Washington himself rarely proposed laws, and he almost always approved the bills that were passed by Congress. The first president concentrated on foreign affairs and military matters and left the government’s economic policies to his dynamic secretary of the treasury, Alexander Hamilton. The new nation faced serious financial problems. The national debt, the amount the nation’s government owed, was growing. Hamilton tried to find a way to improve the government’s financial reputation and to strengthen the nation at the same time.

In 1790, Hamilton proposed that the new government pay off the millions of dollars in debts owed by the Confederation government to other countries and to individual American citizens. The states had fought for the nation’s independence, Hamilton argued, so the national government should pay for the cost of their help. Hamilton also believed that federal payment of state debts would give the states a strong interest in the success of the national government.

Congress agreed to pay money owed to other nations, but Hamilton’s plan to pay off the debt to American citizens unleashed a storm of protest. When the government had borrowed money during the American Revolution, it had issued bonds, paper notes promising to repay the money in a certain length of time. While waiting for the payment, many of the original bond owners (shopkeepers, farmers, and soldiers) had sold the bonds for less than their value. They were purchased by speculators, people who risk money in order to make a larger profit. Hamilton proposed that these bonds be paid off at their original value. Opponents believed that Hamilton’s plan would make speculators rich.

The original bond owners felt betrayed by the government because they had lost money on their bonds while new bond owners profited. Even stronger opposition came from the Southern states, which had accumulated much less debt than the Northern states. Southern states complained that they would have to pay more than their share under Hamilton’s plan. To win support for his plan, Hamilton compromised. He agreed to a proposal from Southern leaders to locate the new nation’s capital in the South after moving to Philadelphia while workmen prepared the new city for the federal government. A special district would be laid out between Virginia and Maryland along the banks of the Potomac River. This district became Washington, D.C. In return, Southerners supported his plan to pay off the state debts.

Hamilton made other proposals for building a strong national economy. He asked Congress to create a national bank, the Bank of the United States. Both private investors and the national government would own the Bank’s stock. In 1792, there were only eight other banks in the nation. All eight had been established by state governments. Madison and Jefferson opposed the idea of a national bank. They believed it would benefit the wealthy. They also charged that the Bank was unconstitutional, that it was inconsistent with the Constitution. Hamilton argued that although the Constitution did not specifically say that Congress could create a bank, Congress still had the power to do so. In the end, the president agreed with Hamilton and signed the bill creating the national bank.

At the time, most Americans earned their living by farming. Hamilton thought the development of manufacturing would make America’s economy stronger. He proposed a tariff, a tax on imports, to encourage people to buy American products. This protective tariff would protect American industry from foreign competition. The South, having little industry to protect, opposed protective tariffs. Hamilton did win support in Congress for some low tariffs to raise money rather than to protect industries. By the 1790s, the revenue from tariffs provided 90 percent of the national government’s income.

The final portion of Hamilton’s economic program concerned the creation of national taxes. The government needed additional funds to operate and to make interest payments on the national debt. At Hamilton’s request, Congress approved a variety of taxes, including one on whiskey distilled in the United States. Hamilton’s economic program gave the national government new financial powers. However, his proposals split Congress and the nation. The opponents, including Jefferson and Madison, feared a national government with strong economic powers dominated by the wealthy class. They had a very different vision of what America should become.