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The Founders and Finance

The Founders and Finance

4.0 2
by Thomas K. McCraw

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In 1776 the U.S. owed huge sums to foreign creditors and its own citizens but, lacking the power to tax, had no means to repay them. This is the first book to tell the story of how foreign-born financial specialists—the immigrant founders Hamilton and Gallatin—solved the fiscal crisis and set the nation on a path to long-term economic prosperity.


In 1776 the U.S. owed huge sums to foreign creditors and its own citizens but, lacking the power to tax, had no means to repay them. This is the first book to tell the story of how foreign-born financial specialists—the immigrant founders Hamilton and Gallatin—solved the fiscal crisis and set the nation on a path to long-term economic prosperity.

Editorial Reviews

Publishers Weekly
A Pulitzer Prize winner and Harvard Business School emeritus professor, McCraw sheds light on personalities and policies in this overview of the development of early American finance. The newly independent United States “had long been bankrupt”; both the fledgling national government and the states were in hock for the War of Independence. According to McCraw (Prophets of Regulation), brilliant immigrants, such as Alexander Hamilton and Albert Gallatin, lacked the parochial vision common to their peers, who saw the basis of wealth mostly in land. With at least 50 “coinages and currencies... in circulation” in 1789, banking was in turmoil. The main economic resource for the federal government was tariffs on imports, mostly from Britain. Hamilton’s decisive advocacy of a national bank and assumption of state war debts laid the basis for economic expansion and cemented the dominance of federal power. McCraw then turns to Gallatin’s ascendency in Congress, where in 1796 he denounced the growth in the national debt and decried high military spending. Starting with the still-resonant contrast between the “big government” Hamilton and “small government” Gallatin, McCraw’s wealth of historical data should interest any lay historian, particularly when he presents the many “what if’s.” (Oct.)
Richard Sylla
Tom McCraw's new book is a brilliant account of what the great immigrant financiers accomplished and why their wider-world perspectives became crucial to building the American nation and its economy.
Harold James
A compulsively readable book that is both a dual biography of the two most influential Treasury Secretaries and a study of American exceptionalism—the way in which immigrants played a leading role in building American institutions.
Roger Lowenstein
McCraw has observed a singular fact about this nation's early history: most of the people who directed its finances were immigrants. From Alexander Hamilton to Albert Gallatin, McCraw traces the influence of these remarkable foreign-born financiers, and reveals how their partly-imported sensibilities averted what seemed to be the fledgling republic's most likely fate: bankruptcy. This is history of the highest order.
Wall Street Journal - James Grant
Well told by McCraw are the familiar stories of Hamilton's consolidation and funding of the public debt, of his incessant fighting with Thomas Jefferson, and of his final duel with Aaron Burr...McCraw shows just how different was Jefferson's party from the one doing business under the Republican banner today.
New Republic - Gordon Wood
We may not know what we are doing with our own public finances, but perhaps we may take some comfort in the fact that the Founders, two centuries ago, did not know what they were doing, either.
Open Letters Monthly - Steve Donoghue
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.
Robin Einhorn
Consistently interesting and beautifully written, McCraw's narratives of the careers of Hamilton and Gallatin are simply splendid. We are in the hands of a master storyteller, as well as a master analyst of historical materials.
Weekly Standard - Kevin R. Kosar
As Thomas K. McCraw relates here, America lurched from one financial crisis to another between 1780 and 1840. At many times, it was entirely plausible that the young nation's financial troubles might disintegrate it...The achievements of Morris, Hamilton, and Gallatin cannot be overstated. They erected America's 'basic capitalist framework' by establishing a steady national currency and loosed gushing wells of both private and public credit. These immigrants also fashioned a system of taxation and collection, tamed the nation's debt, and fostered the development of a manufacturing economy. And these astonishing achievements came despite ardent political opposition...The lessons of The Founders and Finance are that America's finances have been far worse than they are today, and that good policies can triumph over political stupidity.
Library Journal
Only two men are honored with statues outside the U.S. Treasury building: Alexander Hamilton and Albert Gallatin. McCraw (business history, emeritus, Harvard Business Sch.), who won a Pulitzer Prize for Prophets of Regulation, explores their qualities, foibles, achievements, and failures in order to show why both deserve credit for laying the foundations of American governmental finance. Hamilton, McCraw explains, as the first Treasury secretary, contained the crushing national debt, made the country creditworthy, established a national bank, and sowed the seeds of rapid economic growth. Gallatin was an ardent Republican, but McCraw says he was also pragmatic in accepting much of Hamilton's system and, as Treasury secretary in the Jefferson and Madison administrations, cut government spending, reduced the national debt, eliminated taxes, expedited the Louisiana Purchase, formulated land policy, and favored internal improvements. In his concluding chapters, McCraw draws parallels between his subjects' immigrant backgrounds, national visions, and understanding of capital and credit. VERDICT McCraw is a talented storyteller. His highly readable and fascinating work portrays the brilliance of Hamilton and Gallatin against the difficulty of their time and is strongly recommended to all readers interested in American and financial history.—Lawrence Maxted, Gannon Univ. Lib., Erie, PA
Kirkus Reviews
The U.S. financial system was a creation of aliens--i.e., immigrants, who are numbered among the founding lights of the country. If you think the current system is a mess, consider the national economy after the American Revolution. The country was broke after fighting Britain, and it had what Pulitzer Prize winner McCraw (Business History Emeritus/Harvard Business School; Prophet of Innovation: Joseph Schumpeter and Creative Destruction, 2007, etc.) notes was "the highest public debt it has ever experienced, measured against the income of its government." For reasons that are not readily apparent, the new Americans were not adept at financial matters. In the first 50 years of nationhood, only six of 60 Cabinet members were foreign-born, and five of them were secretaries of the treasury. Two were Albert Gallatin and Alexander Hamilton; statues of both, McCraw notes, anchor the present treasury, next door to the White House. Hamilton, from St. Nevis, was a firm believer in federal power and an advocate of strong central-state solutions to various problems, including putting down rebellions of the sort that had been raised against the British crown. Gallatin, from Switzerland, was better born than Hamilton but ventured across the ocean because he "seemed to believe that Rousseau's notions about the moral virtues of nature might be realized in the United States." Hamilton was an urbanite and Gallatin a Daniel Boone of sorts, settling far beyond the Appalachians, but both introduced practices of banking, taxing and borrowing that were foundational. Further, because they were philosophically so different, they also introduced tensions that continue to be with us today, including the idea of taxation in the first place. A welcome addition to business and financial history, illuminating little-known aspects of the early republic.

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Harvard University Press
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Read an Excerpt

From Part I, Chapter Ten: The Bank of the United States

The House passed Hamilton’s Bank bill by the one-sided vote of 39–20. After the Senate also passed the bill and sent it to Washington for his signature, the president asked Secretary of State Jefferson and Attorney General Edmund Randolph for their opinions. Jefferson, in addition to regarding Hamilton as an immigrant upstart, detested all banks, and opposed this one in particular on the additional grounds of unconstitutionality. Both he and Randolph returned a negative verdict. They argued that the Constitution said nothing about incorporating banks or any other kinds of business. In effect, they were recommending that Washington veto the Bank bill. Jefferson’s message was strongly phrased, and although he hedged a bit on the matter of a veto, there could be little question that this is what he wanted. Randolph and Jefferson were Virginians, and most politicians from their state opposed Hamilton’s Bank bill. Washington, also a Virginian but more of a nationalist than the other two, was genuinely undecided. As a contingency, he asked James Madison to draft a veto message.

The president then put the question to Hamilton, giving him the written objections from Randolph and Jefferson. After a week of feverish composition, the secretary produced a long and sophisticated response. He began by noting that the essence of both Jefferson’s and Randolph’s objections lay in their narrow interpretation of federal powers under the Constitution: “The objections of the Secretary of State and Attorney General are founded on a general denial of the authority of the United States to erect corporations.” From this beginning Hamilton constructed a step-by-step rebuttal of both the premises and specific arguments employed by Randolph and particularly by Jefferson.

“A strange fallacy seems to have crept into the matter of thinking & reasoning upon the subject,” Hamilton wrote. “An incorporation seems to have been regarded as some great, independent, substantive thing—as a political end of peculiar magnitude & moment; whereas it is truly to be considered as a quality, capacity, or mean to an end.” In other words, incorporation of the Bank of the United States was a type of measure clearly contemplated by the Constitution in its “necessary and proper” clause about what the federal government could or could not do.

If Jefferson’s reading of the Constitution were correct, Hamilton went on to say, it would be “as if the word absolutely or indispensibly had been prefixed” to the necessary and proper clause. “Such a construction would beget endless uncertainty and embarrassment. The cases must be palpable & extreme in which it could be pronounced with certainty that a measure was absolutely necessary, or one without which the exercise of a given power would be nugatory. There are few measures of any government, which would stand so severe a test.”

Furthermore, although Jefferson’s letter to Washington had referred to the adequacy of existing banks, his reasoning would prohibit not only the national government but also the states from incorporating a bank. “It is to be remembered, that there is no express power in any State constitution to erect corporations.” This was a telling detail that Hamilton knew from his research in drafting the charter of the Bank of New York in 1784, whereas Jefferson likely did not.

Meet the Author

Thomas K. McCraw was Straus Professor of Business History Emeritus at Harvard Business School and winner of the Pulitzer Prize for History.

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The Founders and Finance: How Hamilton, Gallatin, and Other Immigrants Forged a New Economy 4 out of 5 based on 0 ratings. 2 reviews.
WaldoRWE More than 1 year ago
A great read about a subject that doesn't get much attention.  It reminds us of the importance of capitalism in our past and future. Hamilton was truly a brilliant man.
Anonymous More than 1 year ago