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.