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Book Review: The Founders and Finance

The Founders and Finance:

How Hamilton, Gallatin, and Other Immigrants Forged a New Economy

by Thomas K. McGraw

Harvard Belknap, 2012

In Anthony Trollope’s Can You Forgive Her?, a bald, grizzled Parliamentary power-broker comes away from a talk with a rising young politico thinking he’s seen some promising material for the next Chancellor of the Exchequer – and it turns out the material doesn’t have to be all that promising. “I dare say he’s not very bright, but I don’t know that we want brightness,” the power-broker declares. “A bright financier is the most dangerous man in the world.”

Even as early as the 1790s, a good many people in the newly-minted United States of America would have agreed with that sentiment – and a surprising number of those people actually worked for the government. Thomas McCraw’s new book The Founders and Finance paints a bleak picture of the young country, fresh from winning its independence from Great Britain and now very nearly drowning in debts it had no clear way to repay. Each State in the new nation had its own currency, its own border-tariffs, its own rates of exchange, and resistance to a stronger central government that might have imposed more stringent order could be found at the heart of that government itself. “I am not a friend to a very energetic government,” said Thomas Jefferson, correctly adding, “It is always oppressive.”

McCraw (author of, among other books, Prophet of Innovation, a very entertaining study of Joseph Schumpeter) makes a compelling case in The Founders and Finance that some of the most partisan and energetic advocates of a strong national government were newcomers to the nation itself, men like Alexander Hamilton and Albert Gallatin who came to the country as adults and adopted it as the focus of their patriotism and ambition. These men gave no serious contemplation to a national government that wasn’t “energetic” – the question was one of ends, not means:

In the case of Hamilton, the question naturally arises: energetic administration toward what end? Here his answer was the good of the nation as a whole, not of any particular state or section. His thought centered on national economic aggregates – in agriculture, industrial production, and finance.

McCraw wisely warns his readers against the smoothing effects of hindsight, repeating to good effect the old saw that characters in history don’t know how their stories are going to come out – they’re living forward into the dark, not working steadfastly toward confirming our own conceptions of them. McCraw rightly points out that this kind of smoothing reflex has given rise to much facile writing about the Founding Fathers – he reminds us that all things were forever teetering on chance, and that history might have taken very different courses from the ones it did:

Important events affected subsequent events – preventing, causing, and shaping particular outcomes. The authors of the Articles of Confederation, for example, wrote into that document a requirement for unanimity among all thirteen states on any structural alteration of its provisions. Had that mandate been absent from the Articles, then Rhode Island could not have blocked Congress’s attempt to gain control of customs revenues in 1781. If this obstruction had not occurred, then the national government would have had a large and independent source of income no later than 1781. And in that situation, Robert Morris’s financial program might have worked. The drive for a new Constitution might have been much weakened, and the Convention of 1787 might never have happened at all.

For good or ill, that Convention did happen, and the federal entity of the United States government gained a powerful Executive just at a time when it seemed most necessary, when tax- and debt-rebellions were sparking up everywhere and the debts incurred during the War of Independence were threatening to crush the country. This newly-empowered Executive found men who were eager to use its powers – and the three most important of these men, Alexander Hamilton, Albert Gallatin, and Robert Morris (who doesn’t get his picture on the book’s cover, perhaps because he was fat), filled what McCraw refers to as the “conspicuous intellectual vacuum in financial thinking on a large scale” that had otherwise paralyzed the country. Gallatin especially – born in Geneva in 1761, landed in Boston in 1780, a quick riser in Pennsylvania politics – gets in these pages some of the intelligent and well-balanced attention he’s always deserved. “With his quiet composure and unerring judgment, Gallatin moderated Jefferson’s ideological fervor and Madison’s frequent indecisiveness,” McCraw writes. “Had they heeded his advice more often, both would have been more successful presidents.” Boston Congressman Josiah Quincy was thinking of Gallatin (in addition to Jefferson and Madison) when he famously quipped that the country was run by “two Virginians and a foreigner.”

But it’s Hamilton who’s the star of this show, inevitably. It was Hamilton who saw with ice-cold clarity that the nation not only would change from the predominantly pastoral, agrarian paradise of Jefferson’s envisioning but that it must change from such a state if it intended to survive. It was Hamilton who not only spearheaded the idea of a federal assumption of state debts and the establishment of a great national bank but also wrote most of the philosophical underpinnings of such innovations. It was Hamilton’s singular charisma that both swayed all-powerful President Washington on a whole range of key issues but that also galvanized such fruitful opposition (including, more often than not, from Gallatin himself).

Through all of this frequently abstruse and undramatic material, McCraw is the best of guides – smart but not smug, lively but not blithe, and opinionated but not doctrinaire. There’s less inventive fire in these pages than in his magisterial Prophets of Regulation (the book that won him the Pulitzer Prize), but they’re full of the easy command of somebody who’s spent his entire life writing history. This present book has frequent sage reminders to keep things in proportion:

Often the most informative comparisons are like with like: one should ask not whether William Wordsworth was the literary peer of Jane Austen, but whether he as as good a poet as John Keats. By this standard, one should compare Jefferson not with Hamilton, but with other secretaries of state, presidents, and politicians who held primarily elective office. In all three of these categories, Jefferson fares well.

A detailed account of the financial negotiations that helped underwrite the United States might not strike some readers as inherently gripping fare, but McCraw has made it every bit as interesting as the more standard accounts of battling redcoats. Men like Morris, Gallatin, and Hamilton had enormous potential to become “the most dangerous men in the world” (in fact they did become so, in the eyes of their many enemies), and The Founders and Finance takes us into the heart of their temptations.