[R-G] [BillTottenWeblog] What Hamilton Has Wrought

[Bill Totten]

by Thomas J DiLorenzo

LewRockwell.com (October 06 2008)


The current economic crisis is the inevitable consequence of what I call
Hamilton's Curse (2008) 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
(1925). (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 {1},
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/DC 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
eighty 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 (1998), 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 (fifty 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 (1968), 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 (1776),
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 (that is, lending money that you don't have)
that it administers. Hamilton's Curse is plaguing America once again.

Note {1} I wonder if he means Fame and the Founding Fathers (1998) by
Douglass Adair. (Bill Totten)

_____

Thomas J DiLorenzo - TDilo at aol.com - 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 (2007)
and How Capitalism Saved America (2004). 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 (c) 2008 LewRockwell.com

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