Alexander Hamilton’s role in establishing the US Treasury and laying the foundation for the American Economic System

Alexander Hamilton, alongside such luminaries as Benjamin Franklin, George Washington, Thomas Jefferson, John Adams and James Madison is rightly considered as a founding father of the United States of America. In the second half of the eighteenth century, when British colonies in America entered a period of fervent political change, intellectuals such as Hamilton played pivotal roles in guiding and influencing this process. This essay will argue that Alexander Hamilton had indeed played a pivotal role in the establishment of U.S. Treasury and his ideas continue to influence economic policy even today.

Although lesser studied when compared to other Founding Fathers, Hamilton’s contribution in shaping the new American republic is substantial. For example,

“The most practical nation builder of the Founding Fathers, Hamilton (1755-1804) fought tirelessly for ratification of the Constitution, played a pivotal role in creating a centralized and powerful nation-state, and argued persuasively for a strong presidency and an independent judiciary. It was Hamilton, at the beginning of the nation’s history, who provided a prophetic vision of the United States as a global power stabilized by capitalism and with a military second to none.” (White 2000, 186)

While Hamilton contributed to all aspects of government formulation, he is best remembered for his role in designing the young nation’s economic system. During and after his lifetime Hamilton was overshadowed by his more popular adversary Thomas Jefferson. While Jefferson’s dominant image persists today, “the irony is that Hamilton’s concept of the federal government, not Jefferson’s, is what has evolved and endures” (White 2000, 186). This is particularly valid with respect to the country’s economic system and the organization of its constituent agencies such as the U.S. Treasury. Hamilton could rightly be considered a visionary, who saw the importance of economic growth and technological innovation. His state papers on the subject of economy is considered by modern scholars to be a monumental effort “toward establishing a rational basis for planning and legislation; his Report on Manufacturers and his advocacy of federal public works are remarkably modern descriptions of the relationship between government and technology” (White 2000, 186).

As the first Secretary of the Treasury and the unofficial aide to George Washington, Hamilton was instrumental in designing the American bureaucracy, which prevails even to this day. In this unofficial capacity as the confidante and aide of the first President, Hamilton also wrote many of the Presidential addresses, most notable of which is the Farewell Address delivered by Washington at the end of his second term. Hamilton’s contribution to the development of the economic system is more profound though. Inspired by such economic thinkers as Postlethwayt, Richard Price, Adam Smith and Wyndham Beawes, Hamilton strongly supported a market-based economy in which private enterprise would be encouraged. (White 2000, 186)

Renowned historian and biographer John Gordon, offers us some key insights into Hamilton’s role as the Secretary of Treasury. According to Gordon, Hamilton conceived and implemented the corporate income tax and the conception of national debt, which incidentally has grown from $80 million in 1792 to more than $5 trillions today. It was due to the institutionalizing of national debt that the nation was saved from bankruptcy in its early days. Further, Hamiton transformed the nation from a

“deadbeat borrower, unable to repay public bonds and engulfed in near-worthless paper scrip into a solid international creditor. Through a series of reforms, including a simple, workable tax system, an independent central bank, and a dollar tied to gold, Hamilton converted the national debt from a liability into an asset and provided liquidity to a cash-starved economy. Again, Hamilton was well in advance of his time. On several occasions, he argued that government-supported industry strengthens rather than weakens agriculture, creates opportunities for enterprise and investment, makes jobs for workers, and attracts immigrants”. (Rust, 1999, 46)

1 2