History Notes 6.2

History Notes 6.2

Key Terms

115. National Debt- The national debt is the total sum of money owed by the United States to foreign and domestic creditors. After the revolution the U.S. owed over 50 million dollars to foreign and domestic lenders. To strengthen the U.S. currency and increase confidence at home and abroad, Alexander Hamilton came up with a plan to pay off all U.S. debts including debts incurred by the individual states. Thomas Jefferson opposed this plan because the plan called for high tariffs to raise the money needed to pay off the debts. Tariffs would benefit northern manufacturers but would be costly for southern planters. Jefferson also opposed the idea that the federal government should shoulder the burden of the outstanding debts owed by the states (most southern states had already repaid their debts). Hamilton’s plan was adopted and the economy of the United States was strengthened as a result. To get Jefferson and the southerners to agree to the debt-reduction plan, Hamilton agreed to move the capital from New York to Philadelphia (for ten years) and then to WashingtonD.C.(The District of Columbia is between Virginia and Maryland).

116. Bonds- Bonds are certificates sold by the government to raise funds. The government promises to buy back the bonds in the future for a higher price. This allows the government to get money when it needs it, but provides the investor with a profit in the future. This type of financing runs the risk of putting the government in debt.

117. Speculators- Some investors who had purchased bonds during the revolution sold them for less than they were worth to speculators. The investors either feared that the bonds would never be repaid or were so desperate for funds that they could not wait until the bonds matured. The speculators were wealthy enough to take a risk and hope that the bonds would be repaid at full value, reaping them a hefty profit. Alexander Hamilton insisted that the bonds be repaid at full value. Hamilton realized that few creditors would lend money to the United States if it failed to honor its own bonds. Hamilton understood that paying off the bonds would strengthen the economy and increase the credit of the U.S.Thomas Jefferson was opposed to paying off the bonds because he felt that speculators were unscrupulous and should not be rewarded.

118.Loose construction- Hamilton and the federalists believed that the federal government ought to be able to do anything as long as the Constitution does not expressly forbid it. This loose interpretation of the Constitution gives the central government broad powers.

119. Strict Construction- Jefferson and the Republicans believed that the federal government could only exercise powers that were specifically mentioned in the Constitution. This interpretation severely limited the scope and powers of the federal government.

120. Bank of the United States- The Constitution does not specifically grant the government the right to establish a national bank, which is why Jefferson and the Republicans opposed it, but Hamilton believed and Washington agreed that the bank was necessary for the stability of the U.S. economy.