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It laid the foundation for a prosperous economy

Within a century of Hamilton's financial plan, the US had gone from a new nation to the world's largest economy. This is a phenomenal achievement, attributable in no small part to Hamilton's financial plan.

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Context

The financial plan put forward by Alexander Hamilton allowed the US to become an economically stable nation within a decade of the signing of the Constitution. This is an enormous achievement that benefitted the union both politically and economically.[1]

The Argument

By 1792, eight major benefits from Hamilton’s financial plan had been fully realized. There had been a mechanism implemented to reduce the national debt, the price of government securities had been stabilised, dead capital had been re-invested, a stable and convertible national currency system was in effect, an institutionalized system had been established to handle future debts, the federal government had established itself as the supreme economic force, the US had proven itself to foreign creditors, providing both the government and private borrowers access to cheaper credit, and Hamilton had laid the foundations for the emergence of a modern industrial society. [1][2] Once the federal government absorbed state debts, the US’s domestic debt stood at some $65 million, with an additional $10 million in foreign loans, an enormous sum by the day’s standards. In making the decision to repay both foreign and state debts, Hamilton was able to build confidence in the US government's borrowing ability, which opened European capital markets to the United States. While it was an enormous financial commitment, it boosted American credit overseas, allowing private firms in the nation to devour European capital. [3] Firms were then able to access European capital at a cheap rate of between three and six per cent. Access to this capital was an essential component of building a thriving manufacturing sector. At the time, the value of European capital far exceeded anything available from American lenders. [4] American businesses put this new capital to good use. Firms were able to implement projects that returned 10, 15 or 20 per cent on original investments. [2] Without a strong manufacturing sector, there were only two ways for the country to become prosperous, neither of which were viable to the young American nation. The first was to follow the Dutch model. The Dutch became a middle-man nation and accumulated wealth by buying from one nation to sell to another. The increased connectivity of international merchants was already eroding the viability of this economic model, and the US was not located in a geographically advantageous position to become a middle-man like the Netherlands. The second model was to remain an agricultural nation and rely on food product exports. This was also impractical. Demand for food items was prone to fluctuation. Additionally, the international agricultural market was highly competitive, meaning US exporters would have to keep their prices low to remain competitive. In this climate, the profit margins of an agricultural society were thin. Hamilton identified that the quickest way to wealth lay not in exporting the country’s raw materials and agricultural yield, but in using those materials to build high-value products.[2] The plan was flawlessly devised and implemented by a master economic architect. As the Secretary of State, he was able to implement practical solutions to the financial and economic problems that the young nation faced. The economic platform he created allowed the US to go from a ragtag collection of states and agricultural communities to the world’s largest economic producer in just a century. These results alone demonstrate that the public good and the long-term health of the American economy was the primary objective of his financial plans.

Counter arguments

The plan did not achieve its economic aims, nor did it put the US on the best footing moving forward, at least not in the original form that Hamilton put forward. His Society for the Encouragement of Useful Manufacturing (SUM), designed to show businessmen the possibilities of embracing large-scale manufacturing, was a resounding failure and was forced to close in 1795 after recording vast losses. [1] Most American investors were still reluctant to put their money into manufacturing. They preferred to keep their money in financial speculation, stocks and land acquisition. Congress even refused to adopt most of Hamilton’s proposals to restructure the American economy towards manufacturing. [5] Even his signature proposal, the establishment of the first national bank, was deeply flawed. The First Bank of the United States (BUS) was the only bank permitted to branch nationwide, allowing it to establish an instant monopoly. The creation of a state-endorsed financial monopoly is not exactly the brainchild of a master economic architect. [6] He modelled the BUS on the Bank of England, but at the time the Bank of England had already become a restraining force on economic growth because of its monopoly status. If Hamilton was the economic mastermind that many claim, he would have looked to Scotland rather than England for inspiration. Scotland had already established free entry into nationwide banking and was beginning to enjoy the benefits of competition in its banking sector. The argument that Hamilton built a prosperous economy, aside from being contentious in itself, also does nothing to prove that the American nation was the primary factor in his policy proposals. There is very limited information on Hamilton's motives behind his policymaking. It may turn out that enriching himself or his allies may have been the main motivation. He died before he was able to write a memoir or contextualise the decisions he made during his time at the Treasury, leaving his motives lost to the winds of history.

Premises

[P1] The explosion of the US economy was a direct result of Hamilton's financial plans. [P2] Therefore, his plans were devised to improve the economy's long-term health and prosperity. [P3] Therefore, Hamilton put the nation first when devising fiscal policy.

Rejecting the premises

[Rejecting P1] The impact of Hamilton's financial plan on the American economy is overstated. [Rejecting P2] Just because his policies benefitted the economy doesn't mean the American nation was his primary motivation.

References

  1. https://www.jstor.org/stable/40640678?seq=5#metadata_info_tab_contents
  2. https://www.press.uchicago.edu/Misc/Chicago/910687.html
  3. https://www.mcall.com/opinion/mc-us-debt-alexander-hamilton-fisher-yv-0208-20150207-story.html
  4. https://www.moaf.org/exhibits/checks_balances/george-washington/materials/Cementing_the_Union.pdf
  5. https://www.jstor.org/stable/1600815?seq=11#metadata_info_tab_contents
  6. https://www.alt-m.org/2015/12/30/alexander-hamilton-banking-mercantilist/

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This page was last edited on Tuesday, 19 Nov 2019 at 16:26 UTC