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Did Alexander Hamilton's financial plan put the country first? Show more Show less

Of all the founding fathers of the American nation, Alexander Hamilton remains one of the most enigmatic and controversial characters. In his role as Secretary of the Treasury, Hamilton submitted a financial plan to Congress designed to reduce the national debt by creating a national bank and encouraging economic diversification and the establishment of a manufacturing economy. But more than 200 years later, questions remain over the plan’s effectiveness and Hamilton’s motives.
Hamilton's financial plan was designed to benefit existing capitalists and the monied classes at the expense of the average American. Hamilton was not acting in the interests of the country, but pursuing personal gain through his own ideals. Far from a patriot, Hamilton was far more closely wedded to ideology and self-promotion than the advancement of the American nation.
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Hamilton's tax plan was un-American

Instead of building a nation that subscribed to the self-evident truth that all men are created equal and anyone could lift themselves out of poverty, Hamilton's financial plan was designed to benefit existing capitalists and large businesses at the expense of the average American.

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Context

Hamilton’s plans held a number of initiatives that would benefit existing capitalists, rather than promote new wealth. This reduced social mobility and created an environment that favoured large-scale businesses instead of smaller firms. The promotion of upward mobility, a pillar of American society and a highly-cherished component of the American dream, was notably absent from Hamilton’s financial plan.

The Argument

Hamilton’s plan included protective tariffs, bounties and premiums designed to benefit existing capitalists and business owners. It did markedly less to allow for the emergence of new capitalists, speculators and entrepreneurs that has become associated with the American way of life. [1] His plan earned him the widespread applause of existing businessmen. It was a dream for them, offering them a financial windfall and a steady stream of capital that would allow them to rapidly scale operations. Charles Beard suggested that the adoption of the Constitution and Hamilton’s subsequent financial plan saw securities holders gain $40,000,000.[2][3] For example, his recommendations to Congress in 1790 on domestic taxation are highly telling. At the time, merchants paid import taxes on goods imported from overseas but domestic product and income was not taxed. Rather than impose more taxes on the wealthy merchants, who were also the bondholding class, Hamilton’s tax plan levied taxes against the small bondholding class and the masses who would never have sufficient capital to buy bonds. His Whisky Tax introduced a levy on the distilling process rather than domestic profits. This meant that big distillers paid a far lower tax rate than small distillers. The bill was inherently designed to drive smallholders out of business and consolidate the industry to the benefit of large-scale businesses. [4] In Pennsylvania, where smaller businesses had managed to establish a foothold, he went one step further. He made the largest distiller the federal tax collector, awarding them a lucrative federal salary and commission on the tax they collected from their competitors. As businesses went bust, previous business owners were forced to work as day labourers for their competitors. As small-scale farmers fell into arrears their properties were foreclosed and wealthy businessmen snapped up land and real estate across the eastern seaboard, further consolidating wealth into the hands of a select group of capitalists. This deliberate obstruction of upward social mobility goes against the American values laid out in the Constitution, which proclaims that all men are created equal, and makes a commitment to general welfare.

Counter arguments

These tax measures, as well as other parts of Hamilton’s financial plan, were not un-American. Nor were they explicitly designed to benefit existing capitalists, but to restructure the American economy and refocus capital on the manufacturing sector. Hamilton correctly identified that by refocusing capital on the manufacturing sector and increasing trust in US bonds, he would be able to build a more prosperous nation. In having the Treasury assume all state debts and paying them back at current rates from tax revenues levelled against domestic product, and not discriminating between original debt holder and speculator, Hamilton was able to boost the newly formed nation’s international standing. If he had carefully picked which debts to pay off, for example, debts to veterans and merchants, while leaving debts to capitalists unpaid, nobody would have ever paid a decent price for a US government bond in the future. He would have eroded the faith in the American government’s borrowing. He had to devise a debt repayment system which paid all debts, irrespective of the fact that by then, many speculators and existing capitalists stood to profit from the plan. [5] Hamilton was also determined to build a manufacturing economy that was competitive on a global scale. For this, he would need the capital of existing capitalists. Without their buy-in, he would not be able to build the stable economy he knew was essential to the nation’s future prosperity. [6] This is why his taxation policies were designed to benefit large businesses over small artisanal firms. By consolidating the market, he could increase American competitiveness and increase exports. While this may have destroyed small businesses in the short term, in the long run, it increased American prosperity.[4] Through this lens, the economic incentives and taxation features of his financial plan were designed to stabilize the economy, not benefit existing business owners. In fact, Hamilton found speculators and existing capitalists a necessary nuisance. He needed their capital, but his objectives, of keeping the value of securities high, was often at odds with theirs. The idea that Hamilton was un-American and did not want to promote social mobility is laughable. He was a product of the American dream. He came from nothing to become the nation’s first Treasury. He wanted to build a system in which people with ambition, like himself, could rise to the top, and dedicated almost his entire public life to realising this system. Also, the idea of upward social mobility had not emerged as a core American principle. The founding fathers had no issue with inequality. There is almost no reference to inequality and equal opportunities in the Constitution, beyond the commitment to "general welfare" which is not explicitly defined. Upward mobility in America was easy to achieve. As lands were stripped from the Native Americans, there were ample land resources to monetise and population growth was slow. It wasn't a core value of American ideals because it didn't need to be. There was an abundance of opportunity for those who were willing to work. [7]

Premises

[P1] Upward social mobility is a core pillar of the American way of life. [P2] Hamilton's tax plan deliberately stymied upward social mobility. [P3] Therefore, Hamilton's tax plan was un-American.

Rejecting the premises

[Rejecting P1] Upward mobility was not a core pillar of America's values in 1790. [Rejecting P2] His tax plan deliberately helped big business because this was the only way to rapidly build a more prosperous nation. Therefore, Hamilton's tax plan was no un-American, it was highly patriotic because it stood to offer enormous economic benefits to the nation.

References

  1. https://www.jstor.org/stable/1600815?seq=9#metadata_info_tab_contents
  2. https://historynewsnetwork.org/article/153217
  3. https://www.jstor.org/stable/1600815?seq=10#metadata_info_tab_contents
  4. http://bostonreview.net/archives/BR32.6/hogeland.php
  5. https://www.nationalreview.com/2011/09/madison-hamilton-and-us-richard-brookhiser/
  6. https://www.jstor.org/stable/1600815?seq=10#metadata_info_tab_contents
  7. https://www.theatlantic.com/business/archive/2016/04/does-income-inequality-really-violate-us-principles/479577/

Proponents

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This page was last edited on Tuesday, 12 Nov 2019 at 16:08 UTC