[Baek Youngran's History Bookstore] Alexander Hamilton, the Architect of the American System

Alexander Hamilton (1757?1804), a founding father of the United States, has appeared on the 21st-century Broadway stage. The 2015 musical "Hamilton" was a phenomenon. Hamilton, the first U.S. Secretary of the Treasury, is revolutionary and historic. It is no exaggeration to say that the history of American capitalism began with him. Without him, all the economic achievements of the United States in the 19th century would have been impossible.

Alan Greenspan, who served four terms as Chairman of the Federal Reserve, called Hamilton a "born genius." Hamilton wanted the young nation of America to become a commercial republic rather than an agricultural one. His American Dream was a country where manufacturing, trade, and cities flourished. He said, "When a community forms various industries, each individual can find appropriate skills and work diligently according to their aptitude." Hamilton devised sophisticated plans and built systems to realize that dream.

His life itself is more American than anyone else's. Among the founding fathers, Hamilton was the only immigrant and a self-made man. Born on a small island in the West Indies, he grew up as an illegitimate child and an orphan. As a teenager, he worked as a clerk and learned all the skills necessary for commerce, including accounting, inventory management, and issuing promissory notes. At 17, a single article he wrote in a newspaper enabled him to attend what is now Columbia University in New York.

And he changed his life in America. The twenty-year-old who dreamed of "glory in war" participated in the Revolutionary War and served as a close aide to General George Washington. When Washington was elected the first president (1789), he appointed Hamilton as the first Secretary of the Treasury.

The reality Hamilton faced as Secretary of the Treasury was a homeland on the brink of bankruptcy. America's credit was "shot." The federal and state governments had to repay $76 million in debt, with interest compounding, incurred during the Revolutionary War. He viewed the debt as the "price of freedom" and solved the problem from the perspective of "public credit," meaning government bonds that private investors could trade.

First, he decided that the federal government would assume the war debts of the state governments. The debts of the 13 states were issued for the common purpose of conducting the war and securing independence. Had this not been decided, the 13 states would have endlessly argued over their roles and costs in the war.

In broad terms, the repayment method was "paying at face value, borrowing anew to repay." New debt negotiations were conducted with foreign creditors. All types of domestic bonds were repaid by issuing new federal bonds with no maturity. The existing bond interest rate of 6% was lowered to an average of 4%.

What the new government desperately needed was securing a budget. However, at that time, the federal government had no authority to collect taxes. Only state governments could collect taxes. Fourteen years after the start of the Revolutionary War, customs duties on imported goods were finally assigned to the federal government, not individual state governments. Until the federal income tax was legislated in 1913, import tariffs were the federal government's main source of revenue.

Having solved the urgent problems at hand, Hamilton envisioned America's future almost from scratch. He aimed to form a solid single federation from the 13 states and build one American system. The prototypes of institutions and agencies that implement macroeconomic policies today were created at this time. Systems such as federal taxation, bond issuance, and the monetary system were established sequentially.

When Hamilton took office as Secretary of the Treasury in 1789, more than 50 different types of currency circulated within the United States. In addition to foreign currencies like the Spanish dollar and British pound, various currencies existed in each state. In such a situation, it was difficult to determine the actual value of each currency. Counterfeiting was also frequent. Hamilton created the Mint with laws regulating U.S. coinage and aimed to eliminate foreign currencies. He produced small denomination coins like the one-cent piece to enable small purchases. Finally, the chaotic currency units in the U.S. were organized, and the country began to free itself from a barter-based agricultural society.

Meanwhile, he believed a central bank was necessary for industrial development. When the Industrial Revolution began in Britain, the U.S. lacked a financial market large enough to fund industrialization. Hamilton knew what was happening in Britain and believed the same could happen in America. He referred to the Bank of England, which combined public trust and authority with the private sector. The central bank he envisioned would serve as the federal government's treasurer managing taxes, issue government bonds to lend money to the federal government and state-chartered banks, and regulate the currency in circulation.

In 1791, the First Bank of the United States was established with a 20-year charter, allowing branches in each state. As Hamilton hoped, the capital was $10 million, with $2 million invested by the government. The remaining $8 million in shares were oversubscribed and sold out within just one hour.

This phenomenon was the first speculative event in the United States. Subsequently, trading among holders of newly issued federal bonds created the first U.S. securities market (later the New York Stock Exchange). To develop industry, a financial market is necessary. To create a financial market, even speculation as a byproduct must be accepted.

Hamilton used all his genius, persuasiveness, and available support to realize his plans. He was willing to concede and compromise as long as the grand design was not broken. He secured Jefferson's cooperation by "conceding the capital" and passed laws to resolve the financial crisis. Had Hamilton not launched the new federal government in the first session of 1789, the United States as a unified country might not have existed. Thus, his victory shone brightly, and his suffering became his destiny.

Hamilton resigned as Secretary of the Treasury in January 1795. Nine years later, he died in a duel with his political rival, Vice President Aaron Burr. Before the duel, Hamilton wrote, "I have resolved to throw away my first shot."

Baek Youngran, Director of Baek Youngran History Bookstore