A Report on a Talk by Economist Richard Sylla

By Nancy Spannaus

Dec. 14, 2022—December 13th marked the 232nd anniversary of Alexander Hamilton’s Second Report on Public Credit, otherwise known as the Report on the National Bank. Unbeknownst to a majority of Americans today, the eventual successful establishment of the Bank of the United States represented a linchpin in what can be called Hamilton’s Financial Revolution.

Alexander Hamilton's Financial Revolution
The First Bank of the United States in Philadelphia (Nancy Spannaus)

That term was coined by economist Richard Sylla and the CEO of the Museum of American Finance David J. Cowen in their 2018 book Alexander Hamilton on Finance, Credit, and Debt. On December 7, Sylla presented the message of that book, which is primarily composed of excerpts from Hamilton’s writings, at a zoom event sponsored by the Alexander Hamilton Awareness (AHA) Society.

In sum, Sylla argued that while Hamilton was not the first to create a financial revolution, he succeeded in establishing the main components of a modern financial infrastructure, with his own innovations, more rapidly (and more successfully) than any other nation. Rather than recapitulate the book’s content (you can read it, he said), Sylla chose to summarize how Hamilton achieved that result.[1]

The following is a short summary of his remarks.

The Key Components

There are six key components to the financial revolution Hamilton carried out, Sylla said. They were:

  1. Establishing public credit – meaning establishing effective institutions for revenue, spending, and managing debt.
  2. Establishing a central bank (small c), which would aid the government’s finances and coordinate private finance as well.
  3. Creating a stable, safe national currency
  4. Fostering the growth of a banking system, which would lend to private entities
  5. Fostering the growth of securities markets
  6. Fostering the growth of business corporations.

What Hamilton Accomplished

Using a series of slides, which will be posted on the AHA Society website in the near future, Sylla first described the scope and speed of Hamilton’s accomplishments in all these areas.

The first job was to restore U.S. credit[2], which was in shambles due to the inability of the country to even pay interest on its war loans. Hamilton reorganized it by exchanging old debt for a series of new federal bonds, and reducing interest payments overall. At the same time, and against substantial resistance, he assumed the states’ war debts, moving the country more toward a national system. Date accomplished: summer 1790.

The second was the creation of the Bank of the United States, which had mixed ownership between private capital and the federal government. This format, Sylla stressed, was an innovation on Hamilton’s part, and ended up being profitable for the government. Hamilton’s bank report circulated widely, and had significant influence on getting state legislatures to follow suit and charter state banks. Date accomplished: summer 1791.

The third component was the creation of the U.S. Dollar, which basically functioned like a currency union, although foreign coins continued to circulate in the country until Lincoln established the national banking system in 1863. The Report on the Mint outlined the plan. Date accomplished: spring 1792.

The fourth component was the growth of the banking system in the states, which Sylla documented with charts. In the 1790s alone, 30 banking institutions were established, which was ten times the number in the 1780s.

Alexander Hamilton's Financial Revolution
The Bank of New York, founded with Hamilton’s input in 1784, and chartered in 1791.

The fifth component was the growth of securities markets, which arose in Philadelphia but were primarily centered in New York City. The New York Stock Exchange was established in 1792.

And finally, there was the growth of corporations, which was phenomenal, and reflected the improved ability of private enterprise to function under the new financial architecture. From 28 corporations founded in the 1780s, the total rose to 295 in the 1790s!

As a result of this rapid-fire progress, Sylla noted, industrial production grew at what is today an extraordinary rate of 5% a year, starting in the 1790s.  He presented a chart by Joe Davis, the chief economist and head of the Vanguard Investment Strategy Group, which showed that this rate of growth being sustained almost consistently up until the early 20th century.

How Did He Do It?

Sylla concluded by posing and answering the question: how was it possible for Hamilton to make such rapid progress in such a short time? After all, he came into office in September 1789, and by the end of 1792, most of the essentials were established. The answer?  Young Hamilton started working on the problem of the proto-nation’s finances as early as the late 1770s! While serving as what Sylla called a “soldier-scholar,” Hamilton began writing letters to those in government in 1779, proposing what needed to be done.

Alexander Hamilton's Financial Revolution
Soldier-scholar Hamilton as depicted at Yorktown by Alonzo Chappel (GilderLehman collection)

“Tis by introducing order into our finances—by restoring public credit—not by gaining battles, that we are finally to gain our object,” Hamilton wrote to Robert Morris, the man in charge of Confederation finances, in 1781. He went on to outline the framework for the national bank which Congress chartered as the Bank of North America.

Equally prescient was Hamilton’s proposal for moving from a confederation to a nation.  “It has ever been my opinion that Congress ought to have complete sovereignty in all but the mere municipal law of each state; and I wish to see a convention of all the states, with full power to alter & amend finally and irrevocably the present futile and senseless confederation,” he wrote.

As is well-known, Hamilton followed through on that proposal, until it reached ultimate success. During his term as a federal tax receiver in 1782, he worked with New York state legislators to get a resolution adopted which urged the calling of a convention. That didn’t go anywhere, of course.  But in 1786, it was Hamilton, in league with James Madison, who wrote the call for the Constitutional Convention that brought the United States of America into being. That was a crucial step in allowing him to implement his plan for establishing a nation with a financial architecture that would underpin the country’s growth.

A Short Addendum

In my view, Dick Sylla is one of the best Hamiltonian scholars of the current generation (which, admittedly, is getting up there in age). His Alexander Hamilton: The Illustrated Biography, published in 2016, is a gem, and not just for the pictures.  In the discussion period, I recommended it to the audience. Asked if he were writing any new books, Sylla indicated his intention to tackle the issue of our nation’s ongoing racial problems in a work that “will not be too kind to Jefferson and Madison.”

A partial picture of the book Hamilton Versus Wall Street.

Those of you who follow my work know that I am working on a book on a similar topic, addressing the question of how the world’s strongest anti-slavery movement (that in the American colonies up through the early years of independence) was subverted. I assert that the failure to follow Alexander Hamilton’s economics was a decisive error, which doomed us to the tragedy of the Civil War.  You can’t read that book now – I’m still seeking a publisher – but you can read about the Hamiltonian principles that could have led to slavery’s end. See Hamilton Versus Wall Street: The Core Principles of the American System of Economics.

[1] For a summary of the success of Hamilton’s national banking policy, see https://americansystemnow.com/a-brief-history-of-the-principle-of-national-banking-in-the-united-states/

[2] For a review of Hamilton’s view of public credit, see https://americansystemnow.com/celebrate-hamiltons-national-bank/


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