Prophets of Regulation, for which he won the Pulitzer Prize in 1985, remains a seminal study of the development of American economic regulation and a sterling example of biography-as-history. McCraw’s latest book, published just last month, continues in a similar vein, analyzing the ways in which Alexander Hamilton, Albert Gallatin, and other immigrants, with their direct knowledge of financial instruments then uncommon in the United States, shaped the financial system of their new nation. In the excerpt below, McCraw highlights the conflict over the young nation’s national debt, and makes explicit the contingency of each step in the story he traces—a fitting reminder on this American morning after.
The writings of the founders are so rich that putting them aside even for a moment becomes difficult, and rereading them often sways the reader first one way and then another. But the outcomes of the founders’ battles with one another are quite clear. During the period 1789–1816, the Federalists under Washington, Hamilton, and Adams won every important fight for the initial twelve years. Then the Republicans under Jefferson, Madison, and Gallatin did the same for the next fifteen years. Throughout these twenty-seven years, there was ceaseless, fervent, and bitter conflict among the founders. The spirit of compromise had peaked at the Constitutional Convention in 1787, and did not return to that level until about 1817, by which time the Federalist Party lay in ruins.
During the Washington administration—when Hamilton served as secretary of the treasury, Jefferson as secretary of state, and Madison as de facto leader of the House—Hamilton won and Jefferson and Madison lost every battle: over funding the national debt at par, over federal assumption of state debts, over the creation of the Bank of the United States, over the building of the six frigates for the navy, and over the Jay Treaty and the use of trade sanctions against Britain. Madison and Jefferson pushed this latter policy very hard. Hamilton fought it on the grounds that the Treasury, burdened with interest payments on the colossal national debt, could not sustain the loss of revenues from tariffs on British imports.
These patterns of the founders’ thinking—and of outcomes—continued unchanged for several years after the three men left office: Jefferson in 1793, Hamilton in 1795, and Madison in 1797. During the years when they were ostensibly out of power, all three remained extremely influential. Jefferson served as vice president from 1797 to 1801, and although he had little clout within the government, he continued to build an opposition party outside it.
From 1794 to 1796, the Jay Treaty dominated national politics. In the eyes of Washington and Hamilton, the success of this treaty represented the only chance to avert war with Britain and avoid a catastrophic blow to the Treasury. By contrast, for Jefferson and Madison the Jay Treaty symbolized the Washington administration’s favoritism to the British at the expense of the French. For them, it provided further evidence of Hamilton’s attempts to introduce British ways of corrupt government into the purified American system.
Hamilton’s forces won this crucial fight, though only through the direct intervention of Washington. There was nothing inevitable about this result. Hamilton and his allies prevailed with the bare minimum of the required two-thirds vote for ratification of the treaty by the Senate (20 to 10), and a very narrow House vote of 51 to 48 for providing funds to implement its terms. The Federalists triumphed yet again in passing their ill-advised Alien and Sedition Acts of 1798, but again only by an initial 52-to-48 House vote. Thus, during each of the three Federalist presidential administrations from 1789 to 1801—two terms under Washington, one under John Adams—the Federalists won every big political fight. But they could easily have lost some of them.
The presidential election of 1800 ended in a tie between Jefferson and Aaron Burr, his running mate, threatening a constitutional crisis that was averted only with great difficulty. But once the Republicans gained control of the presidency in 1801, they won and the Federalists lost all of the important contests. The Republicans won the battle over the Louisiana Purchase—although here again, the House vote for appropriating money to pay France for the territory was tantalizingly close: 59 to 57. This vote, like the narrow margins earlier, was an index of the country’s partisan rifts.
The Republicans went on to score a long succession of other congressional victories: the Embargo Act in 1807, the Non-Intercourse Act in 1809, Macon’s Bill No. 2 in 1810, the refusal to recharter the Bank of the United States in 1811, and the declaration of war against Britain in 1812. Many of these votes were also extremely close—against the bank recharter by 55 to 54 in the House and a tie of 17 to 17 in the Senate, broken by a negative vote by the Republican vice president. And the declaration of war in 1812 was passed with by far the narrowest margin of any in American history: an initial 17-to-17 tie in the Senate that ended in an affirmative 19 to 13; and a vote of 79 to 49 in the House.
Every one of these votes signified acute splits within the nation—sectional, economic, and cultural. After 1792, each one also reflected the financial and foreign-policy dilemmas in which the war between Britain and France had trapped the United States. Even in the contest over the bank recharter in 1811, opponents invoked the spurious issue of foreign ownership of shares as a reason to kill it.
The number of tight legislative margins on so many important issues underscores the truth that historical outcomes are contingent and far from inevitable. In 1790, the federal assumption of state debts passed the House by vote of 32 to 29, and would not have passed at all except for Hamilton’s agreement to move the location of the national capital. Without that bargain, the capital would likely have remained in New York.
Had the Federalists lost their shipbuilding program of 1794 rather than winning the House vote by 46 to 44, there would have been no new frigates to send to the Barbary states or to fight in the War of 1812. Similarly, had the Jay Treaty not been ratified in 1795, war with Britain would probably have come when the United States was even less prepared than it was in 1812. And had the vote to pay for the Louisiana Purchase failed rather than squeaking through the House in 1804, the history of the United States would have evolved very differently indeed.
Almost nothing that happened during these years was inevitable. As the English historian F. W . Maitland once put it, “What is now in the past was once in the future.” In all of these close votes, if a few members of Congress—sometimes even one—had cast a different ballot or been struck by lightning or died of pneumonia in untimely fashion, events might have turned out in some other way. Histories of this period too often neglect this remarkable series of dramatic, touch-and-go contingencies, each of which reflected deep divisions within the country.
Then, too, a different sequence in control over the national government would likely have had negative consequences. It was uncommonly lucky for the United States that Hamilton’s financial program—which rescued the nation from bankruptcy and placed it on a sound financial footing—preceded the “Revolution of 1800” and its single-minded goal of extinguishing the national debt.
A reverse sequence would have meant a firm determination not just to fund the debt through interest payments, but to retire its principal as soon as possible. In the context of the 1790s, such a policy could well have brought both financial and political adversity, if not disaster. The quick prosperity that followed Hamilton’s program almost surely would not have occurred, and the depression of the 1780s might have continued. For most of the period before Gallatin took office as secretary of the treasury in 1801, American taxpayers had neither the resources nor the inclination to pay the debt’s principal.
Some of the existing literature on the early national period misses these important details of the major events and contingencies from 1789 to 1816. Moreover, by taking a short-term view that stops in 1816, it subjects itself to two other potential lapses. First, it badly understates the gravity of the slavery question. This transcendent issue threatened the Union from at least 1819 onward and shattered it in 1861—only twelve years after the death of Albert Gallatin.
Second, most existing histories recognize the Republicans’ adaptation of a few Federalist policies. But they neglect the long-term merging of broad economic strategies—in particular, those of Hamilton and Gallatin. That fusion came to constitute the basic capitalist framework of the American political economy during the nineteenth century and even down to the present time.