Why Alexander Hamilton Still Matters
Alexander Hamilton was one of the most influential figures in forming the United States. He was appointed by President George Washington to become the first Treasury secretary, largely because of his background in economics and his service in the War for Independence. But Hamilton sought to transform America into another England by centralizing power in the national government at the states’ expense. And politicians have been copying this approach ever since. 
At the Constitutional Convention, Hamilton pushed to create a strong central government. He proposed that the president serve for life as a quasi-king, with powers to appoint state governors and veto federal and state laws. Hamilton only reluctantly endorsed the final Constitution because it was a slight improvement upon the decentralized Articles of Confederation.
Although he worked to persuade the states to support the new Constitution in The Federalist papers, Hamilton truly admired the British mercantilist system. This system featured excessive government spending that created massive debt, and high taxes that raised money to subsidize favored businesses in exchange for political favors. Believing that this was what made Great Britain a world power, Hamilton set out to create a similar system in America.
The basis of Hamilton’s economic policy was provided in three reports he issued to Congress. The proposals in these reports perverted the Constitution’s intent by trying to centralize power in the federal government. They also set a trend for economic policy and constitutional interpretation that most politicians still favor today.
Report on the Public Credit
Hamilton’s first report Congress offered two proposals. First, the federal government would assume all state and non-federal debts, then combine them with the national debt; this was called “assumption.” Removing financial obligations from the states would harm their credit and make them more dependent on the federal government in handling the economy. Southerners in Congress opposed this plan, not only because it weakened state power, but because most debt was in the northern states, and those in debt-free states felt no obligation to bail out less fiscally-prudent states.
Second, the federal government would repay the debt by selling government bonds. Most of the current national debt was in bonds issued to war veterans in lieu of pay. Paying this off by issuing more bonds would create a permanent cycle of debt that would finance future government operations. It would also entice creditors to ally themselves with the new government, thus forming a relationship between business and government that was strikingly similar to that in England.
Many, including Secretary of State Thomas Jefferson and Congressman James Madison, argued that the Constitution had no provision to allow such proposals as these. Hamilton countered that these were among the federal government’s “implied powers,” in which the ends (funding the government) justified the means (violating the Constitution). Ultimately, southerners agreed to support the Assumption Bill when northerners agreed to move the national capital from New York City to the South.
Hamilton’s notion of “implied powers” has been used by politicians to justify unconstitutional measures ever since. Disagreements over Hamilton’s plan led to the creation of political factions, the forerunners to political parties. In addition, the federal assumption of state debts set the trend of placing the federal government in control of the national economy, which continues today. It also led to the creation of Washington, DC, the future national capital.
Report on a National Bank
Hamilton’s second report offered two more proposals. First, a U.S. Mint would be created to print a national currency. At the time, state and local banks printed their own money, leading to various currencies with different exchange rates. Hamilton argued that the U.S. needed a uniform monetary system if it was going to survive and prosper.
Second, a national bank would be created to hold government revenue, meet the government payroll, circulate the new national currency, and provide steady credit to the federal government. The bank would be created by selling $10 million in stock, of which the U.S. would buy a share of $2 million. Since the U.S. did not have $2 million, Hamilton would arrange a U.S. loan to itself, which was essentially illegal. The other $8 million in shares would be bought by private investors. This was modeled after the Bank of England.
Southerners were suspicious of a central bank that could infringe on states’ rights by allowing private investors to gamble with taxpayer money (i.e., allowing bankers to feed at the public trough). Hamilton countered that the Constitution provided the federal government with the “necessary and proper” power to tax, coin money, and regulate interstate commerce, and under this, a national bank was a means to the end. After consulting with his cabinet, President Washington reluctantly signed the Excise Bill into law, and the Bank of the United States became the forerunner to today’s Federal Reserve System.
Hamilton’s argument that it is valid to use unconstitutional means (creating a mint and national bank) to achieve a constitutional end (coin money, collect taxes, etc.) set a vital trend. It helped ally government with private bankers and investors, creating the mercantilist system—also known as crony capitalism—that dominates the U.S. economy today.
Report on Manufactures
In Hamilton’s third report, he wrote, “The public purse must supply the deficiency of private resources.” To remedy this, he offered two proposals. First, tariffs (i.e., taxes) would be imposed on imported goods to make American products cheaper and more desirable. Second, revenue from the tariffs would be used to provide “bounties” (i.e., subsidies) to stimulate industry and make America competitive on a global scale.
Opponents argued that the Constitution only allowed the federal government to impose tariffs to raise revenue, not to protect American business. They also argued that subsidizing favored businesses had no constitutional basis. Others noted that such a system was suspiciously similar to the British system that so many Americans had just fought to get rid of.
Hamilton countered that such a program would benefit the “general welfare” of the nation, as provided in the Constitution. Once again, the ends (national stability) would be justified by the means (unconstitutional taxing and spending).
Congress rejected this report, but it reemerged in later years and was eventually adopted by the Whig, Republican, and Democratic parties in various forms. Hamilton’s economic policy set the trend for subsidizing businesses, which is known as “pork barrel spending” today.
Hamilton’s Policies Remain
Many of America’s founders, most notably Thomas Jefferson and James Madison, stringently opposed Alexander Hamilton’s economic policies. In fact, Jefferson ultimately resigned from George Washington’s cabinet in protest of Washington’s support for Hamilton. This helped forge the first political factions in the U.S.: the Republicans led by Jefferson and the Federalists led by Washington and Hamilton.
Hamilton recognized the coming of the industrial revolution. He also saw great potential in the alliance of industry and capitalism to transform America into a world power. However, Hamilton tried to speed up the alliance through government intervention. This only led to mercantilism, which is the antithesis of the free market capitalism that many Americans had sought after freeing themselves from England.
The sovereignty of states and individuals was weakened by Hamilton’s quest to centralize power. This contradicted most founders who drafted the Constitution. Hamilton’s liberal constitutional interpretations have reduced the states’ ability to resist the growing federal authority. They have also produced philosophical descendants such as Henry Clay, Daniel Webster, Abraham Lincoln, Woodrow Wilson, Franklin D. Roosevelt, Richard M. Nixon, George W. Bush, and Barack Obama.
Hamilton’s ideas of accumulating national debt, creating a national bank, and subsidizing favored businesses have been fully enacted in one form or another. There is a vast national debt, banking is centrally planned through the Federal Reserve System, and many businesses and industries are routinely subsidized with taxpayer money. Over 200 years after his death, Alexander Hamilton’s vision for America is now a reality. And in many ways, Hamilton’s ideas betrayed the principles that Americans fought for in the War for Independence.
