The Immigrants Who Built America’s Financial System

In The Founders and Finance, Harvard Business School business historian Thomas McCraw lays out in fascinating detail how immigrants Alexander Hamilton and Albert Gallatin became essential to the nation's survival.
by Julia Hanna

As today's fiscal deficit and dragging economy continue to cast long shadows, it's easy to forget much darker times in American history.

Shortly after winning its independence from Great Britain, the United States was bankrupt. Individual states weren't required to provide funds to pay their debts or those of other states. The national government, which had borrowed huge sums from foreign creditors to fight the long War of Independence, lacked the power to tax its citizens and repay its debts.

“It was something of a miracle that the country held together from 1776 to 1815”

Into this unpromising situation stepped Alexander Hamilton, an orphaned, illegitimate (and brilliant) native of the West Indies who grew up in St. Croix and in 1789 became the first Secretary of the Treasury. Hamilton, along with Swiss-born Albert Gallatin and other immigrants, would play a decisive role in establishing the struggling young country's financial system.

In The Founders and Finance: How Hamilton, Gallatin, and Other Immigrants Forged a New Economy, Thomas McCraw, the Isidor Straus Professor of Business History Emeritus at Harvard Business School, lays out in fascinating detail just how essential these foreigners were to the nation's survival. While Washington, Jefferson, and Madison enjoy most of the credit for the country's establishment and early governance, McCraw reveals the lesser-known but equally compelling stories of the financial wizards who made things tick.

"I had a lot of fun writing this book, just because the intellectual quality of the discourse of Hamilton and Gallatin was so high," says McCraw, author of the Pulitzer Prize—winning Prophets of Regulation, and Prophet of Innovation: Joseph Schumpeter and Creative Destruction, among other books. "It was rewarding to deal with issues that were so important and formative of this country. The combination of Hamilton and Gallatin's thought still defines the tensions in American political economy as we know it today."

Julia Hanna: How did this book evolve?

Thomas McCraw: I actually started out to write a book about immigrant entrepreneurs from the 1790s to the present day, and planned to begin with Alexander Hamilton. It turns out that he was more of a policymaker than an entrepreneur, but if I had to single out one person as the most important figure in American economic and business history, Hamilton is the one I would pick. Albert Gallatin, who aspired to be a large-scale landowner, was to lead the next chapter. I squeezed and squeezed the two chapters down to 50 pages total, but I knew that wasn't the right way to go about it.

What I realized is that Hamilton and Gallatin were just two of the many immigrant policymakers who played a part in establishing the foundational financial system of this country, along with Robert Morris [England], Haym Solomon [Poland], Alexander James Dallas [Jamaica], Stephen Girard [France] and John Jacob Astor and David Parish [Germany]. Their personal mobility and absence of ties to land, to slave society, or loyalty to any particular state, worked to their advantage. No one had written about that before. So my editors and I agreed that this should be a separate book.

Q: Albert Gallatin is not as well-known as Hamilton—he seems like he was a quiet, less colorful guy. In any case, both he and Hamilton showed that they had amazing analytical abilities and devoted themselves to understanding the hard numbers.

A: Yes, they were both really, really good with numbers and financial analysis in an era when not very many people had that ability. Or those who did, were not inclined to go into public service. That's still true today, I think. It was something of a miracle that the country held together from 1776 to 1815—it could have easily come apart because of the debt problems, which were far worse than what we face today.

Q: The fragility of the early banking system was also an eye-opener. I didn't quite appreciate how opposed Thomas Jefferson was to the idea of banks.

A: I think for Jefferson, the part of his brain that was labeled "finance" or "money" was missing. He was always in debt. If you've ever visited Monticello, you've seen that it's full of very expensive stuff from all over the world. In 1788, when Jefferson came home from Paris after four years as ambassador to France, he had 70 trunks full of books, wine, and Paris fashions, all of which he carted up the mountain to this enormous and fabulous home. The idea of a national bank, or any bank at all, ran counter to his revolutionary spirit.

Q: You suggest that these men's immigrant backgrounds gave them the ability to see capital as a mobile, rootless entity, since they had those qualities themselves.

A: I'm convinced of that, though there's no way to prove it. Did it make a difference that Washington, Jefferson, Madison, and Monroe—four of the first five presidents—were slave-holding Virginia planters? Yes, it made a huge difference, because that was the world as they saw it. I don't think it's the business of historians to prove things conclusively, however. There's a great quote from the novelist E.M. Forster: "Only connect." A lot of history is like that. Only connect the facts and circumstances that have not yet occurred to other scholars in the same way, and you'll begin to see things a lot differently.

Q: What else struck you as you were writing this book?

A: I was surprised that Gallatin was involved so deeply in managing the governments of Presidents Jefferson and Madison, and by the significant diplomatic role he played in negotiating an end to the War of 1812. It took the Americans and British 20 months to do that. And luckily Gallatin was this European of infinite patience and extraordinary strength of character.

One of the biggest things I wondered about is why Gallatin came to the United States in the first place. He was the scion of a wealthy family that had lived in Geneva since 1510, and all of a sudden, at the age of 19, he and his college buddies sail away to a place they could not possibly have known much about. In retrospect, that still seems inexplicable, except in the sense that a rebellious 19-year-old is apt to do some crazy things.

Q: What do you make of the fact that both Hamilton and Gallatin were orphaned at an early age?

A: If you can survive what they survived, then you can survive just about anything. Gallatin's parents died when he was young—his father when he was 4 years old, his mother when he was 9. He was raised by a distant relative, and I think he felt confined by Geneva. Otherwise, he wouldn't have had this romantic vision of the Great West that drove him to travel and see so much of the country. He lived in Maine, he taught French at Harvard, he visited New York City, Philadelphia, Newport, and Richmond, and he did quite a lot of wandering in the wilderness. He's lucky he didn't get killed.

“The real story in this book is how desperately the United States needed these people”

And it's hard to imagine a more dramatic, tragic childhood than Hamilton's. His mother never married his father, who deserted the family when Alexander was nine. Not long afterward, he and his mother contracted yellow fever; they were lying in bed together, very sick, when one morning he wakes up to find she's died. That's something you just don't get over, and I believe it contributed to the chip he carried on his shoulder throughout his life. It no doubt had a role in some of his poor decisions later in his life, including his sensational extramarital affair with Maria Reynolds and the duel with Aaron Burr that got him killed at the age of 47.

Q: The fact that two of the earliest Secretaries of the Treasury were immigrants seems uniquely American.

A: Yes, there are two enormous statues of Hamilton and Gallatin that stand on either side of the US Department of the Treasury. It's hard to imagine statues of only foreigners appearing in front of the equivalent building in any other country in the world. The real story in this book is how desperately the United States, which really is a different kind of country, needed these people. Hamilton couldn't have done what he did anywhere else. He arrives in 1772, and 18 years later, he's running the country.

The reason he's able to do that is the trust placed in him by George Washington. Hamilton served him as an aide-de-camp during the War of Independence after distinguishing himself as an artillery captain in the battles of Trenton and Princeton. He also managed to marry up into the influential Schuyler family, which was a huge advantage.

Q: What were some defining moments for Hamilton and Gallatin?

A: Hamilton really became Hamilton on two occasions: his six years of experience during the War of Independence; and when he was appointed Treasury Secretary in 1789.

During the war, it quickly became clear that Hamilton was someone who could do almost anything. Washington could ask him to go upbraid a senior general. And he did it. Never mind that he was 20 years old, speaking to Horatio Gates, hero of the Battle of Saratoga, a man many years his senior. You're going to make enemies doing stuff like that. But he didn't care, despite or maybe because of the fact that he was an illegitimate, penniless orphan from St. Croix.

Between 1781 and 1789, Hamilton immerses himself in everything he can read about public finance, because he knows that the current system of government in the independent states isn't going to work. He's the first of the founders to say, we need a new constitution, we need to call a convention. There's no evidence in his correspondence that he thinks he's going to become the chief financial officer of the country. The Treasury Act that's passed shortly after Washington's inauguration creates the department, and Washington appoints this very young man, Hamilton.

Gallatin becomes Gallatin when he realizes, very reluctantly, that he is a very poor farmer, as he ultimately says in his old age. His real talent lies in figuring out finances. Jefferson appoints him Secretary of the Treasury in 1801, and again in 1805; and Madison appoints him in 1809 and 1813. Four consecutive terms—the only time in American history that's ever happened.

Q: And Madison asked him to serve still again on two different occasions, although he declined both times.

A: That's right. There wasn't anyone else in the party who understood these matters at Gallatin's level, who could look at it clinically, without any feeling about how a particular policy would affect Albemarle County, Virginia, or my good friend so-and-so. He, and the other immigrants touched on in this book, didn't care about such things. Their role and attitude was similar to that of a first-class business consultant who comes in, assesses the situation, and offers expert advice. They're people who appeal to the mind more than the heart—that's where their talents lie, and that's what you need as Secretary of the Treasury. I don't think we've ever had two as great as Hamilton and Gallatin.

About the Author

Julia Hanna is Associate Editor of the HBS Alumni Bulletin.

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    • Anonymous
    As per my knowledge, the American financial system is so brittle that it can break any time.

    It amazes me sometimes that the US government can't make the US dollars in its press without the Fed Reserve's permission. They have to borrow it from the Fed. I mean, are you kidding me.?

    It means the US is a country which is ruled by its government but its finances are controlled by a few bunch of private banks..
    Its so wierd and dangerous too.

    Also the Dollar is not a gold(which is the real wealth) backed currency anymore.
    • Anonymous
    if everytime a US president wanted - he cd print money in the last 3 centuries - you would be no better than rest of bunch of banana republics and without the bananas either...

    appreciate what you have in the US for what it is worth - if you lived elsewhere in the world with your financial worth floating on their currencies up 10% today and down 20% tomorrow - you wd know better.

    anyone who questions the sanity of decision making that has resulted in the $15 trillion odd deficit shd realise that..

    sometimes - i wonder if the us public today had to put together their constitution all over again - we wd probably get another putin in the white house in short order..

    good grief ... (thank you mr. shultz)
    • Ruth Winett
    • Owner/Principal, Winett Associates
    This is a fascinating topic, especially given the bias some people have towards immigrants.

    Another example of financial wizards who are immigrants is Paul Warburg. Warburg played a key role in establishing the Federal Reserve system shortly after arriving in the US early in the 20th century.
    • Dr. S A Visotsky
    • Chairman & CEO, Vitech Group LLC
    I find it strange there is no mention of Haym Solomon, (native of Poland), nor that of Jacob Schiff, (native of Germany).

    Without Mr. Solomon's efforts and funding (Revolutionary War), the US would not exist as it does today. If you are looking to pay homage to immigrant financiers who got the ball rolling as it were, you must include the efforts of Solomon. Even The U.S. Postal Service, realized this and issued a stamp
    hailing Salomon as a "Financial Hero of the American Revolution." I do not recall ANY mention of Hamilton's efforts on an equal plane.

    Jacob Schiff (1847-1920), banker, financier, and leader of the American Jewish community from 1880 to 1920, has been heralded as "the quintessential story of an immigrant's success in America." It is also noted that, Schiff played a central role in shaping American and European Jewish history,from his base on Wall Street. He was the foremost Jewish leader in what became known as the "Schiff era," without which Wall Street would never have evolved into the financial powerhouse it is today.

    The accomplishments of Hamilton, although duly noted, pale by comparison, at least in terms of impact, with that of the gentlemen mentioned here.
    • Mitchell Young
    Oh, please... more pro-mass immigration propaganda.

    Hamilton wasn't an immigrant in the modern sense. He was a British subject who moved from one part of the British empire to another, like an Oklahoman might move to Texas. And of course both he and Gallatin were of Northwest European stock, an ethnic grouping distinctly disadvantaged by today's immigration policies.
    • Kapil Kumar Sopory
    • Company Secretary, SMEC(India) Private Limited
    A useful eye-opener to past we are not aware of.
    American economy has survived to some extent due to "miracles" and there seems to be absence of solid foundation. No doubt that US is a distinct leader in many areas but the general profligacy of citizens has led to downturns and breakdowns. Living beyond means is a habit result of which ultimately is disaster.
    The Government has to seriously adopt a practical approach to plug loopholes, ensure ethics and morality and enforce accoutability at all levels.
    There is need to learn from Hamilton and Gallatin