An amazing interview of Thomas McCraw of HBS. He has recently written a book called The Founders and Finance: How Hamilton, Gallatin, and Other Immigrants Forged a New Economy and the interview discusses this book.
The book is about the immigrants that built the US financial system.
As today’s fiscal deficit and dragging economy continue to cast long shadows, it’s easy to forget much darker times in American history.
Shortly after winning its independence from Great Britain, the United States was bankrupt. Individual states weren’t required to provide funds to pay their debts or those of other states. The national government, which had borrowed huge sums from foreign creditors to fight the long War of Independence, lacked the power to tax its citizens and repay its debts.
Into this unpromising situation stepped Alexander Hamilton, an orphaned, illegitimate (and brilliant) native of the West Indies who grew up in St. Croix and in 1789 became the first Secretary of the Treasury. Hamilton, along with Swiss-born Albert Gallatin and other immigrants, would play a decisive role in establishing the struggling young country’s financial system.
In The Founders and Finance: How Hamilton, Gallatin, and Other Immigrants Forged a New Economy, Thomas McCraw, the Isidor Straus Professor of Business History Emeritus at Harvard Business School, lays out in fascinating detail just how essential these foreigners were to the nation’s survival. While Washington, Jefferson, and Madison enjoy most of the credit for the country’s establishment and early governance, McCraw reveals the lesser-known but equally compelling stories of the financial wizards who made things tick.
McCraw says he had lot of fun writing the book.
“I had a lot of fun writing this book, just because the intellectual quality of the discourse of Hamilton and Gallatin was so high,” says McCraw, author of the Pulitzer Prize—winning Prophets of Regulation, and Prophet of Innovation: Joseph Schumpeter and Creative Destruction, among other books. “It was rewarding to deal with issues that were so important and formative of this country. The combination of Hamilton and Gallatin’s thought still defines the tensions in American political economy as we know it today.”
This is so true. The more one reads on Hamilton, the more intrigued he is.
So why immigrants developed financial markets? Well they saw finance as mobile and rootless entity much like immigrants:
Q: You suggest that these men’s immigrant backgrounds gave them the ability to see capital as a mobile, rootless entity, since they had those qualities themselves.
A: I’m convinced of that, though there’s no way to prove it. Did it make a difference that Washington, Jefferson, Madison, and Monroe—four of the first five presidents—were slave-holding Virginia planters? Yes, it made a huge difference, because that was the world as they saw it. I don’t think it’s the business of historians to prove things conclusively, however. There’s a great quote from the novelist E.M. Forster: “Only connect.” A lot of history is like that. Only connect the facts and circumstances that have not yet occurred to other scholars in the same way, and you’ll begin to see things a lot differently.
Gallatin knew finance so well, that he was Treasury chief four consecutive times, a record:
Gallatin becomes Gallatin when he realizes, very reluctantly, that he is a very poor farmer, as he ultimately says in his old age. His real talent lies in figuring out finances. Jefferson appoints him Secretary of the Treasury in 1801, and again in 1805; and Madison appoints him in 1809 and 1813. Four consecutive terms—the only time in American history that’s ever happened.
Q: And Madison asked him to serve still again on two different occasions, although he declined both times.
A: That’s right. There wasn’t anyone else in the party who understood these matters at Gallatin’s level, who could look at it clinically, without any feeling about how a particular policy would affect Albemarle County, Virginia, or my good friend so-and-so. He, and the other immigrants touched on in this book, didn’t care about such things. Their role and attitude was similar to that of a first-class business consultant who comes in, assesses the situation, and offers expert advice. They’re people who appeal to the mind more than the heart—that’s where their talents lie, and that’s what you need as Secretary of the Treasury. I don’t think we’ve ever had two as great as Hamilton and Gallatin.
Superb read all the way..