Abstract: “A bubble connected with my operations is of all the enemies I have to fear the most formidable”: Alexander Hamilton, Federal Power, and America’s First Bailout

Scott C. Miller


This paper analyzes the first government bailout of financial markets in American history, emphasizing the way in which the Hamilton Treasury’s actions forged a new relationship between the state, the economy, and American society writ large. During July, August, and September of 1791, newly formed financial markets experienced a dramatic bubble in the prices of Bank of the United States (BUS) script and US securities. Philadelphia became the epicenter of the crisis as “merchants, grocers, shipkeepers, sea captains, and even prentice boys” mobilized their meager wealth to speculate these new financial assets. The subsequent crash saw asset depreciation of well over 50% in a matter of days. The Hamilton Treasury used a variety of techniques including US Securities purchases and liquidity guarantees to quell the building panic and stave off possible socio-political crisis. While broadly successful in averting a meltdown, the Treasury’s selective injections of approximately $40 billion 2014 dollars into New York and Philadelphia financial markets inadvertently endowed the Federal government, rather than market forces, the power to decide who emerged from financial crises as winners or losers.