The Founders and Finance: How Hamilton, Gallatin, and Other Immigrants Forged a New Economy

By Thomas K. McCraw

(Harvard University Press, 485 pp., $35)

THOMAS K. MCCRAW believed that financial leadership in government really matters. Since this is an issue that is very much with us at the present, his work of history may have a special timeliness. In The Founders and Finance, McCraw (who died in November) contends that the secretaries of the Treasury during the several decades following the inauguration of the new national government of the United States in 1789, especially Alexander Hamilton and Albert Gallatin, were crucially responsible for putting the nation’s finances on a sound institutional footing. Indeed, he argues, their actions as government officials made possible the extraordinary explosion of entrepreneurial and capitalist energy in early nineteenth-century America.

It didn’t happen right away. In fact, McCraw notes, “the United States government started out on a shoestring and almost immediately went bankrupt.” To fight its War of Independence from Britain, the government borrowed from banks in Holland and extracted loan after loan from France, impoverishing its ally in the process. The Continental Congress, which was the only federal authority in the decade following the Declaration of Independence, lacked taxing power and consequently had to rely on requisitions from the thirteen states for funds; but it received only a fraction of what it needed. In place of taxes the Congress simply printed scads of paper money that drastically lost its value. “The War of Independence,” McCraw writes, “not only impoverished the country, but also left it burdened with the highest public debt it has ever experienced, measured against the income of its government.”

Burdened by this huge debt and other financial problems, the new country in the 1780s could easily have broken apart. In order to highlight the achievement of the Founders in creating the Constitution of 1787, McCraw tends to exaggerate the economic trouble of the 1780s. He even claims that the decade of “the 1780s was likely the worst decade in American history except for the 1930s.” In making such an exaggerated claim he has to set aside the work of such historians as Merrill Jensen, E. James Ferguson, and others. There certainly was economic dislocation in the 1780s, and traditional markets were closed to American merchants—but new ones were being found, even as far away as China, and people were on the move.

The decade was actually a time of great release and expansion, and the general mood among ordinary people was high and far from bleak. “There is not upon the face of the earth a body of people more happy or rising into consequence with more rapid stride, than the inhabitants of the United States of America,” Charles Thomson, secretary of the Confederation Congress, told Jefferson in 1786. “Population is encreasing, new houses building, new lands clearing, new settlements forming, and new manufacture establishing with a rapidity beyond conception.” Indeed, as the demographer Jim Potter has pointed out, the 1780s were the fastest-growing decade demographically in all of American history. Since immigration was negligible in the 1780s (many Loyalists left the country), the extraordinary growth of population came from young people having high expectations for the future and consequently marrying earlier, which in turn led to their having more children.