The US Financial System and Alexander Hamilton
Alexander Hamilton was the United States’ first secretary of the Treasury, serving during George Washington’s administration. Hamilton was never president, but he made significant contributions to the financial system of this country. These contributions gave Hamilton a prominent position in history. He also has the distinction of being featured on United States currency even though he was not a president. Many of the business solutions that exist today, including modern credit card processing, are in place as a result of the contributions of Hamilton.
Hamilton was born in the West Indies in the mid-1750s, although his precise birth date is not known. Hamilton grew up in the Virgin Islands. As a young man, he wrote an essay that garnered attention from local community leaders. The leaders worked together to raise funds to send Hamilton to the Colonies to attend school. Hamilton served in the Revolutionary War under General George Washington. When Washington later became president, he chose Hamilton to become the first secretary of the Treasury. As secretary, Hamilton was involved in the institution of the National Bank and a national currency.
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Hamilton had inventive financial ideas. After the end of the Revolutionary War, many states carried debts that they were not repaying. The value of these public securities was nil, but Hamilton had a solution. He proposed that the federal government repay all of the state debts at their full value. This repayment would be an effective way to legitimize the federal government. The means of financing the repayment involved issuing new security bonds to investors. These investors were excited about making significant profits. Hamilton was also instrumental in the creation of a national bank and a centralized currency.
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Hamilton’s plan for the new country’s financial system had three major parts. Assuming the states’ debts by issuing interest-bearing bonds was the first part of the plan. Hamilton also instituted tariffs for imported goods as a way of raising federal revenue and helping domestic businesses. With the establishment of a new national bank, Hamilton created a way for the United States to hold funds and use securities as capital to encourage future growth.
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The Hamiltonian Economic Program consisted of Hamilton’s proposals set forth during his time serving as secretary of the Treasury. Hamilton created three different reports that outlined his program and proposals. The reports were the First Report on Public Credit, the Second Report on Public Credit, and the Report on Manufactures. Congress implemented Hamilton’s economic program.
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The First Report on Public Credit included analysis of the financial standing of the United States. This report made recommendations about reorganizing the national debt and establishing public credit. The report contained 40,000 words, with a focus on assumption of state debt from the war and redemption of government securities. Congress debated the proposal, eventually reaching a compromise in 1790.
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The Second Report on Public Credit is sometimes called the Report on a National Bank. In this report, Hamilton proposed the creation of a central bank for the United States. By issuing federal bank notes, the country could increase the money supply. Hamilton’s vision of the bank involved creating a stable financial system for the new country.
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The third report was the Report on Manufactures. This report focused on encouraging manufacturing with subsidies to various industries and by regulating trade with tariffs. The purpose of the tariffs was to raise revenue for the new government. These tariffs would also help encourage domestic manufacturing, which would help the country’s economy grow internally. The subsidies would also support manufacturing without affecting supplies or causing prices to increase.
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Other Financial Information During Alexander Hamilton’s Time as Secretary of the Treasury
Follow a useful chronological timeline of the major events in Alexander Hamilton’s life.
Learn more about Hamilton’s life, childhood, and how he came to be the first secretary of the treasury of the United States.
His Sense of Humor and the Art of Governance
Hamilton has had a problematic reputation as a monarchist who despised the masses, but the truth is almost always more complicated.
Hamilton’s Opinion as to the Constitutionality of the Bank of the United States: 1791
Was the creation of the bank of the United States constitutional, and did others support it?
Opinion on the Constitutionality of a National Bank
Read about the showdown that happened between Hamilton and Jefferson regarding the disagreements over the role of the the federal government with regard to the bank.
Who Was Alexander Hamilton?
The man behind the bank had a fascinating life story; learn more about it here.
Alexander Hamilton, The Economist
Hamilton probably had the most impact on America as an economist.
A Summary of the Reports on Public Credit
Here, you can read a shortened version of the hot debate regarding public credit.
Alexander Hamilton and the National Bank
If you really want more information, read this complete thesis on Hamilton’s life and influence.
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