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Despite the growing concern throughout the nation over a string of acts asserting national over state power, the Washington administration remained dominated by Federalists, led by Secretary of Treasury Alexander Hamilton. Hamilton's initiatives aroused the ire of those who maintained the politics of the Anti-federalists. Hamilton's main goals were to achieve the financial stability necessary to fight another war should one arise with the foreign threats of Britain and Spain, and to dull assertions of state power that might diminish national power. In his Report on Public Credit, submitted to Congress in January 1790, Hamilton calculated the US debt at $54 million, with individual states owing an additional $25 million. American credit abroad was poor, and continued to fall with every day the debt was left unpaid. Hamilton suggested funding the debt by selling government bonds, and further proposed that state debts be assumed by the national government.
Hamilton advocated the selling of western land to pay off US debt to European nations in order to rebuild credit, but suggested that the debt to US creditors be maintained as a perpetual debt. He argued the US could continue paying interest on its domestic debt, thus maintaining good credit, if the US creditors would accept the debt as a secure investment which paid yearly interest. This plan generated opposition from many, objecting to the fact that under the plan, astute wealthy speculators who had bought the debt certificates of others, many at great discounts, would benefit, while the Americans who actually financed the war would lose out.
Heavy opposition arose to Hamilton's proposal that the national government assume the debts of the states as well. Opposition ran especially high in the South, which, excluding South Carolina, had paid off 83 percent of the region's debt. Southern states saw in Hamilton's proposal a plan to alleviate the tax burden on northern states lagging in their debt payments, while southern states had already reduced their debt at great internal cost. In the end, Hamilton pushed his proposals through Congress with the aid of much political wheeling and dealing. The nation reaped the economic rewards of Hamilton's efforts to improve credit, as Europeans increasingly purchased US government bonds and invested elsewhere in the US economy.
In December 1790, Hamilton began his second controversial policy campaign. Having increased the amount of capital available for investment, he planned to establish a national bank. One-fifth of the bank's stock would be owned by the US Treasury, which would have one-fifth control of the board of directors. The remainder would fall into private hands. Hamilton claimed the Bank of the United States would, at negligible cost, provide a secure depository for federal revenue and a source of federal loans, as well as issue currency. The bank would regulate the activities of the nation's banks and extend credit to US citizens in order to expand the economy.
The proposal for the national bank brought Hamilton more opposition than had any previous initiative. Most notably, Thomas Jefferson, the Secretary of State, joined the ranks of Hamilton's opponents. Jefferson and other political leaders recalled how the Bank of Britain had undermined democracy, and feared that the creation of the bank would tie private individuals too closely to public institutions. They predicted that politicians would manipulate bank shareholders and that members of Congress who held bank shares would vote for the best interests of the bank over those of the nation. Hamilton's opponents further pointed out that the Constitution did not grant the federal government the power to grant charters. Despite this opposition, Congress approved the bank by a thin margin, and the Bank of the United States obtained a twenty-year charter in February 1791.
Alexander Hamilton, a veteran of the Revolutionary War, was an idealist who had become disillusioned by the faltering morals that many of his countrymen had exhibited during the revolution and following decade. He believed that Americans could not be motivated by self-sacrifice, but rather, had to be motivated by appeals to their own self-interest. Thus he advocated building ties between the government and wealthy and influential individuals, who he believed would support the nation were it in their own interest. Distrustful of the masses, he argued for the consolidation of power in the hands of the national government.
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