The Founders and Finance
by Thomas McCraw (Harvard University Press, £25.95)
The founding father industry is a long, grand and profitable tradition. It continues to churn out admiring portraits of the so-called founding fathers, the men who signed the Declaration of Independence, wrote the Constitution and served in the first governments of the United States. David McCullough’s Pulitzer-winning John Adams (2001), with its attendant HBO adaptation, is the most successful recent example of this genre, and can be credited with reinvigorating it for the 21st century. Since then, one prominent trend has been to pick out “lost” or ”forgotten” founders, like Aaron Burr, the dissolute Vice-President accused of treason by Thomas Jefferson, or Noah Webster, the ill-tempered dictionary compiler. These figures may stretch the definition of “founder,” but the purpose of these books isn’t to question the category so much as to fill it fit to bursting.
Thomas McCraw, who died earlier this month, was a Harvard business historian whose earlier works were paeans to 20th-century liberal capitalism. For his own foray into the founding era, he picked two sure-fire winners, the treasury secretaries whose statues now grace the treasury building in Washington DC: Alexander Hamilton and Albert Gallatin. As the title suggests, The Founders and Finance is a high-concept marriage of themes with contemporary power. It promises to offer a little of McCraw’s moderate perspective to the Tea Party set who love their founders, but also to bring some wisdom from down the ages for those reeling in the current crisis.
The founding father industry consistently warns that politics is best left to demigods; McCraw adds finance as well. Like Joseph Schumpeter, the subject of an earlier McCraw biography who surfaces several times here, Hamilton and Gallatin are supposed to embody the creativity, freedom and brilliance that both drive capitalism and thrive under it. This is a book about “financial wizardry,” in which the pyrotechnics of individual heroism divert attention from the structural underpinnings of finance, politics and society. An effort to rebuild the screen that separates us from the messy backstage glimpsed in the financial crisis, it plays down the need for radical reform.
The Founders and Finance turns on an appeal to moderation. In the symbolism of the American founding, Hamilton stands for a strong central government and the manipulation of national debt as a policy tool; Gallatin, by contrast, stands for laissez-faire and deficit reduction. William Hogeland has recently exposed the ways both left and right make use of this crude dichotomy. But for McCraw, it was the “fusion” of the two that “came to constitute the basic capitalist framework” of America. He frames contemporary capitalism as a middle course between two extremes, and thus the only reasonable option.
There is a real framework to American capitalism that deserves more historical attention, but it does not appear in this book. When The Founders and Finance discusses how “the development of the American West” was the centrepiece of Gallatin’s economic strategy, it pays scant notice to the violent removal of Native Americans. This “genocide” is named as such, but only in a footnote to a mention of “the American Dream.” The regressive taxation on which Hamilton built his financial system, lining the pockets of public investors with the scant surpluses of rural farmers, is also passed over. McCraw instead presents the Whiskey Rebellion, a major insurrection resisting these taxes, as a political battle between his two heroes.
This is history as if only the policy elite existed. Of course, that policy elite is made up of the men who built the institutions of federal government in the United States. In that respect, their influence can’t be denied—they really were founding fathers. But far from being the champions of democracy and equality that we sometimes imagine bestriding the American Revolution, men like James Madison and George Washington, as well as Hamilton and Gallatin, were instrumental in entrenching American capitalism. The constitution they wrote didn’t guarantee voting rights for citizens, but it did ensure that democratic legislatures wouldn’t break contracts with investors, or print money to inflate away public debt.
By chronicling the lives of Hamilton and Gallatin as if they were the whole story of finance in early America, McCraw imagines a world where individuals hold the reins of the economy, determining the future well-being of millions through the genius of their ideas. As history is transformed into heroic tales of trial and sacrifice, conflict dissolving into consensus, he informs us that our involvement is unnecessary and unwarranted. We should sit back and let the magicians work.