would have to give up to its creditors in the event of a crisis. Most likely the Government would be forced to sell or trade assets such as land, natural resources, or entire corporations that had been nationalized.

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