Thomas K. McCraw was a professor emeritus at Harvard Business School and the author, most recently, of “The Founders and Finance: How Hamilton, Gallatin, and Other Immigrants Forged a New Economy.” Mr. McCraw died on Nov. 3.
THE staggering deficit. The possibility of impending tax hikes and significant budget cuts by the end of the year. Has the United States ever faced such a daunting financial crisis?
Yes — though not, as many might guess, during the Great Depression. Rather, it was shortly after the nation’s birth. It’s an experience worth examining, because the way the new country put its house in order under Secretary of the Treasury Alexander Hamilton holds several lessons for today.
The Revolutionary War left America immersed in debt. Ratification of the Constitution in 1788 finally gave the federal government the authority to tax, but almost all federal tax revenues came from duties on imported goods.
And yet Hamilton, who took office in 1789, deliberately avoided prolonged fights over tax policy, which he knew he couldn’t win. Indeed, his thinking perfectly describes the political situation today: “To extinguish a Debt which exists and to avoid contracting more are ideas almost always favored by public feeling and opinion, but to pay Taxes for the one or the other purpose, which are the only way of avoiding the evil, is always more or less unpopular.” Could there be a better description of today’s partisan intransigence toward adding a single tax dollar to federal revenues?...