America’s Long Journey: Hamilton as Secretary of the Treasury

Hamilton as Secretary of the Treasury

Alexander Hamilton served as the first Secretary of the Treasury for only a little more than five years, from on September 11, 1789, to January 31, 1795. Yet in that time, he did the work that established the nation’s finances, even though Gallatin would soon revise much of Hamilton’s structure.

In considering Hamilton’s role in the cabinet, it is worth remembering that he, like his colleagues, looked backward as well as forward. Their only applicable governmental models were British (because of their heritage) and Dutch (because that was a viable republic). Although we think of the Secretary of State as the senior Cabinet member, it was natural for Hamilton to look to the British model, where the Chancellor of the Exchequer rated only below the prime minister. Since Washington was head of state as well as head of government, presumably Hamilton would fall heir to certain responsibilities and perquisites that would otherwise be those of the prime minister. So when Hamilton meddled in the affairs of State and War departments, presumably he regarded his interference as proper. What Jefferson and Knox thought was another story. And in fact Washington did often request Hamilton’s advice and assistance in non-Treasury matters, in a sense using him in his familiar role as staff officer.

Hamilton’s tenure as Treasury Secretary is noted for five reports he sent to Congress.

First, in January, 1790, came his Report on Public Credit. Here he proposed that the federal government assume state debts incurred during the Revolution. We won’t go into the objections to the idea, voiced by Jefferson and Madison among others, save to say that serious questions were involved. Hamilton got his way by making a deal with the southerners, agreeing that the permanent national capital would be on the Potomac River, rather than in Philadelphia or elsewhere.

In April, Hamilton submitted a report on imports. Figuring that the United States required $3 million a year for operating expenses plus enough to repay the debt, he proposed increasing the average rate to between 7 and 10 percent from 5 percent, adding numerous items to the list, and passing an excise tax. Congress refused to pass the excise tax, but the tariff increases passed.

In December, Hamilton issued a second Report on Public Credit, often called the Report on a National Bank. Building on the theories of Adam Smith, studies of the operation of the Bank of England, and his own first- and second-hand banking experience, Hamilton suggested that Congress should charter a National Bank, privately held, but publicly funded, similar to the Bank of England, to serve several purposes: (1) monetize the national debt by issuing federal bank notes; (2) process revenue fees and perform fiscal duties for the federal government; and (3) provide a supply of money for businesses. The federal government was to appoint five of the twenty-five bank directors and hold 25% of the Bank’s stock, the money for which it would borrow the money from the bank, and repay in ten annual installments. Private investors would select the other directors and provide the other 80% of the stock.

Representative James Madison objected that Congress did not have the Constitutional authority to grant charters of incorporation. Washington consulted his cabinet as to the bill’s legality. Jefferson and Randolph said it went beyond the enumerated powers, but Hamilton issued a rebuttal that introduced the doctrine of implied powers. As Hamilton put it, “Necessary often means no more than needful, requisite, incidental, useful, or conductive to.” Washington signed.

In January, 1791, Hamilton reported on the Establishment of a Mint, which introduced a national currency. Since the Spanish dollar was the most circulated coin in the United States at the time, Alexander Hamilton proposed minting the U.S. dollar, in decimal form rather than the Spanish “pieces of eight.” Although he personally preferred a single gold standard, he proposed a bimetallic currency, deliberately overpricing gold so as to receive an influx of silver from the West Indies. Congress enacted his ideas in the Coinage Act of 1792, which authorized a ten-dollar Gold Eagle coin, a silver dollar, and fractional money ranging from one-half to fifty cents, and in the creation of the United States Mint in Philadelphia. Coining commenced in 1795.

Finally, in December, 1791, Hamilton issued his Report on Manufactures, which had been requested by Congress nearly two years earlier. In the report, he quoted from The Wealth of Nations but rejected Smith’s ideas of government noninterference; and said that if the United States remained predominantly agrarian, we would be at a disadvantage vis-a-vis Europe. He suggested that the government could assist manufactures by protective tariffs duties on anything that was also manufactured in the United States, and withdrawing the duties on raw materials needed for domestic manufacturing. His proposals for subsidies failed, but virtually every tariff recommendation put forward in the report was adopted by Congress in early 1792. These tariffs were somewhat, but not overly, protectionist: Hamilton didn’t want to discourage imports, because the duties on them were critical to the government’s income.

Historian John Chester Miller has pointed out that, by 1792, “the heavy war debt dating from the struggle for independence had been put in the course of ultimate extinction, the price of government securities had been stabilized close to their face value, hoarded wealth had been brought out of hiding, a system of debt management had been created, the power of the Federal government had been decisively asserted over the states, foreign capital had begun to pour into the United States, and the credit of the Federal government had been solidly established.”

Like Hamilton or dislike him, no one could dispute his ability and energy.

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