Hamilton's Arguments in Favor of the Debt and the Bank
Jefferson would have no position against witch to argue had not Hamilton made the argument for the national debt so eloquently and so forcefully. Essentially, Hamilton and Jefferson entirely disagreed on the proper course to put the nation on a prosperous track. The greatest issue was whether the multitudinous colonial debts piled up by the individual colonies during and since the war with England should, in the spirit of e pluribus unum, be taken on by the federal government.
Hamilton postulated that the assumption of these colonies' - now states' - debts was essential to make the nation a credible, operating reality, deserving of trust in seeking credit from other countries. Also, Hamilton felt that "monied men" - those wealthy Americans who had made the loans to the state governments and how had in many instances not been paid yet would have further support for the federal government as a direct result.
Hamilton's view of debt on a national scale was far from negative: he held the then radical opinion that it actually could be a very good thing. 'A national debt,' he wrote, 'if it is not extreme, will be to us a national blessing. It will be a powerful cement of our Union. It will also create a necessity for keeping up taxation to a degree, which, without being oppressive, will be a spur to industry.' Together with the establishment of a national bank, which he also vigorously recommended, it would 'erect a mass of credit that will supply the defect of monied capital, and answer all the purposes of cash... offer adventurers [that is, investors] immediate advantages, analogous to those they receive by employing their money in trade... not only advance their own interest and secure the independence of their country; but, in its progress, have the most beneficial influence upon its future commerce, and be a source of national wealth and strength.'"
Contrary to popular belief, it was not at all Hamilton's idea at first to plan for the public credit. Rather, 10 days after he took office as the secretary of the treasury on Sept. 11, 1789, the House of Representatives passed a resolution calling for him to report to it a plan for the "adequate support of the public credit."
It was quite evident at the time that such a plan was indeed necessary: According to Schachner's research, "Nothing could be more chaotic or desperate than the then state of the public credit. In fact, had it not been for the hopeless confusion into which the finances of the confederation had fallen,...
It was the most difficult task that had every been set for him in all his active career. On its successful solution depended not only Hamilton's political fate, but the fate of the nation."
And indeed, Hamilton simply had no formal training in finance: He was a lawyer, and even in his law practice, was most abhorrent of the financial side - practice management. He felt it an encumbrance that he had to practice sometimes for revenue to support his political endeavors.
However, Hamilton had studied economic theory - especially Adam Smith - thoroughly, and had been involved in structuring the finances of the confederation. As Schachner notes in his research, though, it is one thing to suggest plans for which one assumed no responsibility; and an entirely different thing to suggest them as the secretary of the treasury.
Hamilton rarely asked for advice, but this time he did. He asked James Madison, a staunch ally in the fight for ratification of the Constitution. In addition, Hamilton turned into a packrat of sorts: He gathered information on imports and exports, on tariffs and revenue systems, on the state of the public securities - basically, he learned a topic from scratch and became the nation's leading expert on public finances.
Madison, however, was very cautious on the issue of the public debt: "the codification of the public debt is a subject on which I ought perhaps to be silent, having not enough revolved it to form any precise ideas. I take it to be the general expectation that the foreign part of the debt is to be put on the most satisfactory footing, and it will no doubt equally gratify the public wish, if it can by that means be turned into a debt bearing a reduced interest. The domestic part is well-known to be viewed in different lights by different classes of people. It might be a soothing circumstance to those least favorably disposed, if by some operation the debt could be lessened by purchases made on public account; and particularly if any impression could be made on it by means of the Western lands.
In essence, Madison delivered the broadest, most fence-sitting answer possible, and Hamilton was left to his own devices on the most critical component of his work as secretary of the treasury.
DOS, 2005
Sylla, 2005
Halliday, 2001
Schachner, 1946
