What happened:
One of the things that made George Washington such a remarkable leader was the fact that he recognized that he was not usually the sharpest guy in the room. At least in the company that he usually kept. But he was shrewd enough to find the men who were, and surround himself with them. The first presidential cabinet consisted only of four positions (as opposed to the current roster of 15 cabinet positions), but it was an All-Star Team that made every subsequent cabinet look minor league. Try Henry Knox for Secretary of War (later changed to the kinder and gentler Secretary of Defense), Thomas Jefferson as Secretary of State and Alexander Hamilton as Secretary of Treasury. On 9/11/1789, President Washington appointed one of his favorite subordinates from the Revolutionary War days, Hamilton, as this nation's first Secretary of Treasury.
Why It Is Important:
In many respects, Alexander Hamilton was more responsible for shaping the direction of the infant nation than even Washington. Washington was hardly ever the brightest man in the room, but he almost always followed wise council. He listened to Hamilton on more crucial decisions than anyone else. It was Alexander Hamilton who basically created our national economy. So who was this guy?
Invariably when I teach about this early period, my students have the most passionate opinions on Hamilton over any of the other Founding Fathers. Love him or hate him, there is usually no in between in my classroom, and it was the same in Hamilton's day. I am amused when people say that today's politics is more divided and bitter that it's ever been, or that in the old days politics was so much more civil. BS. Alexander Hamilton was killed in a duel, shot by the sitting Vice-President of the United States, Aaron Burr, in 1804. Now that is serious political disagreement.
First and foremost, Hamilton was an elitist. He believed that certain men were born to lead, and he fought tirelessly for the elite East Coast business interests, for he thought they were the key to the success of the young country. He was one of the earliest and finest advocate for ruthless capitalism in this country. When I teach Washington's administration, I usually set up the dichotomy of Hamilton and his elitist tendencies vs. Jefferson and his populist beliefs. This rivalry defined the ideological divide of that crucial last decade of the 18th century, and in large part it was this personal rivalry that created the first two political parties in the U.S. Washington detested political parties, yet they were born in this country under his nose in his own cabinet. Hamilton's Federalist Party vs. Jefferson's Democratic-Republicans. Hamilton wanted a strong Executive and a weak Congress, and was a strong admirer of the British system. Jefferson was a passionate advocate of states rights and argued for a weak Executive (although, typical of Jefferson, when he himself became president he exercised more sweeping Executive power than any president in our history), and was an admirer of the French Revolution, an event which horrified Hamilton to his core.
But what fascinates my students so much is when I then reveal their backgrounds. Hamilton was an elitist and had a deep distrust of the "masses," and was probably a lesser fan of democracy than almost any of the other Founders. Yet, he knew the masses at a more intimate level than almost any of the other Founders as well, because he had been one of the rabble. Washington, Jefferson, Madison and many other Founders had been born into privilege and at least some level of wealth. They were born and bred gentlemen. Hamilton, on the other hand, was born a bastard child in the Caribbean who was orphaned at a very young age. He had to scratch, claw and earn everything he got, and even when he had reached the pinnacle of power, his enemies never let him forget his humble beginnings (referring to him as "the bastard of New York," NY being his power base). That is one of the questions I often ask my students: based on their backgrounds, shouldn't have Hamilton and Jefferson had each others' constituents, as Jefferson was a champion of the common man, whom he only knew from a distance and hopelessly romanticized. Perhaps Hamilton had a more realistic view of the masses, and after working his way up, had little patience for those who could or would not follow suit.
At any rate, it was what Hamilton accomplished as our first Secretary of Treasury that is his lasting legacy. You think Ronald Reagan invented the idea of trickle-down economics? Hell no. Hamilton believed that if you create an economy favorable to business interests, then they will prosper and the entire nation will reap the benefits.
Many leaders wanted the young U.S. to declare bankruptcy, such was the burden of our debt coming out of the Revolutionary Period. Hamilton refused, instead funding the debt at par to maintain our credit worldwide. The individual states also had massive debts, and here is where Hamilton was a true genius. He pushed federal assumption of the state debts from the Revolution, thereby binding the states more closely to the federal government. He shifted the focus, especially of business interests, away from the states and towards the federal government. This was a crucial move to shift the balance of power from the states to the feds. Not all states agreed with assumption. Massachusetts loved it, because they were drowning in debt. Virginia not so much, as they had already paid most of theirs off. What would they gain? Legend has it that Washington invited Hamilton, Jefferson and Madison to dinner and ordered them to come to an agreement on the assumption debate, because as with almost everything Hamilton proposed, Jefferson and Madison resisted. Jefferson agreed to get Virginia to sign on for assumption, if Hamilton backed a plan to move the national capital from New York City to a site along the Potomac, the future Washington D.C. Done.
He also saw that for the new country to succeed, the business elites had to have a stake in its success. So he borrowed lots of money from them for the federal government. Although I am sure he would be horrified at our current debt levels, Hamilton believed that, within reason, debt was good. This was a revolutionary idea at a time when debtor prisons were still common. Why? As any creditor knows, if you want to be paid back, then you sincerely hope that whatever venture you have lent money to is a success. You do what you can to help it be a success. Hamilton tied the success of this new experiment in democracy to the business interests that would be its engine. The power interests in this country now needed the new federal government under the new Constitution to be a success.
While I'm not a fan of tariffs, Hamilton used them well in the early days to raise money to pay the interest on this debt (although most of the revenue came from sale of Western lands) and to protect the infant American industries. He had the foresight to see we would eventually industrialize, and he wanted our business class to be ready. He also taxed many domestic goods, most notoriously whiskey (which was basically used as currency on the frontier), which sparked the Whiskey Rebellion.
Hamilton also proposed a national bank, the Bank of the United States. His model, as usual, was the English with their Bank of England. He wanted the Bank to be a private institution, but with the federal government being the largest shareholder. The banking system was chaos, and he wanted a stable institution where the federal government could deposit its money and one that could really stimulate national growth. Jefferson, of course, argued against the Bank, claiming that there was no authority in the Constitution for its establishment and that it would favor the interest of the business elites over the little man. Thus was born one of the most enduring political debates in our history, how should the Constitution be interpreted?
George Washington, like any good CEO when confronted by talented underlings who disagreed, ordered both sides to submit a memo to him and he would then decide. Thus with Jefferson was born the strict construction argument for constitutional interpretation. He argued that the Constitution did not specifically authorize the federal government to establish a massive Bank, therefore that power was reserved to the states. The newly proposed 10th Amendment bore this out, plus the fact that the whole structure of the Constitution was to specifically outline what Congress could do. What was the point of doing that if they could then do almost anything they wanted? What the Constitution does not explicitly allow the Feds to do, it prohibits. Hamilton responded by arguing that what the Constitution does not explicitly forbid the Feds to do, it allows. Thus was born loose construction. He argued that the Necessary and Proper Clause allowed the government, which was charged with collecting taxes and regulating trade, to charter a Bank needed to carry out those functions. This was an implied power in the Constitution. The Founders were brilliant but they were not clairvoyant, Hamilton argued. They could not possibly foresee every issue that would come along, therefore there is much leeway imbedded in the Constitution, as long as what is done is related to one of the powers outlined in the Constitution and the action is not specifically prohibited. Washington went with Hamilton's argument, and the Bank was established (later to be killed by Andrew Jackson). Loose construction has won the day, historically, if you look at the decisions of the Supreme Court, from McCulloch vs. Maryland onward. Hamilton had a kindred spirit in Chief Justice John Marshall.
Many of Alexander Hamilton's ideas and policies endure. Too much democracy is a bad thing, the masses need checks. Rule by an enlightened elite, but also checked by the people. A powerful central government dominant over state power. Loose construction of the Constitution. Debt is not to be feared. Government should be a friend to business. Expansion of a powerful federal bureaucracy is to be encouraged. We need a strong military and need to be engaged with the rest of the world. There must be some restriction on liberties like free speech. You may not agree with all of his views (they are an interesting mix of modern conservative and liberal ideals, as an analysis of Jefferson also reveals about him, which is why both sides can cite these men as their champions on different issues), but Hamilton's influence is undeniable.
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