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Introduces Hamilton's broader economic philosophy, emphasizing public good and elitism. It explains how he believed government should work through the elites to benefit the whole country.
the most dangerous issue for this new government was that of debt and money the treasury secretary head of the Department of the treasury was Alexander Hamilton and he will take control of this issue instead about fixing it nowHamilton's economic policies fall under what we call hamiltonian economics uh all of this unless I say otherwise is sort of under that big umbrella to understand how he's going to deal with these problems though we have to startwith his philosophy which was public good and elitism fairly straightforward here and this wasn't just his economic philosophy this was his General philosophy but it applied very directly to his economics public good just simply means that the governmentshould do things that are good for the public right the things that the government does should be have a beneficial effect for the most number of people government should be striving to protect the rights all of those things
you know the the social contractso I mean again that's that's straightforward maybe a little idealistic but it's straightforward the other half elitism Hamilton separated the country into two groups or rather he said he separated people into two groups the elites and the massesthe elites were I mean what they sound like the the wealthy Bankers entrepreneurs plantation owners political Elites like the people with money and power that's who the elites were the masses were everybody else so middle class lower classdoesn't matter that was everyone else and he he believed that the masses wanted to be elite now Hamilton's philosophy regarding these two groups was that he did not care about the masses they were easy to distract they wereeasy to lead we talked about this with the establishment of the electoral college right Hamilton was the one of the ones championing the idea that there should be a degree of separation between the popular vote for president and
the president which is one of the reasons not the main reason but one of the reasons we get the Electoral Collegehe believed he the problem was getting the elite on board because they have the money and the power if they don't agree with what the government's doing that's the fastest one of the fastest ways not the fastest butone of the fastest ways for a government or government program or act to fail so if you get the elites on board then you have the money and power behind you then the government can do the public goodyes you still have to take care of the masses but you do that through taking care of the elites that's what he argued not necessarily how it works with a lot of things but that was his philosophy andhow it's going to work for him so now that we have his philosophy what's the problem he's facing the debt was the most dangerous problem for this early country
Describes the scale of the new nation's debt and how devalued IOUs were hurting soldiers, farmers, and the economy. It also shows how wealthy elites began buying up those debts at steep discounts.
it was close to a hundred million dollars in 1780s money combined between the federal and state governments so this is both the state debt and the national debt combined 100 million mostly these debts were in the form ofpaper ious to pay off soldiers and farmers remember that's how the the Second Continental Congress raised money to fight the war those debts were still not paid Confederation Congress could not pay those debts the states had controlled theirfinances but it wasn't they weren't paying those debts
those paper ious were also losing their value by 1789 their value had dropped by around 85 percent so in IOU that a farmer held that that was say a hundred dollars and these aren't actual numbers these are justexample numbers an IOU that was a hundred dollars and let's say 70 80.was now only worth 15.it still said a hundred on the IOU but it was only worth that diminished amount 85 percent lower and some of these debts were over a decade old so the farmers and the the soldiers and the the masseswere holding these paper ious a government you know a piece of paper showing that the government owed them money and they had not seen a single Cent and the actual value of those had gone down remember the UShave gone into a deep economic depression the states are printing money that was virtually worthless of course he's lost value
what started happening is the wealthy started buying up these ious at lower prices at the lower prices I mean the farmers and the soldiers the masses were trying to cash in any way they could and and look attheir situation you can either take 15 now or hold out for the prospect that the value of your loan goes back up and that the government will actually pay you back for the average person the payout is theis the quicker and often smarter bet because the wealthy have money they can sit on they don't necessarily need the money right away the masses usually do if you have something that says the government's going to pay youa hundred thousand dollars and you've been holding on to that for 10 years and there's been no sign that they not only have paid you but have the ability to pay you back and that was now only worth
a thousand and somebody says hey I'll buy that promissory note off of you for the thousand how many people wouldn't take the Thousand yeah you want the hundred thousand but if it doesn't look likely that you're going toget it back you're gonna sell so the these ious go from being in mostly in the hands of the masses to mostly in the hands of the elite and these Elites who now have are holding many ious manysmall value ious they will turn around and start putting pressure on the government and they can exert a single Elite putting pressure on the government can exert more power than a single farmer we understand that right the peoplewith money and power can put more influence on the government than the average personthat's just human society so they put pressure on Congress the elites holding all of these debts to do something Congress doesn't really have an idea so they turn to Hamilton the Secretary of the Treasury in Hamilton does have
an idea and that idea is funding an assumption and there's good old Hamilton on the 10.I know we live in a mostly Cassius Society so if you aren't aware this is a ten dollar bill it's paper money you can exchange it for goods and serviceskeep a little cash around because if something were to happen and you know our our credit card machines go down still going to need some way to pay so always carry a little cash if you can
Explains Hamilton's two-part solution: funding the national debt at face value and assuming state debts. The chapter details how paying interest stabilized the system and tied wealthy creditors to the government's success.
finding an assumption this is a two-step plan we're going to start with funding so what Hamilton did to deal with this problem of debt with these Elites holding these devalued ious Hamilton will go to the elites and buythe ious And to clarify we're talking about the national debt here we're only talking about the national part of this debt not the state part of the state he will go to the elites holding those ious and hewill buy them at their original face value so has he lowered the debt no he's actually increased it he's paying for an IOU that that in reality is only worth fifteen dollars but he's going to pay the originalhundred so he's overpaying so he buys them at their original face value but what does he buy them with does the government have money yet no so what he does is he buys them with more government bonds so
he's paying an IOU with an IOU or like paying a credit card with a credit card which you shouldn't ever do if you can avoid it shouldn't pay debt with debt that's basically what this is so he's increasedthe amount of debt and he still has those loans out now so he's created more debt how is this a solution well what he did is he only paid the interest every year to start now we understand thatevery loan has interest on it right it's a basically a fee that you have to pay for to the person who you owe the loan to for them to service the loan I guess for them to do theirjob I don't know but you have to pay that interest that's the only thing Hamilton paid he didn't pay down the actual debt and to explain on interest a little more if you had a 10 interest yearly and
you had 100 loan that means to pay off your if you paid off your loan at the end of the year you wouldn't pay a hundred dollars you ten would pay a hundred and dollars because a 10 interestif you only paid the interest at the end of the year your loan would still be for a hundred dollars because you only paid the extra a way for them to service the loan but also for the banksor whoever's lending money to make money so Hamilton only pays the interest so he's delaying paying off the debt so he's increased the debt and he's not actually paying it off he's paying more money than he then thenthe loan why not just pay off the loan entirely well this was actually a pretty genius maneuver because it gives the nation a chance to build a tax base and generate income because now the amount that the government
is going to pay every year or is supposed to pay every year is not the full loan amount but just that much much lower interest percentage amount so instead of owing 100 million dollars let's say it's 10 nowevery year it's only 10 million dollars yes 100 you still owe the million but that tax burden is or tax that debt burden is now lowered how does this satisfy the elites well is there loan getting paid offno but are they getting free money yes what this does is it ties the elites to the government because they needed the government to thrive and succeed if they wanted to ever be paid back in full if theywanted a return on their investment because for the elites buying up those loans from the uh from the farmers was an investment they're paying the low amount hoping that when they get paid back on those loans they'll get
more than they originally got which is what Hamilton's doing by paying the interest he's essentially giving them free money to not bother the government about the debt that he'll pay it when he can but until then here's anextra 10 bucksso it ties the elites to the government because he needed because they needed the government to thrive and succeed if they wanted to be paid back in full in the interim in the meantime they received the interest paymentsas essentially bonus money for their support so the initial steps Look Backwards right increasing the debt only paying the interest but that on the government level worked like a charm it was incredibly successful it allowed the government toconsolidate its loans but give it time to grow Thrive and survive that's funding we're only by the number of terms halfway there but assumption a lot easier and a lot quicker assumption is where Hamilton went to the states
who had their own set of debts part of that hundred million but their own set of debts and he basically took over or assumed responsibility for those debts so instead of New York owing 15 million dollars now thenational government owed that money so he took over responsibility for all of the state debts once those debts were taken over by the national government they were run through the same funding system he bought them all from theuh from the people who uh owned the debts only paid the interest he does the same thing so assumption is just the national government taking over the state debts that would give those States they would have zero debtsthey would start with a fresh slate not be you know have a bunch of debts starting out with this new country so again it puts more burden on the national government but he had a plan to deal with
that and again it was incredibly successful funding and assumption greatly increased the national debt but only at first more significantly it stabilized the debt issue and gave the government time to grow while tying the elites to the success
Covers the sectional conflict over assumption, especially northern debt and southern resistance. It ends with the compromise that helped secure support and set the stage for the new capital.
of this government now there were problems and a compromise here the northern states debts particularly with assumption so these problems in this compromise are related specifically to assumption the northern states debts were much larger than the South sothe South actually protested assumption in particular Jefferson was one of the leaders of this being from the south being from Virginia Hamilton's from New York they were essentially mad that the north was being let off the hook forall of their debts since the North had so many more deaths in the south now Hamilton needed assumption to be approved for this system to work if the national debt's going through funding but the State debts are notthe system doesn't really work so Jefferson after some back and forth who was his rival again offered a bargain whereby he in the South would approve assumption in exchange for the new national capital that they were planning to
be located in the south and that's why Washington DC is located between two Southern States Virginia and Maryland so this system goes through the I didn't label it specifically but the the significance being that it stabilized the thedebt issue gave the government more time to grow and Thrive and survive and tied the elites to that government this is one of the two most complex ideas of the entire semester so if you finding in particular soif you've got a pretty good grip on it uh you're you're you're in a great position if you're having a little trouble with it contact me and I'll help you figure it out
but that sets the stage for the for this new government you had to deal with the debt because if they couldn't pay the debts it was just going to cause the country to crumble even further than it hadunder the Articles so this effectively saves the government from collapsing in a certain way although the system was much more robust than it was under the Articles so that's a lot and I realize I've been talking for almost60 minutes and there's only been two slides sorry there's not a lot of things to put up for this but that wraps up this part we're going to continue with Hamilton and his hamiltonian economics but I like tosplit it here because finding an assumption is a big thing so we'll continue with the economics and we'll talk about another event under Washington's presidency next