Alexander Hamilton and the birth of American state capitalism
Here's a pretty old post from the blog archives of Geekery Today; it was written about 16 years ago, in 2007, on the World Wide Web.
The most recent issue of the Boston Review has an interesting article from William Hogeland on Alexander Hamilton and his recently-acquired fan club among the court intellectuals of the Beltway Consensus — with Hamilton’s recent biographers and
neo-conservative David Brooks at the fore. The article is almost entirely right-on; here’s one of the most important parts, on the political economy that was brought forth in the early Constitutional period, through the ministrations of the newly empowered central government:
David Brooks, for his part, embraces the thrust of Hamilton's finance plan, writing that Congress's decision to fund the federal debt at Hamilton's urging formed the basis ofthe fluid capital markets that are today the engine of world capitalism.The quick-and-dirty textbook version is that Hamilton gave the country sound credit. What that means is rarely made explicit: the first treasury secretary found ways to support, at all costs, the federal bondholders whom he and Morris had been frustrated in supporting in the 1780s. In 1791 Hamilton finally got the U.S. Congress to commit to paying reliable interest on its debt instruments, halting both their face-value depreciation and the free-for-all speculation in them, making them articles of rational trade in high-finance marketplaces. (Following British models, Hamilton also used proceeds of the U.S. Post Office to create asinking fund; such funds were dedicated to paying down each issuance of a public debt, making bonds reliable.) Hamilton's idea, bold and creative, was to let the government get its hands on easy money by letting bondholders and traders grow American fortunes lending that money.
Brooks also associates Hamilton's authorship of modern capitalism with what historians callassumption: Hamilton persuaded Congress to assume the states' war debts in the federal one, thus swelling the federal obligation to massive proportions. But that idea wasn't original with Hamilton, and by overlooking its history Brooks and other Hamiltonians obscure its purposes. Robert Morris too had wanted the Confederation Congress to assume state debts, placing all public debt in federal hands and making it so big that federal taxes would have to be levied to pay interest on it. That dream came true when the U.S. Congress, having agreed to assume state debts, ran up a deficit, as Hamilton was happy to report in December of 1790.
A new tax, Hamilton told Congress, was the only way to solvency. He proposed not only expanding duties on imports (the old, embattled impost had finally been passed in the first session) but far more significantly, he urged Congress to impose the first federal tax on an American product. Just as Morris had hoped, assumption of state debts had become the wedge foropening the purses of the people,enforcing domestic federal taxation to support federal bondholders. In fact, passing a federal domestic tax (on distilled liquor, a fact that has helped obscure its real purpose) was so important that in the first funding proposal he submitted to Congress Hamilton appended a fully drafted bill. It was characteristically Hamiltonian (and reminiscent of health-care-reform-era Hillary Clinton), replete with distilling and tax-policy minutiae and overwhelmingly, even patronizingly, thorough, with every loophole closed, every question pre-answered, every problem sure to be caused by Congress's financial ineptitude solved. The bill was controversial, and Hamilton's patience must have been tried when Congress, seeming to bumble, passed funding and assumption yet ignored the whiskey tax—the brilliant law that would pay for them. But he was becoming a politico. In reporting the deficit, he calmly referred Congress back to the tax law he'd already written for them almost a year earlier. They were politicos too. They passed it—now that they had to—almost unmodified.
The structure of that tax sharply qualifies assertions made by Brooks and others that Hamilton wanted government power to enhance opportunity, mobility, and democracy. The reasons Hamilton gave Congress for going beyond a foreign impost and imposing domestic taxation are telling, both for what he said and for what he left unsaid. In the same 1790 report Hamilton reminded Congress that merchants, naturally, paid import duties, and that since merchants had always been the class most committed to American nationhood, taxing them further would be onerous and disaffecting; hence the need for a new tax not on imports but on a domestic product. What he did not explicitly point out was that the merchant class was also the bondholding class: they'd long been nationalists because federal power—the very kind Hamilton was wielding now—had long seemed to be where their interest lay. Today we might expect investors to be content with steady, tax-free income (there was, of course, no income tax). For Hamilton, shoring up and concentrating bondholders' wealth meant paying that income with funds drawn not from the small bondholding class but from a tax collected from the large class of people who would never own a bond. And he structured the tax around aspects of the distilling process itself, so that big-time distillers (industrialists, members of the bondholding class) would be charged a lower tax while small-time producers (people engaged in a wide variety of work as farmers and artisans, with whiskeymaking often their sole source of cash and credit) would be charged a substantially higher tax, in many cases a crushing one. It was no accident. The bill was modeled on a series of whiskey taxes passed by British governments. Driving small and occasional producers out of business served imperial economic aims of efficiency and consolidation. In the same year that Congress passed Hamilton's whiskey tax, the Irish Parliament stopped merelydis-incentivizingsmall distilling, and made it illegal to operate a still of less than 500-gallon capacity.
Hamilton wanted to turn the country into an efficient global competitor. As he would argue before Congress in his famous 1791 Report on Manufactures (which was far less successful than his funding plan but just as eager to stun all comers with its depth of research on hemp, nails, hats—wool hats, fur hats, and also fur-and-wool hats—and so on), labor power should not be dissipated in small, generalist farms and one-man artisan shops but efficiently marshaled, stabilized, and deployed on commercial farms and in factory towns like the one he founded in Paterson, New Jersey. And of course he wanted to use federal power to achieve that national vision.
The effect of the whiskey tax was precisely to render American distilling efficient through consolidation bordering on cartelization: even as the tax threatened to ruin small producers, Hamilton busily restructured army buying practices to make it impossible for small distillers to sell to army commissaries. In western Pennsylvania, where small distillers had managed to gain an economic toehold, Hamilton went even further: he made the region's richest, largest-scale distiller the federal tax collector. Paid both a federal salary and a commission on what he took from his less successful neighbors, and charged with enforcing the federal tax that directly benefited his business, this distiller/collector had close relatives—again, federally commissioned, correspondents of both Hamilton and Washington—in the commissary office of the local army post. Business was sewn up.
Brooks routinely characterizes Hamilton's use of federal power as intended to spur competition and furnish opportunity. But the control of business near the Ohio headwaters by a government-connected family and its pals was a direct consequence of Hamilton's policy, and it was anything but unintended.Government is really bad at rigging or softening competition,Brooks has written by way of praising Hamilton's economic policies. Yet the rigging inherent in Hamilton's tax aggravated ordinary people's existing problems. Farmers and artisans who were losing their weak grip on economic well-being and falling into foreclosure, as federally connected commercial farmers, Eastern real-estate speculators, and entrepreneurs in brick, glass, iron, and other rising industries—the sort Hamilton always said he wanted to promote—bought up more and more of the best Western land. Descendants of the pioneers who had cleared the land found themselves working as day laborers in the factories of their creditors, which was anything but a bleak outcome by Hamilton's reckoning.
Thus did the first federal domestic tax—linchpin to Hamilton's finance plan, culmination of nationalists' decade-long efforts to unite the country, first step in making the American economy a global competitor—operate regressively, comprehensively, and deliberately. Its avowed purpose of wealth concentration and industry consolidation was intended to restructure the country along themodern Americanlines now hymned by so many neo-Hamiltonians. Such extreme and systemic results can't be what Jason Bordoff and others at the Hamilton Project mean to support by invoking Hamilton's legacy. But it is what Morris meant by opening the people's purses, and it's what Congress made law, at Hamilton's behest, in 1791.
In his June 8 column, Brooks pits hisHamiltoniansagainst modern populists who want, he says, tofundamentally rewrite the rulesand obstruct policies they see as benefiting only the rich. He would brand aspopuliststhe many former foot soldiers of the Revolution who rose up against the whiskey tax—the so-called whiskey rebels. To them, American independence now seemed to have been gained for the exclusive benefit of a military-industrial cartel run by and for the privileged and staffed by the well-connected. Western Pennsylvania populists wanted a fair shot atmodern Americatoo. They wanted access to cash and credit. They wanted to grow their businesses. They were not anti-tax. They were against taxes that straitjacket markets, restrict opportunity, reduce competition, punish small operators, cripple local economies, and offer government cronies bonanzas at the direct expense of other citizens. Most important, they were against what they called taxes that don't operatein proportion to property.
At least that's what they said they were against, in published resolutions, letters, and petitions. Brookhiser and Chernow caricature them as drunk hillbillies (Brookhiser) whom scholars study merely because they arecolorful(Chernow). But the essential fact remains that, during the nation's formative years, the explicit idea that an essential promise of republican democracy lies in fostering opportunities for economic advancement and upward mobility is found not in Hamilton's funding plan, but in the resolutions of the ordinary people who became whiskey rebels.
So how have neo-Hamiltonians managed to remake Hamilton in their own image, diminishing his outrageous charisma and ruthless political intelligence in the process?
One way today's Hamiltonians connect their hero's economics to the American Dream is through the needle's eye of his disadvantaged background and remarkable success.Hamilton came from nothing,Brooks wrote in his New York Times Magazine piece,and spent his political career trying to create a world in which as many people as possible could replicate his amazing success." Or, as one of the PBS talking heads informs viewers, Hamilton believed that "if you worked hard, you should get ahead.
It's more likely that Hamilton believed exceptional, bright boys like him should erupt like meteors across the night sky. Blending creative genius with an almost mad degree of thoroughness and tenacity, he strove to dominate everyone he encountered, a quality that brought enormous success but also marred his life and may have shortened it. The idea that Hamilton spent his career trying to create conditions for replicating such a rise seems fantastic. One searches his letters and public statements in vain for thoughtful reflection on ordinary families' economic struggles or respect for their goals and hopes for their children's betterment. He is unconcerned about using government power to encourage the rise of laborer's descendants and would not have related upward mobility to democracy—a dirty word to Hamilton.
Brooks cites remarks from Report on Manufactures as evidence of Hamilton's hope that people would advance socially by moving from agrarian scatteredness to industrial centralization.When all the different kinds of industry obtain in a community,Hamilton argued,each individual can find his proper element.He also defined as a goal of industrial policyto cherish and stimulate the activity of the human mind, by multiplying the objects of enterprise.Where many founders were farmers and planters, Hamilton (like Franklin and Samuel Adams) was an urbanite, and he made an appealing case for the creative synergy to be found in cities. He certainly wanted peoplemobileenough to get off the farm, out of the artisan shop, and into the mill, and he had a forward-looking fondness, at once emotional and practical, of encouraging meritocracy over aristocracy in responsible government positions.
But it is a feat of intellectual acrobatics to ascribe to Hamilton, on the basis of these remarks, a broad policy of encouraging, much less sustaining, widespread upward social mobility through hard work among succeeding American generations. For Hamilton, thehard work/get aheadequation, which revivalists want to call a democratic legacy, applied only to the sort of people he deemed it wise to encourage. He had cogent national and financial reasons for carefully dismantling the few ways—which already involved manufacturing and selling—that people had ofgetting ahead.They involved consolidating land, money, opportunity, and power in the West, while obstructing both mobility and democracy. He was explicit about this.
Chernow, straining to detect Hamilton's sympathy for the impossible difficulties faced by the debtor class, misreads a minor Federalist essay, number six. He suggests that Hamilton felt sorry for Daniel Shays, leader of a 1787 debtor uprising in Massachusetts, arguing that federal assumption of state debts was intended to relieve small-farming debtors. While it's true that Hamilton objected to vacillations from leniency to aggressiveness in Massachusetts finance policy, his essay as a whole makes clear his disdain for the vaunting ambition and criminal tendencies of all such as Shays, on whom he lays personal blame for the anti-creditor movement sweeping the western part of the country, the real basis and wide scope of which Hamilton always impatiently declined to acknowledge.
To the extent that he thought about it at all, Hamilton wanted people to stop talking nonsense about their own economic aspirations and get ahead his way and his way alone, by becoming efficiently organized laborers and farm workers for the financiers and industrialists. If people wouldn't do that, he'd make them.
— William Hogeland (2007), Inventing Alexander Hamilton, in Boston Review (November/December 2007)
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