How Hamilton Rescued America from Economic Collapse

When Alexander Hamilton was confirmed by Congress on September 11th, 1789 as the nation’s first Secretary of the Treasury, America was in the midst of an economic crisis. The considerable wartime debt that the Continental Congress had taken on during the struggle with King George III proved an incredible burden for the young nation. This unusual predicament opened new, bitter political divisions among friends and foes alike. Freedom had been obtained through bloodshed, but now required preservation through systems and institutions; the country could not survive on inspiring words alone. Alexander Hamilton understood that, and his corresponding solutions proved especially radical, even in an age defined by revolutions and the profound men who led them. With energy unbound, determination fixed, and ideas abundant, the immigrant turned Founding Father set about tackling America’s early financial problems with the same tenacity he had applied throughout his life. 

Born on January 11th in either 1755 or 1757 (Historians disagree on the precise date) to Rachel Faucette and James Hamilton, his parents never married and only played a sadly fleeting role in his life. Rachel died in 1768, only two years after her estranged partner abandoned their family. Hamilton’s younger years as an orphan were spent writing essays and publishing letters, a talent which impressed local town leaders. They started a fund to send him to the colonies, where he arrived in 1772 and then briefly attended King’s College before joining the American Revolution (O’Keefe). After the war, Hamilton attended the Constitutional Convention, where he quickly became an indispensable advocate for a strong central government. Hamilton was acutely aware that the initial failure of any national government would prove detrimental to the very reasoning behind why the colonies rebelled to begin with. While writing to Washington in September of 1788 he said, “the blame will in all probability be laid on the system itself. And the framers of it will have to encounter the disrepute of having brought about a revolution in government without substituting anything that was worthy of the effort. They pulled down one Utopia, it will be said, to build up another” (Chernow 271-91). The preservation of the American system through a strong central government would be Hamilton’s driving political belief, and become cemented in the nation’s political psyche long after he was gone. 

In 1775, while the still young Alexander Hamilton was stealing British artillery under the nose of the Royal Navy (Randall), the Continental Congress in Philadelphia was contending with a threat that was becoming far more pressing than Lord Richard Howe or General Thomas Gage. War is always an expensive undertaking, and starting the revolution had not been cheap. 

Lacking funds, Congress made the critical decision to issue a counter currency that was designed to contend with the British pound while simultaneously funding the new government. Given the overt nickname, “Continentals,” $2 million bills of credit were initially issued. However, by 1779, that number skyrocketed to $241.6 million. Without governmental legitimacy or a central bank however, the value of the American dollar quickly plummeted. The result was that by 1780, the United States was suffering from the worst inflation in its history, as the Continentals devolved without significant monetary support (Johnson 211). To complicate matters further, the Articles of Confederation, specifically designed to prevent a strong national government, prohibited Congress from raising revenue independent of the states. 

The deteriorating economic situation made clear the need for further monetary assistance, something which could only come from overseas. Years before, at the urging of Richard Henry Lee and Samuel Adams, the colonies sent representatives to the courts of Spain, Prussia, Holland, Russia, Florence, and France. Francis Dana was dispatched to St. Petersburg, John Adams to Amsterdam, and Ralph Izard to Florence. The results from this first wave of diplomatic inquiry had been mixed, with some monetary support coming from Adams’ efforts in the Netherlands as well as some eventual aid from Spain. However, it was Franklin’s mission to France in 1776 which proved the most fruitful.  In all, Franklin’s efforts secured 18,000,000 livres, divided into twenty-one installments from 1778-1782, with an additional loan of 6,000,000 livres in 1783. Aside from the aid given by the court of King Louis XVI, the colonial diplomats received 1,000,000 from the French government-backed Ferme générale customs agency (Latané 13-22). This vast portfolio of foreign loans, tied to insatiably high-interest payments, along virtually valueless national currency caused the economy to spiral. 

George Washington’s selection of Alexander Hamilton to lead the treasury, as his government stared down the barrel of complete economic collapse, was one based on the two mens’ war experience. Washington was aware of Hamilton’s rags-to-riches background, and his aide’s recognition of the extravagant negligence with which the Continental Congress was handling the young republic’s finances impressed the Virginian. Despite this however, he had originally planned to nominate businessman and economic advisor Robert Morris to the top spot. Known as the “Financier of the Revolution'' due to his generous contributions to the cause, Morris turned down the offer and immediately recommended Hamilton, telling Washington, “He knows everything, sir. To a mind like his nothing comes amiss” (Custis 349-50). Morris, like many of the Founders, was well aware of Hamilton’s impressive foresight. As early as 1779, the same year in which John Paul Jones was raiding the British coastline (Bogage) and Henry "Light-Horse Harry" Lee was attacking Paulus Hook, NJ (Petrocci), Hamilton was recommending remedies to the crisis. Prominent among his initial proposals was the creation of a National Bank, an idea which he’d see to fruition in the coming years. Writing in 1781 to a friend, he said, "In a National Bank alone, we can find the ingredients to constitute a wholesome, solid and beneficial paper credit." (Wright and Cowen). Early in his career, one of Hamilton’s most recognizable talents was his remarkable productivity, and his unmatched ability to anticipate a coming crisis and prepare to meet it the only way he knew how, head on. 

Undeterred by the controversial reception his nomination had garnered in Congress, now-Secretary Hamilton began the most important task of his life; saving the young republic from irreparable economic damage. Within days of confirmation, the Treasury became the government’s largest department, boasting 39 employees, who he personally mentored and trained in the tasks of bookkeeping and auditing. He demanded asset assessments from practically every level of government, building up what became the country’s first statistical records (Chernow 271-91). His extreme preparedness came in handy when in 1790, the Congress requested a report on the state of the nation’s finances; in typical Hamiltonian style, he submitted four (Chowdhury). Nothing could have been more ordinary for the man, who as a boy, wrote his way out of poverty. 

The Treasury Secretary implemented a set of solutions, laid out in his four reports, which were begrudgingly adopted by the Congress. Firstly, to deal with the inflation crisis, the Treasury issued one dollar for every 100 Continentals, which by now held no value, serving the two-fold purpose of starting circulation of the newly adopted dollar into the hands of those financially stable whilst also injecting value into the once dejected currency. To begin paying off the debt, Hamilton’s recommendation of a tariff on thirty different products of about 8% was adopted, which was followed by an excess tax on whiskey in 1791 (Johnson 211-13). He also advocated for the creation of the 1st National Bank and convinced his fellow founders to allow the federal government to assume the responsibility of paying individual state debts. These plans proved controversial, and led to a lot of political intrigue with fellow lawmakers like Thomas Jefferson and James Madison, who both agreed to back Hamilton’s financial agenda in return for his support of moving the U.S. capital from New York City to a location in Virginia (Kratz). To the dismay of his critics, Hamilton’s plans worked. Adjusted to 1980 dollars, American debt per capita was $197 in 1791, but by 1811 it had plummeted to just $49. In fact, the debt had fallen to such an extent that by 1804, the United States had no trouble securing favorable rates for getting the $11.25 million loan needed for the Louisiana Purchase, which otherwise would have never been possible (Nettels). In an ironic twist of historic fate, the cornerstone of Jefferson’s presidential legacy exists solely because of his old rival’s economic plan, which the master of Monticello had so strenuously opposed. 

Robert Morris’s observation of his colleague turned out correct, as Hamilton’s days at the department proved unprecedented through his extreme attention to detail and obsession with organization. As one historian noted in 1982, “Hamilton was an administration genius” and that he “assumed an influence in Washington’s cabinet which is unmatched in the annals of the American cabinet system” (Cooke 27). However, Hamilton’s contributions to America didn’t begin or end with the treasury. In close partnership with John Jay and James Madison, Hamilton wrote 51 of the original Federalist papers, which was the vast majority of the 81 that were published (Hamilton et al.). He was pivotal in the creation of the U.S. Mint (Gloede), started the Coast Guard (Waxman) and participated in the first murder trial recorded in American history (Lawson). Unfortunately, Hamilton’s life was cut short after a bitter dispute with Vice-President Aaron Burr, who shot him dead during a duel in 1804. Nevertheless, his story bursts forth from the prototypical narratives that frame early American history, and snatches the attention of his countrymen with as much vigor as if he was still here.