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Tuesday, July 24, 2018

ANALYSIS/OPINION:

ALEXANDER HAMILTON ON FINANCE, CREDIT, AND DEBT

By Richard Sylla and David J. Cowen


Columbia University Press/Museum of American Finance, $29.95, 360 pages

Some people will remember reading about Alexander Hamilton in their history books due to his fatal July 11, 1804, duel with Vice President Aaron Burr. Others will instantly recall the award-winning Broadway musical “Hamilton,” which dealt with aspects of his life and career through song and dance.

But there’s a great deal more to understand about the man who founded the New York Post, Bank of New York, U.S. Coast Guard and the Federalist Party, and served as the nation’s first secretary of the Treasury.

Richard Sylla and David J. Cowen explore this Founding Father’s business acumen and economic writing and analysis in “Alexander Hamilton on Finance, Credit, and Debt.” The co-authors are well suited to examine this particular area of study. Mr. Sylla is an author, professor emeritus of economics at the New York University Stern School of Business, and chairman of the Museum of American Finance, and Mr. Cowen is an author and president and CEO of the Museum of American Finance.

Some of Hamilton’s financial observations are technical and, at times, dry. There’s no point in sugarcoating the obvious. Nevertheless, the book serves an important purpose by providing a historical understanding of how an advocate for government intervention, nationalist policies and tariffs created the basis of a free market economy.

Mr. Sylla and Mr. Cowen note in their Introduction, “Only in recent decades have economists and economic historians come to understand and document that finance is a driver of growth and power.” Yet, their belief is Hamilton “made the connection running from finance to growth and power more than two centuries ago.” This revelation, in their view, means he’s “remained ahead of his time right down to the present.”

Most modern conservatives would disagree with some of state-oriented Hamilton’s economic vision of American exceptionalism. But it’s not wrong to say he looked at the early U.S. financial system far differently than some of his contemporaries.

One of Hamilton’s well-known papers dealt with his support of public credit. Written in January 1790, he argued this concept was based on the “observance of good faith,” and was “enforced by considerations of still greater authority” and “immutable principles of moral obligation.” As he viewed it, “this reflection derives additional strength from the nature of the debt of the United States. It was the price of liberty. The faith of America has been repeatedly pledged for it, and with solemnities that give peculiar force to the obligation.”

At the same time, Hamilton recognized “these good effects of a public debt are only to be looked for when, by being well funded, it has acquired an adequate and stable value.” If not, it can be viewed as a “contrary tendency” since the “one serious inconvenience of an unfunded debt is that it contributes to the scarcity of money.”

Another interesting technical paper, written in 1791, examined the establishment of a U.S. mint. In particular, he wrote that a “prerequisite to determining with propriety what ought to be the money unit of the United States is to endeavor to form as accurate an idea, as the nature of the case will admit, of what it actually is.” This led Hamilton to discuss currencies such as a dollar, gold and silver coins, and how countries such as Great Britain, Spain and Holland have handled the issue. Mr. Sylla and Mr. Cowen note he ultimately suggested a U.S. dollar should be valued at 24.75 grains of pure gold, and 371.25 grains of pure silver.

Hamilton also wrote a 1791 paper about the creation of useful manufactures.

Success in this particular area was based on two components, the “dearness of labor and the want of Capital.” His belief was the “species of Capital which consists of the public Stock is susceptible of dispositions which will render it adequate to the end,” but he also notes the “pecuniary aid even of Government though not to be counted upon, ought not wholly to be despaired of.”

Once the United States found a way to establish proper capital, the “means ought to be taken to procure from Europe skillful workmen and such machines and implements as cannot be had here in sufficient perfection.” This would enable the U.S. manufacturing sector to acquire immediate talent, and grow as a powerful industry.

Mr. Sylla and Mr. Cowen have put together a fascinating examination of Hamiltonian economics. While his financial vision would be imperfect to some, his desire to “have more banks, securities markets, and corporations” in post-Colonial America would be favored by all.

• Michael Taube is a frequent contributor to The Washington Times.


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