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  • The Founders and Finance: How Hamilton, Gallatin and Other Immigrants Forged a New Economy by Thomas K. McCraw
  • Mark Casson
Thomas K. McCraw. The Founders and Finance: How Hamilton, Gallatin and Other Immigrants Forged a New Economy. Cambridge, MA, and London, UK: Belknap Press of Harvard University Press, 2012. 494 pp. ISBN 0-674-06692-2, $35.00 (cloth).

This final book by Tom McCraw follows the pattern of his Pulitzer Prize–winning work on the Prophets of Regulation: it presents a biographical approach to a key issue in US economic history. It focuses on the creation of Federal financial institutions in the new republic, and reflects his admiration for the men who designed and promoted them.

The book is in four parts. A short introduction to the theme is followed by in-depth biographies of the two key protagonists, Hamilton and Gallatin, whilst the final section reviews thematic issues. The [End Page 882] thesis is that immigrants imbued with practical mercantile business experience, and possessing a familiarity with European institutions, played an indispensible role in establishing public finance and central banking in the United States. Whilst indigenous politicians such as Washington and Jefferson possessed the local knowledge and social connections required to organize parties and factions, they lacked the technical knowledge and administrative ability to implement their ideas. It was therefore a partnership between indigenous politicians and immigrant business people that placed the new republic on a firm financial footing.

The biography of Hamilton occupies over 160 pages, and is based on published primary and secondary sources, including Syrett’s edition of Hamilton’s papers and correspondence. Gallatin’s biography follows a similar format, being based on Adams’s Life and Writings and Ferguson’s Selected Writings. These biographies follow a conventional narrative style and encompass both personal and professional careers, including intimate details of family life. The concluding section, entitled “The Legacies,” offers a comparative perspective; issues addressed include “immigrant exceptionalism,” the role of credit in an emerging federal capitalist economy, and the influence of early “political economy” literature on economic policy.

The two biographies are embedded in a framework which will be familiar to readers of the author’s book on Joseph Schumpeter. Four factors of production are identified, namely land, labor, capital, and entrepreneurship. Land and labor are emphasized in early political economy, while capital was added later by neoclassical economists. The British economist Alfred Marshall recognized “management” as a fourth factor of production. By reinterpreting the fourth factor as entrepreneurship, McCraw emphasizes the management of innovation and change. Factors of production can be combined; the application of entrepreneurship to capital is central to this book, as it leads innovations in banking and public finance.

According to the author, land is fixed and capital circulates, and this leads to different cultures of land-ownership and mercantile credit. To the land-owner, the morality of credit is dubious, as it is synonymous with mortgaging a property and thereby endangering inheritance. To the merchant, on the other hand, credit is creative as it finances trade and investment through which economic development can occur. The author portrays the Virginia landowners, from whom many of the political elite were drawn, as imbued with a land-owner culture that was suspicious of credit, both because it was morally tainted and because they did not understand how it worked. While the author concedes that hunger for land was an important driver of westward expansion, he suggests that this expansion was feasible [End Page 883] only because of infrastructure investments (railways, postal systems, urban development) financed on credit. Much of this credit came from European sources and was only available because of overseas investor confidence created by the financial innovations made by Hamilton, Gallatin, and their successors. The immigrant contribution was to counterbalance indigenous “republican” concerns with the rights of the landowners and the autonomy of states with a “democratic” zeal for progress and development through federal initiatives financed by credit.

Although the book is lucidly written, and provides an entertaining read, the argument is difficult to follow in places. It is not clear whether the book is just a “tale of two immigrants” or whether it is about immigrants in...

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