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The Founding Wizard
Two hundred years ago the United States was a weakling republic prostrate beneath a ruinous national debt. Then Alexander Hamilton worked the miracle of fiscal imagination that made America a healthy young economic giant. How did he do it?
July/august 1990 | Volume 41, Issue 5
In addition to the near-worthless currency, the United States had a large debt. It owed the French government and Dutch bankers $11,710,378. To its own citizens, the government owed $42,414,085. (In proportion to the government’s revenues, that’s equivalent to a foreign debt of $2.4 trillion and a domestic debt of $8.7 trillion today; the total national debt nowadays is roughly $3.0 trillion.) The interest on both debts was far in arrears.
Because the financial situation had been the most powerful impetus to the establishment of the new government, the most important of the new departments was certain to be the Treasury. It would soon have forty employees, to the State Department’s mere five. The department would have to devise a system of taxation to fund the new government. A monetary and banking system would have to be developed to further the country’s commerce and industry. The national debt needed to be refunded and rationalized. A customs service had to be organized and tariffs collected. The public credit had to be established so that the government could borrow as necessary.
All this was to be brilliantly accomplished in the first two years of the new government. It was, almost entirely, the work of the young first Secretary of the Treasury.
Alexander Hamilton was not like the other Founding Fathers. He was the only one of the major figures of the early Republic who was not born in what is now the United States. He was born on the British West Indian island of Nevis and came to manhood on what was then the Danish island of St. Croix, now part of the U.S. Virgin Islands.
Further, he was the only Founding Father, other than the ancient and by then venerable Benjamin Franklin, who was not born into the higher levels of local society. In the brisk, if not altogether accurate, phrase of his political enemy John Adams, Hamilton was “the bastard brat of a Scotch pedlar.”
Hamilton was certainly a bastard, but his father was not a peddler. He came, in fact, from an ancient Scottish family, being a younger son of the Laird of Cambuskeith. But he was an utter failure as a businessman. He abandoned his family, and Hamilton’s mother was forced to open a small store to feed her two sons. Hamilton became a clerk in the trading concern of Nicholas Cruger and David Beekman, at Christiansted, St. Croix, at the age of eleven or thirteen. (There is some doubt about Hamilton’s birthdate. Nearly contemporary documents imply it was 1755. Hamilton said it was 1757.) So bright and energetic was the young Hamilton—for his tainted birth had instilled a ferocious ambition to get ahead—that by his mid-teens he was managing the concern.
At home in the city and learned in finance, he saw far more clearly than Jefferson how the winds of economic change were blowing in me late 1700s.
Nicholas Cruger belonged to an old and powerful New York mercantile family, and he early recognized the talent of his young clerk. When he returned to New York in 1771 because of ill health, he left Hamilton in entire charge. Soon he helped his young employee come to New York to further his education. Hamilton, still in his teens, left St. Croix in October 1772, never to see the West Indies again.
As relations between Great Britain and its American colonies rapidly deteriorated, Hamilton threw in his lot with his new country. His immense talents and his capacity for work soon gave him a leading role in the Revolution and its aftermath. When Washington became President under the new Constitution, he asked Robert Morris, the financier of the Revolution, to become Secretary of the Treasury, but Morris, intent on making money, turned him down. He recommended Hamilton instead. Washington was happy to appoint his former aide-decamp, and Hamilton, in his early thirties, gladly gave up a lucrative law practice in New York to accept.
Hamilton’s background would always set him apart and give him an outlook on life and politics the other Founding Fathers did not share. It also made him uniquely qualified to establish the financial basis of the new United States. Far more than Jefferson, Washington, Adams, and Madison, Hamilton was a nationalist. His loyalty to America as a whole was unalloyed by any loyalty to a particular state.
Hamilton was also by far the most urban and the most commercial-minded of the men who made the country. He had grown up, almost literally, in a counting house and lived most of his life in what was already the most cosmopolitan and business-minded city in the country. He had founded the first American bank, the Bank of New York. Washington, Jefferson, Madison, and even Adams were far more tied to the land than was Hamilton. Jefferson, especially, longed to see America a country filled with self-sufficient yeoman farmers who shunned urban life. Hamilton, at home in the city and deeply learned in finance, saw far more clearly than Jefferson how the winds of economic change were blowing in the late eighteenth century.
He was always to be, to some extent, a social outsider. Today we tend to think of the American Revolution as having brought “democracy” to the thirteen colonies. In fact, it brought no such thing. The eighteenth century was an age of aristocracy, and the American colonies were no exceptions. Each colony had its oligarchy of rich, established families that dominated its economic and (under a royal governor) political affairs.