Federalist Policies


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Federalist Policies


After the establishment of the constitution, the Federalist administrations faces many significant challenges when dealing with the economics of the United States; much of the country was divided over issues such as how to raise money, establishing a public credit system, how to pay the national debt, and whether or not a national bank should be established. Leaders like Alexander Hamilton, Thomas Jefferson, and James Madison came to represent the ideas of the people and as these ideas became more solid, debate and opposition rose. The Federalists saw multiple ways to resolve these issues, and the resolutions established that leadership in the United States would be successful.
Raising revenue for the United States was the first economic issue the Federalists faced. This was the first and most important need they saw for the country. At first, James Madison proposed a small tax on imports, however, the high demand for money quickly increased the taxation. Also, the Tonnage Act of 1789 was passed, taxing American and foreign ships. American ships were not taxed as much as foreign ships, however. The issues of taxation and raising money also brought into play bigger issues, such as whether the United States should favor Britain or France in their economic policies, whether they should maintain taxation even at the expense of farmers, and whether the interests of northern manufacturers should be their biggest concern. The Tonnage Act was the beginning of increased revenue in the America, but a sound fiscal discipline was far from having been created.

Another issue that was controversial was the establishment of a public credit system and paying the national debt. Alexander Hamilton was the main activist in this issue. He wrote several reports to the House of Representatives offering solutions to the problem. In his first report, he suggested that citizens who had government bonds should be able to turn them in for new, interest-bearing bond. He also thought that the government should make the states pay their debt to the government, which would be about $21 million. The problem with his ideas was that, in financial crisis, many farmers had sold their bonds at very low prices to speculators, and that with this plan, only the speculators would benefit, because they could trade in all of the bonds they bought very cheaply. The citizens argued that the they should be they should be paid back for their losses.

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Hamilton, however, argued that the speculators bought the bonds legally and, therefore, fairly, so they should that shouldn't be an issue. In later reports, Hamilton also suggested that the government tax liquor in order to raise money to pay the national debt, and that the government should establish financial aid programs to encourage the development of manufacturing businesses. He also proposed the establishment of a national bank and a national mint. He believed that these things were all necessary to pay the national debt, and that paying this debt should be a high priority, because it would show that the United States is honorable, has sound finances, and it would ensure the nations chances for credit in later years. Hamilton's ideas raised a lot of questions, and although few questioned whether or not paying the national debt was necessary and would be beneficial, there was much argument over his ideas, especially the establishment of a national bank.

The payment of the national debt was controversial, especially between Hamilton and James Madison. Madison did not argue that the debt should not be paid; he agreed with Hamilton that the payment of the debt was very important. However, he disagreed with Hamilton about the bonds, because he sided with the public in believing that only speculators would benefit from this plan. Regarding the states paying off their debt, he believed that many of the states had already made progress is repaying their debt, and that they should only be held accountable for paying their debt as it stood in 1783, when peace was resolved. Hamilton, Jefferson, and Madison all discussed the national debt and finally came to a conclusion. Madison's idea was finally passed and it was agreed that small states who were unable to pay off their debts would get grants from the Federal Government to make up the difference. This compromise showed that the leaders of the nations did have the interest of the people and the states in mind.

Once the issues of raising revenue, establishing public credit, and repaying the national debt were resolved, the main disagreement became over the national bank. Hamilton proposed the national bank with many reasons in mind. He thought that a national bank should be established which would issue bank notes, or paper money, which would establish a uniform currency. He thought that the bank should be under government watch, but should also have private investors provide four-fifths of the capital. He also felt that once a national bank was established along with paper money, the bank could issue loans to encourage business. A national bank, he also believed, would be a safe place to store money large amounts of money. The big dispute over the national bank were whether the government was given the right to establish one in the constitution. Hamilton and Madison strongly opposed each other on this issue. Hamilton, believing that the establishment of a national bank was constitutional, argued that Article I, Section I allowed them to establish one. This Section states that congress can make any law that is "necessary and proper" for the nation. The debate over this was whether or not a national bank was necessary. Hamilton argues why the national bank is necessary and proper, while Madison argues that it is not. Madison's other main argument is that the Constitution also leaves any powers that are not specifically directed to the federal government are to be given to either the states or the people. Therefore, since a national bank was not specifically given to federal power, it should be left to either the states or the people. The president accepted Hamilton's arguments, however, and approved a national bank. The bank's stock was put up for sale on July 4, 1791, and was sold out within a few hours. The decision to approve the national bank almost immediately proved itself to be advantageous.

The Federalists had many challenges they had to deal with, almost immediately after the establishment of the Constitution. Economically, the country wasn't in a very stable position. Alexander Hamilton played a huge role in establishing the economy of the United States. The national bank, which has helped the nation prosper, is also attributed to him. Without these ideas, the United States economy wouldn't be the sound fiscal discipline that it is today.


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