America in the World

CHAPTER 1

Alexander Hamilton

Architect of American Power

Selecting America’s First Secretary of the Treasury

In April 1789, George Washington, the newly elected president of the United States, stopped in Philadelphia on the way to his inauguration in New York City. Washington sought out his old friend, Robert Morris, who had served as superintendent of finance of America’s revolutionary government. Morris, the country’s most powerful merchant-financier, had delivered the monies to keep Washington’s Continental Army alive during its darkest hours. He had been an ally of Ben Franklin. Morris had even used his private credit to pay for troops, fund naval privateers, acquire arms, and procure spies.

According to an account written years later by Washington’s step-grandson, the president-elect asked Morris to become the secretary of the treasury of the new U.S. government. Morris turned the offer down, probably because he needed to concentrate on personal financial problems that would eventually lead to his ruin. But Morris offered Washington a suggestion: “I can recommend a far cleverer fellow than I am for your minister of finance,” counseled Morris, “your former aide-de-camp, Colonel Hamilton.” A surprised Washington replied that he had not known Hamilton “had any knowledge of finance.”¹

Hamilton was only twenty-two when he became an aide to General Washington in early 1777. Some thirty-two aides worked at Washington’s headquarters over the eight-year campaign, but Hamilton stood out among this elite cadre. In 1789, Hamilton was only in his early thirties. The New Yorker had been a political ally of Morris in the creation and ratification of the new Constitution, but the two men were not close friends. It appears that Morris had not spoken to Hamilton about his recommendation to Washington.²

A Young Strategist

Morris knew the quality of Hamilton’s mind and the young man’s prodigious appetite for work. In April 1781, shortly after Congress had appointed Morris superintendent of finance, Hamilton had written an unsolicited letter to the older, much more experienced man. The letter consisted of thirty-one printed pages. Hamilton had just resigned his position as an aide to Washington and had retreated to the library of his father-in-law, Philip Schuyler, to reflect on America’s cause. He read and reasoned his way to a fresh synthesis of finance, national power, and war. The Hamilton letter to Morris was in fact a refinement and an expansion of two earlier political-financial analyses, one of which he had written to Congressman James Duane in 1780 and the other probably to Schuyler in 1779. Together, the three letters sketch a plan not only to address the problems of war but also to devise systems of financial and economic power for the young United States.³

Hamilton had witnessed the trials of an army—and, more important, of a new nation—that suffered for want of money. Troops went without pay, clothes, and even food. They lacked arms and ammunition. Men of courage on the battlefield, such as Benedict Arnold, became traitors in part for money. Hamilton had written Duane that the army had become a mob. In a letter in September 1780 to his close friend John Laurens, also a former aide to Washington, a frustrated Hamilton asserted that the army, the states, and Congress were in control of “a mass of fools and knaves.” The want of money, Hamilton recognized in another paper, could lead the army to disband or enfeeble operations so that the public clamored for peace.⁴ In other times and places, officers of desperate armies turned their weapons on the politicians who seemed to ignore or disdain them.

Hamilton’s missive to Morris, however, looked beyond the field of battle and the encampments of armies. Hamilton made the strategic leap of comparing America’s strengths and weaknesses with its enemy’s. Hamilton perceived that Britain and the United States were fighting a war of attrition. He analyzed Britain’s system of political economy. The colonel concluded that the victory depended not only on mobilizing U.S. resources, but also on eroding London’s credit and will.⁵

Ron Chernow, Hamilton’s eminent biographer, wrote that the “Revolution [was a] practical workshop in economic and political theory” for Colonel Hamilton.⁶ Hamilton’s principal insight was that a state needed good credit to wage a long war successfully. The country simply needed to pay its bills. “Power without revenue is a bubble,” concluded Hamilton.

Hamilton turned down opportunities in 1781 to work with the new superintendent of finance or to assist Morris by serving in Congress. The colonel preferred a line command in the Continental Army; he would lead a New York battalion that later captured one of two key British redoubts at Yorktown, sealing victory in the last main campaign of the war. Hamilton sought glory, honor, and fame. He differed from other soldiers, however, in recognizing the importance of finance and economic dynamism to national power and resilience.

Hamilton’s strategic, political, and fiscal insights fired his drive for a new national Constitution. In his Federalist articles, drafted to advocate ratifying the Constitution, Hamilton explained the interconnections among finance, political institutions, and national security. Furthermore, Hamilton’s financial and political designs had implications for America’s foreign policy and even its conduct of diplomacy. The Federalist pointed out bluntly that under the Articles of Confederation the United States had become a pariah country. To succeed in a dangerous world, the new Republic needed foreign commerce, sound money, government revenue, and a peacetime army. As a maritime commercial people, Americans needed a navy, too.⁷

Hamilton’s Economic Strategy

The Treaty of Paris, Franklin’s legacy, gave the new American Republic vast lands. Virginians, led by Jefferson, were drawn to the ideas of land as the source of wealth, the foundation of liberty through yeoman farmers, and space for security. Hamilton, in turn, understood that the United States needed financial strength, liquid capital, and economic institutions to develop the country’s natural bounty.

America’s first treasury secretary admired the programs of Britain’s William Pitt the Elder and William Pitt the Younger and respected the financial institutions London had developed. Professor Forrest McDonald later perceived that Hamilton took the British example and applied it differently to the United States: Whereas Britain had designed a system to raise money for the government—with incidental political, social, and economic by-products—Hamilton’s system employed financial means to attain political, economic, and social ends. Hamilton was trying to solve a staggering financial problem. At the same time, however, the new treasury secretary was erecting a new architecture of American power.⁸ On Independence Day, 1789, Hamilton’s eulogy for his former friend and comrade, General Nathanael Greene, alluded to the work ahead: The task, Hamilton explained, was to “[rear] the superstructure of American greatness.”⁹

As a younger man, Hamilton had once copied a passage from Demosthenes’s Orations that captured his ambition for both military and political leadership: “[Leaders] ought not to wait for the event, to know what measures to take; but the measures which they have taken, ought to produce the event.”¹⁰ Hamilton would force decisions, not wait for his “inbox” or meetings to shape his agenda. Moreover, Hamilton’s various actions fit within a design. As an executive, Hamilton turned for guidance to the three-volume memoirs of Jacques Necker, France’s highly respected minister of finance under Louis XVI. Necker wrote that a great minister must be able “to perceive, simultaneously, the whole of a system and the relations of all its parts to one another.”¹¹

Others have related the history of Hamilton’s plans for credit, a national bank, and manufactures. I want to draw attention to the components of Hamilton’s plan and how the parts fit together. Hamilton’s refunding system established the federal government’s debt as a good and reliable credit. The securities composing the federal debt, in turn, expanded the new nation’s monetary base, creating liquid funds for investment. The new Bank of the United States facilitated federal finance, expanded the system of private credit, and supported investment. By refunding the federal debt, financial and mercantile interests acquired a stake in the success of the new government. Assumption of state debts by the federal government further expanded support and the credit base. The new revenue system, especially “moderate” tariffs, linked taxes to interest payments. A “Sinking Fund” offered further comfort to investors in federal debt. Hamilton’s new customs service, Coast Guard, and information systems demonstrated that the secretary’s executive skills matched his ability to devise plans for a new political economy. Taken together, the system enabled Hamilton to lower interest rates on refunded debts—and to raise more foreign loans. Moreover, as Hamilton wrote Morris, “A national debt, if not excessive, will be a national blessing. It will be a powerful cement of our union.”¹²

Professor McDonald points out another aspect of Hamilton’s plan that often has been overlooked: Good credit depends on market psychology—on confidence—as well as on facts. Hamilton believed that speedy action by the new government was vital to securing the good faith of public creditors.¹³ And Hamilton recognized that American diplomacy would be a valuable contributor to the confidence in—and practical success of—his newly created system of political economy.

The Diplomatic Strategy Matches the Economic Plan

The treasury secretary assumed a diplomatic role even before Thomas Jefferson, the first U.S. secretary of state, was on the job. Some later guardians of the prerogatives of the State Department view Hamilton’s diplomacy as stepping beyond his jurisdiction;¹⁴ in fact, Hamilton was demonstrating that America’s foreign policy, from the very start, incorporated economic perspectives and interests, first by necessity and later by opportunity and choice.

The United States, in Hamilton’s view, was potentially both a land and a maritime power. Any dream of American isolationism was folly because the United States was part of a wider Atlantic world in which European powers were maneuvering for advantage across both continents. During the Constitutional Convention, Hamilton had argued for a strong national government to counter “the fantasy that the Atlantic Ocean would protect America from future conflicts.”¹⁵

Hamilton recognized the fundamentals of balance of power politics. A European hegemon was not in the U.S. interest. The United States had to guard against continental powers colluding to control the Mississippi Valley and luring settlers in the new western territories and states away from loyalty to the United States.

In the 1790s, the Mississippi Valley, the strategic heart of power for North America, was still a contested buffer region. Hamilton wanted to push Spain out of eastern North America. He wished to secure New Orleans and the Mississippi for the United States. The secretary of the treasury was wary of French designs—whether monarchical, revolutionary, or later imperial—in North America. And Hamilton even postulated that Britain, the leading naval power, might help thwart moves from Paris and Madrid to constrain the United States in North America. Given time, Hamilton believed that the United States would grow into a great power. In the interim, the nation needed to foster its Atlantic trade, preserve internal cohesion, settle western lands, secure the Mississippi Valley, and maintain the confidence of bankers in Holland and London.¹⁶

Hamilton’s economic and foreign policies needed to support domestic peace and tranquility in order to build strength. Hamilton had near-term practical objectives, too: to end hostilities with Native Americans and stop Europeans from encouraging those conflicts; to compel Britain to leave the forts it still occupied on U.S. lands in the west; and to raise revenue from imports to buttress the new credit system. In 1794, trade duties provided about 90 percent of federal revenues; Britain accounted for nearly three-quarters of U.S. imports and half of American exports.¹⁷ The United States needed credit from Britain as well.

A Strategic Dialogue with Britain?

In October 1789, shortly after assuming office, Hamilton began to explain his foreign policy strategy to George Beckwith, a British army major and aide to Lord Dorchester, the governor general of British North America. Beckwith came as an unofficial emissary to warn that the new Congress’s tariffs, which discriminated against Britain, would trigger retaliation. But Hamilton engaged Beckwith in a broader exchange about interests.

Today, Hamilton’s diplomatic approach would be labeled a “strategic dialogue.” The treasury secretary offered his perspective on the domestic and international context. He sketched a vision of what relations might become—indeed, should become. Hamilton pointed to common ground and suggested directions each side might take, factoring in political constraints. Hamilton specified nonnegotiable points—such as exiting British forts and thwarting a Native American buffer region—while dropping other demands, such as the return of slaves who left with British forces after the war. He avoided recriminations, preferring to explain intentions and explore mutual interests.

Hamilton observed that the United States was an agricultural country whose economy fit well with Britain’s manufacturing capacities. American purchasing power, already significant, would grow. Britain could expect that U.S. influence would expand; therefore, London should seek political attachments as well as commercial connections. But Hamilton stressed that to forge a community of interest Britain had to respect the United States. The former colonies had been compelled by British policies to ally with France, but Americans preferred bonds with Britain. “We think in English,” Hamilton explained to Beckwith, even though Hamilton also spoke excellent French. Hamilton warned that the United States, if spurned, would ally with France and threaten Britain’s wealthy West Indian islands.¹⁸

After eight years of bitter war, Hamilton’s overtures to the former enemy were startling. Jefferson and Madison, in contrast, remained hostile to Britain. They wanted to defy the arrogant, corrupt “British lion” and instead commit to a Franco-American connection. When George Hammond arrived as Britain’s minister to the United States in late 1791, Jefferson insisted that their communications must be in writing. Before long, that channel of diplomacy degraded into a debate over which country first violated the peace treaty and therefore was to blame for a list of problems. Hamilton viewed Jefferson’s outlook as naïve and his diplomatic approach impractical.

In essence, Hamilton was offering to work within the British global trading system, and even to lean toward London in the European struggle for power—if Britain stopped threatening the United States in North America and embraced the country economically through a commercial treaty. Hamilton believed that the United States, the junior partner, would grow into a great power and that close ties to Britain could be mutually beneficial.

In 1782–83, Lord Shelburne, the prime minister who agreed to peace with the independent United States, advanced a similar, farsighted sketch of Anglo-American cooperation. But British enmities against the Americans were too harsh, and Shelburne’s government fell. Similarly, Hamilton’s vision of a transatlantic “special relationship” with Britain could not gain American public acceptance for another century.¹⁹ By that time, as Hamilton foresaw, the United States was an emerging great power and Britain sought to accommodate American demands.

A Policy of Neutrality

Hamilton’s overtures to Britain were unsuccessful, and France’s revolutionary turmoil threatened both Europe’s security and America’s stability. Hamilton’s new system required peace. Therefore, the treasury secretary advanced a foreign policy doctrine, neutrality, that would define American diplomacy for more than a century. The greatest challenge for the neutrality policy came in its application. Jefferson and Hamilton jousted over pro-French and pro-British “tilts” when responding to offenses. Neutrality can frustrate countries fighting for great stakes, as the United States would learn during the Civil War and again in 1914. During the Cold War, the United States sometimes objected to countries claiming neutrality.

In the face of British depredations, Hamilton urged President Washington to “[p]reserve peace at all costs consistent with national honor.” Hamilton feared war would “cut up credit by the roots,” cripple exports, choke off imports and revenue, and lead to debt cancellation. With peace, in contrast, “force of circumstances will enable us to make our way sufficiently fast in trade.”²⁰

Hamilton’s neutrality no doubt had a pro-British bias because the United States needed to operate in a world of commerce ruled by Britain. Paris’s revolutionary fervor threatened America’s internal cohesion. The French economy could not supply America’s needs, and Hamilton wanted to escape the “prison” of past treaties with France. His solution was to “steer as clear as possible of all foreign connections, other than commercial.”²¹

Later in the 1790s, when France attacked American ships, Hamilton again urged Washington to maintain peace. He cautioned against responding to rumors, petty sources of frustration, and “pins and needles” with France. Chernow summarized Hamilton’s approach as “impassioned pragmatism.”²²

As the years passed and American strength grew, Hamilton’s commitment to mutually reinforcing systems of national power influenced his diplomacy. When President John Adams struggled with the Quasi-Naval War with France in 1798–99, Hamilton wanted to build a stronger navy, believing that peace was best preserved by preparing for war. Hamilton maneuvered to lead a large army of regular troops under Washington’s overall command. Hamilton even speculated about working with Britain and the Royal Navy to force the Spanish to concede the Floridas and Louisiana to the United States in order to prevent those territories from falling into French hands.²³

Washington’s Farewell Address and the Admonition Against Alliances

The culminating expression of Hamilton’s diplomatic legacy is George Washington’s 1796 Farewell Address. Washington and Hamilton worked together closely on this publication. As Chernow observed, the Address states themes that encompassed Washington’s approach to the contentious issues of the day, including foreign policies and domestic strife. The Farewell Address became the first chapter in the “Holy Writ” of American diplomacy.²⁴

Fundamentally, Washington’s Address was a plea to preserve the Union. The president identified threats and defended a vigorous national government. Hamilton made sure to add a passage about the nexus between public credit, backed by tax revenue, and national “strength and security.”

The foreign policy that expressed Washington’s experience—and vision—was Hamilton’s doctrine of neutrality—exhibiting neither “habitual hatreds” nor “habitual fondness” for other countries. In a phrase that reverberated over the years, Washington warned that the United States should avoid “permanent alliances.” Jefferson’s subsequent caution against “entangling alliances” added to this admonition. The American heritage of hostility toward alliances became so powerful that for more than 150 years, the stewards of U.S. foreign policy sought other organizing concepts for the international order.

Hamilton’s Diplomatic Method

Hamilton conducted diplomacy in a reasoned, respectful, and firm but not belligerent fashion. He expected nations to act according to self-interest but knew that individuals conducting affairs of state had feelings and might not act rationally. Emotions could lead officials to miscalculate interests. Hamilton preferred “mildness in the manner, firmness in the thing.” A later admirer of Hamilton, Teddy Roosevelt, summarized his similar approach as “speak softly and carry a big stick.”²⁵

Hamilton did not direct his measured diplomacy solely toward London. When later dealing with French transgressions, Hamilton cautioned against overreaction, noting “Strut is good for nothing,” and calling for “real firmness.” “Combine energy with moderation,” Hamilton counseled.²⁶

Hamilton, like Franklin, observed that “minute circumstances, mere trifles, give a favorable bias or otherwise to the whole.” He was attentive that “nations like individuals sometimes get into squabbles from the manner more than the matter of what passes between them.” One of Hamilton’s biographers properly concluded that Hamilton’s diplomacy was marked by “candor, goodwill, and good sense.”²⁷ Secretary of State James Baker offered similar diplomatic counsel: “Pick your shots.”

Talleyrand and Hamilton’s Realism

A notable character in Dr. Kissinger’s studies of European diplomacy, Charles de Talleyrand, offered a calculating assessment of Hamilton and his American diplomacy. In early 1794, Talleyrand, a stateless émigré from revolutionary France’s Reign of Terror, fled to America for two years. The Frenchman, a rogue of wit and intellect, greatly admired the American treasury secretary. Indeed, Talleyrand wrote that he considered “Napoleon, [Charles] Fox [of Britain], and Hamilton the three greatest men of our epoch and… I would give without hesitation the first place to Hamilton.” Talleyrand concluded that Hamilton had “divined Europe,” meaning that the American had assessed the forces shaping the continent’s politics and power.²⁸

Talleyrand agreed with Hamilton that Britain, not France, could best offer the long-term credit and industrial products America needed to grow. As for the difficulty of the United States aligning with its former enemy, Talleyrand appreciated that “resentments do not subsist when you have won. Satisfied pride reserves no desire for revenge.”²⁹ Neither Hamilton nor Talleyrand fully appreciated that Jefferson, Madison, and other leading Virginians believed that they still had scores to settle with a condescending Britain.

Although Hamilton and Talleyrand respected one another’s intellect and shared a commitment to realistic, not sentimental, assessments of foreign policy, their characters were fundamentally different. During the winter of 1795, Talleyrand walked through the cold streets of New York City on his way to a dinner party. The wily genius spied Hamilton working by candlelight in his law office on Wall Street. Hamilton had stepped down as treasury secretary not long before. The Frenchman was bewildered: “I have seen a man who made the fortune of a nation laboring all night to support his family.” Shortly thereafter, when Talleyrand returned to France to become foreign minister, he wrote a friend that “I have to make an immense fortune of it.” And he did. In contrast, Hamilton’s drive for power was combined with a strong sense of republican virtue.³⁰

Talleyrand recalled one other feature that dominated Hamilton’s perspective: “a persistent faith in America’s economic destiny.” Hamilton believed ardently in “the day when—and it is perhaps not very remote—great markets, such as formerly existed in the old world, will be established in America.”³¹ Sadly, Hamilton, the architect of American power, would not live to see that day.

The Hamiltonian Legacy of Economic Statecraft

Alexander Hamilton had a rare ability to understand systems of power. As a strategist, he combined visions with practical steps that moved the United States toward his long-term aims.

The foundation of Hamilton’s system was economic and financial strength. He recognized the critical role of national credit—not only for Americans, but also for their enemy in London, which faced the costs of a war of attrition. As treasury secretary, Hamilton built a system of liquid capital, institutions, and even market psychology that launched the U.S. dollar and American financial markets toward preeminent global positions that they enjoy today. Hamilton also comprehended how America’s freedom to trade—and its maritime relations—were vital components of the country’s economic strategies, foreign and domestic. In part because of the amazing success of Hamilton’s vision, later generations of Americans have often taken his accomplishment for granted. When they have done so, the United States has risked the ultimate source of its power.

Hamilton’s system also included the federal Constitution, an effective national government, and a standing navy and army. He apprehended how the interconnections of economic capacities, finance, military power, and political institutions created national security and international influence. He even recognized how technology and innovation contributed to economic and military power.

America’s first treasury secretary combined his systemic insights with a geopolitical analysis. He knew that the United States needed an economic and a security strategy for the Atlantic world and to dominate the Mississippi Valley. The United States could not realistically pretend to ignore the powers of Europe; it needed ways to maneuver among them, especially during America’s early decades, as the country built its power. Hamilton recognized the potential benefits of a partnership with Britain, but politics and honor required mutually respectful relations even though Britain was far more powerful. As it turned out, neither the politics in London nor those in America would support Hamilton’s diplomatic design for at least another century.