From Hamilton to Friedman: Rethinking the Capitalist Vision
Lessons from Hamilton’s financial legacy for today’s startup economy.
My inspiration for this piece comes from a podcast I recently listened to, featuring Trevor Noah and Simon Sinek (probably the two people I love listening to the most). Trevor made a striking observation about companies that display values but are quick to adapt them when money is at stake. “If losing money comes into the equation, they will adapt their values, so then they aren’t really values,” he says. This leads him to ask: can a company truly have values beyond making money?
And Simon, with a smile on his face, brilliantly responds : “you are highlighting the very problem with modern capitalism”.
To better understand this issue, I spent hours looking at three historical figures who helped shape the evolution of capitalism: Adam Smith, Alexander Hamilton, and Milton Friedman. These thinkers each played a crucial role in defining how capitalism operates today, and their ideas help explain how the system evolved into what drives modern business and venture capital today.
Adam Smith (1723-1790)
A country’s wealth was once measured by how much gold and silver it had – the core belief of mercantilism. But there was a fundamental flaw in this system, and Spain proved it. As Niall Ferguson brilliantly explains in The Ascent of Money, one of my favorite books:
“What the Spaniards had failed to understand is that the value of precious metal is not absolute. Money is worth only what someone else is willing to give for it. An increase in its supply will not make a society richer.”
Basically, many countries like Spain, for example, collected large amounts of gold from their colonies, which didn’t lead to sustained economic prosperity because it did not encourage domestic productivity.
Adam Smith, a Scottish philosopher saw this flaw. He argued that a nation’s prosperity wasn’t about accumulating gold but about production, trade, and economic growth—all core principles of modern capitalism.
His thinking directly influenced what would later become Gross Domestic Product (GDP), which tracks the value of goods and services produced over a certain time. I was just seeing this in my financial economics class—Classical Dichotomy and Money Neutrality. Essentially, if the Central Bank were to double the money supply overnight, prices of goods and services would eventually double as well, but in the long run, real GDP would stay the same.
In 1776, with his important work The Wealth of Nations, I learned that he envisioned capitalism as a decentralized, market-driven system: essentially, a model where the government had a minimum place in regulating the markets. His ideas became essential in economic liberalism, shaping the foundations of free-market theory.
After he published The Wealth of Nations, there was an explosion of financial innovation, increased risk-taking, and investment in emerging industries. This period marked a turning point in how capital was allocated toward innovation—what I see as the foundation of modern entrepreneurship. As Adam Smith’s ideas about free markets and economic liberalism spread, new banking institutions emerged to support growing industries and international trade. These early financial institutions—bill-discounting banks, merchant banks like Barings, and private partnerships—enabled capital to flow more efficiently, allowing entrepreneurs and businesses to access the funding they needed to expand.
Simply put, Adam Smith changed the way we think about wealth—not as gold but as productivity, trade, and growth. His ideas shaped modern capitalism and still influence how we measure and manage economies today.
Alexander Hamilton (1757-1804)
I am currently reading – no, devouring – “Alexander Hamilton” by Ron Chernow, which brilliantly recalls the life of “ the prophet of the capitalist revolution in America, the messenger from a future that we now inhabit, the creator of a world of trade, industry, stock market and banks.”
I could write endlessly about Hamilton’s accomplishments and why I admire what he built, but I’ll keep it short and sweet. First, he was a loving husband and father, determined to create a life far removed from the hardship and violence of his childhood and the tragic struggles his mother endured. He grew up on an island in the Caribbean, where slaves were used for the commerce of sugar. “Island life contained enough blood curdling scenes to darken Hamilton’s vision for life, installing an ineradicable pessimism about human nature”. His father abandoned him when he was 10, and at 12, his mother passed away from a fever while lying beside him. He and his brother were left alone, orphaned during their teenage years.
Despite his difficult childhood—one he never spoke about—Hamilton rose to success as a businessman, George Washington’s chief of staff, and one of New York’s most accomplished lawyers. His most important role, however, was as the first Treasury Secretary of the United States. His sharp intellect and deep sense of duty and empathy made him one of the most remarkable figures in history. Unfortunately, his life was cut short, and many of his rivals outlived him, tarnishing his reputation.
Below are some of his most significant observations:
Flaws of liberalism: He was ahead of his time in recognizing the flaws of unchecked individualism—what we now call modern capitalism. He warned us that “the pursuit of unchecked individualism and profit would ultimately undermine the very foundations of the economy”.
Government role: He believed “the task of the government was not to stop selfish striving—a hopeless task—but to harness it for the public good.”
Scarcity of cash and credit: He saw how “business was often obstructed by scarce cash or credit”, highlighting the importance of capital availability for economic growth.
Centralized Financial System: He saw the need for a centralized financial system to support commerce and industry, which led to the creation of the First Bank of the United States.
Financial markets: Hamilton understood the importance of financial markets in supporting entrepreneurship and economic expansion, laying the groundwork for early investment mechanisms.
National debt as a tool: Hamilton claimed that national debt, if managed wisely, could be a tool to foster the nation's development through public credit and investment in infrastructure.
Education: He recognized the importance of an educated population, supporting public education to equip the workforce with the skills to drive economic growth.
He founded the first U.S. government bond, established the First Bank of the United States, and played a crucial role in the development of the NYSE. As the nation’s first Treasury Secretary, he didn’t just manage finances—he built the foundation for a growing capital market. Hamilton never stopped fighting for what he believed in. The early Republic's defining battle was over the nation’s identity. Hamilton supported a future focused on cities, trade, and growth, driven by ambition and competition. Jefferson, however, wanted a rural, equal America with more local control, making their rivalry one of the most important in U.S. history.
His vision for funding innovation was groundbreaking. Before VC existed, Hamilton understood that capital markets weren’t just about managing wealth—they were about fuelling progress. I see him as the father of venture capitalism, the first to see that money should back ambition, ideas, and the future.
Milton Friedman (1912-2006)
Many significant events, such as the Great Depression, showed that free markets alone couldn’t prevent economic collapse. In response, President Franklin D. Roosevelt's administration revived Hamilton’s approach through Keynesian Economics, which argued that government intervention was essential to stabilize the economy and regulate demand.
Then came Milton Friedman, a leading American economist, who rose to prominence in the mid-20th century, by revisiting Adam Smith’s political liberalism, which had a profound influence on shaping modern capitalism. He was a brilliant scholar and was awarded the Nobel Prize in Economic Sciences in 1976, and is the author of numerous influential books.
His focus on free markets and minimal government intervention reshaped the way businesses and economies were viewed. He was against the FED reserve, thinking it should be abolished, and thought the principal motive of a company should be to make money, as their primary responsibility is to increase profits for their shareholders. Milton Friedman also argued for school vouchers to introduce competition in the education system.
As Simon Sinek explains it, this shift in thinking led to several major consequences:
Short-term over long-term value: Businesses became focused on stock prices, prioritizing short-term gains over durable growth and long-term value creation.
Short-term greed replacing long-term vision: The pursuit of immediate shareholder returns led to profit-maximizing actions that often sacrificed innovation, employee well-being, and business longevity.
Corporate responsibility redefined: Ethical considerations, worker treatment, and environmental sustainability were neglected in favor of maximizing profits. Jack Welch, former CEO of General Electric, was a key example of this new leadership style, focusing on strategies that prioritized shareholders' interests.
Outsourcing and globalization: Businesses focused on cutting costs by moving jobs to countries with lower wages, causing manufacturing in developed countries to shrink.
Figure 1. The Evolution of Capitalism: From Smith to Silicon Valley
What people hate about capitalism today
People tend to say they don’t like capitalism, but as Simon Sinek brilliantly says: there’s nothing wrong with capitalism, there’s something wrong with this version of capitalism. Here are often heard critics of this modern political system:
Prioritize profit over people
Friedman's vision:
Friedman believed that the main responsibility of a company was to make money and increase profits for its shareholders, which would create overall economic benefits. He argued that when businesses focus on increasing shareholder value, it will eventually benefit everyone—trickling down to workers, consumers, and society. This perspective placed little emphasis on employees, communities, or the environment, instead prioritizing profit maximization above everything else.
Hamilton’s vision:
Hamilton prioritized the broader public good and economic growth that benefited the entire population. Obviously, he was conscient of the importance of profit and financial stability, which is why his focus was on creating systems—like government bonds and the U.S. Bank—that would fund innovation, promote wealth equality, and ensure that economic growth had extensive benefits.
Income Inequality
Friedman's vision:
Friedman’s focus on profit creation has contributed to growing wealth disparities, because of the unequal distribution of the growing economic growth. Basically, the wealth generated by corporations often flows directly to executives and shareholders while low and middle class workers see only modest gains or none at all.
Hamilton’s vision:
Hamilton imagined a form of capitalism where financial systems aimed to reduce wealth inequality, with the government playing an active role in managing the economy. By creating the first government bond and the U.S. Bank, he designed systems to fund innovation and serve the public interest. Hamilton believed that economic growth should benefit everyone, not just the wealthy. His bonds offered a stable financial base that was accessible to both the rich and the poor, while the U.S. Bank helped stabilize the economy and promote broad financial growth.
Hamilton envisioned the stock market as a way for everyday Americans to participate in the nation's wealth, rather than it being a system only for the elite. His idea was that it should enable people to build wealth, while ensuring that the broader public wasn’t excluded.
Environment degradation
Friedman's vision:
Focusing on maximizing profits often results in environmental damage. Companies tend to exploit natural resources without taking responsibility, putting cost savings ahead of environmental care.
Hamilton’s vision:
His approach prioritized strategic investment in infrastructure, industry, and innovation, with a focus on long-term national development.
Diving into VC
I think it’s fair to say that Hamilton’s version of capitalism was both practical and visionary, though I might be a little biased, given my admiration of him…
Table 1. Nation-Building vs. Free Markets: Hamilton and Friedman
What was VC back then?
In Hamilton’s time, VC didn’t exist like we know it, but I like to think of him as the father of VC because he was one of the first to understand the importance of backing innovation. The very reason he created and used government-backed financial tools was to encourage and allocate resources to national growth and technological advancement. Back then, government bonds were a pool of capital from investors that financed national projects. The US bank he created, much like VCs today, provided credit to entrepreneurs. He also wrote the Report on Manufactures, which basically advocates for supporting emerging industries.
What I find interesting in this approach is how innovation had one purpose: to serve the greater public good.
What is VC now?
Friedman’s ideas made it clear that businesses exist mainly to make money for their shareholders. In other words, modern venture capital works the same way: VCs focus on making the highest returns for their investors. This has led to a push to grow companies as fast as possible to get quick profits, often ignoring long-term sustainability or the impact on society.
I find it unfortunate that today, venture capital’s prime focus is on short-term gains, aggressive growth strategies, and exit-driven incentives.
What VC Might Look Like Under Hamilton’s Thinking:
Government-back innovation funds:
Public funds could exist Instead of private investors funding startups. They would be dedicated to innovation in important sectors (energy, manufacturing, and infrastructure.)
Result: Startups wouldn’t only rely on private capital and their goals might be more aligned with national priorities like economic resilience, long-term growth, and sustainability.
Countries that excel at this: in Singapore, the government plays a strong role in supporting innovation through initiatives. In South Korea, the government invests a lot in cleanTech and bioTech.
Long-term, sustainable investment instead of short-term returns
Instead of prioritizing high-risk, high-return investments, Hamilton’s vision would lean toward investments in companies or tech that ensure long-term national stability.
Result: a slower, deliberate approach to investing with less volatility and greater emphasis on societal welfare. The goal being to create national resilience.
Countries that excel at this: the nordic countries such as Denmark, Finland and Sweden are known for their long-term educational investments and social welfare system (EdTech and CleanTech).
Distribution of wealth and power
In modern capitalism under Friedman’s thought process, powerful investors control massive amounts of capital. Hamilton’s approach could result in more equal distribution of investment (community investment initiatives, government-sponsored equity programs where everyone can participate in the country’s wealth).
Result: People from diverse socioeconomic backgrounds would be involved in decision-making and the VC ecosystem would democratize wealth creation, with less of the wealth gap.
Countries that excel at this: in Denmark, inclusive capitalism is promoted. There is a strong focus on ensuring wealth is distributed equitably (universal healthcare, education, and social services) which keeps income inequality in check.
Hamilton’s principles could still be incorporated into the existing venture capital structure without dismantling the funds entirely. It would be about balancing public and private interests, aligning investments with national prosperity, and creating a more sustainable and inclusive ecosystem.
Promoting inclusive capitalism in Canada is challenging, especially with the U.S. as a neighbour and Silicon Valley often set as the example of success. While their influence can make it hard to shift the focus away from purely profit-driven models, Canada is working to forge its own path. The country is aspiring to balance inclusivity with economic growth. There are countries – such as the ones I named earlier – that prioritize inclusivity and sustainability, and it would be beneficial for Canada to partner with them rather than relying on Silicon Valley, even though they offer great financial and powerful rewards.
Final words
Leadership used to come with a significant cost. In earlier times, the leader was chosen for their intellect and strength, often granted privileges like the “first choice of meat” at dinner. But this privilege came with a clear expectation: when danger arrived, the leader would be the first to sacrifice themselves to protect the group. Today, however, leadership has shifted. Instead of leaders sacrificing their own interests for the good of their people, we see leaders willing to sacrifice the well-being of their teams and communities to protect their own interests, often for short-term gain.
I firmly believe that the best society is one that embraces a long-term vision and allows the government to step in when necessary. As Hamilton wisely cautioned, "liberty may be endangered by the abuses of liberty as well as by the abuses of power."
As someone still new to the world of venture capital, these reflections are based on my journey of learning and exploring this fascinating industry. They’re not investment advice or professional recommendations, but rather my attempt to make VC more accessible and spark curiosity.