Thomas Jefferson or Alexander Hamilton?

Was Thomas Jefferson or Alexander Hamilton more correct in their agenda for economic prosperity of the United States?

Hamilton or Jefferson: Who Was Right?

Jordan Stepleton

History 146: Peitersen

Final Draft

Walla Walla Community College

12/03/2012            

Abstract

This research paper will address the historical aspects between Thomas Jefferson and Alexander Hamilton, and their conflicting viewpoints of the central government when it came to incurring debt by establishing a national bank, or prohibiting the federal government from borrowing money for the sake of establishing credit through a constitutional amendment. Beginning with the debt accrued as a result of the Revolutionary War, this paper will then move on to describe the two different methods Jefferson and Hamilton had in mind to pay off the debt, and gain credit for the future prosperity of the nation. Finally, it will state the significance both had in contributing to the birth of our nation economically; but, ultimately the paper will stress the fact that Hamilton was more correct in his policies for the long-term economic growth of the United States. 

        Thomas Jefferson and Alexander Hamilton had different opinions on how the new American government was to exert its power financially, specifically the budget and how the federal government was to pay the debt incurred through the Revolutionary War and debt borrowed to establish future credit. Even though Thomas Jefferson supported the need for a balanced budget amendment to the constitution by limiting the government’s influence, evidence shows that Hamilton was more correct in his policies for the nation to build credit by borrowing money, through the federal government, for national economic growth; and, this is one possible reason why Alexander Hamilton was the first United States Secretary of the Treasury. However, both Jefferson and Hamilton were two prominent forefathers in U.S. history, and greatly influenced the founding of our nation.

            The American Revolutionary War with Great Britain was a war for independence. However, it was also a conflict in which the United States began its financial independence as a young nation. Through the process of fighting for independence came not only eventual freedom, but debt as well. Essentially, after the war for independence had ceased, the 13 original colonies were bankrupt. As a result, the debt that accumulated was not at that present time able to be paid back. It was at this time in U.S. history that the first real national debt manifested itself. The first U.S. national debt owed its existence to the Dutch and British and shared much in common with the debt of those countries, but it exhibited characteristics not found in either parent, no doubt due to the radically different environment in which it was nurtured (Wright 43). Now that the colonists had won their freedom as a nation, it was time for them to gain their financial independence as well. (Gordon 32-33, Wright 43)

            With the United States now indebted for borrowing money to fund the American war machine when fighting the British, came many views, with pros and cons on the matter. And the question that arose was what must be done to pay back the debt. According to Robert Wright, “Tom Paine, the rabble-rouser who swayed many a fence-sitter to choose independence, persuaded numerous Americans that a national debt could be a blessing…a national debt would help to forge the disparate colonies into a more unified whole” (47). There was truth is this. However, some did not feel as inclined to be tied under by a national debt. In fact, Thomas Jefferson, founding father and third President of The United States, abhorred the idea of the individual states being tied down by a national debt, and… “claimed that ‘the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale’” (Thomas Jefferson-Wright 13). There was no doubt the burden of debt had to be paid, but the main issue was who would assume the debt. Would each individual state pay off their share, or would the nation, as a whole, be responsible? (Wright 13, 47)

            Alexander Hamilton, founding father and first Secretary of the Treasury under President Washington, welcomed the debt. He saw the opportunity to take the accumulated debt and turn it into an advantage. For example, Hamilton, in regard to the debt, wrote Robert Wright, “…called it a national blessing that would cement the young nation together and help it to prosper” (282). Hamilton was correct in this aspect, as future policies would show later on in U.S. history. Nevertheless, there were two sides that were beginning to emerge, especially during the administration of President George Washington. Specifically, those who wanted a strong central governing authority, and others who wished to have a very limited role of the federal government. Each had a different solution to deal with the debt. (Wright 282)

            The prominent figures who spearheaded these two sides were Alexander Hamilton, who supported a strong central government with a national bank; and, Thomas Jefferson, supporting the idea of a limited central authority through a constitutional amendment.

Those who upheld the idea the United States required the need for a strong centralized government were deemed Federalists. The Federalists were citizens that supported the administrations of Washington and Adams. Hamilton, therefore, being first Secretary of the Treasury under Washington, and the creator of the Federalist Party, no doubt projected the idea of big government, especially when it came to dealing with the national debt. His proposal was the U.S. government would assume all debts of the states, with the establishment of a national bank, thereby providing credit to the government and private-sector of the economy. This, along with taxes, would in turn begin the process to pay off the debt and build credit for the country. It would allow the new government to tax money on behalf of the United States to perform services for the citizens of all states. Its resemblance was based off the English banking system, and this is what Hamilton hoped the new nation would adopt. As Ron Chernow writes, “His solution was a national bank. He traced the riches of Venice, Genoa, Hamburg, Holland, and England to their flourishing banks, which enhanced state power and facilitated private commerce” (156).  Although, not everyone agreed with Hamilton’s scheme to build the United States into a credit worthy nation. (Wright 189, Chernow 156, Kapstein 37-38)

On the other side of the spectrum were those individuals who opposed the formation of a centralized government and the establishment of a national bank. These were known as the Anti-federalists. Anti-federalists were mostly rural farmers and believed the nation could flourish without armies, banks, taxes, and debts to establish credit. Thomas Jefferson, chief of the Anti-federalists, did not agree with the Federalist view of government operations, and directly opposed many of the views expressed by Alexander Hamilton. Jefferson believed the national bank, once established, would pose a direct threat to state sovereignty, and was not viable on the grounds of constitutional law. Therefore, a battle ensued between Hamilton and Jefferson on whether or not the bank was legal. Jefferson was also averse to the prospect of the states being in bondage due to the assumption of debt by the federal government. In fact, his proposed solution to the debt, from the Revolutionary War, was to pass a balanced budget amendment whereby the constitution would prohibit the federal government the power of borrowing money on behalf of the states to build national credit. However, Hamilton’s bank creation succeeded despite Jefferson’s disinclination on the issue. Hamilton and Jefferson, being in the same cabinet under the Washington administration, clearly had opposing views on the matter and would continue to clash over government affairs. As Ethan Kapstein wrote, “…the two developed an immediate, visceral hatred for one another (it is, for example, remarkable that they apparently never corresponded in writing, and all the more so given the volume of letters the two men otherwise generated)…” (37). From the start, Jefferson and the Anti-federalists were on the defensive once when the constitution was proposed and passed and when Hamilton introduced his grand solution of the bank. A great schism occurred early in American politics. But who was more correct in their view for the overall well-being of the nation and the long-term prosperity for the United States? (Wright 13, 78-79, Kapstein 37).

There is no doubt that Thomas Jefferson and Alexander Hamilton played crucial roles in the formation of the United States, and profoundly influenced the political institutions created early in American history. However, the question remains: who was more correct in their proposals to pay off the debt to establish international credit, and their ideologies for the future prosperity of the country? Evidence shows, even though some historians disagree, that Hamilton was more correct than Jefferson on the issue to downsize the debt. As Robert Wright wrote, “Hamilton was correct. Under the right conditions, the national debt could be kept to a size moderate enough to render it a blessing rather than a curse” (13). This, according to Hamilton, was to be obtained through taxes that would spread the burden over several generations. And Hamilton’s plan did work. By the 1820’s, the blessings of the U.S. national debt were clear. America’s financial system rivaled, and in some ways bested, those of Britain, Holland, and the rest of the developed world. The financial system helped to fuel transportation improvements, industrial development, and federal government budget surpluses (Chapter 8). Those surpluses, combined with a good dose of anti-debt and antifinance ideology, conspired to end the national debt’s existence. (Wright 12-13).

This is not to say that Jefferson was completely wrong, however. From personal experience he knew most people holding public office were politicians, not statesmen. And he believed they would find it easier to borrow than to raise taxes (Wright 14). Jefferson was true in this particular matter. As such, he thought of Hamilton in this way, and sought to curb his political actions wherever he saw it necessary. However, it was more than just political disagreements between the two. It was rooted deeper into their personalities and upbringing. Hamilton favored a strong central government, disliked slavery, and envisioned an economy in which finance and manufacturing would eventually replace agriculture. Jefferson, on the other hand, favored states’ rights over big government, supported slavery, and hoped America would remain an agrarian nation (Chernow 76). This is exactly why Hamilton was more correct for the future prosperity of the nation. Instead of remaining to steadfast traditional beliefs, he was able to progress and envision the future economy of the U.S. As a result, his policies are seen in effect in American history. John Gordon wrote, “Hamilton’s system proved a remarkable success…By the time Hamilton finished his six-year term as Treasury secretary in 1795, American bonds were at a premium in Europe, the financial system and money supply were stable, and the economy was growing” (34). It is of no surprise, then, why Alexander Hamilton was selected to serve as first Treasury secretary of the United States under First President George Washington. (Wright 14, Chernow 76, Gordon 34).

Alexander Hamilton and Thomas Jefferson, even though they contained differing opinions on governmental matters and economics, were nevertheless very prominent figures in the birth of the nation; and, because of this, U.S. history was influenced through the actions and policies of these two individuals. However, Hamilton was more correct in his policies for the long-term sustainability of the country, especially when dealing with the debt acquired through the Revolutionary War, and thereafter to establish credit internationally. There is no wonder why he became the first United States Secretary of the Treasury.

Works Cited

Chernow, Ron. Alexander Hamilton. The Penguin Press, 2004.

Chernow, Ron. “Time.” The Best of Enemies. July 2004, Vol. 164 Issue 1, p72-76. EBSCOhost.

Gordon, John Steele. “American History.” The Founding Father of American Financial Disaster. April 2009, Vol. 44 Issue 1, p30-37. EBSCOhost.

Kapstein, Ethan B. “World Policy Journal.” Hamilton and the Jeffersonian Myth. Spring 1997, Vol. 14, Issue 1, p35-43. EBSCOhost.

Wright, Robert E., Ph.D. One Nation Under Debt: Hamilton, Jefferson, and the History of What We Owe. McGraw-Hill, 2008.