Financial History 25th Anniversary Special Edition (104, Fall 2012) | Page 28

Museum of American Finance

6% Louisiana Purchase bond, 1803.

none of the key components of modern
financial systems. By the time he stepped
down in 1795, it had all of them: strong
public finances and national debt management, a stable dollar, a central Bank of
the United States, a banking system, securities markets (the NYSE, for example,
originated in 1792) and a growing number
of corporations that quickly eclipsed the
numbers existing in the old European
countries. The US was off and running on

Museum of American Finance

North America was a part of that
empire, but 13 of its colonies opted out in
1776 to form the United States of America. Alexander Hamilton, one of the key
founding fathers, absorbed the lessons
of Italian, Dutch and English financial
history, and quickly brought the power
of finance to the US by emulating and
improving on the earlier models.
When Hamilton became the first Secretary of the Treasury in 1789, the US had

$5 US greenback, 1863.

26    FINANCIAL HISTORY  |  Fall 2012  | www.MoAF.org

modern economic growth. It became the
most successful emerging market of the
past two centuries. Is it any wonder that
Hamilton is the Museum’s patron saint?
Japan is my favorite historical case
to illustrate the power of finance and
how it leads to growth. The country was
almost totally isolated from the rest of
the world for two and a half centuries
before the 1850s, when US Commodore
Perry’s black ships arrived to “open” it.
There followed a struggle between Japan’s
traditionalists and its modernizers, which
the modernizers won by 1868. Like Hamilton before them, the modernizers studied
the institutions of the leading European
and American countries, and quickly realized the power of finance. They stabilized
public finances and issued modern debt
instruments, a new currency and a central bank (the Bank of Japan, 1882). In
1878, stock exchanges were founded in
Tokyo and Osaka. The Japanese government reformed the banking system and
promoted modern corporations. Powered by finance, Japan’s economic growth
accelerated. By the early 20th century, the
country was a major world power. After