I've often wondered what makes an effective leader. While I certainly haven't completely figured it out, I have noticed one trait that seems essential. Great leaders aren't necessarily the people who make the right decisions, rather great leaders are people who create systems in which the right decisions get made. This is why you can judge the quality of a leader by watching what happens when they leave. If it's barely noticed, that is not an indication of their dispensability rather it's shows the durability of what they've created. Some of the most obvious examples come from the lives of brutal dictators. Just looking at how countries have changed with the death of a charismatic but brutal leader, bears this maxim out. But rather than delve on an obvious example, I want to jump back to the birth of America to talk about the creation of one of the most enduring systems in the world, the US economy.

The key figure in this drama is Alexander Hamilton. He was born in dubious circumstances in the east indies and found his way to New York as a young man. With the exception of Benjamin Franklin, he was undoubtedly the smartest of our founding fathers. He was also arrogant and brash with dreams of military glory. During the revolution he served as Washington's Aid de Camp and handled much of his correspondence, becoming a trusted advisor in the process. Oddly enough, he didn't play a large role at the constitutional convention, but was very instrumental in advocating its passage through writing a large portion of the Federalist Papers. He became the first expert in constitutional law and helped establish much of the early constitutional interpretation. His writings have been cited in supreme court cases up into the modern times. The Federalist papers were Hamilton's first great contribution to the American system.

Washington named Hamilton the Secretary of the Treasury and Thomas Jefferson the Secretary of State. And this is where Hamilton had his most lasting influence. He argued for and succeeded in getting the federal government to assume the state's debt in from the Revolution. This was controversial partially because the states had differing amounts of debt but mostly because of the centralizing influence a federal debt would incur. But Hamilton knew the importance of a strong financial system in enabling the growth of an economy. This first financial report also insisted that the bonds paid to Revolutionary veterans be honored. This sounds straight-forward enough, but it was controversial because many of the bonds had been bought by speculators for 10 cents on the dollar. Jefferson and others thought this was unfair and that the bonds should be invalidated and the veterans paid directly.

The distinction is important. No matter how on the side of right Jefferson may have been in opposing the assumption of debt or the honoring of government bonds,  the failure of either one of these measures would have been disastrous for the economy. More than anything, the government needed a good credit rating to continue operations, raise armies, and develop into a strong nation. If the government had shown a predilection to void government bonds or became almost impossible to work with because of the thirteen potential debtors, America would have had no ability to raise cash or act as a single entity. Besides, the bond purchases were legitimate transactions. The veterans got hard cash early and the speculators took on a lot of risk.

But what's interesting about this issue is that negating the bonds would require an explicit a decision, either by a ruler or a ruling body. Once it's expected that these kinds of issues are the fair and proper place for political decisions, the country is suddenly much more dependent on the ability of its leaders to make the right decision each and every time. Hamilton's solution didn't require ongoing government intervention to decide which bonds to honor. There will always be bad leaders, a robust system can survive them and wait them out. A system where leaders are required to make good decisions will crumble when a bad leader comes around.

The last component of Hamilton's financial plans that I'll discuss here was the imposition of an excise tax on whiskey. To set the background on this tax, it's important to understand how the economy worked in those early times.  In early America, the south and the west was always short of cash. Even the large plantations were largely cashless and self sufficient. They grew their own food, they built their own buildings, and used unpaid slaves for labor. When they did trade, it was often on the barter system. This was the world of the gentleman farmer. He had slaves and land, but couldn't interact with the larger economy. Even immediately after the revolution, England was the primary source of both finance and manufactured goods. This led to one of the bigger points of conflict between north and south, Federalists and Republicans. The Federalists were generally northern and were trying to foster a manufacturing society, hence they favored high prices for manufactured goods and supported a high import tariff. The Republicans were southern and provided raw materials but had to purchase manufactured goods. This meant the that tax burden fell heavier on them then it did on the Northerners.

The southern farmers despised banks because they owed money to them and had no steady flow of hard currency. They desperately wanted a greater money supply and the accompanying inflation because then it would be easier to pay back loans. They weren't too fond of England, because those were the folks to whom they owed money. But above all, they felt they had a right to live their chosen lifestyle and not be burdened by the leverage the banks had over them.  This freedom certainly sounds nice, but it rested not on inherent rights but on a untenable economic system.

Hard currency was not a fundamental part of the economy for much of the country. Only manufacturing states had a functioning monetary system. That means it was very hard to tax the western states. The one thing that came close to the pre-requisites of a currency, was whiskey. It acted both as a currency itself and a source of hard cash. It was the one product that farmers could easily manufacture and transport to cities. It was largely fungible and easily measured. It was drunk by city folk and country folk, young and old. And just like today, as a 'sin' tax, it was easier to justify politically. When you really got down to the details of the tax, it wasn't a very good deal for western producers. Small distillers paid more than large, commercial distillers. Also, the tax was difficult for westerners to pay because it was a production tax. Of course, the westerners didn't have money to pay at production time. This ultimately lead to the whiskey rebellion where a small insurrection over the tax was put down and Hamilton got his wish to be named a Major General.

But no matter how imperfectly the system was conceived and implemented, the system of broad tax burden and centralized monetary policy created American capitalism. It created a system that sustained itself and fueled the economic growth. Other countries and leaders have to decide in more detail how money is collected and from whom. This leads to corruption and lower confidence in the transparency of the government. The freedom for leaders to make low level decisions can be disastrous.

This pattern plays out in the corporate world all too often. Good executives understand how this works. Usually the misunderstanding comes from the junior participant, but not always. Inexperienced team members will come out of an executive review saying inane things like "We have to do this feature or implement things this way because so-and-so said so." What the person doesn't understand is that the exec was asking detailed questions and drilling down to make sure that the team is capable and can be trusted to make the right calls. They weren't trying to act as Super Program Manager. Even if they blow up over some specific detail, that doesn’t mean you have to go and update the spec right after the meeting (although you might.) It just means that the exec is nervous because he thought you got something wrong in an area he knows something about. As long as you can show you have thought through your decision and it wasn't being made by default, you are fine.

This kind of misunderstanding is common, but not dangerous. At worst the junior team member leaves the room confused about why none of the executive guidance was being followed slavishly. The truly dangerous cases come when an executive actually thinks their job is to make these decisions and act as Super PM.  This just doesn't work in our business. The problem is that once you are in a room with two other people, no matter how junior they may be, those other two people know more than you do. Even if there is just one other person, that person knows something that you don't. Once you get into a leadership role, that disparity accelerates geometrically. That trick you learned back when you hacked FORTRAN 66 may not mean much to today's C# developer. The problem is that we are all competitive, and sometimes we are most competitive with our underlings. Leaders feel justified in their position when they win an argument. But often, those underlings are right, they just aren't as good at arguing or they don't have the review structure to back up their claims. Since brains are our key asset in this business the worst thing you can do with such a person is win an argument. By 'winning' the argument you have just ensured that whatever unique knowledge that person has will remain locked up and unusable by you or your organization.  Instead you have to create a system that doesn't require you to make these decisions, or even better sees it as an organizational failure when you do. This creates an economy of ideas which can be much more powerful and unifying than even the whiskey economy.