Paging Alexander Hamilton

Alexander Hamilton is in the spotlight at the White House. Vice President Vance and the Trade Representative, Jamieson Greer, are touting Hamilton’s trade policies. Treasury Secretary Scott Bessent, in a recent op-ed, says that George Washington’s treasury secretary inspires President Trump’s “economic statecraft.” Then again, too, Mr. Bessent’s op-ed makes no mention of the main contribution the heroic Hamilton made to our laws — the Coinage Act of 1792.That was the first major legislation in which Congress exercised the power granted to it in the Constitution to coin money and regulate the value thereof. It based America’s monetary system on a dollar containing 416 grains of standard silver, or 371 ¼ grains of pure silver, the same as in a coin widely circulated at the time and known as the Spanish milled dollar. Hamilton valued the dollar, too, in gold and copper. Why would Mr. Bessent fail, in his piece in the Journal and in a related speech on June 23, to mention Hamilton’s monetary policy? The secretary’s references to Hamilton seem to be focused entirely on trade — and seek to give cover to President Trump’s own protectionist inclinations. Fair enough. It’s hard, though, not to see the 1792 coinage act as the most daring idea to emerge from Hamilton’s pen.The coinage act, by defining the dollar in law as a fixed weight of specie, helped to ensure a stable currency for the new nation. The law set the stage for decades of growth with low inflation. Between 1790 and 1913, economists William Luther and Alexander Salter report, annual inflation ran at just 0.2 percent a year on average. Those years witnessed America’s economic rise — though in part, no doubt, to mercantilist trade policies inspired by Hamilton.Yet Hamilton’s monetary policies were as important a precursor to this economic growth. This is in part because a sound dollar assured domestic and foreign investors that the capital they put toward the financing of America’s development would be repaid in money that held its value. During these years, starting with the 1792 coinage law, the dollar’s value held steady at about a 20th of a gold ounce, until the Depression, when it was devalued to a 35th of an ounce.When America diverged from a Hamiltonian monetary policy, the results were damaging. Nixon severed the dollar’s last link to specie in 1971 when America breached its obligations under the Bretton Woods agreement to redeem dollars from foreign governments at the rate of a 35th of a gold ounce. Messrs. Luther and Salter report that between 1972 and 2019, annual inflation rose by some 4 percent a year on average. That’s 20 times the pace before 1913.Just since 2020, prices surged some 25 percent cumulatively, prompting a crisis of affordability and consumer frustration. It’s no coincidence that as prices have soared, the dollar’s gold value has been plunging. Today a dollar fetches less than a 4,000th of a gold ounce. This reflects the flaws of a fiat money system in which prices ratchet ever higher without retreating, as they used to, over the long run, under a specie standard like that advocated by Hamilton.Mr. Bessent, in his recent remarks, reckons that America has, on trade and tariffs, “rediscovered at great cost what Alexander Hamilton taught us.” It could just as well be said that when it comes to the conduct of our monetary policy, and the importance of sound money, the damage has been as severe from forgetting the lessons of Hamilton. The advantages of Mr. Trump’s trade policies will be limited without restoring an honest, Hamiltonian, dollar.

Paging Alexander Hamilton

Paging Alexander Hamilton

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