Hamilton the Economist

Alexander Hamilton was a man of vision as well as economic genius. While he was Americas Secretary of Treasury, he wrote three major reports to Congress. These included: Report Relative to a Provision for the Support of Public Credit, The Reports on Public Credit II, and The Report on Manufacturers. His views expressed in these three reports laid the foundation upon which the economic success of modern day America was built. Although many of his policies have since been tweaked modified or re-named, the fundamental ideas he expressed have been consistent throughout. The amazing staying power of Alexander Hamilton's economic policies and the success that they have produced are clearly evident in today's modern economy. One of the most profound things about the visionary economic policies of Hamilton is that they not only solved the immediate problems facing the United States, but they also accounted for many of the challenges that the United States would be forced to contend with in the distant future.

When George Washington first appointed Alexander Hamilton Secretary of Treasury, the most pressing issue was the payment of the debt acquired while financing the Revolution. He tackled this issue in his first report to Congress entitled: the Report Relative to a Provision for the Support of Public Credit.

?It is agreed on all hands, that part of the debt that has been contracted abroad, and is denominated the foreign debt, ought to be provided for, according to the precise terms of the contracts relating to it. The discussions, which can arise, therefore, will have reference essentially to the domestic part of it, or that there is not the same unanimity of sentiment on this part, as on the other.

The Secretary has too much deference for the opinions of every part of the community, not to have observed one, which has, more than once, made its appearance in the public prints.... It involves this question, whether discrimination ought not to be made between original holders of public securities, and the present possessors, by purchase. Those who advocate a discrimination are for making full provision for the securities of the former, at their nominal value; but contend, that the latter ought to receive no more than the cost to them, and the interest: And the idea is sometimes suggested of making good the difference to the primitive possessor....

The Secretary, after the most mature reflection on the force of this argument, is induced reject the doctrine it contains. As equally unjust and impolitic, as highly injurious, even to the original holders of public securities; as ruinous to public credit.

It is inconsistent with justice, because in the first place, it is a breach of contract; in violation of the rights of a fair purchaser....

The difficulties too of regulating the details of a plan for that purpose, which would have even the semblance of equity, would be found immense. It may well be doubted whether they would not be insurmountable, and replete with absurd, as well as inequitable consequences, as to the disgust even the proposers of the measure....? (Hamilton page 225, Paragraph 2-6).

Hamilton, by revealing the obvious impracticality of this initial proposal made by Congressman Sam Madison, showed that the only real way to deal with the problem of financing the debt caused by federal securities was his way. He showed that the securities must be paid to the current holder of the security at face value plus a 4% interest on long term securities and a 6% interest on short term securities. In his plan, ?Federal stocks would circulate as money, thus making capital more plentiful and readily available.?(http://odur.let.rug.nl/~usa/B/hamilton/hamil20.htm). This encouraged prospective investors to start companies and invest by placing a once stagnate sum of capital back into circulation, thus making it easier to obtain seed money, often through loans, with which to grow their new business. The payment and trading of federal securities or bonds as they are called now is still in practice today and has helped many people begin new enterprises, thereby helping economy of the United States to grow and become strong.

The next issue addressed in the Report Relative to a Provision for the Support of Public Credit was that of the assumption of state debt by the national government.

?The principal question then must be, whether such a provision cannot be more conveniently, and effectually made, by one general plan issuing from one authority, than by different plans originating in different authorities....

If all the public creditors receive their dues from one source, distributed with an equal hand, their interest will be the same. And having the same interests they will unite the support of the fiscal arrangements of the government.... These circumstances combined will insure to the revenue laws a more ready and more satisfactory execution.?(Hamilton page 226 paragraphs 4&5).

This position on assumption of states debts by the national government was important because it promoted interstate commerce by removing some of the obstacles that stood n its path. Interstate commerce was important to the success of our economy for it allowed the states to depend on each other, instead of the European markets for both agricultural and manufactured goods. Interstate commerce provided more of a favorable environment for trade, as it lacked the mercantilism that was often present when one attempted to trade with another country. This increase in interstate trade also helped to aid manufactures because it began to increase the size of the market with which it could trade profitably from their home state to the entire United States.

The final problem was addressed by the Report Relative to a Provision for the Support of Public Credit when it explained where the United States would find an estimated $2,839,163.09(Hamilton, page-227, paragraph-1) necessary to finance its debts. This need is funded by the creation of a small excise, or luxury tax ?on wines, spirits, including those distilled in the United States, teas, and coffee.?(Hamilton, page-227, paragraph-2) This was important because it was the first time that the United States Government had implemented such an excise tax.

The second of his reports to Congress was entitled The Reports on Public Credit II, and it recommended the creation of a National Bank as follows.

?The combination of a portion of the public Debt in the formation of the Capital, is the principal thing, of which an explanation is requisite. The chief object is this, to enable the creation of a capita sufficiently large to be the basis of an extensive circulation, and an adequate security for it.... To collect such a sum in this country,