Washington’s Immigrant Secretary

Originally published in Flourishing Jan/Feb 2013

For Christmas 2011, our daughter Janelle gave me a copy of Laura Hillenbrand’s most recent book, Unbroken,1 which tells the life story of Louis Zamperini.  The son of Italian immigrants, Louis didn’t learn to speak English until his parents moved from Olean, New York to Torrance, California.  In the 1930’s, he became a national sensation as a track star at USC, where he set a national record time for the one mile run, which stood for fifteen years; and in Berlin at the 1936 Olympiad—at the age of nineteen—he finished eighth in the 5,000 meter run.  While in Berlin–to make a statement about Hitler’s racism and to celebrate America’s Jesse Owens—Louis climbed a flagpole and stole Hitler’s personal banner.  Remember—he was only nineteen.  After graduating from USC,  Louis became a bombardier on a B-24 Liberator, and when his plane went down in the Pacific in the summer of 1943, he and other members of the plane’s crew spent more than a month drifting on a tiny raft, before becoming Japanese prisoners of war.  The Japanese guards remembered Louis from the Olympics—not a good thing.  After the war, Louis became one of many veterans suffering the effects of PTSD.  And finally, thanks to a persistent and loving wife, Louis found his true calling as an inspirational Christian speaker.  The book is oxygen for the soul, and you should read it.  But, that’s not the subject of this essay; I just had to get it in here somewhere.  Perhaps it will help set the tone for what follows:

He was born in 1757.  His birthplace is uncertain, but was likely the island of Nevis near St. Croix.  His mother, Rachel Faucett, was a beautiful woman of British and French Huguenot descent. While still a young woman, Rachel was forced to abandon her first child and his abusive father, and she went to live with James Hamilton, a Scottish ne’er-do-well, on the nearby island of St. Kitts.  Though they never married, she and James had two children together, James and Alexander.  Before long, the elder James deserted Rachel and the two boys, never to be heard from again. When Alexander was nine years old and James was eleven, Rachel, who was not yet forty, died on the island of St. Croix of yellow fever.  Upon becoming orphans, the boys were separated from each other; and Alexander went to work for the local office of a New York-based firm that was engaged in shipping and trading.  He made such a name for himself, that by the time he was fifteen, he was landed in New York with letters of introduction to several well-to-do families.  By the time he was thirty-two, Alexander Hamilton was George Washington’s, and our nation’s first, Secretary of the Treasury.  The Founders and Finance2   was my Christmas gift from our daughter Sara in 2012.  How do those girls know so much about their father? 

There is much history to learn from this book, and the theme is compelling and timely.  Of our six leading founders—Washington, Adams, Jefferson, Madison, Franklin, and Hamilton—Alexander Hamilton was by far the youngest.  He was also, perhaps, the most visionary, and he was the only immigrant. 

Hamilton was thoroughly self-educated in finance, he had studied and practiced the law, he was an extraordinary administrator, and a prolific writer. To General George Washington, he had been a most trusted aid and confidant during the Revolutionary War. 

By the time Hamilton took office in 1789, the Revolutionary War had been history for six years, the Constitution was two years old, and the young nation’s debt exceeded $74 million at face value.  America’s finances were in such bad shape that both state and federal bonds were trading for ten to twenty cents on the dollar.  Historical documents show that for the year 1789, federal tax receipts were a mere $162,000.3  And, you think we’re living beyond our means!

All this debt had been issued to pay for the War, and most of it had no physical collateral to back it up.  America’s financial situation was so desperate that many people thought that the young republic wouldn’t survive.  Alexander Hamilton understood how hopeless the situation was, but he had a plan.  Just as important, he had experience; and despite his age—and being foreign-born—he had the trust and support of President Washington.  

Following the success of the American Revolution, many skilled European artisans saw opportunity across the pond.  But European governments were opposed to the exporting of manufacturing talent; in some cases departing artisans came under the threat of fines and imprisonment.  Such was the case with young Samuel Slater, who in 1789—the same year that Hamilton became Washington’s Secretary of the Treasury—disguised himself as a farm boy and sailed from England to New York with the blueprints for a cotton mill etched in his brain.  Slater soon moved from New York to Providence, Rhode Island, where he was introduced to the Brown family.  The Brown’s—for whom Brown University was later named—had prospered from trans-Atlantic commerce,  and wanted to invest in domestic American manufacturing.  With the Brown’s acting as venture capitalists, Slater established a cotton mill near PawtucketFalls that produced machine-spun cotton thread.  That was the beginning of the Industrial Revolution in America, and it was exactly what America’s young Treasury Secretary had in mind when he submitted his Report on the Subject of Manufactures to Congress in 1791.  Perhaps he was channeling the great Scottish philosopher and economist Adam Smith4 when he wrote:

“The results of human exertion may be greatly increased by diversifying its objects.  When all the different kinds of industry obtain in a community, each individual can find his proper element, and call into activity the whole vigor of his nature.”

Hamilton understood that social harmony could be produced through free and mutually self-interested exchange—Adam Smith’s invisible hand—and that the natural division-of-labor implicit in a free society would mean full employment for everyone able and willing to work. In another passage from the same report Hamilton wrote:

“[immigrants] would probably flock from Europe to the United States to pursue their own trades or professions, if they were once made sensible [aware] of the advantages they would enjoy.”

As indeed they did.  During the entire colonial period, only eight for-profit corporations were chartered in North America.  During the 1790’s, three hundred and eleven such corporations were chartered.  A total of 3,884 entrepreneurs participated in these ventures, often pooling their resources to underwrite their more capital-intensive projects. 

One hundred and fifty years later, Joseph Schumpeter (1883-1950), the great Austrian economist, wrote of Hamilton’s report, …“applied economics at its best.”  Of Hamilton himself he wrote, “…[Hamilton] was one of those rare practitioners of economic policy who think it worth while to acquire more analytical economics than that smattering that does such good service in addressing audiences of a certain type.”  I thought it interesting that Schumpeter himself was only thirty-six, when he was appointed Finance Minister of Austria. 

But, I’ve skipped ahead of myself.  As mentioned above, President Washington’s most pressing problem upon taking the oath of office in 1789 was the crippling debt left over from the Revolutionary War.  It was in answer to that problem that Alexander Hamilton first displayed his mastery of finance before Congress.  Advised by Hamilton, Congress quickly passed a law establishing modest tariffs on imports.  Hamilton also advised taking care not to make the tariffs punitive or restrictive of trade.  For the next one hundred and twenty-four years—until the Sixteenth Amendment authorized a tax on income in 1913—such tariffs provided by far the greater part of our government’s revenue.  But, passing The Tariff Act was the easy part.

The more difficult problem was how to (re) establish America’s credit rating and begin to pay down its debt.  Like many others, Hamilton believed that if the country couldn’t borrow money on reasonable terms it wouldn’t survive. 

To begin the restructuring of America’s debt, Hamilton submitted to Congress a Report Relative to a Provision for the Support of Public Credit in January of 1790.  In the report, Hamilton first asked for authority to repay the $12 million (at face value) of loans owed to foreign governments, plus all accrued interest.  He would accomplish that by refinancing all the outstanding debt on terms agreed upon by the parties involved. 

Second, Hamilton proposed that the U.S. Treasury issue new bonds to replace the total principal of all the other old debts, again at face value.  Those bonds would not have a fixed maturity date, but neither could the government redeem the bonds if interest rates fell; e.g. the buyers would have “call protection”.

Third, Hamilton insisted that the war debt accumulated by the states be assumed by the federal government, and restructured in the same manner as all other federal debt.

Fourth—and this idea must seem eerily familiar to almost every reader—Hamilton insisted that the federal government set aside a fixed portion of its receipts to pay the interest on its bonds as it became due each year.  This would reassure bond holders, and it would avoid the annual renewal of bitter and partisan showdowns over the nation’s debt in Congress.

Hamilton also insisted that interest on the federal debt would be paid in gold and silver.

There is much more to Thomas McCraw’s important and elegantly written book.  Alexander Hamilton’s story consumes only the first half of the book, which ends with his death by duel at the age of forty-seven.   If you were to read only that chapter—The Duel—and especially, Hamilton’s final letter to his wife, you might benefit by insight into the nature and strength of his character.  That’s an important thing; it was their character, more than anything else, that drew Hamilton and Washington together. 

Then there is the story of Albert Gallatin, the stoic, French-speaking Swiss runaway, who was appointed Secretary of the Treasury by Thomas Jefferson in 1801.  It was Gallatin who corrected Jefferson’s long-standing vilifications of Hamilton; and who helped America finance the Louisiana Purchase, among many other achievements that helped to define our nation.

Did I mention that Alexander Hamilton was a poor immigrant boy with no formal education, and that he was orphaned at the age of nine?  Yes, I guess I did.  But, I didn’t tell you that four of America’s first six Secretaries of the Treasury were immigrants, and that those four immigrant Secretaries served for twenty-one of the first twenty-seven years under the Constitution.  The full title of Thomas McCraw’s book is The Founders and Finance: How Hamilton, Gallatin, and Other Immigrants Forged a New Economy

My friend and mentor Nick Murray is fond of quoting Harry Truman:  “The only thing new in this world is the history you don’t know.”  So Nick, in his monthly newsletter for advisors, frequently recommends books that he thinks we should read for the historical context they can provide.  And, unknown to Sara, The Founders and Finance  was Nick’s “first must-read book of 2013.”  Now, it’s mine, too. mh

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1.  Unbroken: A World War II Story of Survival, Resilience, and Redemption, Laura Hillenbrand, Random House, 2010.   Hillenbrand is also the author of Seabiscuit, which became a hit movie in 2003.

2.  The Founders and Finance,  Thomas K. McCraw,  The Belknap Press of HarvardUniversity Press, 2012.

3.  This was for only a partial year.  The full amount for 1789 is unknown.

4.  An Inquiry Into the Nature and Causes of the Wealth of Nations, Adam Smith, 1776.  Smith was also the author of The Theory of Moral Sentiments, published in 1759, for which he was better known during his own lifetime.  Smith (1723 — 1790) is now regarded as one of the key figures of the Scottish Enlightenment, a movement that greatly influenced America’s founding fathers.

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A Notable February Birthday

Originally published in Flourishing Jan/Feb 2013

Joseph Alois Schumpeter believed that capitalism would be destroyed by its successes.  He predicted that by its unparalleled economic output, capitalism would spawn a large intellectual class that made its living by attacking the system of economic freedom that made its own existence possible.  But, unlike Karl Marx, Schumpeter didn’t take pleasure in his predicted destruction of capitalism.

In his most famous book, Capitalism, Socialism, and Democracy1, Schumpeter defended capitalism, primarily for nurturing entrepreneurship.  Indeed, he was among the first to distinguish entrepreneurship from inventing and inventions, pointing out that entrepreneurs also innovate by creating new uses for old products, new markets, and new forms of business organization and management.  The question he said is not “how capitalism administers existing structures, … [but] how it creates and destroys them.”  This “creative destruction” is what causes continuous economic progress and improvements in the standard of living for everyone.

Schumpeter was also a giant in the history of economic thought. His magnum opus, History of Economic Analysis2, was edited by his third wife, Elizabeth Boody, who had a PhD. in English; and published posthumously in 1954.

Joseph Schumpeter was born on February 8, 1883 in Třešť, Habsburg Moravia, then part of Austria-Hungary, where his parents owned a textile factory. 

Though his father died when Joseph was just four years old, he was very familiar with business when he entered the University of Vienna to study economics and law.  While there, he was one of the more promising students of the great Austrian economist, Eugen von Böhm-Bawerk.  He earned a PhD.  in 1906, and at the age of twenty-eight he published his first major work, Theory of Economic Development3. 

After serving in several teaching appointments throughout Europe, and a brief stint as Finance Minister of Austria; Schumpeter immigrated to the United States in 1932, accepting a permanent position at Harvard.  He remained at Harvard until his retirement in 1949. 

Joseph Alois Schumpeter died at his home in Connecticut on January 7, 1950.

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 1.  1942. Capitalism, Socialism and Democracy.New York: Harper and Brothers. 5th ed. London, George Allen and Unwin, 1976.

2.  1954.  History of Economic Analysis. Edited by E. Boody. New York, OxfordUniversity Press.

3.  1912.  The Theory of Economic Development. Leipzig: Duncker and Humblot. Translated by R. Opie. Cambridge: HarvardUniversity Press, 1934. Reprint. New York, OxfordUniversity Press, 1961.

La Vida Loca

Originally published in Flourishing Jan/Feb 2013

“You’re too smart to be from Mexico.”  Alfredo’s new friends and classmates were stunned into silence by that comment, made by a post-graduate teaching assistant (TA) at the University of California (U.C.) at Berkeley.  For his part, though, Alfredo mentally filed it among the many reasons he had for earning a college degree.  He was still using a Spanish-English Dictionary to interpret his professors’ lectures; and he still carried a heavy load of self-doubt. This wasn’t a hill to die on.

It had only been a few months since Alfredo Quiñones had earned an Associate’s Degree at San Joaquin Delta College (SJDC); and it was on the basis of his academic record there that he had been admitted at Berkeley.  In fact, he had innocently thought that when he finished at SJDC, his college education would be complete.  Fortunately, in his final semester, one of his SJDC professors discovered Alfredo’s confusion and referred him to a faculty advisor, who was able to explain his educational options.  In the process of advancing his education just that far, Alfredo had pulled weeds and picked tomatoes and cotton on San Joachin Valley produce farms; he had shoveled sulphur from rail cars; and he had learned to weld heavy steel in Stockton, California’s railroad yards.  Now at U.C. Berkeley, he was still burning the candle at both ends.

Alfredo’s big dream was to become an American citizen.  He had already helped bring his parents, Sostenes and Flavia, and his four siblings to the San Joachin Valley from their two-room home in Polaco, Baja, Mexico.  They were all on the road to American citizenship.  That journey had started the day that Alfredo hopped the eighteen foot fence topped with barbed wire that separated Mexicali, Mexico from Calexico, California. 

It had taken two attempts.  The first time over the top, Alfredo was greeted by American border guards. “Ay, Dios mío!” he thought to himself, not knowing what fate awaited him.  But the guards somehow understood that he wasn’t a threat to American national security, and they delivered him through the nearest checkpoint back into Mexico. 

After being released, Alfredo returned immediately to the same spot in the wall and scaled the rampart again.  This time, he vanished into the dark streets of Calexico, and by dawn he was in the San Joachin Valley at the home of his uncle.  That day had been his eighteenth birthday—the happiest day of his life he thought—January 2, 1986. 

Fortunately, Alfred0’s illegal crossing was soon forgiven when President Reagan signed the Simpson-Mazolli Immigration Act of 1986.  That’s when he felt it was safe to enroll at SJDC.

By the time he received his Bachelor’s Degree in Psychology from U.C. Berkeley, Alfredo no longer needed his Spanish-English dictionary.  And, he had decided to become a doctor.  Indeed, with his dazzling academic record, he was faced with choosing among medical schools at Stanford, Cornell, and Harvard.  He chose Harvard, where he again made a name for himself, this time with the nation’s most respected medical faculty. 

In 1999, at the age of thirty-one and with his medical education at Harvard nearly complete, Alfredo showed his academic credentials and letters of recommendation to the lady at the citizenship office in Boston.  Examining them carefully, she asked, “How did you go from being a migrant farm worker to all this?”  Alfredo Quiñones didn’t have an answer, and unsure of where the question would lead, he was trembling.  “Ay, Dios mío! Not again.” he thought to himself.  Then the lady smiled, stamped his papers, and offered her congratulations: “Alfredo, you are now a citizen of the United States of America.”  

He had often reminded himself of the words of his grandfather, Tata Juan Quiñones: “Alfredo, whenever you have the choice, don’t follow where the path leads.  Go instead where there is no path and then leave a trail.” La vida loca!  Live the crazy life, yes; but always with a worthy purpose in mind.  Alfredo knew he had done that, exactly.  He no longer had to explain—to himself, or to anyone else—that he was worthy of the risks he’d taken and the opportunities he’d been given.  He was chosen by his graduating class at Harvard to deliver their upcoming commencement address.  “That triumph”, he now says, “was also an exorcism. …with my photo on the front page, I was truly living la vida loca.”  And with that speech, his self-doubt was gone. 

Dr. Alfredo Quiñones-Hinojosa (he added his mother’s maiden name to his own) is now teaching and practicing medicine at Johns-HopkinsUniversity and Hospital in Baltimore, where he is one of America’s leading brain surgeons.  Dr. Q. has also created a brain research laboratory at Johns-Hopkins, dedicated to discovering the causes of brain cancer and for developing more effective treatments.  He is fully supported in his efforts by his wife, the former Anna Peterson of Mendota, California, and their three children. mh

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* This article is based on the book, Becoming Dr. Q: My Journey from Migrant Farm Worker to Brain Surgeon, by Alfredo Quiñones-Hinojosa, M.D.,  University of California Press, 2011.  You should read it.  Really!