After the United States declared independence from Great Britain on July 4, 1776 and won the American Revolutionary War, we still depended on Great Britain. They had the banking system, they had the factories, they had the knowhow.
But we had Alexander Hamilton.
As Secretary of the Treasury from 1789 to 1795, Alexander Hamilton’s goal was to expand the U.S. banking system, our transportation infrastructure, and technological innovation. He wanted factories processing what our farms and plantations grew while households and businesses easily accessed money. Only then could we truly be independent.
On this Independence Day, let’s take a look at how Hamilton’s timeless proposals related to the 18th century and now.
1. Establish Public Credit
- Hamilton said a national debt is a blessing if it’s not too large. Appreciating the borrowed money that helped to finance the Revolutionary War, he wanted those lenders to know we would pay them back. He also knew that a payback would establish the good credit we could need in the future when we again wanted to borrow. So he made sure that the debt was funded.
Below you can see that Hamilton was successful. Except for 1835 and 1836, the U.S. has always had a debt:
- Just like your own income determines the wise amount for you to borrow, so too does the GDP for our nation. Recently though, the debt has become an increasingly bigger proportion of the GDP. Surpassing World War II highs, the debt has ballooned beyond what was projected only a year ago. Believing our public credit is dependable, countries, corporations, banks, and individuals remain willing to buy the U.S. bills, bonds, and notes that send borrowed money to the U.S. treasury:
2. Create a Banking System
- By establishing the First Bank of the United States, Alexander Hamilton generated the beginning of a banking system that pumped money around the U.S. economy. His goal was a network of financial intermediaries that connected savers to borrowers. He knew that banks loan money to business start-ups and help firms finance inventory. They expand and contract the money supply and purchase the bonds that nations sell to raise money. A growing economy requires a network of financial institutions.
- At the beginning of 2021, there were close to 5,000 banks in the U.S. In 1990, the number was beyond 15,000. Below, you can see how the number of banks has declined:
At the same time, these largest 15 financial institutions have become dominant:
3. Encourage Economic Diversity
- Economic growth through diversity was the third leg of Alexander Hamilton’s plan for independence. Recognizing that the U.S. in 1790 was a farming economy, he sought tariffs and subsidies to protect and fuel a young manufacturing sector. Hamilton knew that the combination of agriculture, manufacturing, and invention could form an economic foundation from which we would build. But there was another piece of the puzzle. He recognized the importance of a transportation infrastructure by also saying we had to build the roads, canals, and bridges that would connect the country’s economic activity.
- Again, 230 years later, Congress has a transportation infrastructure proposal that it is considering. Comparing a bipartisan compromise to President Biden’s original proposal, The Washington Post let us see the composition of a contemporary transportation infrastructure:
Our Bottom Line: Déjà Vu
Hamilton’s goals were timeless. We still need to manage sovereign debt wisely, support a vibrant banking system, and encourage economic growth through diverse output and an up-to-date transportation infrastructure.
And finally, for the perfect summary of Hamilton’s Development Plan, do listen to the Hamilton movie musical exchange between Alexander Hamilton and Thomas Jefferson:
My sources and more: This Atlantic article has an ideal history of the U.S. debt until 2012. Meanwhile, if you have lots of time and patience (the sentences are impossible), do go here for Hamilton’s Public Credit proposal to Congress, here for the National Bank, and here for the Report on Manufactures. Then, The Washington Post has the up-to-date infrastructure story.
Please note that this post is an updated version of what we have published on past Independence Days.