Financial Founding Fathers: The Men Who Made America Rich (review)

Robert E. Wright and David J. Cowen's book, Financial Founding Fathers: The Men Who Made America Rich, has two chief themes, neatly separated by the colon in the book's title. The first is to introduce the reader to America's financial founding fathers. These men, Alexander Hamilton being perhaps the most celebrated, transformed the American financial system. The financial institutions, which Americans take today for granted—banks, insurance companies, and the like—were practically nonexistent in America before the Revolution, and constructing a viable financial system was an important part of building the new nation. The book profiles the individuals who led the transformation. The second chief theme in the book is captured by the phrase "The Men who made America Rich." It is the contention that the American prosperity would have been impossible, but for the financial system that evolved in America in the aftermath of the Revolution. The emerging financial system the authors liken to a "golden goose" whose benefits were not limited to a coterie of financiers. All Americans ultimately gained, because the financial system "enabled America to become a rich nation" (p. 4).

A book detailing the development of financial institutions in early America could be stupifyingly dull; that this book is sprightly and fun to read, while preserving a scholarly attention to detail is perhaps the authors' most impressive achievement. Their decision to focus on ten prominent people and not the institutions themselves helps keep the reader engaged. Several of the people profiled led dramatic and interesting lives. My personal favorite is William Duer, a prototypical wheeler-dealer who pursued Mammon with more vigor than wisdom and who did so, as so often is the case, using vast quantities of money borrowed from others. His spectacular collapse shook the foundations of the nascent financial system.

By weaving together the stories of Hamilton, Duer, and several of their contemporaries, Wright and Cowen did an admirable job of presenting the early financial history of the United States in an agreeably entertaining form. The volume is, however, more than entertaining. Any serious scholar interested in the history of the early Republic will have encountered these names before. Some—Alexander Hamilton, Robert Morris, and Andrew Jackson, for instance—are so famous that their personal histories as well as their financial interests and political affiliations are well known. Others—such as Tench Coxe, William Duer, and Thomas Willing—are more obscure. The book is a valuable introduction to who these gentlemen were and the role they played in our history.

During the last decade, economists have gained a new appreciation for the role of financial institutions that play in economic development. Societies need a way to pool private savings and direct those resources into the hands of able entrepreneurs. A group of economic historians, informally led by Richard Sylla, have applied this notion to the American history, arguing that the financial institutions evolved in the early national period were what led to subsequent American prosperity. Wright and Cowen, two of Sylla's most able disciples, weave this interpretation into their narrative. This argument is less satisfying.

In 1774, British–America, despite its antiquated financial system, already enjoyed a standard of living and a rate of economic growth that was perhaps unequaled by any other "nation" in the world. The break with Britain and wartime inflation devastated the economy and laid waste to the prewar financial system: "Many monied men who used to lend money on interest," Pelatiah Webster observed after the Revolution, "have lost their money by the war, by the enemy, or by the depreciation of money, or by evasion of payment what have been introduced since, and, of course, have no money to lend; and all who have any, have found the danger of letting it in the old way so great, that few will venture into it again …" (Pelatiah Webster, Political Essays...