Financial History of the United States: Fiscal, Monetary, Banking, and Tariff, Including Financial Administration and State and Local Finance

By Paul Studenski; Herman E. Krooss | Go to book overview

CHAPTER 5: ESTABLISHMENT OF THE NATIONAL FINANCIAL SYSTEM

The financial policies of the Federalist administration were dominated by its first Secretary of the Treasury, Alexander Hamilton. He was the architect of the new national financial system, and some of his policies were permanently adhered to while others were reverted to from time to time during the succeeding 160 years.

Long before coming to office, Hamilton had developed the philosophy which was to determine his activities as Secretary. His outlook was aristocratic rather than democratic, capitalistic rather than agrarian, mercantalistic rather than laissez-faire. His whole program was dedicated to the achievement of a strong government which would be closely allied with the merchant and financial groups. The individual parts of the program, being intermeshed, formed a consistent fiscal, monetary, economic, and political system.

To establish the national credit and to rally all public creditors to the support of the national government, Hamilton proposed to fund the national debt, i.e., to convert it into long-term bonds and provide sufficient revenue to pay its interest charges and ultimately to retire it. He also proposed that the Federal government assume the obligations of the state debts under a similar funding system. The funding was also intended to create a supply of readily marketable bonds, which investors could use to subscribe for capital in large-scale business ventures, such as the Bank of the United States. Created by government authority but controlled privately, the Bank was to be an instrument through which government and business could function in unison in fostering the development of national commerce by extending commercial credit in addition to facilitating government fiscal operations.

Hamilton projected a revenue system based on import duties supplemented by internal taxes. He proposed a protective tariff to accelerate the country's industrial development and to make it self-sufficient in time of war as well as to tie business interests more closely to the national government. Finally, he proposed to sell public lands in large parcels and on credit in order to attract large "investors," to increase revenue, and to keep administrative selling expenses low.

The Organization of the Treasury . When the First Congress convened on the first Wednesday of March, 1789, the immediate financial tasks were to organize the Treasury, to establish a revenue system, to straighten out

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