A lot of you who have an interest in economist history have
probably heard of Alexander Hamilton, the first Treasury Secretary appointed by Washington, but many of you have probably never heard of Albert Gallatin and today I just wanted to pay homage to him.
Gallatin was born into a wealthy merchant family in
Calvinist Geneva in 1761. He became an orphan when he was only nine and was raised by his
relative. At the age of nineteen, Gallatin obtained a university degree in
Latin and Greek. Nonetheless, by the time he completed his studies, Gallatin was
disenchanted with his prospects in Geneva as either a civil servant, merchant
or member of the officer corps. In 1780, without saying a word to his family,
he decided to leave for the newly independent United States of America.
Eventually, he taught French at Harvard, and with his early
savings, he purchased some land in Fayette County, Pennsylvania and in 1784, he
settled there. President Washington appointed Alexander Hamilton, whom he had relied on
greatly during the War of Independence, as his Secretary of the Treasury. From
1789 to 1800, Hamilton built the foundation of what was to become the federal
financial system of the United States. Hamilton’s system rested on four
pillars:
- The creation and extension of sources of federal tax revenues;
- The funding and management of the federal public debt;
- The increased use of the U.S. dollar as a medium of exchange through the establishment of the United States Mint;
- The creation of the first Bank of the United States
During this time, as a congressman, Gallatin established himself as a leading figure in the emerging Republican Party led by
Thomas Jefferson, and he quickly gained the reputation of being the member of
his party with the most profound understanding of public finance. But also at this time, Gallatin and
Hamilton became enemies, both politically and personally. Part of the personal
enmity was rooted in the Whiskey Rebellion of 1792, when Gallatin served as a member
of the Pennsylvania Assembly. He is believed to have been the author of an aggressively
formulated resolution opposing Hamilton’s efforts, as Secretary of the
Treasury, to collect a “whiskey tax”.
Thomas Jefferson had already relied on Gallatin’s financial
advice during his time in opposition. After becoming President, he chose
Gallatin as his Secretary of the Treasury. Thus began a third distinct period
in Gallatin’s life. Remarkably, instead of dismantling Hamilton’s financial
system, Gallatin opted to preserve the most important parts of it.
Gallatin’s early priorities included a change in Hamilton’s
tax structure in order to better reflect the Republican Party’s ideology and
its constituencies. Gallatin also convinced Congress to pass the law of 1801,
which required an annual report by the Secretary of the Treasury to the
President. He submitted the first of these reports later that year. Moreover,
the minting of dollars was somewhat scaled back under Gallatin.
For Gallatin, a reduction of the United States’ federal debt
burden “was the end toward which all other fiscal policy was designed. Gallatin’s
cautious management and reduction of the public debt during his first years in office
was crucial. It gave the United States Treasury the necessary credibility to
access financial markets and therefore finance extraordinary expenses. . By
1808, Gallatin had managed to reduce the federal debt-to-GDP ratio by an
estimated 50 percent or so, including the additional debt from the Louisiana
Purchase.
Unfortunately for Gallatin, history took a turn for the worse
in 1808. A second war of independence with Britain was looming. A trade embargo
with Britain was imposed and led to a steady drop in import tax revenues over
the coming years. At the same time, Gallatin needed additional revenues for war
preparations. This left him with next to nothing to sustain his debt reduction
strategy. Foreseeing financial disaster and unable to prevent it in his
capacity as Secretary of the Treasury, Gallatin resigned from the Treasury in
1814.
Albert Gallatin never returned to Treasury. But he stayed
involved in U.S. diplomatic, political and financial matters. Until his death
in 1849, he served as a diplomat in Paris, and later in London. He also
directed the Bank of New York, and indulged in economic, financial and ethnographic
research. He was laid to rest in the Trinity Church cemetery on Wall Street. Years
earlier, Trinity Church had already become the final resting place of Alexander
Hamilton. If you visit Trinity Church, you will find that the two are buried at
opposite ends of the cemetery, perhaps fittingly so in light of their difficult
personal and political relationship.
Wikipedia
