Toward the end of 1788, New Yorkers elected Alexander
Hamilton to represent them in the national Congress once again,
and so Hamilton moved his family from New York to the capitol in
Philadelphia. This particular Congress was the last to ever meet
under the authority of the Articles of Confederation, and there
was little for Hamilton to do in the area of national legislation.
Instead, Hamilton focused his attention on convincing General George Washington
to accept the nomination to become the first President of the United
States under the Constitution. Washington accepted the nomination,
but Hamilton was not satisfied because he feared that another candidate
might try and campaign against Washington. To prevent this from
happening, Hamilton waged a counter- campaign by asking to his
political friends and colleagues to encourage their representatives
in the Electoral College to vote for Washington. Hamilton's fears,
however, proved to be unfounded. In April 1789, the Electors unanimously
voted for Washington to be the first President, with Hamilton's
political foe John Adams as his Vice President.
President Washington looked to people he knew and trusted
to fill his small cabinet. Washington named Thomas Jefferson as
his Secretary of State, Henry Knox as his Secretary of War, and
Hamilton as his Secretary of the Treasury. Although Hamilton came
to be known as the most important Secretary of the Treasury in
U.S. history, he spent only five years in that position. Hamilton
began his tenure as Secretary of the Treasury by drafting a report
on the future of American economic stability entitled [A] Report
on the Public Credit. This was the first of two such reports; the
second was published just before Hamilton resigned from the cabinet
in 1795. This first report outlined Hamilton's recommendation to
the President and to Congress concerning the best methods to eliminate
the national debt. By the time the Constitution came into effect
in 1792, the United States had borrowed nearly forty million dollars
from other countries and from individual speculators, and in addition
to this principal, owed an additional fifteen million in interest.
During the early
years, some states had paid off their debts, but
the majority of them had not. This accumulation of debt was a huge
problem for the new nation.
New governments often try to cancel debts, but Hamilton stepped
forward instead to encourage the U.S. Government to assume the
debts of all the states and to pay them off in full along with
the interest. Hamilton argued that if the new government did not
pay its creditors in full, the United States would never be seen
as a stable and reliable nation. His report said that the country
must establish its trustworthiness and earn respect if it were
ever to borrow money again. To pay off the debts, Hamilton planned
to raise taxes throughout the country. Many politicians protested
Hamilton's proposals, and states that had paid off their own debts resented
that they had help pay the debt of other states. Other politicians
felt only the principle should be paid, while still others cried out
against the new taxes.
James Madison, who had once collaborated with Hamilton
in authoring the Federalist Papers, lead the opposition Hamilton's proposals,
and for several months their respective camps were deadlocked.
Finally, Hamilton struck a bargain with Madison that changed history.
At the time, the capitol of the United States had just moved from
Philadelphia to New York City. Hamilton offered to convince Congress
and the President to move the capitol south to a designated area
near Virginia known as the District of Columbia. Hamilton believed
that moving the capitol to a more southern location would allay
Southern fears of tyranny from the North. Madison, Congress, and
Washington accepted the proposal to relocate the seat of government,
and arrangements were made to carry out the agreement. In exchange,
Hamilton's policies on debt were enacted. For his work on the matter,
the new Secretary of the Treasury was awarded an honorary law degree
from Dartmouth College.
After he succeeded in clearing his program on the national
debt through Congress, Hamilton turned to the urgent matter of
the banking problem. Since his early days as a New York Assemblyman,
Hamilton had advocated that a new national
bank should be created to control the nation's wealth
and finances. Now, as the head of the national treasury, Hamilton
had more political weight, and in 1790 he presented a proposal to
Congress to create a National Bank with one central branch and
several regional branches throughout the country. The total initial
worth of the bank would be ten million dollars, and capital would
be exchanged for shares sold to the public. Although the National
Bank would be independent from the government, Hamilton's plan
also stipulated that the federal government would hold one fifth
of the bank's total stock. Furthermore, the directors of the bank
would be required to submit weekly transaction reports to the Secretary
of the Treasury.
Congress liked Hamilton's proposal, but Secretary of State
Thomas Jefferson and his political ally Madison stepped forward
to argue that a national bank would be unconstitutional since the Constitution
made no explicit provisions for such an entity. Immediately, a
new and very serious problem concerning the interpretation of the
Constitution emerged. Jefferson and the strict constructionists
argued that the Constitution forbade whatever it did not expressly
permit. Hamilton and the loose constructionists, on the other hand,
argued that what the Constitution permitted whatever it did not
expressly forbid. In the end, President Washington settled the
dispute. Washington conceded that the Constitution had to be interpreted
loosely at times in order to promote national well-being, and approved
Congress's and Hamilton's desire to establish the national bank.
Even though there were no true political parties at this point
in time, the philosophical rift between Hamilton and Jefferson was
clearly widening.
Hamilton then turned to writing his report On
the Establishment of a Mint. Several currencies still
floated throughout the country, some printed from the individual
states, some from private banks, and others from the old government
outlined by the Articles of Confederation. Hamilton
convinced Congress to pass the Mint Act of 1791 to create a standard
national currency. This proposal was met with almost no opposition.
