Summary of the Life of Alexander Hamilton in terms of his contributions to the financial systems we have today

Summary of the Life of Alexander Hamilton in Terms of His

Contributions to the Financial Systems We Have Today

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Summary of the Life of Alexander Hamilton in Terms of His

Contributions to the Financial Systems We Have Today

Introduction

As became abundantly clear during the course of the Revolutionary War the national government was simply incapable of raising the kind of money needed to win a war against another civilized nation , particularly one like Great Britain with the most advanced system of public finance

br in the world . The lack of money might not have posed such a serious problem in pre-modern war , but America 's financial situation became so desperate during the Revolution that Hamilton would go so far as to reverse the traditional priority of arms over money as the sinews of war "Tis by introducing into our finances - by restoreing public credit - not by gaining battles , that we are finally to gain our object (Sylla 34

Hamilton 's Funding System

These problems in public finance , in part , prompted the Constitutional Convention , and led Hamilton to create his funding system once he was installed as the nation 's first Treasury secretary . The major features of Hamilton 's funding system included : abandoning the system of requisitions in favor of an unlimited power to tax individuals , an unlimited power to borrow , full funding of the accumulated debt at par (but at a reduced interest rate ) with no discrimination between the debt 's original and subsequent holders , assumption of the 25 million worth of remaining state debts , the incorporation of a new and better capitalized national bank , and the creation of a modest sinking fund to retire the debt (Gordon 47 ) With respect to the requirements of national defense , Hamilton believed that the most important characteristic of his funding system was that it maximized the potential resources of the government "A complete power , therefore , to procure a regular and adequate supply of revenue , as far as the resources of the community will permit , may be regarded as an indispensable ingredient in every constitution (Federalist 156

Obviously , the unlimited power to tax and borrow , and the creation of a bank would help to do this . Funding the debt at par with no discrimination and assumption would keep the national government in the good graces of current creditors and potential future lenders . A sinking fund would create a public commitment to reducing the debt to manageable proportions . Hamilton warned that a failure to observe any of the "maxims of public credit " would guarantee that future loans "would be made upon the same principles that usurers commonly lend to bankrupt and fraudulent debtors - with a sparing hand and at enormous premiums (Hamilton 160

But what about the potential abuses of the funding system ? Hamilton conceded that "abuses of a thing intrinsically good " were indeed possible , but that is true of virtually all good things (Hamilton 51 Wealth , power , liberty , and learning can lead to extravagance , pride ambition , dissipation , effeminacy , etc...