The Founding Father of the American Economy (1789)
Robert Morris, who had helped greatly in financing the Revolution, turned George Washington down when the President offered him the post of Secretary of the Treasury. Morris wanted to be free to speculate in land and other opportunities to make money. It was a poor decision on Morris’s part (he would end up in debtor’s prison), but it was very good for the country because Washington then turned to Alexander Hamilton. Still in his early thirties, Hamilton was both a genius and a prodigious hard worker. There was much work to do, because the national financial situation was desperate.
The old federal government under the Articles of Confederation had lacked the power to tax. Instead it was dependent on requisitions from the states, and they were sometimes forthcoming and sometimes not. The massive debt left over from the Revolutionary War was unpaid, as was the interest due on it. The money supply was chaotic; it was a hodgepodge of foreign coins and “continentals,” the paper money issued by the Continental Congress during the war that depreciated rapidly and traded at pennies on the dollar. In 1789 the United States was financially and economically, nothing more than a very large banana republic.
Hamilton had to accomplish four things to transform it: (1) develop a system of taxation to fund the government and establish a customs service to collect the tariff, destined to be the main federal tax; (2) organize a monetary and banking system; (3) refund and rationalize the national debt in ways that would gain the confidence of the marketplace; and (4) devise a mechanism to allow the government to borrow as necessary.
Hamilton accomplished all this in the first two years of his tenure. And though the Treasury was the biggest of the new government departments (it had 40 employees to the State Department’s mere 5), it was largely Hamilton’s work in both conception and political execution.
The results were astonishing. The American economy, which had been mired in depression for much of the 1780s, revived wonderfully (helped, to be sure, by the outbreak of war in Europe). Federal revenues were a meager $3.6 million in 1792, the first year for which statistics are available, but by 1800 they topped $10 million. Government bonds began selling at a premium in Europe. The banking system grew rapidly, centered on the Bank of the United States, established by Hamilton under a federal charter, and its notes traded at par throughout the Union. For the first time since colonization had begun 200 years earlier, the United States had a reliable and convenient money supply.
Hamilton was fought, tooth and nail, by the developing political opposition under Thomas Jefferson, and parts of his program, especially the Bank of the United States, would later be dismantled (Hamilton’s shade might take comfort in the fact that his 1784 creation, the Bank of New York, the very first corporate stock to be traded on the New York Stock Exchange, continues to flourish). Still, thanks to Hamilton, the economy of the new nation was off to the races and began the growth that has been the wonder of the world to this day.
