Alexander Hamilton, The Man Who Made America Prosperous
by Richard Brookhiser
[1] When George Washington, newly elected president, picked the members of his administration in 1789 he tapped thirty-two-year-old Alexander Hamilton to be the first treasury secretary. Hamilton had been a colonel on Washington’s staff during the Revolution, and had served with him at the Constitutional Convention in 1787. Hamilton also had special qualifications for the job: as a teenager on the island of St. Croix he had clerked for Beekman and Cruger, a New York–based merchant house with international business; as a lawyer he had helped charter one of the country’s first banks, the Bank of New York; and as a congressman he had focused on tax policy.
[2] Hamilton’s first task in his new job was crisis management. Wars are expensive, and the United States was crushed by debt hanging over from the Revolution. Loans from European allies and bankers had not been repaid; soldiers had been sent home with promissory notes—IOUs. American debt was trading on European money markets at one quarter to one third of its face value—today we would call it junk. States had incurred war-related debts of their own, and some were in terrible shape: a Massachusetts land tax, levied to pay its debts, had provoked a farmers’ rebellion in the mid-1780s.
[3] In January 1790 Hamilton presented a 20,000-word “Report on Credit” to Congress, which then met in New York. He made two sweeping proposals: the new federal government would not only pay off its own debts, but would also assume the debts of the states; and there would be no discrimination among creditors—all would be paid at a common rate. Both proposals ignited controversy. States which had already paid their debts did not want to be responsible for states that were still struggling; and, while everyone agreed that soldiers deserved to be paid in full, what about third parties—including speculators—who had bought IOUs at a discount? Hamilton held firm. As a veteran he believed that paying war debts was a common effort, like the war itself. As a sometime merchant’s clerk and bank lawyer he understood that money markets do not allow debtors to pick and choose which loans they will repay; if the United States discriminated among its creditors, it would find itself unable to raise loans at reasonable rates in the future. Hamilton’s critics drove a hard bargain: in order to get enough votes in Congress to pass assumption, he had to agree to move the capital from New York to Philadelphia, then to the Potomac.
[4] Assumption and non-discrimination were emergency measures. In December 1790 Hamilton laid a cornerstone of America’s long-range prosperity by proposing a national bank—the Bank of the United States. The bank would hold the federal government’s funds, manage its debt, and loan it money, but it would also sell shares and make loans to businessmen and ordinary people. The bank would inject liquidity into a cash-starved economy and regulate the nation’s money supply. It was to be chartered for twenty years and run as a private corporation: Hamilton did not want elected officials manipulating it for political gain.
[5] This too was a controversial idea. National banks were a rare thing—the Bank of England was not quite a century old; France had experimented with public banking, but pulled back after a credit bubble burst in 1720. Hamilton was proposing to take the United States into a new financial world. Some of his peers in national politics thought his new idea was unconstitutional. Representative James Madison, a former Hamilton ally, and Secretary of State Thomas Jefferson both urged the President to veto the bank bill that Congress had passed on the grounds that establishing a bank was not among the powers granted to Congress by the Constitution. In a memo to Washington, Hamilton argued in reply that a bank would facilitate one of Congress’s enumerated powers—borrowing money on the credit of the United States (Article I, section 8)—and that founding a bank was not explicitly forbidden; therefore it passed constitutional muster. Hamilton convinced Washington, and got his bank—plus a precedent of broad constitutional construction.
[6] In December 1791 Hamilton gave Congress his most visionary proposal, the “Report on Manufactures.” The vast majority of Americans then were farmers—from hardscrabble pioneers to wealthy planters like Washington, Jefferson, and Madison. Coastal cities had a few merchants, like Beekman and Cruger. Hamilton the immigrant from the West Indies knew firsthand the inequities of lopsided economies. The islands where he had been born and raised generated vast wealth from sugar, a natural resource that everyone wanted (like oil today); but that wealth went to the pockets of a handful of planters. Hamilton wanted more for his adopted home. The United States should manufacture goods for its own use. “The spirit of enterprise,” he wrote, “must be less in a nation of mere cultivators, than in a nation of cultivators and merchants; less in a nation of cultivators and merchants, than in a nation of cultivators, artificers and merchants.” To this end he suggested start-up subsidies and tariffs to support infant industries. At the same time as he prepared his “Report,” he also planned an industrial park powered by the falls of the Passaic River in New Jersey (now the city of Paterson).
[7] This was a program of economic diversity and national self-sufficiency. But Hamilton wanted it for something more important: personal development. In the most eloquent words he ever wrote, he argued that “minds of the strongest and most active powers . . . fall below mediocrity and labor without effect, if confined to uncongenial pursuits.” But “when all the different kinds of industry obtain in a community, each individual can find his proper element, and can call into activity the whole vigor of his nature.” These words ring out because Hamilton was writing about himself. If he had stayed in the islands, he could easily have lived a life of laboring without effect. Luck, and his own monumental talents, had brought him to America, to General Washington’s staff, and to President Washington’s administration. He wanted the road to self-development made smoother for future Hamiltons.
[8] Congress never formally considered the “Report on Manufactures,” and the Paterson industrial park experienced an early check when one of its directors embezzled its funds. But many of Hamilton’s proposals found their way into law attached to military appropriations bills. Hamilton had one other visionary idea, partly economic, which both predated and outlasted his tenure as treasury secretary. Eighteenth-century New York was a slave state. In 1785 a group of far-sighted New Yorkers, including Hamilton, John Jay, and George Clinton, founded the New-York Manumission Society, dedicated to assisting free blacks and liberating slaves. Freedom was a long time coming—the last slaves in New York were not freed until July 4, 1827. Jefferson, slave holder though he was, had written that all men are created equal; Hamilton and the New-York Manumission Society actually gave a measure of equality to black New Yorkers, allowing them to labor for themselves, not for masters.
[9] Hamilton stepped down as treasury secretary at the end of January 1795. One measure of his tenure was registered on European money markets, where American debt that had once traded as junk was by then selling at 110 percent of its face value. Investors were paying a premium for a piece of Hamilton’s handiwork. His legacy was more far-reaching: he not only dug the United States out of a crisis, he gave its economy liquidity and stability, and foresaw a glowing future. It’s up to us to make use of it.