The Forgotten Founding Father

How Albert Gallatin Shaped America

Jefferson described him as “the only man who understands, through all the labyrinths Hamilton involved it, the precise state of the Treasury.” Abraham Alfonse Albert Gallatin was the United States Minister to the United Kingdom from 1826–1827, United States Minister of Finance from 1816–1823, The Secretary of the Treasury from 1801–1814, Member of the U.S. House of Representatives from 1795–1801, and U.S. Senator from Pennsylvania from 1793–1794. He was born in Geneva, Switzerland. Historians most recognize him for his role as the head of the U.S. Treasury under Jefferson. Gallatin’s influential acts during his tenure as Secretary of the Treasury deserve to be recognized by popular culture as one of the most significant economic figures in American history.

A big priority for the Jefferson administration was to reduce the national debt as much as possible; Jefferson saw it as a moral issue. To accomplish said reduction, Gallatin pushed for the imposition of three policies: reduction of government spending and taxation, restriction of appropriations, and stopping the growth of the military forex. A notable influence for such policies came from a rejection of perceived European faults, which included “monarchy, luxury, rigid class structures, financial corruption, military adventurism, and a heavy tax burden”. While Gallatin was antagonistic to Hamilton when Jefferson asked him to right all of the wrongs Hamilton had made, he is reported to have retorted by saying, “Hamilton made no blunders”.

The first policy Gallatin pushed for was a reduction and, in most cases, the abolition of internal federal taxes. He also made the Committee on Ways and Means to reduce national expenditure. After the reduction of taxes, most of the federal revenue came from import duties. While Hamilton managed to hold the country under a debt-to-equity ratio of 46 to 1, Gallatin took it to 8.3 to 1, and he made noteworthy progress in eliminating the national debt. Gallatin credited American neutrality with the significant expansion of the country’s wealth and income during Jefferson’s administration. For the same reason, Gallatin pushed for the reduction of the military budget, not only to be fiscally conservative but also to maintain neutrality. Contrary to Hamilton, Gallatin believed that America was not very vulnerable to military attack because the Atlantic Ocean protected it. He wrote to Jefferson in 1801 that he believed that all preparations against contingent wars would only work to encourage them. Such beliefs are yet another example of his rejection against his perceived European flaws influencing his policy positions. Hamilton, in comparison, had argued the United States should invest much more in the navy. Unfortunately, Gallatin’s prediction that a small navy would be suitable for America proved misguided during The War of 1812.

Gallatin reduced the debt by 46 percent from 1801 to 1812. It would have dropped even further if it wasn’t for the Louisiana Purchase. Both Gallatin and Hamilton supported the purchase, given that the port of New Orleans was very geographically valuable and financially dealing with changing administrations proved unproductive. Gallatin took a significant role in overseeing the purchase. He took charge of constructing the constitutional argument to validate such an investment by the federal government.

Gallatin had a large role in the West’s development during his time in office. Hamilton and Gallatin both noted that there was a lack of capital in America. To ameliorate this problem, Gallatin decided to use the enormous land acquisition of the Louisiana purchase. Through the sales and donations of federal lands, Gallatin provided a substitute for cash and credit. To this day, Americans have made more money through the appreciation of land than through any other way. From 1801 to 1812, the treasury sold four million acres. Gallatin also believed strongly in the necessity for federal investment in infrastructure. In 1802, he introduced the development of what came to be known as the National Road, a road that would stretch from the Potomac River to the Ohio River. He also influenced Jefferson by convincing him that highly populated areas did not need disproportionally more infrastructure investment because he believed that the assets were a tool to populate and develop unpopulated regions. In 1808 Gallatin delivered a report to the senate called Report on Roads and Canals, which included a recommendation that the federal government should spend 20 million for development, which was a considerable sum for the time. By and large, the Report pushed for massive investment in America’s connectivity through the use of canals and roads to connect essential bodies of water. This Report heavily mirrored Hamilton’s famous Report on the Subject of Manufactures. Congress initially met Gallatin’s Report with a muted response and postponed its consideration entirely until after The War of 1812.

Nevertheless, Congress granted the recommendations of Gallatin and Hamilton in the construction of the Erie Canal. After that, the development of the railroads made waterway connectivity somewhat irrelevant. In Gallatin’s Report on Manufactures, he proposes that the state should not enact restrictive tariffs, as was the European tradition, to stimulate domestic manufacturing. He believed that competition with foreign markets was not a significant barrier for domestic manufacture but that instead, the biggest obstacle to manufacturing development was the lack of liquid capital. To reduce such a barrier, he proposed that the government supply the country with loans akin to a modern venture capital firm.

During the fight for the renewal of the Bank of The United States (BUS), Gallatin pushed for Congress to renew the charter. In 1803 he had argued for the BUS to Jefferson for three reasons: 1, there needs to be a safe place for federal money, 2, the BUS would facilitate trans-continental transfers, and 3, the BUS would aid in the collection of revenue. The BUS was also crucial in regulating state banks’ asset reserves and limited state issuance of their currencies. In 1811, when the 20-year charter was about to expire, President Madison failed to push for a recharter sufficiently, and the contract was allowed to expire by Congress. Nonetheless, Gallatin’s arguments proved to be extremely influential during the chartering.

Gallatin has an incredibly understated legacy. For example, he understood something about the economy that not a lot of other people understood. That is that credit can be a mighty tool for economic growth, which can be catastrophically mismanaged. This mindset proved to be incredibly influential to the development of modern economic systems. Before Hamilton and Gallatin, economic theory characterized credit as something negative. Another legacy that Gallatin offer was that he moved away from the economy’s reliance on the agricultural industry. He believed that the success of the future of America depended on the appropriate investment towards modern sectors. The Union executed such investment through Gallatin’s introduction of land as liquid capital and his lobbying for infrastructure development. Another significant influence Gallatin made was ingraining in economic theory, the idea that business dies with too much government intervention, but it also dies with too little intervention. He believed that government should ensure that entrepreneurship was encouraged while managing the reduction of rent-seeking. Another very significant influence that Gallatin had was that he heavily pushed for the Louisiana Purchase and massive investment into the West’s development. Perhaps one of his biggest influences was within the plans contained within Henry Clay’s American System. The plan was heavily based on Hamilton and Gallatin’s ideas.

The phenomenon of America’s founding fathers’ idolatry is not a science. It is not necessarily based on empirical analysis of each individual’s contributions who made an impact in the development of the country. It is a curious phenomenon which, in modernity, is based around half-myth and half-truth. For that reason, it is important for us to revise the articles of history to understand what made the American project so successful. I believe that with time, Gallatin will receive the recognition he deserves. It is undeniable that he had a significant impact on the development of modern economics, whether that be with functional changes to national policy or purely through his rhetoric. It is also undeniable that America’s political and economic success predicated on its founding’s financial foundations, which Gallatin oversaw.

Bibliography:

McGraw, Thomas K. (2012). The Founders and Finance: How Hamilton, Gallatin, and

Other Immigrants Forged a New Economy. Belknap Press.Ian W. Toll, Six Frigates: The Epic Histories Founding of the U.S. Navy (New York:

Norton, 2006); Hamilton to Jonathan Dayton, n.d. [Oct.–Nov. 1799], in ThePapers of Alexander Hamilton, ed. Harold Syrette et al. (New York: Columbia University Press, 1961–1978), vol. 23, 599–604

Gallatin, Albert. “Online Library of Liberty.” The Writings of Albert Gallatin, Vol. 1 — Online Library of Liberty, 1953, oll.libertyfund.org/titles/gallatin-the-writings-ofalbert-gallatin-vol-1/simple.