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Anyone who knows anything about American history knows that the 18th century was one of the most pivotal periods for the economic and governmental foundation of the United States. The events leading up to the War of Independence and the creation of the Constitution took place in the second half of the century, with the 1780s setting the stage for America's long and rough road towards political and financial independence. 

The inauguration of the newly independent national government led to a slew of actions taken by the Secretaries of Treasury through the late 1700s and early 1800s. These responsive efforts were later credited with being some of the most influential decisions leading to the foundation of the nation's financial structure and institutional grounding.

The official birth of the U.S. coincided with the era that is most commonly described as the Industrial Revolution, spanning from 1760 to 1840. However, much of the American innovation of the 19th century would have been severely stifled if it had not been for the preparatory acts of Congress in the last two decades of the 18th century. 

Building a Nation on Loans Provided by Allies

To get a financial expert's perspective on America's financial founding, we spoke to one of the loan specialists at Bonsai Finance, a finance group that provides a variety of lending services to the general public. His sentiment was that the nation's reliance on external funding was ultimately a good thing:

“This country was built on the ability to take out loans. Some may perceive that as a negative, arguing that a foundation should not be laid upon debt. However, one could just as easily contend that the founders' great goals required great financing.”

The often overlooked and looked-down-upon power of borrowing proved to be the difference-maker that leveled the playing field between the U.S. and British forces preceding the War of Independence. Our guest expounded upon this idea, stating:

“Without borrowing power, the founding fathers and any other ambitious founders would be left to their own pockets, which would mean that only the already-rich could achieve anything meaningful. In that sense, loans are a means to equality and opportunity and they've served as the backbone of this country since before the days of the Treasury.”

France and Holland Foot the Bill

The War of Independence was a burdensome effort for the 13 states, creating the need to borrow funding from allies. Founders had to continually borrow from Dutch bankers as well as institutional and private lenders from France.

While the ongoing borrowing impoverished the allies, relations continued nicely into the future, with the Statue of Liberty coming as a gift (often called the “largest Christmas gift ever”) from the French more than 100 years later in 1886.

Continental Congress Struggled to Collect Taxes

Continental Congress was the sole federal authority in the first decade following the Declaration of Independence. As a relatively new organization, they lacked the taxing power needed to keep operations going. Consequently, they had to rely on requisitions from the 13 states and would often receive only a fraction of the requested funds.

To respond to the lack of funding, Congress went the fiat route and started printing loads of paper money, which quickly lost its value. This chain of events left the nation with the worst public debt ever experienced when measured against government income.

Historian Thomas McCraw might not have been exaggerating when he stated that the 1780s were the second-worst decade in American finance other than the 1930s – the era of the Great Depression. However, it was the recovery from this period of stagnation and downturn that led to the economic upturn of the early 19th century.

The Influence of the Early Secretaries of Treasury

The first five Secretaries of Treasury played critical roles in the founding of the nation's economic policy. The very first Secretary of Treasury, Alexander Hamilton, firmly believed that the constitution granted him the right to formulate and develop radical economic policies that strengthened and shaped the central government.

Hamilton went on to facilitate the establishment of the U.S. Mint in 1791, thereby instituting the United States dollar coin to serve as the replacement for the Spanish Peso, which was the most circulated coin in America at the time. He proposed that a U.S. dollar coin should be minted with relatively the same weight of the Peso, in order to establish a stronger national currency.

Within a year, Hamilton's propositions for the gold dollar had been accepted by Congress through the Coinage Act of 1792. A few years later, Albert Gallatin was appointed the Secretary of Treasury under the presidency of Thomas Jefferson.

Gallatin's effort to reduce public debt, lower taxation, and reduce government expenditure laid the way for fundamental principles that are still central to modern finances. Within 11 years, from 1801 to 1812, Gallatin was able to reduce the national debt from $83 million to approximately $45 million.

Most of the Early Secretaries of Treasury Were Immigrants

It's interesting to note the underlying immigration dynamics that played a role in the first five decades under the Constitution. During that time, only 10% (six out of 60) of the government's presidential cabinets had been immigrants. However, of those six immigrants, five of them went on to become Secretaries of Treasury.

One could propose several reasons for such a high percentage of early Secretaries of Treasury being born abroad. You could assume that all five of them had preconceived plans before coming to the country. That is, they came with the intention of gaining a high-ranking financial position in the government.

However, that could be ruled out by the fact that some of them immigrated at very young ages. It is equally, if not more likely, that those immigrants were selected as Secretaries of Treasury for the same reason they were allowed to join the minority of foreigners who held rank in the presidential cabinet in the first place – their skill sets.

A Future For Many Was Built By a Few

By reviewing the history and examining all of the puzzle pieces involved, it becomes apparent that the entire fate of American finance was decided in the span of a couple of decades and was radically shaped by a few dozen highly influential leaders.