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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
Washington, his doubts quieted, signed the bill, and the bank soon came into existence. Its stock subscription was a resounding success, for investors expected it to be very profitable, and it was. It also functioned as Hamilton intended and did much to further the early development of the American economy. State banks multiplied under its control. There were only three state banks in 1790; there were twenty-nine a decade later.
Had Washington accepted Jefferson’s argument, not Hamilton’s, not only would the bank bill have been vetoed, but the development of American government would have been profoundly different. Indeed, it is hard to see how the Constitution could have long survived, at least without frequent amendment. Jefferson’s doctrine of strict construction, rigorously applied, would have been a straitjacket, preventing the federal government from adapting to meet either the challenges or the opportunities that were to come in the future. Lincoln and Franklin Roosevelt would both push the Hamiltonian concept of implied powers very far in seeking to meet the immense national crises of the Civil War and the Great Depression. Even Jefferson, once in the White House, would come to realize that strict constructionism was a doctrine that appeals mainly to those in opposition, not to those who must actually exercise political power. He did not let the fact that the Constitution nowhere mentions the acquisition of territory from a foreign state stop him from snapping up the Louisiana Territory when the opportunity arose.
Jefferson’s genius was philosophic, not political, in nature. He instinctively preferred abstractions to the practical, mundane, often messy aspects of actually governing. Hamilton was exactly the opposite. It was his passion to give the American nation a government that worked in the real world. With his contributions to the Constitution and to the Federalist papers, Hamilton gave the country a practical government for the time in which he lived. With his doctrine of implied powers, he made it into the dynamic instrument that has lasted through two centuries of tumult and change, amended only fourteen times since his death.
Hamilton’s program and its enactment had one great and entirely unanticipated consequence. It produced the first big political fight of the new federal union. It revealed deep and heretofore-unsuspected cleavages in the American body politic. “When the smoke of the contest had cleared away,” wrote Albert S. Bolles in his majestic Financial History of the United States , published a hundred years ago, “two political parties might be seen, whose opposition, though varying much in conviction, power, and earnestness, has never ceased.” It still hasn’t, and the American political nation can be divided to this day largely into Jeffersonians and Hamiltonians, those who see the trees of individual liberty and justice and those who see the forests of a sound economy and an effective government.
To this day the nation can be divided into Jeffersonians, who see the trees of liberty, and Hamiltonians, who see the forest of economy and government.
Jefferson never ceased to rail against Hamilton’s program. His “Remarks upon the Bank of the United States,” published a few years after the bank had been chartered, was a savage attack upon Hamilton. Jefferson, for instance, considered only the inequities that had resulted from Hamilton’s funding scheme. “Immense sums were … filched from the poor and ignorant,” he wrote, “and fortunes accumulated by those who had themselves been poor enough before.”
Hamilton, understandably, preferred to look at the results and felt abused. “It is a curious phenomenon in political history,” he wrote in reply, “that a measure which has elevated the credit of the country from a state of absolute prostration to a state of exalted preeminence, should bring upon the authors of it obloquy and reproach. It is certainly what, in the ordinary course of human affairs, they could not have anticipated.”
But by then, 1797, the political pendulum was swinging toward the Jeffersonians, and they would run the country for years to come. Hamilton’s bank would lose its charter in 1811, and a second Bank of the United States, created in 1816, would be destroyed by Andrew Jackson. The country, at the cost of recurrent and severe financial panics, would get along without a central bank until 1913.
In the fullness of time, however, as the very few who were actually harmed by Hamilton’s program faded from the scene and the very many who benefited, generation after generation, remained, it came to enjoy the praise it deserves. Of Hamilton’s work, Daniel Webster, with typical grandiloquence, would one day say: ‘The whole country perceived with delight, and the world saw with admiration. He smote the rock of the national resources, and abundant streams gushed forth. He touched the dead corpse of the public credit, and it sprung to its feet. The fabled birth of Minerva from the brain of Jove was hardly more sudden or more perfect than the financial system of the United States as it burst forth from the conception of Alexander Hamilton.”