Empire of Liberty: A History of the Early Republic, 1789-1815

Chapter 3

Hamilton proposed that the federal government not only pay its debt that resulted from the Revolutionary War but also the debts held by the states as well.

The aim was to take all the forms of debt and issue government securities in their place. Paying down this debt over time would establish credit.

Hamilton also believed that the securities could be used As a form of money but viewed the creation of a national bank as an even more important step towards establishing a money supply.

Hamilton proposed the creation of the Bank of the United States (BUS) and while the Confederation Congress had created the Bank of North America, banking was not a familiar concept to most Americans in the 1790s.

While gold and silver was the only real money that held value the BUS would issue notes that would be used as money, tied to the value of specie, and be able to be used to pay taxes which would make it less likely that these notes would be redeemed for gold or silver.

The BUS, however, would only be used to extend short-term credit to large merchants which left farmers and entrepreneurs who needed longer term credit unserved by the BUS

Hamilton’s other major proposal was on manufacturing and it was driven by a belief that in a mercantilist world where other markets couldn’t be taken for granted the U.S. needed to establish “modern commercial and manufacturing sectors and create a more balanced economy with a domestic market for its farm produce” (100).

Hamilton’s promotion of manufacturing was focused on developing new industries as the tariffs implemented were not protective. The federal government needed the tariffs for revenue.

Much like how Hamilton’s monetary program benefited moneyed interests so did his manufacturing program with little to no support going to home manufacturers or artisans.

Hamilton’s goals with his monetary and manufacturing programs weren’t just economic they were also political as Federalists aimed to implement policies that would tie the people more closely to the new federal government.

While the Federalist program may have benefitted moneyed interests directly it wasn’t just for their benefit. As the Federalists saw it by the top of the hierarchy of American society being tied closely to the federal government the rest of society would soon follow and benefit from a stronger, more centralized government.

To strengthen the ties between the federal government and local communities the Federalists implemented an extensive patronage network.

Ultimately, the Federalist’s patronage system was not as well adapted to the new nation as it did not take into account that the traditional aristocratic interests were not as important as the interests of a rising other groups in a quickly changing democratic and capitalistic society.

A major cause for concern was the presence of Spanish and British forces in the borderlands west of the Appalachians.

Settlers in the region were tied closely to the new federal government and there was a constant and rational fear they would fall under the influence of Spain or Britain

Even without the presence of foreign powers in the borderlands the land west of the Appalachians would’ve posed a problem for the federal government as it lay beyond the area it could actually effectively control.

The problem was first taken up by the Confederation Congress with Ordinance of 1784 which sought orderly settlement of high priced land so that poor settlers wouldn’t be able to move there.

The ideal settlers were hard to encourage to move and so the Confederation Congress ended up relying on speculators and land companies.

The speculative bubble burst as these enterprises weren’t anymore successful in finding paying customers to settle land that was under constant threat of Indian attack especially when squatters were routinely successful.

The Federalists realized that they couldn’t bind the West to the federal government so long as the threat from foreign powers and Indians persisted.

Federalists had, by 18th century standards, a very enlightened view of Indian relations believing that they could not give up their own land unless conquered in a just war or freely transferred.

Further “enlightened” views were that Indians in the West should not face the same fate as those in the East and that in order to survive should adapt to become sedentary and agricultural societies (i.e. more like white settlers)

Because conflict didn’t end between settler and Indians conflict between Indians and the government was inevitable.

The establishment of a professional army was crucial and its eventual victory over Indians in Ohio forced the British to withdraw from their posts and now due to a strengthened position in the north the Spanish were ready to deal agreeing to the boundary of Florida at the 31st parallel, free navigation of the Mississippi for Americans, and the right for Americans to deposit goods at New Orleans.