The Financial Programs of Alexander Hamilton, by a Farmer’s Daughter by Dianne L. Durante

Self-published, 2021
392 pp. $35.00 (paperback)

In The Financial Programs of Alexander Hamilton, by a Farmer’s Daughter, Dr. Dianne Durante (an actual farmer’s daughter) explains the seemingly arcane financial policies of Alexander Hamilton in words that any layman can understand and see the importance of.

Durante asks, “In late 1789, what would the man who cornered Secretary Hamilton in a tavern, or the woman who sat across from him at a dinner party, tell Hamilton he urgently needed to fix? How did Hamilton’s programs address these crises?” (5). Answering these questions, Durante writes as if addressing an 18th-century farmer. This unique literary device enables her to show the impact of Hamilton’s policies on the lives and livelihoods of the contemporary farmer who—given the myriad problems he was enduring—was probably wondering whether the revolution he had just fought was worth it. In the late 1780s, it may not have seemed that way, as America found itself ensnared in a nearly inextricable mess of problems that Durante refers to as a Gordian knot.

The Gordian Knot

This knot consists of five intertwined problems, none of which could be solved in isolation. Someone needed to come along and cut through the whole thing. That person, it turns out, was Hamilton.

Those problems were:

1. “Making a living”: The economy was in a depression following the Revolution. Americans were suffering.
2. “The centrifugal tendency of the states”: The newly formed states had begun pursuing separate economic, diplomatic, and military policies. The new republic was in real danger of breaking apart.
3. “Inadequate money in circulation”: Not enough gold and silver coins were in circulation, and of the money that was available, much of it was the nearly worthless paper (fiat) money that had been issued during the war by the Continental Congress and the states.
4. “Lack of government revenue”: The Articles of Confederation had provided no mechanism for the central government to directly raise its own revenue. The government depended on voluntary contributions from state governments, which rarely were forthcoming.
5. “Massive government debt”: The states and central government owed money to everyone.¹ Many farmers held nearly worthless IOUs that the revolutionary governments had issued to buy their products on behalf of the Continental Army and state militias. The American government also owed a small fortune to other nations, including France, Spain, and the Netherlands.

Durante traces the development of Hamilton’s knowledge and qualities of character that together would enable him to cut through the morass and put America on a sound financial footing. She recounts how the young Hamilton learned finance and commerce while working as a clerk and, later, manager of a commercial trading house on the island of St. Croix in the Caribbean, where he grew up.

Durante also traces Hamilton’s experiences as a student at King’s College (which became Columbia University) in New York, where, despite being a newly arrived immigrant, Hamilton immersed himself in politics by writing broadsides in support of the nascent revolution. She follows this with a brief discussion of how Hamilton gained further valuable experience as Washington’s aide-de-camp during the revolution and earned Washington’s respect. Washington later appointed Hamilton as the nation’s first secretary of the treasury and implemented his financial programs, despite the staunch opposition of Thomas Jefferson, Washington’s secretary of state.

Hamilton’s Reports to Congress

The core of the book is Durante’s analysis of Hamilton’s three major reports to Congress in which he explained his financial programs in three areas: the national debt, banking, and manufacturing. These three reports were the “First Report on Public Credit” (1790), the “Report on a National Bank” (1790), and the “Report on Manufactures” (1791). Durante comments extensively on each and conveniently includes their full texts in an appendix.

She explains the epochal debate over Hamilton’s plan for the federal government to assume all of the Revolutionary War debts and Hamilton’s simultaneous proposal for the development of a national bank, the Bank of the United States.

Durante asks, “Was the Bank of the United States a central bank?” She ticks off the attributes of this bank, comparing them with those of a modern central bank such as the present-day U.S. Federal Reserve System. Her answer will surprise some readers.

The brilliance of Durante’s historical analysis is that she demonstrates how the programs Hamilton laid out in the first two reports—the assumption of the debts by the new federal government, the formation of a Department of the Treasury with the authority to collect taxes to pay for the operation of the federal government, and the formation of the new national Bank of the United States—cut through the Gordian knot and, in her assessment, saved the young republic. In place of the knot, says Durante, the United States got:

• Sufficient circulating money to power economic growth via the stabilization of the national debt and the formation of a stronger banking system;
• Recovery from the post-revolution recession as financial stability returned to the United States and internal barriers to trade were lifted;
• Broad public support for the new federal government as it assumed the states’ debts and gained its own sources of financing;
• Sufficient revenue to finance the new federal government via the newly formed Department of the Treasury (led by Hamilton) and the implementation of tariffs and internal excise taxes (such as the infamous whiskey tax); and
• The refinancing of the massive government debt coupled with means to pay it off, establishing the United States as creditworthy.²

Hamilton versus Adam Smith: Hamilton’s ‘Report on Manufactures’

Unlike the first two reports, Congress did not act to implement the “Report on Manufactures.” This was fortunate, as Hamilton outlined a program of government control of industry known as mercantilism. In Hamilton’s day, until the publication in 1776 of The Wealth of Nations by the father of economics, Adam Smith, the Western intellectual world debated between two competing schools of thought in economics: the mercantilists and the physiocrats.

From today’s vantage, it seems like an odd debate, with each side largely talking past the other. The mercantilists believed that manufacturing and commerce were the most important value creators in the economy; the physiocrats held that only agriculture created value and that commerce was sterile. The mercantilists further believed that the government must guide the economy and pick business winners and losers through a system of export subsidies and tariffs on imported goods. Hamilton promoted an extensive system of such subsidies and tariffs in his report.³

As a mercantilist, Hamilton strongly opposed the physiocrats, whose position was perhaps best represented by Thomas Jefferson’s 1784 book Notes on the State of Virginia, wherein he argued that the only true source of value in the economy was agriculture. Durante includes some choice quotes from Jefferson that reveal his early disdain for banking and commerce, and praise for agriculture.⁴

I was struck by a surprising source for many of Hamilton’s arguments: Adam Smith. Scholars have established that Hamilton had read Smith’s seminal work, The Wealth of Nations, published only fifteen years before Hamilton’s 1791 report.⁵ Unlike Hamilton, Smith opposed both physiocracy and mercantilism. He argued for what is essentially laissez-faire capitalism (or near laissez-faire, though he didn’t use that term).⁶ Under capitalism, investors—motivated by their evaluation of future profit potential—decide which ventures to back. They are not incentivized to favor manufacturing, agriculture, or any particular sector—only to invest where they will see the greatest returns. Not so in a mercantilist system, where bureaucrats may dispense favors to friends or lobbyists at the expense of everyone else.

Hamilton was not just unpersuaded by Smith’s arguments for a (mostly) laissez-faire system, which he often quoted verbatim (without attribution, which was then common) and rejected, but he used Smith’s summary of the mercantilist argument to make his case for mercantilism. This is surprising, given that Smith summarized the mercantilist argument in order to refute it—and did so quite powerfully. This interesting intellectual debate alone makes the book worth picking up.

***

Durante’s The Financial Programs of Alexander Hamilton, by a Farmer’s Daughter will appeal to a diverse audience, especially those interested in this crucial period in American history. Readers need not earn a PhD in economics or finance first. Her explanations of complex economic issues are pithy and clear. As a PhD in economics, I can say that the vast majority of economists cannot explain their ideas to “a farmer” in such simple terms without sacrificing truth or clarity.

At the same time, Durante’s book is scholarly and can benefit academic readers. She is rigorous in her research—tracking down the primary sources even for quotes used by others—and she is a master at laying out the relevant context. Durante clearly admires her subject, but that does not get in the way of her objectivity.

Despite some of Hamilton’s surprising errors, such as his support for mercantilism, his programs prevented the new republic from floundering, as Durante has shown. That was not my assessment when I started reading the book. It is the assessment I left with after finishing it. Hamilton is worthy of our admiration, and so is Dr. Durante for having done such a fine job of bringing Hamilton and his policies to life.

About Raymond C. Niles

Raymond C. Niles is a senior fellow and columnist at the American Institute for Economic Research and a former university professor. He holds a Ph.D. in Economics from George Mason University and an MBA in Finance & Economics from the Leonard N. Stern School of Business at New York University. Prior to embarking on his academic career, Niles worked for more than fifteen years on Wall Street as senior equity research analyst at Goldman Sachs, Schroders, and Citigroup, and as managing partner of a hedge fund investing in energy securities. In addition to numerous articles in scholarly and popular publications, Niles has contributed book chapters to The Moral Case for Finance, and the recently published book, Coronavirus and Economic Crisis, edited by Peter G. Earle, and published by the American Institute for Economic Research.

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