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What Hamilton Has
Wrought
by Thomas J. DiLorenzo
by Thomas J. DiLorenzo
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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 wellconnected 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 neoHamiltonian 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 neoHamiltonianism: 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.
October 6, 2008
Thomas J. DiLorenzo [send him mail] 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, Hamilton’s Curse: How Jefferson’s Archenemy Betrayed the American Revolution
– And What It Means for America Today, will be published on October 21.
Copyright © 2008 LewRockwell.com
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