On the grounds of lower Manhattan’s Trinity Church stands the gravestone of Alexander Hamilton, whose distinctions include being the nation’s first Secretary of the Treasury. The monument reads:
“The patriot of incorruptible integrity, the soldier of approved valor, the statesman of consummate wisdom, whose talents and virtues will be admired by grateful posterity long after this marble shall have mouldered into dust.”
Quite appropriately, Wall Street and the New York Stock Exchange are just a stone’s throw away. Hamilton rests alongside a financial world whose basic elements were, in large part, created by him. As Treasury Secretary to President George Washington in the early 1790s, Hamilton consolidated the national debt, set up a central bank, made the dollar into a respected currency, and handled a spate of financial turmoil that could have derailed America’s emerging securities markets.
Hamilton epitomized both financial sophistication and upward mobility, two qualities he sought to promote in the American economy. Born into poverty and illegitimacy on the Caribbean island of Nevis in either 1755 or 1757, he showed business acumen as a young clerk in a trading company. Arriving in the Colonies to pursue an education, he became a pamphleteer for American independence and then an officer in the Continental Army.
A Busy ExecutiveSome key events in the life of Alexander Hamilton and his time:Sept. 11, 1789 Hamilton is nominated to be Treasury Secretary and promptly confirmed by the Senate.Jan. 14, 1790 Submits to Congress his “Report on Public Credit,” which forms the basis for consolidating and managing the national debt.June 20, 1790 Negotiates, over dinner with Thomas Jefferson, deal to move nation’s capital to the Potomac in exchange for support for Hamilton’s debt policies.August 1790 Receives authorization from Congress to create a service to enforce customs laws, which would become the Coast GuardDecember 14, 1790 Submits report arguing for establishment of a central bank, leading to formation of the Bank of the United States.January 28, 1791 Delivers report calling for creation of a national mint and defining the U.S. dollar in quantities of gold and silver.July 4, 1791 Oversees public offering of shares of the Bank of the United States.August 1791 Directs purchases of government securities to stabilize markets.December 5, 1791 Submits “Report on Manufactures,” setting tone for future government industrial policies.January-April 1792 Manages new spate of turbulence in Treasuries and bank scrip.July 1792 Consults with officers of the Society for Establishing Useful Manufactures to organize industrial activities along the Passaic River in New Jersey.January-March 1793 Provides detailed information to Congress refuting politically charged claims of improper financial management in his department.Aug. 1, 1793 Successfully argues for administration to take firmer line toward revolutionary government of France.September-October 1794 Leads militia of 13,000 troops to Pennsylvania to suppress Whiskey Rebellion against federal liquor tax.Jan. 31, 1795 Resigns as Treasury Secretary.
Serving as a top aide to General Washington during the Revolution, Hamilton found time to read the economic works of Adam Smith, David Hume and others. After the war, he became a lawyer and legislator, founder of the Bank of New York, drafter of the Constitution and principal author of the pro-Constitution Federalist Papers. When newly elected President Washington asked Philadelphia merchant Robert Morris what to do about the nation’s finances, Morris suggested he let Hamilton figure it out.
Hamilton became Treasury Secretary on September 11, 1789, and quickly arranged some bank loans so the federal government could continue operating. He then set to work on his “Report on Public Credit,” which proposed combining Revolution-era state debts into a national debt, among other measures to get the United States out of the 18th-century equivalent of junk-bond status. Hamilton’s proposals were mostly adopted by Congress, and a market soon arose for a new type of instrument — U.S. Treasuries, which were available in versions paying 6 percent, 3 percent, or the equivalent of a zero coupon.
In late 1790, Hamilton submitted a report calling for a central bank, and Congress in turn approved a 20-year charter for a Bank of the United States. Capitalized at $10 million, this entity would be one-fifth owned by government and the rest by private investors. On July 4, 1791, a public offering was held of subscription rights, or scrip, that cost $25 and enabled investors to become full shareholders by making further payments over 18 months.
The offering was heavily oversubscribed, with scrip selling out within an hour and then trading briskly among investors. Soon there would be further charters of banks at the state level and more offerings of bank scrip. Spurred by Hamilton’s central bank plan, something new was taking shape in America — an active and liquid stock market.
And it was in this early stage of existence that America’s securities markets first underwent the turbulence of speculative bubbles popping. Bank of the United States scrip doubled from its initial $25 price by late July — and then shot up to around $300 in the first half of August. Just as suddenly, scrip prices plunged, falling to around $150 by mid-August. Treasury prices also underwent sharp swings.
Moving quickly to calm the markets, Hamilton spearheaded a push by the government to purchase portions of its own debt, and coordinated further purchases with the Bank of New York. Before long, things had settled down. The Bank of the United States, which was still being organized in the months after its financing, opened its doors for business at its Philadelphia headquarters in December.
However, a second, and worse, financial crisis erupted in early 1792. Markets started growing volatile again in January, amid a rapid expansion of credit by the Bank of the United States and a flurry of actual or proposed bank formations and mergers. A new institution called the Million Bank launched an oversubscribed share offering and made plans for swift growth; part of this strategy was to force the Bank of New York to merge by orchestrating a rush of withdrawals from accounts at the older bank.
Hamilton watched such developments with growing alarm. In a letter to William Seton, a sympathetic Bank of New York executive, the Treasury Secretary vented: “These extravagant sallies of speculation do injury to the government and to the whole system of public credit by disgusting all sober citizens and giving a wild air to everything.”