Hamilton in Brief: Secretary of the Treasury

George Washington appointed Alexander Hamilton as the first U.S. Secretary of the Treasury in 1789, a position he held until January 1795. During those five years, much of the structure of the government of the United States was developed, beginning with the function of the executive cabinet itself. According to historian Forrest McDonald, Hamilton saw his office, like that of the British First Lord of the Treasury, as a position from which he would not only direct fiscal policy, but also oversee his cabinet colleagues under the elective reign of George Washington. Washington did indeed request Hamilton's advice and assistance on matters outside the purview of the Treasury Department.

In 1789, Congress authorized Hamilton to assess the public debt situation and to submit reports with recommendations for strengthening the government's credit. Within the next two years, Hamilton submitted five influential reports that detailed his economic vision for the United States:

• First Report on the Public Credit
• Operations of the Act Laying Duties on Imports
• Second Report on the Public Credit
• Report on the Establishment of a Mint
• Report on Manufactures

Hamilton's economic policies

As the first U.S. Secretary of the Treasury, Alexander Hamilton , shown here in a 1792 portrait by John Trumbull, released the “Report on Public Credit” in January 1790.

In his assessments, Hamilton decided that the country's debt fell into three broad categories: those owed to foreign governments and investors; those owed by the national government to American merchants, farmers, soldiers, and other holders of Revolutionary War bonds; and those owed by state governments. In order to guarantee the stability and success of the new constitutional system, Hamilton and Congress recognized that all of these debts, totaling more than $60 million, needed to be repaid in full.

A Contested Repayment Strategy

In his "Report on Public Credit," Hamilton also made a controversial proposal to streamline debt repayment by assuming state debt into the federal debt, essentially making the federal government responsible for all debt repayment and giving it much more power. With this in mind, Hamilton called the debt "a powerful cement of our Union." 

Thomas Jefferson (then the Secretary of State) and James Madison vigorously opposed Hamilton's proposals. Some states, such as Jefferson's home state of Virginia, had paid almost half of their war debts, and their federal representatives argued that their taxpayers should not be assessed again to bail out other states. To ground their claims, Jefferson and Madison also argued that the plan passed beyond the scope of federal powers as outlined in the Constitution. 

The First National Bank

In Hamilton's "Second Report on the Public Credit," submitted to Congress in 1790, he recommended the chartering of a national bank, modeled on the Bank of England. Hamilton's proposed national bank would function purely as a depository for federal funds, rather than as a lending bank. The money would come from public funds and private investors willing to lend to the federal government. Unlike the Bank of England, the National Bank would be a business on behalf of the federal government that would serve as a depository for collected taxes, making short-term loans to the government to cover real or potential temporary income gaps and serving as a holding site for both incoming and outgoing monies.

There was a heated debate between Democratic-Republicans and Federalists over the constitutionality of a National Bank. Jefferson and Madison, leading the opposition, argued that taking the centralization of power away from local banks was dangerous to a sound monetary system and unfairly designed to benefit northern business interests at the expense of southern agricultural development. Furthermore, they contended that the creation of such a bank violated the Constitution, which specifically stated that congress was to regulate weights and measures and issue coined money, rather than mint and bills of credit, and prohibited the chartering of private corporations.

While Democratic-Republicans proclaimed the National Bank unconstitutional, Hamilton, in his Defense of the Constitutionality of the Bank, used a broad interpretation of the Constitution to argue that any congressional actions not specifically prohibited by the Constitution could be employed by Congress to achieve an end for the common good. Later in the Supreme Court case of McCullough v. Madison, this interpretation was described as the "doctrine of implied powers" left ambiguous in the Constitution. After reading Hamilton's defense of the National Bank Act, Washington signed the bill into law.

Other Economic Programs

In his reports, Hamilton also helped draft proposals for the U.S. Mint, encouraged the development of American manufacturing, and drafted an elaborate system of duties, tariffs, and excises. Within five years, the complete "Hamilton program" had replaced the chaotic financial system of the Confederation era with a modern apparatus that gave the new government financial stability and investors sufficient confidence to invest in government bonds. 

One of the principal sources of revenue that Hamilton recommended Congress should approve was an excise tax on whiskey. Strong opposition to the whiskey tax by cottage producers in the remote, rural regions of western Pennsylvania erupted into the Whiskey Rebellion in 1794. The mainly Scotch-Irish settlers there, for whom whiskey was an important economic commodity, viewed the tax as discriminatory and detrimental to their liberty and economic welfare. After many public protests, rioting broke out in 1794 against the central government's efforts to collect the tax. Troops called out by President Washington quelled the rioting, and resistance evaporated. President Washington pardoned the two rebels who were convicted of treason, and the tax was repealed in 1802.