A Biography of Alexander Hamilton (1755-1804)
Origins of a system
. . .this I can venture to advance from a thorough knowledge of him, that there are few men to be found, of his age, who has a more general knowledge than he possesses, and none whose Soul is more firmly engaged in the cause, or who exceeds him in probity and Sterling virtue.
George Washington on Alexander Hamilton (1781)
There was no question in Washington's mind as he took the presidential seat in the national capitol of New York City in the spring of 1789, that Alexander Hamilton was the best man to be the nation's first Secretary of the Treasury. The position was critical. The incumbent had the daunting task of putting the national wheels in motion after over a decade of crippling ineptitude. During Hamilton's tenure as Secretary of the Treasury, that position would be the most powerful in the government. This was due in part to Hamilton's own interpretation of his duties, and to the all-encompassing nature of total financial reconstruction. Hamilton was often mistaken as Washington's prime minister by foreign visitors; in fact, because of his close advisory position to the President, he in essence was.
Hamilton's appointment was approved by the senate on September 11, 1789. Two days later, the thirty-four year old statesman was hard at work organizing the fiscal future of the United States.
Although the administrative quagmire facing Hamilton as he stepped into office on a late summer Sunday would have daunted the most able, he was driven by a boundless confidence in himself and guided by a clear vision of what needed to be done and the principles behind that plan. Revenue, the most important issue, was to be generated primarily through a tax on imports, and an excise. In order to gauge the most efficient methods of collection, Hamilton sent out a request to his revenue agents, merchants, and financiers around the country, asking for statistics and general information, giving him a clear picture of what was happening on the ground--another of Hamilton's prodigious fact-finding enterprises.
While responses began dribbling into the treasury office, Hamilton got to work drawing up reports, requested by congress, detailing this plan of action. As we have seen, Hamilton spent the better part of his American career puzzling out these issues. Hamilton was greatly influenced by the great 18th century Scottish economists, primarily David Hume, who considered the consequences and possibilities of the merger of their comparatively backwards, agrarian country with Britain, whose economy was largely mercantile. Britain's fiscal underpinnings were comprised of a funded national debt, a large base of paper capital, and a national bank which issued a circulating currency, and regulated fiscal policy and interest rates. The situation of the early 18th century Scots was quite similar to that faced by Hamilton, who needed to plan for the future of a young, underdeveloped country as a competitor in the world market.
Hume in particular was cautionary about the British system, but pointed out some advantages to a credit-based economy. Securities, Hume observed, provide ready capital with the value and function of specie, the availability of which enables merchants to engage in more extensive trade enterprises, which in turn makes commodities cheaper and easier to procure, and thus helps spread "arts and industry throughout the whole society." Landed wealth, Hume contended, makes "country gentlemen" out of wealthy merchants; whereas paper capital fosters a more international mentality, and a more diverse economy.
However, Hume emphasized the many evils of a credit-based economy, warning that a funded debt necessitates oppressive taxes to pay the interest, creates dangerous disparities in wealth, indebts the nation to foreign powers, and renders the stock holders largely idle and useless for everything but playing the market. Hume felt that the evils greatly outweighed the advantages.
Hamilton dismissed Hume's warnings and instead focused on the positive aspects of national credit; the continuing vitality of the British economy was enough to prove the efficacy of their system. Hamilton based his program primarily on the British model, with variations more suited to the United States' unique characteristics. Public credit was to become the pillar of Hamilton's fiscal reform package, the "invigorating principle" which would infuse the United States with the energy and international respectability he had envisioned.
In order to stimulate the economy, Hamilton needed big investors. The support and capital of the nation's wealthiest citizens would provide the foundation and security of his system. He wrote in 1780:
"The only plan that can preserve the currency is one that will make it to the immediate interest of the monied men to cooperate with the government in its support. ...No plan could succeed which does not unite the interest and credit of rich individuals with that of the state."
This was Hamilton's most controversial position about which he was quite frank, and which would incite fierce protest on the part of those who feared that Hamilton aimed to create an aristocracy. Hamilton was, as usual, simply drawing on realities that he felt, although not necessarily equitable, would benefit the nation as a whole in the long run. Securing the support of the wealthy was only a first step in his complete economic picture. The accumulation of wealth was not Hamilton's goal; he wanted to encourage the use of private wealth for beneficial enterprises. Hamilton envisioned a strong economy in which everyone could participate and profit. Landed wealth, represented by the Virginia opposition, was limiting and limited; whereas paper wealth was fluid, and opened up wider vistas in international trade and domestic industrialization. Industry would diversify labor, thus creating more jobs and income sources for a burgeoning population. Hamilton's vision was dynamic and made use of all the possibilities of a young nation with unlimited resources and boundless potential. His reports were the culmination of the vision he had cultivated during his fifteen years as an American, but which he soon found was not shared by all.