Continued … The economy staggered once, twice, sighed and collapsed. Historians interested in this sort of thing have estimated that the war-induced contraction was equivalent to a 40% drop in colonial GDP. As a point of reference, the cumulative GDP loss during the first four years of the Great Depression (1929-1933) was 26.33%. In other words, the Colonial economy crashed 50% more in twelve months than it did in the first four years of the Great Depression.
Recourse – Something had to be done. If a teamster ran out of axle grease, he might be forced to use lard or, in extremis, even hard cheese. Same-same with money. If gold or silver-backed money was no longer available, some temporary fix had to be found: the colonies raced towards the printing press. Each colony issued their own currency in the form of paper “script”, supported by neither gold or silver. A century or century-and-a-half later this concept of paying debts with unsupported script was adopted by company towns.
With every colony issuing separate script, the Continental Congress could see no insurmountable difficulty in doing the same. “Continentals” were printed from 1775 to 1779 to underwrite the costs of government and war. At first the Continentals were backed by Spanish pieces-of-eight or their equivalent value in gold or silver. In the 12 months between the first printing of Continentals and the signing of the Declaration of Independence (1776) the Continental Congress printed so many “Continentals” there was no longer enough gold or silver to back them up, and the script’s value evaporated. The phrase, “Not worth a Continental!” was once a common expression of having negligible value.
Sidebar: The British noted this and hired professional counterfeiters to print fake currency and distribute it throughout the colonies. War takes many forms.
As script lost its claim to immediate conversion, those-who-ran-the-printing-presses thought that bonds, with a promise of future conversion, might still somehow be accepted as money.
Bonds: As Continentals lost value, they were replaced by bonds that almost immediately proved of little value. Soldiers were even paid in bonds, with the principal due in (for example) three, five, or seven years. Consider the soldier’s plight. Hypothetically, he has just been paid with a bond with a nominal value of $20, due two-and-a-half years after his enlistment expires. But right now, all the soldier wants is a bar of soap and a tin or two of flea and tick repellant. Both are presently available at the sutlers for a total of 50 cents. What happens when he tries to pay with his $20 bond? How does he take change? Does the sutler offer a total of 5 bars of soap and 3 tins of flea and tick powder in exchange for the entire $20 bond? Does the soldier accept? Obviously, bonds are not a useful currency for small purchases. The soldier could only benefit from his wages by selling his bond to speculators at a heavy discount.
Discount – The discount would be particularly onerous for Continental Congress bonds. Common maturities ranged from one year to five or six. The bonds paid no interest, but were issued at a discount to face value. A bond such as this might sell on the secondary market for dimes on the dollar.
As the war ground on, confidence in Continental currency evaporated and the value of the Colonial bonds collapsed. Combined with wartime inflation, by the end of the war, Continental dollars were worth less than one percent of their initial value.
That is what the new Secretary of the Treasury was to face.
Hamilton was one of the most important founding fathers in our history. He was the chief author of the Federalist Papers, and thus influenced how the new Constitution was to be interpreted. He was the first Secretary of the Treasury. He helped create the first national bank and the U.S. Mint. He was an active Federalist, the political party that supported a strong federal government. What makes him important is that we’re still living with the decisions he made.
The richest sugar economy in the British West Indies was Nevis Island, where Alexander Hamilton was born in 1755. When Alexander was 11 years old, in 1766, Hamilton’s father left the mother. The father moved to St. Kitts, another rich sugar island, with 68 sugar plantations, one about every square mile.
At the age of 11, Alexander began work as a clerk in a trading company on St. Croix Island. Although under Danish rule, St. Croix at this time had about 200 sugar plantations with 30,000 acres under cultivation. Once situated in his clerkship, Alexander began to expose two characteristics that remained throughout his life: a penetrating mind and an indefatigable will. Those properties were demonstrated in his famous 1772 hurricane letter and continued to serve him throughout his career.
On August 31, 1772, in Hamilton’s 17th year, his sixth year as a clerk, St. Croix was struck by a devastating hurricane. Alexander wrote a descriptive letter on the storm and its effects to his father, who saw it was too good not to share and caused it to be published September 6, 1772, a week after the hurricane, in the Royal Danish American Gazette. The letter falls into two parts, with the introductory portion being an objective report of the news
I take up my pen just to give you an imperfect account of one of the most dreadful Hurricanes that memory or any records whatever can trace, which happened here on the 31st ultimo at night.
It began about dusk, at North, and raged very violently till ten o’clock. Then ensued a sudden and unexpected interval, which lasted about an hour. Meanwhile the wind was shifting round to the South West point, from whence it returned with redoubled fury and continued so ’till near three o’clock in the morning. Good God! what horror and destruction. It’s impossible for me to describe or you to form any idea of it. It seemed as if a total dissolution of nature was taking place. The roaring of the sea and wind, fiery meteors flying about it in the air, the prodigious glare of almost perpetual lightning, the crash of the falling houses, and the ear-piercing shrieks of the distressed, were sufficient to strike astonishment into Angels. A great part of the buildings throughout the Island are levelled to the ground, almost all the rest very much shattered; several persons killed and numbers utterly ruined; whole families running about the streets, unknowing where to find a place of shelter; the sick exposed to the keeness of water and air without a bed to lie upon, or a dry covering to their bodies; and our harbours entirely bare. In a word, misery, in all its most hideous shapes, spread over the whole face of the country. A strong smell of gunpowder added somewhat to the terrors of the night; and it was observed that the rain was surprizingly salt. Indeed the water is so brackish and full of sulphur that there is hardly any drinking it.
My reflections and feelings on this frightful and melancholy occasion, are set forth in the following self-discourse.” (Emphasis added to isolate the subjective part that follows.)
(See text box. Errors in the original).
The second portion, (not quoted here), was written in the embroidered manner of the period and adds a human-interest element to the letter. The entire letter is available at:
King’s College – The letter caused Hamilton’s employer, who experienced the same catastrophic storm but lacked Hamilton’s expressive ability, to fund his study at King’s College (now Columbia University), where Alexander arrived in 1774. This was after Princeton declined Hamilton’s required terms of enrollment. At age 19, being supported by third parties, but being of adamantine will, he demanded to be allowed to enroll in any class for which he was qualified and to graduate as soon as he’d completed the minimum requirements. Given Hamilton’s implacable attitude, it is not inconceivable that Hamilton’s employer contributed to his moving expenses just to be rid of him. Princeton, as noted, seemed to ratify his employer’s position when it declined Hamilton’s terms as presumptuous. King’s College, the next approached, agreed to the arrangement and even assigned a special tutor to his service.
War –Alexander’s interests, while at King’s, became increasingly focused on the nascent independence movement. He published a series of scathing but well reasoned pamphlets in which he defended the Continental Congress’s proposal to embargo trade with Britain. These pamphlets received wide recognition and, when the Revolutionary War began, he was commissioned to lead an artillery company. Hamilton fought in the battles at Trenton and Princeton. By 1777 he came to the attention of George Washington.
Washington – General Washington sought assistants to whom he could delegate a portion of his responsibility. Hamilton performed admirably, being able to find solutions that reflected Washington’s intent, even if not his precise instructions. One example is Hamilton’s notes to the Continental Congress and orders to the generals under Washington. As time passed Hamilton was able to speak for General Washington in a way no other staff member could. Washington described Hamilton as his “principal and most confidential aide.”
At Hamilton’s insistence, in 1781, Washington raised Hamilton to a field command (infantry) at the Battle of Yorktown, the last major battle of the war. Hamilton, in conjunction with the French, co-led the assault that contributed to the surrender of the British General Lord Cornwallis. At that time, battlefield victories were one of the few ways a basically unknown person could win public fame, and this victory advanced his career in ways nobody could have anticipated. More, later.
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