The Founders of Finance: How Hamilton, Gallatin, and Other Immigrants Forged a New Economy by Thomas K. McCraw (review)

McCraw, recently deceased, specialized in a biographical approach to economic history. Founders of Finance uses the same methodology as his Pulitzer-Prize-winning Prophets of Regulation, Charles Francis Adams, Louis D. Brandeis, James M. Landis, and Alfred E. Kahn (Cambridge, Mass., 1986) to explore the transition from a colonial to a national economy in the early Republican era. McCraw argues that Alexander Hamilton and Albert Gallatin were critical to the process because they recognized the role that credit—particularly public credit—would play in unlocking the productive potential of the nation. Although they started as political opponents, their shared experience as immigrants enabled them to transcend the limits of provincial American culture and ultimately led to agreement about the utility of a national bank. McCraw notes the contributions of other immigrants, like Robert Morris and Haym Solomon, in creating financial markets, but he gives Hamilton and Gallatin the greatest credit for insuring the future economic development of the nation.

That Hamilton's bold policies as secretary of the treasury spawned the Republican Party, led by Thomas Jefferson and James Madison, is hardly news. McCraw adds a novel twist to this familiar tale, however, by having Gallatin substitute for Jefferson as Hamilton's most accomplished critic. Separate sections trace the careers of each man before a concluding section, entitled "Legacies," compares their contributions. Both men sought a diversified, national economy, but Gallatin was more attuned to the role that the American West would play in the nation's future than was Hamilton.

McCraw's notion that Hamilton and Gallatin were noteworthy primarily for their ability to envision the country's future allows him to treat Hamilton's insistence on assuming the states' debts simply as part of his quest for a strong national government. A macroeconomic analysis might instead have emphasized that a tax on imports was the preferred way of raising revenue because no one was required to pay it who did not explicitly consent to be taxed. This policy made an impost tax the least likely to meet with political opposition from an exhausted populous. So long as the state and federal debts were kept separate, the creditors of the states would oppose the collection of a federal impost, seriously compromising its yield. Hamilton had little choice but to consolidate the two debts if he meant to rely on an impost, independently of whether he favored a strong national government or whether assumption actually would establish one. Although McCraw justly celebrates Hamilton's success in converting the revolutionary debt from a general liability into a national asset, he could have been more explicit about the obstacles that Hamilton faced in 1789. Establishing public credit also required Hamilton to find a way around a majority of public debtors adept at tax resistance who saw their interests threatened by a minority of public creditors.

The macroeconomic loss involved in McCraw's biographical approach may be balanced by the increased accessibility of his account, but the concomitant geopolitical loss is less easily absorbed. Notwithstanding his acknowledgment of the importance of the war in Europe at the time, McCraw minimizes the influence of Europe's predicament on the American republic's early development. He attributes America's finan-cial stability far more to Hamilton's vision than to the acquisition of a disproportionate share of the world's seaborne commerce under a neutral flag. Readers who are disposed to see the Federalists as precursors of the modern industrial state and the Republicans (Gallatin excepted) as deluded yokels will be inclined to accept McCraw's interpretation. But undervaluing outside influences during the early Republican era anachronistically assumes that the United States was already a great power.

A new, untested nation, caught between warring superpowers, needed to choose whether France or Britain posed the greater threat to its destiny. McCraw accepts the Federalist idea that France was the nation's principal...