Hamilton formulated a policy that involved funding the national debt at face value and assuming the remaining state debts as part of the national debt. To pay for this policy, he planned to raise revenue through government bonds, an excise tax on goods traded within the United States, and tariffs on imported goods. Hamilton also called for the establishment of a central bank to carry out the financial operations of the United States. His ideas were bold and controversial, but he had the support of Washington and key Federalists in Congress. Hamilton also had the charm and intellectual ability to persuade skeptics of the utility of his proposals and the wisdom to compromise when necessary. In three major reports to Congress—on public credit and a national bank in 1790 and on manufactures in 1791—he laid out a system of state-assisted economic development.

Hamilton’s proposal to repay at face value the millions of dollars in securities issued by the confederation to foreign and domestic creditors was particularly controversial. Thousands of soldiers, farmers, artisans, and shop owners had been paid with these securities during the war, but most had long ago sold them for a fraction of their value to speculators. Thus speculators would make enormous profits if the securities were paid off at face value. Madison argued that the original owners of the securities should be rewarded in some way. Others, such as Patrick Henry, claimed that Hamilton’s policy was intended “to erect, and concentrate, and perpetuate a large monied interest” that would prove “fatal to the existence of American liberty.” Despite the passion of his opponents, Hamilton won the day.

The federal government’s assumption of the remaining state war debts also faced fierce opposition, especially from southern states like Virginia that had already paid off their debt. Hamilton again won his case, though this time by agreeing to “redeem” (that is, reimburse) the money spent by states that had repaid their debts. In addition, Hamilton and his supporters had to agree to move the nation’s capital from Philadelphia to a more central location along the Potomac River.

Funding the national debt, assuming the remaining state debts, and reimbursing states for debts already paid would cost $75.6 million (about $1.5 billion today). Rather than paying off the entire debt, Hamilton proposed the establishment of a Bank of the United States, funded by $10 million in stock to be sold to private stockholders and the national government. The bank would serve as a repository for income generated by taxes and tariffs and would grant loans and sell bills of credit to merchants and investors, thereby creating a permanent national debt. This, he argued, would bind investors to the United States, turning the national debt into a “national blessing.”

Not everyone agreed with Hamilton’s plans. Jefferson and Madison argued vehemently against the Bank of the United States, noting that there was no constitutional sanction for a federal bank. The secretary of the treasury fought back, arguing that Congress had the right to make “all Laws which shall be necessary and proper” for carrying out the provisions of the Constitution. Once again, Hamilton prevailed. Congress chartered the bank for a period of twenty years, and Washington signed the legislation into law.

The final piece of Hamilton’s plan focused on raising revenue. Congress quickly passed tariffs on a range of imported goods. Tariffs generated some $4 million to $5 million annually for the federal government. Excise taxes placed on the consumption of wine, tea, coffee, and distilled spirits and on the sale of whiskey generated another $1 million each year. Some congressmen viewed these tariffs as a way to protect new industries in the United States, such as the furniture, tobacco, upholstery, hatmaking, and shoemaking industries. Hamilton was most concerned with generating income for the Treasury, but he also supported industrial development.

Hamilton’s financial policies proved enormously successful in stabilizing the American economy, repaying outstanding debts, and tying men of wealth to the new government. The federal bank functioned effectively to collect and distribute the nation’s resources. Commerce flourished, revenues rose, and confidence revived among foreign and domestic investors. Hamilton’s support for “infant industries,” expressed in his 1791 Report on Manufactures, also proved prescient even as farmers remained the backbone of the economy for decades to come.