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  | 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