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The
current economic crisis is the inevitable consequence of what I call Hamilton’s Curse in my
new book of that name. It is the legacy of Alexander Hamilton and his
political, economic, and constitutional philosophy. As George Will once
wrote, Americans are fond of quoting Jefferson, but we live in
Hamilton’s country.
The
great debate between Hamilton and Jefferson over the purpose of government,
which animates American politics to this day, was very much about economic
policy. Hamilton was a compulsive statist who wanted to bring the corrupt
British mercantilist system – the very system the American Revolution
was fought to escape from – to America. He fought fiercely for his
program of corporate welfare, protectionist tariffs, public debt, pervasive
taxation, and a central bank run by politicians and their appointees out of
the nation’s capital.
Jefferson
and his followers opposed him every step of the way because they understood
that Hamilton’s agenda was totally destructive of liberty. And unlike
Hamilton, they took Adam Smith’s warnings against economic
interventionism seriously.
Hamilton
complained to George Washington that "we need a government of more
energy" and expressed disgust over "an excessive concern for
liberty in public men" like Jefferson. Hamilton "had perhaps the
highest respect for government of any important American political thinker
who ever lived," wrote Hamilton biographer Clinton Rossiter.
Hamilton
and his political compatriots, the Federalists, understood that a
mercantilist empire is a very bad thing if you are on the paying end, as the
colonists were. But if you are on the receiving end, that’s
altogether different. It’s good to be the king, as Mel Brooks would
say.
Hamilton
was neither the inventor of capitalism in America nor "the prophet of
the capitalist revolution in America," as biographer Ron Chernow ludicrously
asserts. He was the instigator of "crony capitalism," or government
primarily for the benefit of the well-connected business class. Far from
advocating capitalism, Hamilton was "befogged in the mists of
mercantilism" according to the great late nineteenth century sociologist
William Graham Sumner.
The
Curse of Government Debt
In a
lengthy "report" to Congress on the topic of the public debt
Hamilton said that "a national debt, if it is not excessive, will be to
us a public blessing." He would spend the rest of his life politicking
for excessive government spending – and debt. The reason
Hamilton gave for favoring a large public debt was not to finance any
particular project, or to stabilize financial markets, but to combine the
interests of the affluent people of the country – particularly business
people – to the government. As the owners of government bonds, he
reasoned, they would forever support his agenda of higher taxes and bigger
government. (He condemned Jefferson’s first inaugural address and its
minimal government message as "the symptom of a pygmy mind.") No
wonder one historian entitled his book on Hamilton "American
Machiavelli."
Wall
Street financiers naturally took an immediate liking to Hamilton’s
idea, and became the financial cornerstone of the Federalist Party (and
later, the Whigs and Republicans). When Hamilton engineered the
nationalization of the states’ debt as treasury secretary –
something that was totally unnecessary since many states like Virginia had
nearly paid off their war debts – the plan was to cash out much of the
old debt at face value. This immediately became public knowledge in
New York City, but the news spread ever so slowly to the rest of the country.
Consequently, Hamilton’s friends and supporters from New York City and
New England went on a mad scramble down the eastern seaboard, purchasing
bonds from hapless war veterans (who had been paid in bonds) for as little as
two percent of par value. Huge fortunes were made by these slick New York
speculators. Robert Morris pocketed a nifty $18 million. John Quincy Adams
wrote to his father that the wealthiest Federalist lawyer in Massachusetts
made a huge fortune with this caper. Hamilton participated in this parade of
plunder himself, but claimed that the profits he made were for his
brother-in-law.
The
link between Wall Street and the federal government was cemented into place
later on, when investment banks took on the responsibility of marketing the
government’s bonds, which of course they still do to this day. Thus,
Wall Street investment bankers became inveterate lobbyists for any and all
tax increases (on the rest of the population, anyway) to assure that their
own principal and interest would be paid, and that they could promise their
clients – the purchasers of government bonds – that the bonds
were a good investment. They were corrupt from the very beginning.
When
Hamilton and George Washington led some 15,000 conscripts into
Pennsylvania to enforce the hated whiskey tax, the purpose was not only to
collect the tax and reassure bondholders, but also to send a message to any
future tax resisters. The volunteer officers who led the conscripts were
mostly "from the ranks of the creditor aristocracy in the seaboard
cities," wrote Claude Bowers in Jefferson and Hamilton. (The
rebellion succeeded, nevertheless. George Washington pardoned all of the tax
protesters despite Hamilton’s hysterical opposition and his desire to
hang all of them.)
James
Madison remarked that this episode revealed Hamilton’s agenda of
"the glories of a United States woven together by a system of tax
collectors." Douglas Adair, an editor of The Federalist Papers,
wrote that "with devious brilliance, Hamilton set out, by a program of
class legislation, to unite the propertied interests of the eastern seaboard
into a cohesive administration party." He also "transformed every
financial transaction of the Treasury Department into an orgy of speculation
and graft in which selected senators, congressmen, and certain of their
richer constituents . . . participated." If this sounds familiar it is
because the political descendants of these eighteenth-century
"propertied interests" are today’s benefactors of the Wall
Street Plutocrat/D.C. Political Class $700 Billion Bailout Bill of 2008.
When
Hamilton’s Federalist Party consolidated its power during the Adams
administration, government spending and debt skyrocketed. Citizens were
prohibited to criticize it, however, thanks to the Sedition Act that outlawed
free political speech. The national debt was so large that 80 percent of the
government’s annual expenditures were needed to service the debt. This
was exactly what Hamilton wanted. As John C. Miller, author of The Federalist Era,
wrote, Hamilton’s main objective was "concentrating economic and
political power in the Federal government," even if it meant
destabilizing the entire nation’s economy.
The
Founding Father of Central Banking
Hamilton
is also considered to be the founding father of central banking since
America’s first central bank, the Bank of the United States (BUS), existed
primarily due to his efforts as Treasury Secretary. As William Graham Sumner
wrote in his biography of Hamilton, however, "[A] national bank . . .
was not essential to the work of the Federal Government." The real
purpose of Hamilton’s bank, Sumner believed, was "the interweaving
of the interests of wealthy men with those of their government." And
interweave it did, providing cheap credit to business supporters of the
Federalist Party, attempting to engineer boom-and-bust cycles to influence
elections (called "political business cycles" in today’s
parlance) and even financing the political campaigns of BUS supporters.
The
BUS was a disaster for the general public, however; excessive money creating
by the BUS printing press caused 72 percent inflation in its first five
years, from 1791 to 1796. It became so unpopular that its twenty-year charter
was not renewed, but then the War of 1812 gave it a new life, and it was
resurrected in 1817. It immediately caused the Panic of 1819, and did what
all central banks have always done: generated boom-and-bust cycles for the
next twenty years. The bursting of the housing bubble in our time is the
latest example of this hoary tradition.
Hamilton’s
BUS was de-funded by President Andrew Jackson, and then a version of it was
resurrected once again in 1863 by the neo-Hamiltonian Lincoln administration
with several National Currency Acts. This, and other interventions of that
period (50 percent average tariff rates, massive corporate welfare for the
railroad industry, income taxation, pervasive excise taxation), led historian
Leonard Curry to observe in his book, Blueprint for Modern America: Nonmilitary
Legislation of the First Civil War Congress, that
the interventions "ushered in four decades of neo-Hamiltonianism:
government for the benefit of the privileged few."
The
record of Hamiltonian central banking from that time until the Fed was
created in 1913 was summarized in a scholarly paper by economists Michael
Bordo, Anna Schwartz and Peter Rappaport: "monetary and cyclical
instability, four banking panics, frequent stock market crashes, and other
financial disturbances." The Wall Street elite’s response to all
this central bank-induced monetary instability was even more
centralized banking with the creation of the Federal Reserve Board. It may
have meant instability to the ordinary citizens, but was the source of great
riches to the banking industry and other members of the politically
well-connected class. Sound familiar?
Things
have not changed at all to this day. A recent Fed publication entitled
"A History of Central Banking in the United States" proudly boasts
that "the Federal Reserve has similarities to the country’s first
attempt at central banking, and in that regard it owes an intellectual debt
to Alexander Hamilton" who, the Fed says, "sounded like a
modern-day Fed chairman."
When
Jefferson and his followers fiercely opposed Hamiltonian statism they were
fighting to avoid bringing the rotten, corrupt, and
economically-impoverishing system of British mercantilism to America. They
understood what Adam Smith wrote in The Wealth of Nations,
which was a harsh condemnation of British mercantilism as both corrupt and
impoverishing. Indeed, many of these men (or their ancestors) came to America
in the first place to escape from that very system. Hamilton mocked Adam
Smith just as he mocked Jefferson’s "pygmy mind" and his
"excessive concern for liberty."
It may
have taken several generations, but that system of "crony
capitalism" or "government for the benefit of the privileged
few" has been cemented into place for quite some time now. The
politically incestuous relation between the banking and finance industries
and government is the sole cause of the current economic crisis, particularly
the boom-and-bust cycle caused by the Fed and the system of fractional
reserve banking (i.e., lending money that you don’t have) that it
administers. Hamilton’s
Curse is plaguing America once again.
Thomas DiLorenzo
Also
by Thomas DiLorenzo
Thomas
J. DiLorenzo is professor of economics at Loyola College in Maryland and the
author of The Real Lincoln; Lincoln Unmasked: What You’re Not Supposed To Know about
Dishonest Abe and How Capitalism Saved America. His
latest book is Hamilton’s Curse: How Jefferson’s Archenemy Betrayed
the American Revolution – And What It Means for America Today.
Copyright
© 2009 by LewRockwell.com
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