Unit One Lesson Two

Unit One Lesson Two:Building the Nation’s Economy : 

Unit One Lesson Two:Building the Nation’s Economy

Reducing the Nation’s Debt : 

Reducing the Nation’s Debt Alexander Hamilton was the nation’s first Secretary of Treasury. He faced a large national debt, or the total amount of money that at government owes to others. The federal government along with the states borrowed a great deal of money to pay for the Revolutionary War. This money needed to be paid back.

Alexander Hamilton : 

Alexander Hamilton

Nation’s Debt Continued : 

Nation’s Debt Continued The government borrowed money by issuing bonds, or certificates that promise to repay the money loaned, plus interest. Hamilton’s Plan Wanted to buy up all old bonds including bonds purchased by the federal government and the bonds purchased by state governments. He would then issue new bonds to pay the original bond holders. That way the federal government would be the primary holder of all debt.

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As the economy improved, the government would then be able to pay off all new bonds. After much debate, Congress agreed that the federal loans should be paid back. Controversy continued, because many argued that the federal government should not pay back the debts of the states. Many worried that speculators, or someone who invests in risky ventures in the hopes of making a large profit, would benefit more than the government.

Debating Hamilton’s Plan : 

Debating Hamilton’s Plan James Madison led the opposition to the plan. By 1789 most of the Southern states had paid back their loans and they felt that the other states should do the same. Madison also felt that speculators who did not deserve to make a profit from the bonds would benefit. Hamilton argued that the government must repay the loans in full or it risked loosing the trust of investors. Investors were extremely important in building the nations economy. James Madison

Hamilton’s Compromise : 

Hamilton’s Compromise Many still bitterly opposed Hamilton’s plans, especially the South. The South wanted the nation’s new capital to be located in the South. Hamilton agreed and said that if the South supported the plan, the new capital would be built in the South. They agreed. Therefore the new capital would be located in the new city of Washington D.C.

Plans to Build the Nation’s Economy : 

Plans to Build the Nation’s Economy Hamilton’s next challenge was the strengthen the national economy. His plan was to boost both agriculture and industry. Hamilton wanted Congress to create a National Bank. 1789 Congress created the Bank of the United States.

Bank of the United States : 

Bank of the United States The government would deposit money collected from taxes into the bank. The bank would then issue paper money to pay the governments bills and to make loans to farmers and businesses. These loans would then encourage economic growth.

Early American Paper Money : 

Early American Paper Money

Further Economic Growth : 

Further Economic Growth To help American manufacturers, Hamilton asked Congress to pass a tariff, which is a tax on foreign goods coming into the country. This would make imported goods more expensive than American made goods. In the North, where there were many more factories, many supported Hamilton’s plan.

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The South did not support this plan because many southern farmers purchased imported goods. They opposed this protective tariff, because it would make imported goods too expensive. In the end, Congress did pass this tariff, but it was much lower than Hamilton wanted.