Happy Birthday, Whenever, Alexander Hamilton

Today is Alexander Hamilton’s 250th birthday. Unless, of course, it’s his 252nd. He claimed to have been born in 1757, but there is considerable nearly contemporary evidence that he was actually born in 1755. But there is no argument that he was not yet 50 when he died at the hands of Aaron Burr in 1804. And there is no argument that despite his brief life he had more influence on the future of the United States than all but a very, very few of the Founding Fathers.

Hamilton was not like the other Founding Fathers. He was the only one not born in what is now the United States, having come into the world on the British West Indian island of Nevis. And unlike even Benjamin Franklin, whose family was middle-class, he was born into poverty. His mother had left her husband, who was apparently a brute, and was living with Hamilton’s father. He abandoned her after fathering two children.

His mother died when Hamilton was still a young boy, and he had no choice but to go to work, at a trading concern in St. Croix owned by Nicholas Cruger and David Beekman, two New York merchants. When Cruger returned to New York in 1771, he left Hamilton, then 14 or 16, in complete charge. He soon helped his obviously very gifted employee to come to New York.

Perhaps because he had not grown up in one of the 13 colonies, Hamilton always had a much more nationalist vision of the future of America than most of the other Founding Fathers. Because he had grown up in a counting house, he had a much more commercial viewpoint as well. These two factors would prove to be crucial to his philosophy, career, and impact on the nascent United States.

He served most of the Revolutionary War on George Washington’s staff, making the acquaintance of many important men, especially Washington himself, of course. After the war he established himself as a successful lawyer in New York, founded the Bank of New York and the New York Post, and wrote widely on the problems confronting the new nation. In 1787 he was elected to the Constitutional Convention that met in Philadelphia.

To support ratification of the Constitution, Hamilton, James Madison, and John Jay wrote a series of essays, published in New York newspapers and widely reprinted. They helped powerfully to bring around public opinion to support the new Constitution. Called The Federalist Papers, they are today the fundamental literature of constitutional interpretation. Hamilton wrote the majority of them.

With the establishment of the new federal government, in 1789, George Washington appointed Hamilton secretary of the treasury. The size of the task that confronted him can be indicated by the fact that while the new State Department had five employees, the Treasury had forty.

In 1789 the United States was little more than a banana republic (only without the bananas). It had no real monetary system, using instead a jumble of foreign coins and deeply discounted paper money issued during the Revolution by the Continental Congress. It had no national banking system, the few banks then in existence operating only locally. The national debt, both foreign and domestic, was deeply in arrears. And the federal government had no tax system or customs service. As a result, the government had no credit and was unable to borrow.

Within two years Hamilton had established and put in place all that was needed to give the new United States a financial and tax system that was second to none. The banana republic was gone, never to return. Indeed, within a few years American bonds were selling above par in Europe, perceived as safe investments.

Hamilton first tackled the national debt, then estimated at about $55 million, although nobody really knew. Much of the domestic debt, issued to requisition supplies for the Continental Army, had fallen, deeply discounted, into the hands of speculators who were willing to gamble on its being redeemed at full value. Many, including James Madison, thought that only the original holders should get full value and the speculators just what they had paid for it. Hamilton pointed out that if the government were to decide to treat some holders of debt differently from others, it would be more expensive to borrow in the future, as lenders would demand higher interest to compensate for increased risk. He got his way.

Hamilton also wanted the federal government to assume the debts that the various states had incurred during the Revolution. His purpose there was to help cement the Union, by giving the creditors in the various states a stake in the success of the national government. To get his assumption bill through, over the opposition of both Jefferson and Madison, he threw a big bargaining chip on the table: He agreed to moving the capital out of New York, first to Philadelphia for 10 years to get Pennsylvania’s support, and then to a new city to be built on the banks of the Potomac River.

The third major portion of his program was a central bank, modeled on the Bank of England, to issue bank notes that would be accepted throughout the country, to discipline state-chartered banks, to handle the transfer of federal funds around the country, and to be the source of loans to the federal government.

But Jefferson and his political allies feared a powerful national bank and thought establishing one would be unconstitutional, as the Constitution did not explicitly sanction it. This is known today as the doctrine of “strict construction.”

To overcome Jefferson’s objections, and induce President Washington to sign the bill creating the bank, Hamilton wrote a 15,000-word essay creating a doctrine of “implied powers.” He reasoned that if the federal government was to carry out its enumerated duties it must decide how best to do so, and that only a prohibition against a particular means would prevent the government from using it. Washington, his doubts quieted, signed the bill. Presidents from Lincoln to Franklin Roosevelt to George W. Bush would use the doctrine of implied powers to meet grave threats to the Union.

Thanks to the growing power of the Jeffersonians, Hamilton’s central banking system would be destroyed after his death. The country would be without an adequate central banking system until the New Deal, often at great cost to its economic well-being. But the heart of the Hamiltonian system survived, and the country was able to flourish financially and economically because of it.

As Daniel Webster explained, “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.”