Hamilton’s Financial Plan: Foundation Stone of the American Economy?
Looking back at the actions of Alexander Hamilton, one might spend years deciphering his true beliefs. In the later years of the 18th Century, the West as we know it today was a region of change, with the status quo being questioned and acted upon in every nation, resulting in the establishment of revolutionary ideologies. In this context, Washington and his blue-clad men give birth to a new nation, The United States of America. Cut to 2020, not many in Washington’s group probably would have envisioned the ironical state of the nation that they founded. As America gets divided on the basis of injustice and privilege, the self-proclaimed greatest nation of the world still remains at the top of the table when it comes to wealth. Thanks to Alexander Hamilton and his financial plans, America did not have to see many difficult days, or did it?
Hamilton, one of the founding fathers of the US and the first Secretary of the Treasury, was by far the most enigmatic, brilliant and yet controversial leaders of early America. Born to a single mother in the West Indies, he traveled to the mainland and made a life for himself, the legacy of which continues to run through America. He fought alongside Washington in the War of Independence against the British, authored the American Constitution and was the mastermind behind the establishment of Capitalist Financial and Banking system of America. As the first Secretary of State, he submitted four reports to the Congress, releasing his brilliant yet questionable economic plan that many say was possibly the strongest foundations for the American Economy.
Hamilton in his four reports dealt with three basic aspects: public debt, establishment of financial institutions and encouraging a ‘mercantilist’ economy. This plan gained more opposition than support, from the likes of American strongmen such as Thomas Jefferson. Those on Jefferson’s side, mostly consisted of southern estate owners, who blamed Hamilton of making a financial system that inherently benefits the wealthy. The plan went through as a result of personal persuasion of President Washington, and by placing the National Capital on the banks of the river Potomac. However, looking back at the plan in retrospect, the motive was probably much more political than economic. Considering the people his policies would most definitely help, Hamilton sought to solidify the Union Government through the treasury by a possible appeasement of the merchants, traders and estate owners.
The first two reports that Hamilton introduced in 1791, he dealt with the state’s public debt. At that time, America had just become an independent nation after their war against the British Empire. With the new administration in place they realised that most states had enormous debt which if not solved now would probably continue to haunt them in the later days of new America. The British, just like every other colony owned by them, had left the Americas empty and destitute, with all the wealth looted and stored across the Atlantic. Hamilton proposed in his financial plan to assume these debts in full, hence winning the trust and loyalty of the people. By taking good care of public credit, he ensured that the union was safe and secure by having a new beginning for the economy. Historians believe that this financial policy not only resulted in a nationalistic and united economy but also helped Hamilton weave in his own personal ideology, that of a Federal Nation (Federalist) into America’s foundation.
To pay for the debts incurred by the states as a result of the Revolution, Hamilton proposed a mechanism that would ensure the safe functioning of the union’s treasury. This however, was much to the disagreement of capitalists of that time. Till before status quo changed, the American states relied on the British manufacturing industry for the supply of raw materials that it produced in the plantations and exported to Britain and even the rest of Europe. Post the revolution, Hamilton devised a taxation plan, both internal and external, that would raise the power of treasury to the position where it could clear out debts. Tariffs were put on goods involved in trade with the states. Hamilton, was known to a be a strong admirer of The Wealth of Nations by Adam Smith, the bible for all free and capitalist economies, but he also disbelieved the fact that the State should not play a role in regulation and functioning of the economy.
His financial plan of assuming debt seemed flawless, until his second method to raise money was discussed, government bonds. The Treasury started issuing government bonds to the public, in order to fill the new government with public money which would then be payed off to the states. He also intended to bring the rich and influential to the support of the Central Government by this move, as it was primarily them who owned and got returns of these bonds. It is believed that this ‘aristocratic’ side of his financial plan might have been divisive enough to widen the gap between the employers and employees in the America, hence fueling an acute capitalistic mentality from the very inception of the US. It would also bring connections and great wealth to Hamilton’s seat of power, the Union Treasury. Jefferson primarily dissented to this notion of the plan. But later, they both came to a consensus of common interest.
In his third report, Hamilton proposed to establish the financial institutions of the Union which would dictate and regulate the Economy. He designed the first bank of America, on the same lines as the Bank of England. The similarity between the two models was disliked by many but was deemed necessary. Many believed that his taxation and Banking system even went against the principles of freedom that America stood for, giving him the image of closeted imperialist. In the words of Henry Bamford Parkes, Hamilton was a misguided economic theorist who made policies which he thought was “making America into an orderly, disciplined, hardworking and wealthy nation”. In reality, however, the financial institutions that Hamilton created were flawless in both planning and execution. The first National Bank, the Mint and even Wall Street would probably be hailed as the best bodies that an economy could have at that time. These institutions ensured the flow of currency and maintained a safe value, with proper implementation of the new Union’s paper money. Unfortunately, these institutions became concentrated in only one region of America, the prosperous North-Eastern States. Due to the location, these institutions became more accessible and popular in those very states. Sadly, this fact remains true to some extent in the American economy even in the present.
Through his taxation and trade policies, Hamilton created a strong base for an enterprising state. We might recall his vision of making a ‘mercantilist’ state, with industrialists, traders and businessmen thriving in the new-born United States of America. To judge the ethics and the principles of the highly capitalist American economy is purely another discussion, but what we can say with utmost confidence is that this is exactly what Alexander Hamilton had devised the nation to be. The principles that we debate on now, are the very pillars on which America stands today. The framework of the Banks, stock market, trade regulations, have been well suited for Hamilton’s vision of a prosperous America.
If we were to note the consequences of the policies that Hamilton proposed, then our analysis might be two-fold. By taking on public credit, the nation was pushed into debt even before the system was in place. At such a situation, the framework set further concentrated the wealth into the hands of a select few, resulting in the enlargement in the division between the ‘agrarian/labour’ and ‘capitalist’ class in the American society. However, his financial institutions remain the driving force behind the economy. Economists believe that even though the plan was not perfect, its execution in the late 1700s is deserving of appreciation. This framework that he set up may have been controversial for political reasons, but it still serves as the foundation of the world’s largest economy till date.
Alexander Hamilton may go down in history for his bravery, his enigmatic personal life or for being the all righteous man who became part of America’s first political scandal, but we cannot learn our history without acknowledging his sheer brilliance in framing and envisioning the American Economy. The land which later would become the home of many immigrants like himself, to find a better life, a nation whose diversity may become both its biggest strength and weakness. Alexander Hamilton, the immigrant founding father of the United States of America, continues to remind the world of the plans he carved for the future.
“Legacy? What is Legacy? It’s planting seeds in a garden you never get to see.”
~ Hamilton, ‘The World was Wide Enough’ from ‘Hamilton: Musical’
