Our annual post to celebrate Independence Day…
Yes, the United States declared independence from Great Britain on July 4, 1776 and won the American Revolutionary War. But still, we were not truly independent.
Alexander Hamilton’s Development Program
George Washington’s Secretary of the Treasury Alexander Hamilton knew that true independence required a vibrant economy. In 3 separate reports, he explained how to establish public credit, create a national bank, and encourage manufactures:
- Countries need good public credit in order to borrow money at reasonable interest rates. Sort of like you and me, the only way to get good credit is having lenders know you will pay them back. With European creditors, Hamilton had to pay back the money that was due them while domestic creditors needed to know he had a viable plan. Only then could Hamilton establish the good credit that was necessary for sound finance. Since then, the U.S. has never defaulted on its sovereign debt.
- Composed of financial intermediaries that connect savers to borrowers, a banking system facilitates economic expansion. Banks loan money to business start-ups and help firms finance inventory. On a larger scale, they expand the money supply and purchase the bonds that nations sell to raise money. By establishing the First Bank of the United States, Hamilton generated the beginning of a banking system that pumped money around the U.S. economy.
- Economic diversity was the third leg of Alexander Hamilton’s plan for economic independence. Recognizing that the U.S. in 1790 was a farming economy, he sought to create a complementary manufacturing sector. Correct again, Hamilton knew that the combination of agriculture and manufacturing could create an economic foundation from which we could build.
Our Bottom Line: Déjà Vu
Isn’t it interesting that Hamilton sought to manage sovereign debt wisely, produce a vibrant banking system and generate a resilient GDP?