By Nancy Spannaus
Oct. 19, 2018—Today we patriots of the United States properly celebrate the decisive victory of American forces over the British at Yorktown, a victory which “turned the world upside” with the British surrender on Oct. 19, 1781. Although the war continued for another year and a half, it was clear from the British defeat that the Americans were going to win the military confrontation with the British imperialists.
Alexander Hamilton surely would have to be numbered among the ecstatic patriots that day. Having finally won a military command from General Washington, and having led the daring and successful assault on British Redoubt #10, he had attained heroic military stature. But the young Hamilton’s attention, contrary to the views of many about his personality, was not fixated on achieving military glory. As he wrote in an April 30, 1781 letter to the newly appointed U.S. Superintendent of Finance Robert Morris, “’Tis by introducing order into our finances—by restoring public credit–not by gaining battles, that we are to finally gain our object.” And Hamilton had been heavily focused on how to do just that.
In other words, now that military victory seemed secure, the real job was to create the economic and political bases for winning the peace.
Actually, the bankruptcy of the U.S. Congress had almost made the Yorktown victory impossible. Without the infusion of funds to pay the Continental Army and support the French fleet, the forces necessary to box in British General Cornwallis could not be put in place to carry out the siege. It took the efforts of Robert Morris and Haym Salomon on the mainland, and the Spanish allies of the French in Havana, to ensure that the needed funds were provided. Aided by a timely shipment of French gold, Morris responded to the desperate pleas of Washington to fund the troops with what were called “Morris notes,” which had more credibility than anything issued from the Continental Congress!
Hamilton, and of course Commander-in-Chief Washington, had long understood that military victories would be ephemeral, if the separate states did not come together under a national government with the power to issue credit, create prosperity for its citizens, and pay its debts. Creating such a union would be the only way to secure the actual independence of the American states.
Proposing a National Bank
Even while serving as Washington’s aide-de-camp (from 1777-1781), young Hamilton had devoted huge amounts of his spare time to studying political economy. From the vantage point of the Commander-in-Chief, which he shared by virtue of his position, it was obvious that national unity and an effective fighting force could not be sustained without coordination and direction by a central authority, which could guarantee the necessities of life, the physical infrastructure, and the resources for waging the war. By 1779, Hamilton began to make proposals to organize the national finances, first in letters to members of Congress. All stressed the need to establish a central authority which could generate revenue and credit, and do so in such a way as to induce private lenders (many of them government creditors) to invest in building up the economy. To do so, “will not only advance their own interest and secure the interest of their country, but its progress will have the most beneficial influence upon its future commerce and be a source of national strength and wealth,” he wrote to Morris in April 1781.
In that Morris letter Hamilton elaborated on his proposal for a national bank, an idea he had mooted in previous letters, and would continue to modify up until his 1790 proposal to the U.S. Congress. He told Morris that “the tendency of a national bank is to increase public and private credit. The former gives power to the state for the protection of its rights and interests, and the latter facilitates and extends the operations of commerce among individuals. Industry is increased, commodities are multiplied, agriculture and manufactures flourish, and herein consist the true wealth and prosperity of the state.”
While calling for study of the European models, including that of the Bank of England, Hamilton attacked their abuses, and asserted that “’Tis only in republics where banks are most easily established and supported, and where they are least liable to abuse. Our situation will not expose us to frequent wars, and the public will have no temptation to overstrain its credit.” (The Bank of England had been created to fund the Monarchy’s war against France.)
Hamilton was serious about his warning. He was well aware, as were most Americans, of the devastating impact that the Bank of England’s restriction of credit (as well as the Crown’s assertion of the right of taxation) had had on the colonies. The Currency Acts of 1762 and 1764 had devastated the American colonies, by outlawing local currency issuance, and demanding it be turned in for British notes. No less an authority that Benjamin Franklin declared that these credit restrictions had caused a major depression; in effect, those acts created one of the major causes of popular support for the Revolution.
The Continentalist Papers
While Hamilton carried on an active private correspondence with members of Congress, he also decided to submit his ideas to the public in a series of newspaper articles. Starting in July 1781, three months before Yorktown, he published the first of six Continentalist papers, a series devoted to showing what ought to be done to deal with the threats to the success of the Revolution. Those threats included mutinies and other unrest, even as the war continued. Hamilton proceeded from the assertion that “there is hardly at this time a man of information in America who will not acknowledge, as a general proposition, that in its present form it is unequal either to a vigorous prosecution of the war or to the preservation of the Union in peace.” The key problem, “a want of power in Congress,” must be addressed.
These papers, the last of which was published on July 4, 1782, are in many respects precursors of the Federalist Papers. Hamilton insists that the danger of disunity is much greater than the danger of a sovereign national government. “IF THE FEDERAL GOVERNMENT SHOULD LOSE ITS AUTHORITY, IT WOULD CERTAINLY FOLLOW” (all caps in the original—ed.) that foreign powers would foment unrest, and take advantage of that disunity to assert their power. He sets forward a series of recommendations to increase Federal power, ranging from powers to 1)regulate trade, including through tariffs, bounties, and premiums; 2) collect moderate taxes to create a secure revenue flow; 3) ensure that unallocated land belong to the federal government; and 4) give the federal authorities the right to appoint military officers.
The need for such a central authority at that point was still relevant to finishing the war, but equally to ensuring the ability to sustain the anticipated peace. What was needed was credit. As Hamilton put it in Continentalist IV,
While Congress continues altogether dependent on the occasional grants of the several States, for the means of defraying the expences of the Federal Government, it can neither have dignity, vigour, nor Credit. Credit supposes specific and permanent funds for the punctual payment of interest, with a moral certainty of a final redemption of the principal.
Yet this can only be done with a growing economy—the expansion of productive industry and agriculture, as well as commerce. As an example, in Continentalist V Hamilton points to the “abilities and indefatigable endeavors of the Great Colbert,” Louis XIV’s Minister of Finance. Colbert used his period as Finance Minister to break France free of its financial thralldom to the Dutch Empire, and build it into a unified, productive nation. He unified the nation by building canals and roads, tearing down feudal fiefdoms in favor of national taxation, created a flourishing wool industry with tariffs and subsidies, built effective fortifications, and patronized some of the world’s most creative scientists (Christiaan Huyghens and Gottfried Leibniz among them).
In the concluding Continentalist, Hamilton closes with a vision of progress, combined with a stern warning:
There is something noble and magnificent in the perspective of a great Fœderal Republic, closely linked in the pursuit of a common interest, tranquil and prosperous at home, respectable abroad; but there is something proportionably diminutive and contemptible in the prospect of a number of petty states, with the appearance only of union, jarring, jealous and perverse, without any determined direction, fluctuating and unhappy at home, weak and insignificant by their dissentions, in the eyes of other nations. Happy America! if those, to whom thou hast intrusted the guardianship of thy infancy, know how to provide for thy future repose; but miserable and undone, if their negligence or ignorance permits the spirit of discord to erect her banners on the ruins of thy tranquillity!
The Promise of the Constitution
It would be more than six years after these ringing words that like-minded nationalists would join with Hamilton in both forging and ratifying the Constitution of the United States as a framework for both defending and advancing the ideals of the American Revolutionary movement. Even then, of course, Hamilton could not rest. To achieve establish a strong and prosperous nation would require an ongoing battle to set up the credit system for scientific and technological progress which he had begun advocating for more than a decade before, a battle which would continue long after his death.
Yes, Yorktown was a major, bold step to securing the republic of the United States. But to win lasting peace and prosperity requires the principles of political economy which Alexander Hamilton did so much to establish in our nation’s institution, and which must be revived today.