From the Publisher

When you think of the founding fathers, you think of men like George Washington, Thomas Jefferson, and Benjamin Franklin—exceptional minds and matchless statesmen who led the colonies to a seemingly impossible victory over the British and established the constitutional and legal framework for our democratic government. But the American Revolution was about far more than freedom and liberty. It was about economics as well. 

Robert E. Wright and David J. Cowen here chronicle how a different group of founding fathers forged the wealth and institutions necessary to transform the American colonies from a diffuse alliance of contending business interests into one cohesive economic superpower. From Alexander Hamilton to Andrew Jackson, the authors focus on the lives of nine Americans in particular—some famous, some unknown, others misunderstood, but all among our nation’s financial founding fathers. Such men were instrumental in creating and nurturing a financial system that drove economic growth in the nascent United States because they were quick to realize that wealth was as crucial as the Constitution in securing the blessings of liberty and promoting the general welfare. The astonishing economic development made possible by our financial founding fathers was indispensable to the preservation of national unity and of support for a government that was then still a profoundly radical and delicate political experiment.  

Grand in scope and vision, Financial Founding Fathers is an entertaining and inspiring history of the men who made America rich and steered her toward greatness.

Library Journal

The early financial history of the United States merits additional popular and scholarly attention, and Wright (economics, Stern Sch. of Business, NYU; The First Wall Street: Chestnut Street, Philadelphia, and the Birth of American Finance) and Cowen (The Origins and Economic Impact of the First Bank of the United States, 1791-1797) provide biographical information on nine founders of America's financial and economic systems, from Alexander Hamilton to Andrew Jackson and Nicholas Biddle. The authors explore how the development of financial institutions, such as banks, life insurance companies, trading companies, and canals, affected our government institutions and democratic principles. They argue that a key factor in American finance was the formation of capital markets in the 18th and 19th centuries that established the United States as a credit-worthy nation, and supported economic growth through increased possibilities for large-scale enterprises such as manufacturing. The book emphasizes biographical information with limited explanation of financial and economic arguments. For some of the individuals covered, this information is a brief version of material found in larger works (e.g., Ron Chernow's recent Alexander Hamilton). This book is useful for large public libraries so that general readers may understand formative economic ideas in American history.-Steven Puro, St. Louis Univ. Copyright 2006 Reed Business Information.

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Financial Founding Fathers

University of Chicago Press

Chapter One

February 22, 1791, was an ordinary day for the 42,000 or so citizens of Philadelphia, the largest city in the new nation and, for the time being, its capital. But for one unusual man, Secretary of the Treasury Alexander Hamilton, it was an extraordinary day, and a more extraordinary night. Hamilton was at work on a document that would make or break America's nascent financial system. The stakes were enormous. What lay at risk was the centerpiece of Hamilton's financial system, a bank. Not just any bank, but a Bank of the United States, with the right to open branches anywhere in a nation then serviced by only four relatively small and localized banks. Hamilton's proposed Bank was to be managed by private businessmen but to include a strong government investment of $2 million, or 20 percent, of the slated $10 million in capital. Though a seeming pittance today, $10 million was a colossal sum for the day, dwarfing as it did the combined capital of all joint-stock companies then in operation in the country. In other words, if the Dow Jones Index then existed, the Bank alone would have comprised over half of it.

Severalyears earlier, in 1789, Hamilton had been appointed the first ever Secretary of the Treasury. In that post, he directed a monumental undertaking to straighten out the nation's tangled finances. He funded the national debt and even engineered the "assumption" by the new federal government of all the various state debts accrued during the Revolutionary War and its aftermath. That was no mean feat, given that the taxpayers of the fiscally responsible states did not want to pay the debts of their profligate neighbor states. With a little luck and a big dose of political acumen, Hamilton had made federal "assumption" of state debts a reality. With that base in place, the time had come to continue work on the financial system by establishing a national bank, an institution where savers and users of capital could come together, where a paper currency could be created and made acceptable for commerce by its easy convertibility into specie (gold or silver coins), where both entrepreneurs and governments could safeguard their cash and receive loans.

Banks were then highly controversial, but Hamilton was at the apex of his brilliance, guiding his Bank bill through Congress, ably aided by Congressman Fisher Ames of Massachusetts, a nationalist of the most fervent type. Although the Bank bill passed the Senate on January 20, 1791, congressman and Federalist Papers co-author James Madison tried to defeat it in the House. On February 8, the diminutive Madison and his allies lost a roll call that counted 39 in favor of the Bank and only 20 opposed. The political fighting had been particularly nasty, causing one senator to state in his diary that "some gentlemen would have been ashamed to have their speeches of this day reflected in the newspapers of tomorrow." The attack by the mostly southern opponents to the Bank was a landmark in American history, marking as it did the birth of the agrarian or Jeffersonian wing of the Republican Party. While this stand was the agrarian Republicans' first, it was certainly not their last; they would not rest in their attempt to destroy the creative work of Hamilton and his funding system.

Although it had passed both houses of Congress, the Bank bill was anything but a done deal. To become law, President George Washington would have to sign it, and do so before February 26, the time limit imposed by the Constitution. While Hamilton's ties to the president were many and deep, forged as they were during the crises and dangers of the Revolutionary War, Virginia's agrarian Republicans, led by Secretary of State Thomas Jefferson, Attorney General Edmund Randolph, and Madison, also had strong ties with Washington. All four gentlemen shared Virginian roots and bore the stain of slaveholding, though some more thoroughly than others. The agrarians were formidable adversaries because they were well-educated men with brilliant minds. Most importantly, their opposition was not so much political as ideological; they vehemently opposed the Bank as unconstitutional and potentially dangerous to republican government. Jefferson and Randolph pressed the president to veto the Bank bill, and Madison's vain attempt to galvanize opposition to the Bank in Congress made it obvious where he stood.

Washington had a decision to make. Dare he veto a bill of such importance passed by both houses of Congress and eagerly submitted by his closest economic advisor? Dare he sign the measure and face the accusation that he had passed a law that was, according to many prominent Virginians, impolitic, poor policy, and, perhaps most damning, clearly unconstitutional? Washington showed Hamilton the arguments against the Bank set forth by Randolph and Jefferson and gave him a week to respond. In essence, he placed in Hamilton's hands the power to save his creation.

It was the sixth day, February 22, and Washington's deadline loomed. As the sun set, thirty-two Philadelphia watchmen who shouted out the hour started their work as each of the 662 lamps that brought light to the seaport's dark thoroughfares were lit. By suppertime that evening, the printing presses of the local newspapers stopped. The door of the Treasury Department at 100 Chestnut Street was locked. City Tavern, the central meeting place for politicians and merchants, served its last meal for the evening at 8 p.m. A few hours after that most of the other hundred or so taverns shut their doors for the night. Perhaps Bishop William White, the revered pastor of Christ Church, reviewed his Sunday Sermon at his residence, 309 Walnut Street, before turning in. By midnight most residents were fast asleep, and one would expect that the home of Robert Morris on Sixth and Market, where President George Washington resided, was quiet, as were the residences of Thomas Jefferson at 274 High Street, Tench Coxe at 126 South Third Street, and his neighbor Oliver Wolcott at 121 South Third Street.

But if anyone that night ventured a little farther down Third Street from the Wolcott house they would have observed the lights on at number 79, the home of Alexander Hamilton. The hour of the walk would not have mattered as Hamilton, with wife Elizabeth assisting, worked all night long to finish the rebuttal. Many years later, Elizabeth Hamilton recalled that night: "I sat up all night with him.... He made your government.... He made your bank.... My husband said, 'We must have a Bank.'"

Many observers, however, demurred or remained unconvinced of the necessity of a national bank. Hamilton believed that the long-term viability of his new funding system depended on passage of the law. The pressure to produce a flawless retort weighed heavily on him, and he rose to the challenge. In the first clear articulation of the broad or loose interpretation of the Constitution, Hamilton argued that the Bank, though not explicitly mentioned in the Constitution, was clearly constitutional because "every power vested in a Government is in its nature sovereign, and includes by force of the term, a right to employ all means requisite and fairly applicable to the attainment of the ends of such power."

Hamilton had turned the tables on his opposition. Where Jefferson, Madison, and Randolph argued that the federal government had no power to incorporate a bank because it was not explicitly allowed to do so in the Constitution, Hamilton retorted that the government enjoyed all powers necessary to its functioning that were not explicitly forbidden. Hamilton's logic was unanswerable. From that day forth the doctrine of "implied powers" increasingly dominated legal interpretation of the Constitution. Hamilton had gained not one but two victories, the establishment of the Bank and the widespread acceptance of the doctrine of implied powers.

Washington signed the bill on February 25. The centerpiece of Hamilton's creation was in place. The creator had once again triumphed. However, the "triumvirate" of Madison, Randolph, and Jefferson was horrified that their fellow Virginian had signed the bill. As one pamphleteer noted, "the great Washington burst from the trammels which had been prepared for him, shook off the bias on which the triumvirate had placed their main dependence, and to the great mortification of their party, fixed his signature on the bill." The agrarian trio would not soon forget.

Quite likely, Washington signed the Bank into law because he knew that the financial system was as yet incomplete and that the country needed a national bank, both to aid the government's fiscal operations and to help unify the nation's credit and capital markets. Moreover, Washington, like Hamilton, wished to expand the role of the federal government. Finally, Washington realized that Madison and Jefferson were being hypocritical. When it suited their purposes, they had implicitly upheld the doctrine of implied powers now explicitly advanced by Hamilton. Reflecting some fifteen months later on the titanic Constitutional struggle, the secretary succinctly explained: "A mighty stand was made on the affair of the Bank. There was much commitment in that case. I prevailed."

Prevail is a word that describes Hamilton perfectly. The ultimate self-made American was most likely born in 1755, not on the mainland but rather in the sticky heat of Nevis, a tiny island in the West Indies. Young Alex learned early to prevail because he had to. He was, as John Adams later claimed, "the bastard brat of a Scottish peddler." Hamilton's father, James Hamilton, was the fourth son of a Scottish aristocrat. With no chance of inheriting his father's property, he traveled the Caribbean seeking his fortune. He did not find it, but he did discover the warm embrace of Rachael Lavien nee Faucitt. That half-French, half-English island beauty had fled from her French husband, who had imprisoned her for what he considered indecent and suspicious behavior.

Rachael and James lived together but could not marry because of Rachael's marriage. Religious and public policy considerations rendered divorce well-nigh impossible for British subjects. Couples often separated, but, because a divorce could only be granted by an act of Parliament, usually only those with political connections or large sums of cash could procure a divorce that would allow legal remarriage. Undaunted, Rachael bore two sons, James and Alexander. The four lived in St. Croix until the feckless James declared bankruptcy and abandoned his family. To supplement the family's income, young Hamilton apprenticed as a clerk in the New York trading firm of Nicholas Cruger, Cornelius Kortright, and David Beekman. The precocious youth even managed the business when Cruger, the principal based locally, was away.

Hamilton, at the age of 13, had to prevail again when his mother, who had pieced together a livelihood as a retailer, died. He prevailed again when his guardian, a distant relative named Peter Lytton, committed suicide the following year. He prevailed yet again in 1772 when a deadly hurricane struck the West Indies while he was in charge of Cruger's operation. That storm was so severe that Pennsylvania sent provisions to help supply "the unhappy Sufferers." Though one of its victims, the young Hamilton, now just 17, was able to create something positive out of the storm both literally and figuratively: he wrote a letter describing its horrible aftermath and showed it to Dr. Hugh Knox, a local clergymen. Knox was so impressed with the piece that he had it published in a local newspaper. The newspaper story earned Hamilton the respect and admiration of his community and brought forth benefactors-most likely Knox, his employers, and cousin Ann Lytton Venton-who sent him to the mainland for a proper education. Hamilton would never return to his native land.

As a nominal Presbyterian, Hamilton had his heart set on Princeton, then the College of New Jersey. He sailed to the mainland armed with a letter of recommendation from Knox, an alumnus of that college. Princeton, however, would not allow the impoverished orphan to move through the curriculum at his own pace. Columbia, then King's College, was more accommodating. So instead of twiddling away the hours in the wilderness of New Jersey, Hamilton, after living with Elias Boudinot in northern New Jersey as he raced through some preparatory work at a grammar school, settled in the bustling metropolis of Manhattan.

There, Hamilton was quickly drawn to the radical cause bent upon overthrowing British rule. Hamilton, after all, was a college student, and the 1770s were a tumultuous time. He was not a typical radical, though, for he disdained mobs and disorder. So rather than burn effigies or set up Liberty Poles, he penned several widely read polemics. Yet when the real shooting began in 1775, Hamilton zealously enlisted in the patriotic cause. In March 1776 the undergraduate was appointed a captain of the New York artillery, but that at first meant only title without command, as Hamilton, in accordance with the custom of the day, had to provide his own troops and supplies. Eventually, however, he scraped a unit together.

Hamilton and his men fought bravely in several early battles, including the unsuccessful attempt to hold Manhattan from the British. Hamilton and his unit covered Washington's retreat across New Jersey. In the sharpest exchanges, Hamilton's artillery kept the British at bay while the bulk of the American forces crossed first the Raritan River and later the Delaware. Hamilton also took part in the successful, and famous, counterattacks at Trenton and Princeton in the winter of 1776-77. One wonders if Hamilton took special joy in pouring grapeshot into a Redcoat position in Princeton's Nassau Hall.

Observers marveled at the apparent contradiction of Hamilton's youth and skill, but the early break in Hamilton's military career was due to his administrative skills, which were nothing short of masterful, not his battlefield heroics. General Washington invited the brilliant young Patriot to become one of his several aides-de-camp, positions usually reserved for the "well-bred," not orphaned bastards. But Hamilton could and would prevail on talent alone. Washington recognized that talent, giving ever-increasing responsibility to the young officer, now a lieutenant colonel. During the next few years of fighting, when desertion was all too common, Hamilton stayed loyally by his commander's side. He was there for the frozen winters at Valley Forge and Morristown; the military disasters like the abandonment of New York City in 1776 and the subsequent retreat across New Jersey; the real treacheries of Benedict Arnold, and the perceived treacheries of an impotent Continental Congress; and the failed opportunities like Monmouth, when he was at Washington's side when the Virginia gentleman lambasted General Charles Lee in mid-battle for gross misconduct. And Hamilton was with Washington during the good times, the infrequent victories, and the secret march to trap Cornwallis at Yorktown. There, Hamilton capped his military career with battlefield heroics by charging and capturing an important British redoubt.

"Little Hammy" or the "Little Lion," as he was affectionately known, was, along with other favorites like Generals Nathanael Greene, William Alexander ("Lord Stirling"), and Henry Knox, clearly ensconced in Washington's inner circle. Some believe that Washington was the father figure that Hamilton never had, and perhaps Hamilton was the son that Washington never had. Their special bond, though occasionally strained, lasted a lifetime. Though much younger than Washington, Hamilton would not long outlive the general.

Despite the turbulence of the war years, battle plans were not the only subjects flourishing in Hamilton's fertile mind. Hamilton understood that the rebels' finances were in shambles. In an attempt to improve the situation, he commenced communication with Robert Morris, another self-made man of deep importance to the Patriot cause. It is here we first glimpse Hamilton's creative genius, as he became the architect and chief advocate of a powerful national bank. In 1779, and again in 1781, as the war raged, Hamilton drew up proposals for a national bank. Those recommendations planted seeds for an idea that would take a decade to come to fruition. Central to Hamilton's early plans were several key provisions of what would later be the hallmarks of his financial program: foreign loans, partial government ownership of a national bank, and use of that bank to provide the national government with short-term loans.

(Continues...)

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Excerpted from Financial Founding Fathers by Robert E. Wright David J. Cowen Copyright © 2006 by University of Chicago. Excerpted by permission.
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