Next New Deal

What Would Our Founding Radicals Have Thought About Occupy Wall Street?

Oct 5, 2011William Hogeland

Occupy Wall Street isn't just a threat to financial elites -- it's a challenge to lazy historians.

Among other intriguing and possibly problematic features, Occupy Wall Street, now in its third week and spreading, seems to represent an inchoate attempt at reviving an American radicalism that has deep roots in our founding period. The Tea Party has of course made its own highly explicit and politically successful claim on that period. Because OWS, like the Tea Party, focuses on national economic and financial issues, the new movement offers a disquieting, potentially illuminating alternative to the Tea Party's right-wing interpretation of America's founding economic values.

I began writing New Deal 2.0's "Founding Finance" series last winter in hopes of shining light both on the financial elitism of the famous American founders, who we often wrongly cast as pioneers (or at least half-conscious seed-sowers) of equality, and on what I see as historical tendentiousness on the part of the Tea Party, whose claims on the founding period are meant to support a low-tax, small-government, anti-debt agenda. I've tried to show that this agenda, which may or may not have its merits as policy, in no way accords with the avowed purposes of the founders across their own political spectrum from Hamilton to Madison.

In the series, I've also tried to bring to the fore some routinely marginalized yet highly resonant 18th century economic thought, as well as the actions of those who sought to obstruct wealth concentration and make cash and credit more readily available to ordinary Americans. It's an unsettling fact that our founding democratic, economic activism was not against England but against the homegrown American investing and creditor class that was leading the resistance to England.

I've explored that founding economic radicalism in the debtor riots and "regulations" of the late colonial period; in the overthrow of Pennsylvania during the run-up to the Declaration; in the period after victory over England, when foreclosed Massachusetts debtors, the so-called Shays Rebels, marched on the armory at Springfield; and in the early Federal period, when the so-called Whiskey Rebels of trans-Appalachia, criticizing the new U.S. Constitution on bases very different from those of antifederalist elites, went so far as to fly their own flag, hoping to launch a new, more economically egalitarian country in what was then the American West.

Throughout those struggles, the activists' goal was to pressure and in some cases to use government to restrain the power of wealth and promote economic equality through legislation. They wanted to outlaw monopolies, build debt relief into currency, institute easy-term, small-scale government lending, and take banking charters away from crony insiders. Some wanted progressive taxation on income; some wanted what we call Social Security. Much later phenomena like the Square Deal, the New Deal, and the Great Society, which can seem hypermodern (and even, to the Tea Party, unconstitutionally anomalous), actually have deep American roots. However, those roots are not in the thinking of the famous founders -- New Dealers' claims on Jefferson possibly to the contrary -- but in grassroots, 18th century movements that, while little-known today, were of immense importance during our founding.

So important in their day were those now-buried radical movements, in fact, that much of the famous founders' behavior can't be understood without the context of elite dedication at times to collaborating uneasily with the economic radicals, at other times to squelching them and pushing back their political advances. Many historians of the period ignore that context. Hamilton's biographers, for example, do not deem the people's movement important. Hamilton did; he spent his career trying to kill it. We therefore learn almost nothing important about Hamilton's purposes by reading his biographies. Much founder biography, and much mainstream history, operates on just such comfortably foregone, ultimately useless conclusions.

In place of founding radicalism, historians tend to emphasize the emergence, from the Revolutionary period through the Jackson era, of a rowdy, fluid, non-deferential, competitive America. They place developing ideas of American democracy almost solely in that 19th century context. But Thomas Paine, the best-known of the radical 18th century egalitarians, would surely have been crushed if he'd glimpsed the kind of society that passed for a democratic one in Jacksonian America.

Paine's intensity gives both liberals and radicals a problem. It was a widely held view in the Washington administration -- and it's been widely held in more or less liberal American history ever since -- that Paine's awful experiences in the French Revolution give us cause to celebrate the failure of Paine-ite radicalism in America. Fair enough: Today, as every day, it would be wise to recall not only crimes against humanity committed by bankers but also those committed on behalf of a supposedly collective, supposedly revolutionary "People," from the French Terror to the Stalinist mass murders and well beyond.

Still, the French Terror, which almost killed Paine, has served as a convenient pretext for exercising historical complacency about the suppression of his and others' fervently democratic visions for America in 1776. Without those visions, anathema as they were to the famous founding elitists -- anathema as they were, for that matter, to Jacksonian capitalism and are today to high-finance "neo-liberalism" -- we might never have declared independence at all.

So from a certain historical point of view, I think Occupy Wall Street rebukes, even more sharply than it rebukes rightist Tea Party claims on the founding, a familiar and complacent history of American democracy -- especially that history's failure to confront our long struggle over the relationship between high finance and government. Occupy Wall Street may be going about things all wrong, as some on what remains of the American left have asserted. I find those assertions hard to dispute. I've been critical of what I suspect may turn out to be a cultural premium, part and parcel of objections to elitism, on intellectual sloppiness and incoherence. That mode was never adopted by the activist 18th century working class, whose objections and demands (pace the lazy snobbism of Hamilton's biographers) took the form not only of action but also of crystal-clear, deeply informed, published resolutions. The 18th century activists remind us that resolutions don't have to be handed down from above; they can filter up and be adopted by majority or by consensus.

The very concept of "up" may be anathema to the new movement. We'll see.

But the most honest answer to any and all objections to Occupy Wall Street may be "So what?" Criticism often comes down to no-cost fantasizing about more appealing actions that nobody has actually bothered to take. When American high finance takes over America, "occupy" is what some American people do, and have always done.

William Hogeland is the author of the narrative histories Declaration and The Whiskey Rebellion and a collection of essays, Inventing American History. He has spoken on unexpected connections between history and politics at the National Archives, the Kansas City Public Library, and various corporate and organization events. He blogs at http://www.williamhogeland.com.

Why Debt Ceilings and Balanced-Budget Requirements Violate the Original Intent of the Constitution

Aug 1, 2011William Hogeland

So-called "constitutional conservatives" ignore the realpolitik of our nation's origins.

In a critical and entertaining portrait of the anti-tax activist Grover Norquist, the New York Times columnist Frank Bruni presented Norquist as an absolutist obsessed with forcing modern political life to conform to ideas that Norquist associates with the American founders' first principles.

Of course, Norquist is by no means alone in taking that position. That the Constitution came into existence to keep taxes low, the federal government small, and national debt at zero is an article of faith among many who, like Michele Bachmann, have taken to calling themselves "constitutional conservatives." And faith is required to believe it, as the Norquist interview shows. To make his supposedly constitutional argument, Norquist cites the first amendment on freedom of religion and the second on the right to keep and bear arms, and then goes on to cite absolutely nothing, in either the articles or the amendments, that so much as hints at a constitutional requirement to balance the federal budget, avoid debt, tax no more than people like Norquist deem appropriate, and keep government small.

He can't cite anything to that effect because while balancing budgets, restraining borrowing, and keeping taxes low and government small might be good goals, depending on what you mean by them, it is impossible to locate in the founding national law any requirement to accomplish them. Indeed, the reality of founding history leads to the reverse conclusion.

The Constitution came about precisely to enable a newly large government -- a national one -- to tax all Americans for the specific purpose of funding a large public debt. Neither Alexander Hamilton nor his mentor the financier Robert Morris made any bones about that purpose; James Madison was among their closest allies; and Edmund Randolph of Virginia opened the Constitutional Convention by charging the delegates to redress the country's failure to fund -- not pay off, fund -- the public debt, by creating a national government.

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Beginning during the War of Independence, and continuing throughout the 1780s, American nationalists committed themselves to a small class of upscale high financiers (largely identical with the American nationalists), who had bought bonds from the confederation Congress in hopes of earning regular, tax-free, 6% interest payments -- not in the Congress's crashing paper currency but in hard, cold metal or its equivalent, stable bills of exchange. Morris, Hamilton, Madison, and others believed that swelling the debt to immense proportions would make a coherent nation out of thirteen squabbling states and make that nation a player on the world economic stage. Their plan to do so depended partly on making military-officer pay a pension, thus turning the entire officer class into public bondholders -- and giving Congress new power to tax all Americans to support that debt.

Hamilton is often reflexively presented as finding inventive ways to pay down the national debt. His real accomplishments were of course "funding and assumption" -- absorbing the states' war debts in the federal one and funding that huge obligation via nationally collected and nationally enforced taxes.

Hence the all-important provisions of the Constitution giving Congress very broad powers to tax and acquire debt. To 18th-century American nationalists across the political spectrum -- to our founders and framers, that is, from Hamilton to Madison, from Morris to Randolph, from the financiers to the planters -- national taxing and borrowing were ineluctably connected to the very purpose of national government.

Nobody has to like it. But the original intent of the Constitution involved sustaining and managing public debt via taxation.

Both the articles and the amendments do, of course, limit government and restrict its power. But no ratified amendment has ever qualified Congress's power of the purse, which in the minds of the framers explicitly involved the power to take on debt and fund it. In their tweets and blogs, "constitutional conservatives" have been promoting a balanced-budget amendment with reference to the tired notion that since households and small businesses must balance their budgets (as if!), government must too. They link that economically useless prescription to the widespread fantasy that our Constitution was written, amended, and ratified for just such a purpose. The framers saw it just the other way.

But really everybody, not just "constitutional conservatives," buys into the fantasy now. History is rarely helpful politically. It's hard to imagine liberals bringing to debt-ceiling and balanced-budget debates the painful realpolitik of our national origins, which show the Constitution existing, originally, to finance the investing class and yoke that class's interest (in every sense) to national power. Thus the Times gives the Bruni piece a headline referring to Norquist's "dangerous purity" -- as if the danger in Norquist's approach lies in a too-rigid insistence on basic principle. There's nothing purist about Norquist. Whether his ideas may be proven right or proven wrong, they are anything but originalist. Like those of Bachmann and the rest of the anti-tax right, Norquist's principles are novel, innovative, and weirdly postmodern, extra-constitutional at best.

Stark realism about the actual founding purposes of the Constitution will always have limited use in political debate. But it would be nice, at least -- though unlikely -- if we would argue these issues on their merits, and leave the Constitution alone.

Economic Conflicts of the Founding Era Dispel Tea Party Myths...and Liberal Ones, Too

May 9, 2011William Hogeland

Looking closely at founding-era struggles over finance challenges Tea Party history -- and some liberal preconceptions too.

Anything but a lost, halcyon epoch of unity and consensus, our founding era saw deep, harsh oppositions among Americans over what kind of society our independence from England was meant to bring about. Like today, the direst political oppositions devolved on the economy, and on proper uses of public and private finance. From the North Carolina Regulation of the 1760s to the Whiskey Rebellion of the 1790s, Americans struggled mightily with other Americans over economic issues.

Though little-known, those struggles had decisive impacts on all of the famous moments in founding history. The Continental Congress's adopting the Declaration of Independence occurred in the summer of 1776 only because those among the financial and political elites who wanted American liberty made secret, common cause with radical populists who wanted American equality. The Constitutional Convention's proposing a national government in 1787 came in direct opposition to progress made by the radical democrats who promoted ordinary, working Americans over the high-finance investing class.

So it's hardly surprising that those same struggles have critically important echoes and resonances -- if sometimes painfully dissonant ones -- for our bitterly divided politics and disastrous financial crises today.

Yet despite constant appeals to founding values by politicians and pundits across the political spectrum, a perennial American eagerness to avoid framing our founding period in economic terms can make it strangely difficult to keep those all-important 18th-century finance issues in historical focus. The Tea Party movement, for example, has laid its claim on the founding period, and to a great extent that claim is indeed an economic and financial one. Casting the modern welfare state as a form of tyranny, in large part because of what they see as its excessive taxation, Tea Partiers invoke the famous American resistance to Parliament's efforts to raise a revenue in the colonies without the consent traditionally given by representation. Seeing founding-generation American patriots as unified against British taxation (and frequently misrepresenting the politics even of the elites they invoke), the Tea Party defines its own anti-government, anti-tax values as essential to American identity.

The Tea Party thus edits out an alternative view of government that prevailed among the ordinary 18th-century Americans who were all-important to achieving independence. Those Americans opposed elites epitomized by the Boston merchant class, which the Tea Party, perhaps appropriately enough, so strongly identifies with. The internal struggle for American equality was as important to the founding as the high-Whig resistance to England, but the Tea Party can't deal with the populist leaders and militia rank-and-file who wrote the socially radical 1776 Pennsylvania Constitution, or the Shaysites of Massachusetts who marched on the state armory, or the so-called whiskey rebels who inspired federal occupation of western Pennsylvania. American Revolutionary patriots all, those democratic-finance leaders had ideas about government's role in ensuring economic equality that prefigured programs of the 19th-century Populists and the 20th-century New Dealers, the very programs the Tea Party wants to dismantle. Tea Party history therefore has to expunge the welfare state's roots in America's founding.

Liberals, too, can have a problem with the economic conflicts of the founding period. Alexander Hamilton's national finance program, which Madison and Jefferson opposed with such intensity, was economically regressive. Under the influence of the founding financier Robert Morris, Hamilton made a stunningly successful effort to yoke American wealth to great national projects by beating down the popular-finance movement and promoting the interest (in both senses!) of the high-finance elites. Yet when some of today's liberals look to Madison for support in critiquing Hamiltonian finance, they come up empty. Madison's attacks on central banking represented anything but an argument for democracy and economic equality.

In fact, the activist governing philosophy of national power that Hamilton espoused and Madison opposed gave precedent to modern liberal ideas about an energetic federal role in achieving social ends. Hamilton, not Madison, was in that sense the modern liberal, and the Hamiltonian influence on today's liberal establishment can be seen in the Brookings Institution's "Hamilton Project" and Peter Orszag's hanging of a National Gallery portrait of Hamilton in his office. That kind of liberalism makes Hamilton the author of using fervent support for Wall Street in hopes of benefiting Main Street.

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There's another kind of liberal history, leaning economically left, that prefers to trace a pretty straight line from Thomas Paine to Thomas Jefferson to Andrew Jackson to FDR, incorporating the labor movement along the way. It thus sees democratic, labor-oriented populism as essential to American founding values and coming to fruition throughout American history. In this view, the Declaration's "all men are created equal" prophesied social progressivism (even if that's not what the signers meant by it) and the Constitution's "we the people" prophesied democracy (even if the document was specifically intended to prevent democracy). The Revolution is defined not by the split between, say, Hamilton and Madison but by the emergence of Jeffersonian and then, even more fully, Jacksonian democracy. The American people become in essence social radicals, and the development of social democracy, while embattled, becomes a natural project of America.

One problem with that view lies in its reliance on Jefferson and Jackson as socially progressive. The New Dealers did an amazing job of reinventing Jefferson as one of their own -- they built him a monument and carved his face on the nickel and on a mountain; they put a statue of his Treasury Secretary Albert Gallatin at the front door of the Treasury (Hamilton, the department's inventor, stands around out back). But it's pretty funny to think of Jefferson as a patron saint of federal-government, welfare-state activism, and Jefferson's attitudes about democracy are notoriously slippery and problematic. The sage of Monticello could wax romantic about small farmers, and he could get excited about radical uprisings (in Paris), but he wasn't about to invite small farmers up his hill, and giving the proletariat of the American cities access to political power -- what Paine actually helped bring about in 1776 -- filled him with disgust and horror.

The Jackson era, too, by no means represented a triumph of the kind of economic equality espoused by Paine, Herman Husband, Thomas Young, James Cannon, and the democratic-finance populists of 1760's and 1770's. Modern forms of "consensus" history see Madison and Hamilton alike as being superseded by Jackson, who ushered in a rowdy, undeferential, dirty-boots, small-business capitalism, contrasted with the gentility shared by all of the famous founders, no matter their differences. That kind of capitalism was hardly what founding-era democratic-finance activists had in mind. The Jackson administration's assaults on central banking may be read by social-democracy historians as a dismantling, at last, of the regressiveness of Hamiltonian finance -- but what began flourishing in the Jackson era can just as easily be read as fulfilling the diverging fears of those bitter enemies Paine and John Adams. Paine, desiring to re-order the world around a economic equality ensured by strong national government, would have been terribly disappointed by the cutthroat society emerging in Jackson's America. And Adams's warnings that democracy could only lead to machines, demagoguery, and party wars over political fiefdoms might as well have been describing the American politics that began with 19th-century democracy.

Just as in Tea Party history, which sees the American people as essentially anti-government, an act of faith is required to see the American people as essentially socially progressive (or essentially anything). Both liberals and conservatives remain riveted -- hypnotized! -- by the big-name founders, from Madison to Hamilton to Adams to Jefferson to Washington to Franklin (with Paine sometimes thrown in because of "Common Sense,"); they therefore remain locked in a fight over what those founders would or would not have supported today. Widening the lens to include the more ordinary likes of Cannon, Young, Husband, Christopher Marshall, Timothy Matlack, Robert Whitehill, and William Findley, among others who opposed American financial elitism in the Revolutionary era, challenges all sides of today's political debate. Bearing down on the painful fact that a struggle over money, not ideas, marked every significant moment during the American founding can help enable new thinking about our struggles today.

The founding leaves us with questions about, not answers to, the kind of American economy we want now. In this series I've tried to raise some of those questions. This post is my last in the series. Writing it, and reading commentary on it here and around the blogs, has been a great pleasure. Thanks to Lynn Parramore (and to Bryce Covert, New Deal 2.0, and the Roosevelt Institute)! I hope these posts help frame an ongoing conversation about the strangely little-known, yet perennially resonant drama of American founding finance.

Washington's Whiskey Woes

May 2, 2011William Hogeland

Despite claims to the contrary, the Whiskey Rebellion was no anti-government crusade -- it was a battle for progressive taxation and regulation.

The seething social, political, and economic struggles over public and private finance that marked our founding period came to a head in the late fall of 1794, when President George Washington, back in the saddle for the first time since the Revolution, personally led nearly 13,000 troops into western Pennsylvania to subject its populace to a military occupation. Treasury Secretary Alexander Hamilton served as Washington's major domo for the operation -- and he took over full command when Washington turned back to Philadelphia. Under Hamilton's command, troops rousted citizens from beds in the snow and ran them to holding pens. They detained on no charge hundreds of people against whom the executive branch knew it had no evidence, administering searches and seizures of property and subjecting detainees to harsh conditions and terrorizing interrogations. After spending indefinite periods in privation and fear, most of the detainees were released -- inevitably, as there hadn't been evidence for their detention. The whole operation was conducted in the absence of warrants, any resolution of Congress, or legal suspension of habeas corpus.

Prosecutions were never the purpose of the arrests. Troops soon arrived at every home in the region and required every male over the age of eighteen to sign an oath of loyalty to the federal government. Not surprisingly, most complied. Such was the context in which the U.S. government established its sovereignty in what was then the restless, defiant, trans-Appalachian West.

The real issues sparking the 1794 suppression of western Pennsylvania have been trivialized, at first by Hamilton himself, as "the Whiskey Rebellion." Just as Hamilton hoped, historians and biographers have contentedly gone on marginalizing the democratic-finance movement that Hamilton dedicated his career to obstructing and tried to give the coup de grace in the suppression of western Pennsylvania.

But the resistance wasn't about whiskey, and Hamilton knew it. It was about public finance and national economics.

The resistance did begin in objections to the first federal tax on a domestic product, an excise on distilled spirits. That tax had been authored by Hamilton himself as linchpin to his comprehensive funding-and-assumption plan for supporting investment in the federal domestic debt and making that debt a national engine. But whereas Hamilton's famous political enemies in government -- the opposition party coming to be associated with Jefferson and Madison -- objected on general principles to Hamilton's activist approach to federal government, the ordinary people on whom his tax operated most painfully were objecting on other, more pragmatic grounds.

They'd hoped for a government that would protect them against what they saw as the avaricious merchant-class lending industry, and they saw the whiskey tax as a betrayal of those hopes, a continuation, even an amplification, of finance policies deliberately favoring elites and obstructing ordinary people's efforts to get their hands on political and economic power. The rebels began by making disguised attacks on tax collectors -- in the classic "regulation" style that the unenfranchised had long employed to promote more democratic public finance. Then they began raising what had been known in 1776 as "liberty poles" (the Washington administration now deemed raising the poles seditious). By 1794, when the western counties of Pennsylvania, along with some in western Virginia, in correspondence with sympathizers in Kentucky, were marching under a new flag and threatening secession from the United States, their goals went well beyond regulation.

They sought to form a new, western country, with direct access to trade on the Mississippi, cultivating a new kind of democratic republic in which ordinary people would thrive. The rebels were well armed and well organized, some of the toughest people America has ever known. Hunters, trackers, dirt-farmers, laborers, craftsmen and marksmen, they were rank-and-file veterans of the worst theaters of the Revolutionary war; their fathers and grandfathers had been harassing eastern government, both British and American, for many years. The prospect of their seceding and forming a government of their own, hostile to the U.S., was a terrifying one.

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And of course it wasn't realistic. In the end the rebels' ruthless illegality was overcome by Hamilton, using his own ruthless illegality, on behalf of President Washington, in the occupation of western Pennsylvania.

I've written in detail elsewhere, as have others, about how Hamilton's tax, which he sold to a financially naive Congress as an innocuous duty on consumption of a luxury item, was in fact carefully calibrated to cartelize the distilling business, favoring big merchants, eastern financiers, and federally-connected western cronies and putting small farmers out of business, all while using the tax revenues to pay interest (untaxed) to well-heeled investors in U.S. debt. Also widely discussed in Whiskey Rebellion literature (though not by Hamilton's biographers!) are Hamilton's eager anticipation of leading a military effort against U.S. citizens somewhere in America to enforce finance policy, and his manipulating, along with Attorney General William Bradford, the prosecution of tax resisters to create a pretext for bringing that plan to fruition in western Pennsylvania.

But in the context of today's debates over taxation and public debt, it might be more important to look at some specific things the so-called whiskey rebels objected to in Hamilton's polices. Hamilton biographers haven't done so, and taking at face value Hamilton's own tactical dismissals of his populist critics' objections, they have confused many of the most important issues in founding finance.

Although the rebels protested and ultimately mobilized militarily against a tax, they were neither inheritors of the Boston Tea Party nor forerunners of today's Tea Party movement. Unlike the Boston Sons of Liberty -- upper-middle-class men who objected to Parliament's taxing American's without representation, as well as to a bailout of a company deemed to big to fail -- the whiskey rebels wanted government not merely to observe the classic liberties of propertied Englishmen but to promote the equality of the less- and un-propertied. And unlike many in today's Tea Party, the rebels of the 1790's did not object to federal taxes per se. Their slogan wasn't "no taxation" or even "less taxation" but "equal taxation." They rightly identified the whiskey tax as what today we would call regressive. In their first of many unsuccessful petitions for repeal, they complained that the tax was unjust because it didn't operate in proportion to property. They saw clearly, in a way Hamilton's enemy Madison never would have, that the tax was designed to hit the poorest hardest, favor the east over the west, and end local efforts at popular finance.

Nor did they object to an activist federal government. They just wanted it to be activist on behalf of labor, not wealth. Anti-federalists did try pandering to the economic populists epitomized by the whiskey rebels, but one of the most important rebel leaders was the preacher and activist Herman Husband, the first to be arrested by Washington's troops and sent to prison in Philadelphia. Husband's sermons were anything but antifederalist. Like Paine, another radical democrat with high regard for the progressive power of government, Husband called for a national government that would use its might to ensure equality. Unlike some of their fellow populists (then and now) both Paine and Husband saw power invested largely in "states' rights" as likely to be socially and economically regressive.

The "madman of the Alleghenies," as Husband was called, envisioned a strong national government with social security; taxes on investment income; and slow, centrally managed inflation. Referring to the process by which democratic populists overturned the Pennsylvania government in 1776, he suggested that the rank-and-file militias might succeed in taking over western Pennsylvania. He was in his seventies when federal troops marched him over the Alleghenies and all the way to Philadelphia, where he lay in jail in awful conditions. Unlike many of those arrested, Husband was actually charged -- with sedition. But the jury found him not guilty.

No matter. Detention was punishment enough -- and for Americans, the occupation of western Pennsylvania was example enough. Husband had been terribly weakened by his ordeal, and he died on his way back to western Pennsylvania. His grave is unknown. The obscurity in history of one our most original and prescient thinkers on finance, government, and democracy is emblematic of the obscurity of the real causes of the Whiskey Rebellion, the cogent thinking of the men who became rebels, and the open conflict between Hamiltonian finance and American democracy.

Hamilton Speaks Out on the Debt Ceiling! (Or Not)

Apr 25, 2011William Hogeland

The father of the founding debt may have been most concerned with his wealthy friends, but his ideas spawned the liberal view of government.

At FrumForum, Kenneth Silber has posted a funny interview with Alexander Hamilton, deploying actual Hamilton quotations in order to suggest how our first Treasury Secretary, the founding architect of U.S. finance policy, might advise us in the current debate on national debt. Hamilton's world was so different from ours that in the post, Hamilton comes off a bit like a wind-up toy:

FrumForum: the 1790s, as the nation's first treasury secretary, you consolidated state debts into a national debt and ensured the U.S. would pay its Revolution-era commitments. What do you think of S&P's negative outlook on treasuries now?

Hamilton: When the credit of a country is in any degree questionable, it never fails to give an extravagant premium, in one shape or another, upon all the loans it has occasion to make. Nor does the evil end here; the same disadvantage must be sustained upon whatever is to be bought on terms of future payment.

And:

FF: ... you created revenue cutters, what later became the Coast Guard, to collect fees from ships. What were your instructions to the officers?

Hamilton: They will always keep in mind that their countrymen are freemen, and, as such, are impatient of everything that bears the least mark of a domineering spirit. They will, therefore, refrain, with the most guarded circumspection, from whatever has the semblance of haughtiness, rudeness, or insult.

Still, the conceit is clever, because Hamilton's founding national finance ideas are embraced both by certain kinds of modern conservatives (the writers Richard Brookhiser and David Brooks, among many others) and by certain kinds of modern liberals (former Obama budget director Peter Orszag, the Brookings Institution, etc.). But Hamilton is also criticized across the political spectrum (by left-influenced historian Woody Holton, by sometime right-wing Republican strategist Kevin Phillips, etc.). Amid our current finance debates, especially regarding the purpose and legitimacy of public debt -- and most immediately on the height of the federal debt ceiling -- Hamiltonian finance raises questions that can spark controversy in all political quarters about debt, banking, taxes, and founding American values. Hamilton was conservative in the sense that he dedicated his policies to keeping his moneyed friends -- the traditional elites -- wealthy. Yet he founded institutions that led to modern liberal ideas about the role of government.

People bring heat to Hamilton. "The bastard brat of a Scotch peddler," John Adams' characteristically mean-spirited slam, is matched today by those who call Hamilton everything from a Tory to a fascist and condemn his national finance plan of the 1790's as the hijacking of an economically democratic revolution supposedly intended by the patriots of 1776. Defenders, meanwhile, invoke the national financial straits that Hamilton faced, marginalize the popular finance movement he intended his measures to demolish, and pooh-pooh any casting of Hamiltonian finance as a socially regressive effort to establish an American money elite.

Anachronistic slurs like "fascist" cloud the important issues; the period American slur "Tory" does too. And despite the overlooked importance to the founding of American popular finance, and the financial elitism the framers meant to build into the Constitution, it's possible to see the Constitution that empowered Hamiltonian finance as more aligned with the Declaration than opposed to it. Yet Hamilton's motives and goals for the country, controversial in their time, remain controversial today, and for good reason.

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Hamilton is famous for putting the country on what historians like to call sound financial footing and building confidence in what they call the credit of the United States. What those terms meant for 18th-century America was better understood by Hamilton himself than it is by many today, including some historians. To Hamilton, sound national finance meant concentrating national wealth in a small number of government-connected hands, thus enabling the financing of ambitious national projects. And good U.S. credit meant ensuring that holders of federal bonds -- those government-connected high-finance men, the public creditors he hoped would invest in building the nation -- could count on staying rich and getting richer by collecting their government interest payments.

To that end, rather than pay off the federal domestic debt (as he is reflexively credited with wanting to do), Hamilton was perfectly articulate about wanting to grow and finance that debt, making it an engine of national purpose. In that process, he showed the influence of his mentor, the Revolutionary War financier Robert Morris, who had recommended Hamilton to Washington for the Treasury job. Working with Morris in the 1780s, the young Hamilton had bent every effort to swelling the debt and making it federal.

Then, with ratification of the Constitution, the student succeeded where the master had failed. Persuading Congress to assume the states' debts in the federal one, and then to fund it all, Hamilton achieved Morris' longstanding goal of placing all public debt, much held by nationalist financiers themselves, in the hands of the national government. If there had been a debt ceiling, Hamilton would have had Congress raise it. Both new taxes and a central bank formed natural parts of that plan.

It's hardly surprising, then, that Hamilton's high regard for both national debt and government power in banking can run him afoul of some on the right, who see him as the founder of a big, sprawling, debt-ridden federal government meddling tyrannically in financial markets. The FrumForum "interview" puts it this way:

FrumForum: But if you're such a liberty-minded guy, how could you have created a central bank, a predecessor to the Fed, when many conservatives and libertarians these days want to end the Fed?

Hamilton "responds" with some tepidly reasonable sounding truisms about how all successful nations utilize central banking. Those observations wouldn't cut it with the conservative libertarians FrumForum invokes; they didn't cut it with James Madison, many libertarians' hero, who objected to the bank on constitutional grounds. Hamilton made the winning argument (also cited in Silber's post) that Congress enjoys both enumerated and unenumerated powers. If Congress determines that exercising the constitutionally enumerated power to do what is "necessary and proper" in the discharge of its duties means exercising an unenumerated one and forming a bank, it can form a bank.

Hamilton thus laid out an idea about the role of the federal government that would appeal to liberals today. It's a long, strange trip from Hamilton's bank to the National Guard in Little Rock; that trip includes a Civil War, a bunch of amendments, and a civil rights movement, which Hamilton of course had nothing to do with. Yet with his argument about the bank, Hamilton sowed seeds for an activist vision of federal power, with national government an instrument for national good, now generally associated with political liberalism.

So Hamilton was a kind of modern liberal. But he wasn't the current kind of modern liberal. His commitment to immense energy in the executive branch and a firm government hand in the national economy did set a founding precedent for FDR and the New Deal. But he wanted to use federal power not to improve economic equality but to distribute wealth upward and keep it there. Hamilton supporters, dismissing all criticism as caviling, perpetually celebrate their man for his brilliance and boldness in creating national stability in a difficult time. Anti-Hamiltonians may think there were better ways the young nation could and should have gone.

What if blending government activism with elite finance, and pushing back the advances of the democratic finance movement, did serve purposes critical in establishing our nationhood? All the more reason to delve into the social, political, and cultural conflicts those policies embodied and the difficult legacies they have left us.

Government budget

Happy Tax Day, Alexander Hamilton!

Apr 18, 2011William Hogeland

Hamilton is revered for putting America on sound financial footing, but he couldn't have done it without federal taxation.

The annual drop-dead moment when Americans must file tax returns or face unpleasant consequences has become an opportunity for the Tea Party, protesting what it sees as crippling taxation and overactive federal government, to rally its supporters. Extending this year's filing deadline from April 15 to today, April 18, the IRS gave Tea Partiers a big weekend, and all over the country, tax-day events hymned unregulated markets, excoriated federal programs like the health-insurance reform bill, and defended anti-labor governors. Anti-Obama leaders from Sarah Palin to Donald Trump urged the faithful to oppose evils summed up for them in the annual requirement to file federal tax returns. For the Tea Party, "Tax Day" represents all that's gone wrong with America since the founding.

So as we stand on long lines at the post office hoping to avoid the midnight axe, we might spare a moment to consider the father of federal taxes, Alexander Hamilton. Our first Secretary of the Treasury, Hamilton is celebrated by both establishment liberals and establishment conservatives: The Hamilton Project is an economic effort of the liberal Brookings Institution, and former Obama budget director Peter Orszag hung a Hamilton portrait in his office; on the right, the writer David Brooks and former Bush Treasury Secretary Henry Paulson are two of Hamilton's biggest fans. It's not surprising. Hamilton is rightly said to have put the new nation on sound financial footing and secured its creditworthiness. He gave us our first comprehensive national finance policy.

That policy depended on exercising certain economic powers that finance nationalists like Hamilton and his mentor the rich financier Robert Morris, as well as planter nationalists like James Madison, had been striving to achieve for the federal government throughout the 1780's, and which came to fruition at the Constitutional convention in 1787. While Hamilton and Madison would arrive at dire odds over whether the Constitution gives the federal government the right to form a central bank (Hamilton yes, Madison no), all nationalists had long agreed that a national government, unlike a confederation of states, would have a right to tax its citizens directly, throughout the states. And unlike what they saw as state governments' susceptibility to the American popular-finance movement's riot and noncompliance, a national government, nationalists hoped, would have both the will and the police resources to enforce and collect taxes.

So whereas Tea Partiers sometimes associate their objections to federal taxes with a desire to "get back to the Constitution," federal taxation is one of the Constitution's central purposes. And we can thank the wunderkind Alexander Hamilton for proposing the legislation by which the first U.S. Congress imposed the first federal tax ever on an American product.

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Hamilton wasn't messing around. Empowered by the new government to do what he and Morris had long been frustrated in trying to do, the young, charismatic, brilliant, diligent Secretary worked up a full-blown plan for connecting national wealth, and even more importantly national credit, to ambitious national aims. Like Morris, though to a far more sophisticated degree, Hamilton wanted the United States to become an economic powerhouse and financial empire to compete with England. And he'd been tireless in figuring out how to do it.

The key, as Morris had always suggested, was to combine a big public debt with vigorously enforced taxes earmarked for funding that debt. That is: sell U.S. bonds to the small, rich merchant lending class and, as Morris had put it, "open the purses of the people," collecting taxes from the American people, in metal, not paper, and earmarking revenues for paying the bondholders their 6% interest in hard, cold cash -- 6% untaxed interest, that is. Federal power would thus shift national wealth upward and consolidate it. Yoking national credit to national interest, government would serve as an economic pivot between the creditors and the people and thus be in a position to finance roads, canals, wars, and other national projects.

Morris had fought hard during the confederation period for a simple federal tariff on imports, known as an "impost," and opposition even to that measure had always been stiff: states wanted to retain their sovereign power to tax. But he'd also schooled his supporters in what a real federal tax slate would look like. Once people had become inured to paying a federal tariff, Morris had predicted, the federal government would be able to impose taxes on domestic products too, taxes known as "excises." Continuing to expand tariffs alone would hit too hard the very people Morris and Hamilton wanted to encourage: the merchant financiers, who also engaged in international trade (that's where they got the gold). Fully consolidating wealth, and fully connecting it to high national aims, meant collecting revenue for finding bonds from people who would never own a bond. Hence the importance, to Hamilton, of imposing domestic taxes.

And Hamilton pulled his whole plan off, pretty much on his own. He is often portrayed as having faced down and tamed a huge public debt that had been run up, somehow, to unfortunate proportions during the war and now needed to be paid off. Nothing could be farther from how Hamilton himself saw the situation. Swelling the public debt had been a project of his and Morris's for many years -- for all the cogent reasons of national credit described above -- and now as Secretary, his plan was hardly to pay the debt down (many of his biographers to the contrary) but to fund it. Which as those of us with credit cards know, is another thing altogether.

In that context, Hamilton further persuaded Congress to assume all the states' debts in the national one, swelling the public debt to the nth degree at last and placing it all in federal hands. That took a tough political fight. Hamilton won it in part because his Madisonian opponents were nowhere near as finance-savvy as he, and partly because empowering the federal government to enact a top-down national finance plan had all along been a chief purpose of the Constitution under which Hamilton acted.

So state debts were nationalized, and a law for funding the domestic public debt was passed. Hamilton couldn't get his bondholders their full 6%, but they were happy enough. Investing in the U.S. looked safe and lucrative.

Funding and assumption: those were Hamilton's great twin achievements, and they did secure the credit of the nation in just the way he and Morris had always wanted. But they depended on a third leg of the finance program, rarely discussed but utterly essential: federal taxation of the American people, with a full-fledged collection service, inexorably spreading federal power to collect, audit, and prosecute throughout the country, from state to state, town to town, and village to village. To Hamilton, taxes weren't an unfortunate necessity. They created a nation, pulling the country together through a network of federal officers opening offices and banging on doors. Running every last detail of that widespread, growing, and powerful federal agency, Hamilton came into his own.

Next week: How Hamilton constructed and calibrated his first federal tax -- the excise on American distilled spirits -- to achieve his and Morris's longstanding goal of quelling the popular finance movement. Also: How the finance populists fought back. In the meantime: Happy Tax Day!

William Hogeland is the author of the narrative histories Declaration and The Whiskey Rebellion and a collection of essays, Inventing American History. He has spoken on unexpected connections between history and politics at the National Archives, the Kansas City Public Library, and various corporate and organization events. He blogs at http://www.williamhogeland.com.

Created Equal? Founding Era Tensions on Economic Fairness

Apr 11, 2011William Hogeland

In 1776, rowdy Democrats fought for equality. But their notions didn't suit early elites.

"All men are created equal," the Continental Congress famously announced in the document that came to be known as the Declaration of Independence. These are powerful words -- and reflecting on America's founding struggles over money and finance can give the familiar phrase new resonance. For even as Thomas Jefferson was drafting the Declaration in a small, hot room in Philadelphia in the summer of 1776, the democratic popular finance movement was blooming in America. Throughout the country, ordinary people placed all hopes on America declaring independence from England. Equality was indeed their goal. And by this, they meant economic fairness: A newly level playing field where they could compete for prosperity.

Near the room where Jefferson wrote, the most successful of those democratic movements was coming to fruition in Philadelphia's Carpenter's Hall. To the artisans, laborers, mechanics, and militia privates gathered there, declaring independence from England offered an amazing chance for creating a new kind of government, fostering fairness for the less propertied, even the unpropertied; obstructing traditional high-finance privilege; and giving the ordinary people access to representation and economic opportunity. Right down the street from the Pennsylvania State House where the Congress met, supporters of this democratic movement were seizing the moment of crisis with England to bring about an economic revolution in America. And their 1776 Pennsylvania constitution made economic equality into law for the first meaningful time anywhere.

The Constitutional Convention: A Counterrevolution?

By the late 1780s, the economic advances of ordinary Americans were starting to look very successful. So successful, in fact, that in 1787, gentlemen from around the country gathered again in the Pennsylvania State House at what became the U.S. constitutional convention. Their primary goal? To push those advances back. Edmund Randolph of Virginia, who would soon serve as U.S. Attorney General and then as Secretary of State, kicked off the 1787 proceedings in the same room at the State House where the Congress had declared independence. He charged the convention with repairing America's "insufficient checks against the democracy."

By "the democracy," delegates like Randolph meant the popular finance movement that events of 1776 had unleashed. In the 1780s, for example, working people serving in the Pennsylvania assembly had actually gone so far as to shut down a central banking scheme operated for the benefit of America's fat cat lenders. That kind of democracy sent shock waves throughout elite America.

The elite gentlemen who gathered in 1787 agreed on several points. They believed that a national government should have power to take all significant finance and monetary policy away from the states, which they considered wimpily susceptible to democratic finance pressures -- and especially from those like Pennsylvania, which was actually in the hands of "the democracy." They thought that the national government ought to be able to enforce taxes earmarked for the big public investors and put down debtor insurrections with military force. Southern planters and northern bankers, state sovereignty libertarians and nationalist authoritarians, the men of the convention put aside their differences and formed a nation that would end the democratic paper money agitation, small-scale government lending, foreclosure relief, and debtor insurrection that weakened the investing class's stability and prevented efficient consolidation and deployment of the country's wealth.

Their differences lay mainly in how to structure and balance that national government. Those differences were of course deep, and they would go on fighting -- from the Kentucky and Virginia Resolutions to the Civil War to the New Deal to the Civil Rights Movement and beyond -- over what the U.S. Constitution says about the proper role of the federal government.

At the 1787 convention, however, they had a common enemy: economic equality. And they made no bones about their effort to suppress democratic finance.

Given those famous, forthright 1776 words about human equality, it's been easy for some readers and writers of history -- especially progressive ones -- to read the U.S. constitutional convention as a kind of counterrevolution. But despite the Declaration's famous phrase about equality, and despite the elites' blatant push back in 1787 against democratic finance, the 1776 congressmen really never intended to bring about a social, political, or economic revolution within American society. The State House, where the Congress declared independence, was geographically near -- but philosophically far -- from Carpenter's Hall, where popular finance reigned.

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Fuzzy notions that the independence Congress sought included social equality, or that the Constitution contradicts the Declaration, distract us from the real significance of surprising relationships -- strikingly salient for our political and economic struggles today -- between the genteel men of the State House and the rowdy democrats of Carpenter's Hall in the great year of 1776.

Jefferson Didn't Mean "Economically Equal"

To see how men of the Continental Congress differed from men of Carpenter's Hall in thinking about equality, it's important to remember that Jefferson drew the remark "all men are created equal" from 17th-century high-Whig philosophy. In using the expression, Jefferson wasn't suggesting government has a responsibility to foster equality. "Created equal" describes men in a natural state, before governments are instituted in order to, as the Declaration says, secure the unalienable rights with which all men are endowed by their Creator. The Congress was appealing to ideas widely accepted among gentlemen about representative rights, which the 1776 congressmen -- just like the 1787 convention delegates -- would inevitably have believed are held by property owners, not by poor, laboring, and other ordinary people. The last thing the Congress would have announced to the world in the Declaration of Independence is a smashing of the connection between property and rights. Indeed, the Declaration complained about the King precisely for violating property rights.

In that sense, the concerns of the men of the 1789 convention were analogous to those of the men of the 1776 Congress. They feared both what they saw as tyranny by the decadent king and what they saw as tyranny by the unpropertied mob. There was no 1787 counterrevolution in American society because, as far as the 1776 Congress was concerned, there had been no revolution in American society.

Genteel Congressmen and Rowdy Democrats: the Strangest Bedfellows of 1776

It's nevertheless true that at the very moment when Jefferson was drafting a socially conservative Declaration, vigorously democratic and deeply American ideas about equality in money, finance, and rights were coming to life right down the block. A seething, conflicted, secret, and highly creative relationship prevailed in 1776 between some of the gentlemen in the Congress and some of the democrats on the Philadelphia street. Long buried by history, the intensity of that relationship may be glimpsed in the antipathy of Thomas Paine and John Adams (Adams called Paine's "Common Sense" a "crapulous mass"). Antipathy finally came down to a shouting match between the two at Adams' rented Philadelphia rooms, in the spring of 1776, over what Paine saw as Adams' snobbish elitism and what Adams saw as Paine's egalitarian ignorance.

Yet even as they shouted, the men shared a goal: American independence. In fact, they were striving tirelessly together, Paine from the street and Adams in the Congress, to bring independence about by any means necessary. Coordinated in secret by John Adams' second cousin Samuel Adams, the two enemies worked behind the scenes to overturn the elected government of Pennsylvania, which favored reconciling with England and held sway over the middle colony bloc. They schemed to replace it with a new Pennsylvania government favoring independence. The new Pennsylvania government would tip the balance in the Congress, bringing about a resolution for independence on July 2. That government would also break the connection between property and rights and pass laws restraining wealth.

So in Philadelphia in 1776, economic elites and economic democrats worked together, albeit in secret and albeit with animosity, on a great task. The compromises were extreme and painful. To achieve American independence, Adams was willing to turn Pennsylvania over to the economic democracy he scorned as mob rule. And Paine, working for an economic revolution in Pennsylvania (and one day, he hoped, in the whole world), collaborated with the very men whose privilege he hoped to disable. Without that strange bedfellow alliance between elite privilege and democratic uprising, America would not have come into independent existence in July of 1776.

Understanding issues confronting both ordinary and elite Americans in founding era finance, and assessing their continuing impact on our lives today, means moving away from the simplistic "Declaration vs. Constitution" binary, which obscures more revealing founding alliances and arguments over the role of American government in ensuring economic fairness. What do we -- not Jefferson -- mean by "equality"? Pulling our real, and really fraught, founding alliances and arguments out of the shadows, and coming to terms with their hopes, conflicts, and contradictions, might help us start to answer that question.

William Hogeland is the author of the narrative histories Declaration and The Whiskey Rebellion and a collection of essays, Inventing American History. He has spoken on unexpected connections between history and politics at the National Archives, the Kansas City Public Library, and various corporate and organization events. He blogs at http://www.williamhogeland.com.

Constitutional Convention Delegates Had Common Goal: Ending Democratic Finance

Apr 4, 2011William Hogeland

Economic struggles played a huge role in the founding of our country, despite some attempts to revise that history.

Edmund Randolph of Virginia kicked off the meeting we now know as the United States constitutional convention by offering his fellow delegates a key inducement to forming a new U.S. government. America lacked "sufficient checks against the democracy," Randolph said. A new government would provide those checks.

Randolph's listeners in Philadelphia in the spring of 1787 knew what he meant by "the democracy." And readers of this series probably will, too. He was talking about the 18th-century American popular finance movement, whose supporters agitated for policies to obstruct concentrated wealth and to give regular folks access to political power and economic equality. Amid depressions and foreclosures, ordinary people had long been rioting -- they called it "regulating" -- to pressure assemblies to restrain the merchant creditors, whose command of scarce gold and silver let them acquire immense wealth by lending at high, even predatory rates to the needier.

Then, with revolution against England, the popular finance movement turned its attention to changing the economic terms of American society. The 1776 Pennsylvania constitution, based in large part on ideas expressed by Thomas Paine in "Common Sense," smashed the ancient property qualification for voting and holding office. In Pennsylvania, new political leaders like the preacher Herman Husband, the weaver William Findley, and the farmer Robert Whitehill entered the assembly and began passing laws shutting down elite banking and requiring government to operate, for the first meaningful time anywhere, on behalf of ordinary people.

Democracy in Pennsylvania sent chills through elites of every kind throughout the newly independent country. Rioting for popular finance was bad enough, but rioting was temporary, spasmodic, and traditional. Debtors wielding legitimate political power to equalize economic life -- that was tantamount to a new kind of tyranny of the mob, hardly what Whig revolutionaries had fought England to gain. Neither Edmund Randolph nor other delegates of the Philadelphia convention, meeting in secret sessions in the Pennsylvania State House, felt any need for subtlety in seeking to suppress the political and economic equality burgeoning everywhere in America among "the democracy."

Present at the Philadelphia convention was the fabulously wealthy Pennsylvania financier and speculator Robert Morris, America's first central banker, no doubt licking his ample chops over the fulfillment, at long last, of his plan to wed nationhood to high finance. Yet it was the planter Randolph, not the financer Morris, who referred to "the plague of paper money," and he meant just what Morris meant. State legislatures' currency emissions and legal-tender laws depreciated the merchants' income from their loans; paper, the people's medium, built debt relief into money itself. Randolph also rued the country's difficulty in paying the investing class its interest on federal bonds. With those bonds, Morris had made private creditors into public creditors as well, swelling the domestic U.S. debt to vast proportions in an effort to connect national purpose to high finance.

Hence the need, Randolph said, for a national government with laws acting on all the people throughout the states. It's no coincidence that he also charged the delegates with repairing the federal government's military weakness. A debtor uprising in western Massachusetts known as Shays' Rebellion had marched on the state armory. That wasn't just a riot. It showed how far ordinary people might go in rejecting regressive taxes and policies giving investors huge paydays with public money. The United States, Randolph said, must be empowered to put down insurrections anywhere in the country.

So Randolph did indeed know what he meant by "the democracy," and his fellow delegates knew too. Why are historians typically so coy about the constitutional convention's financial purposes?

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The fight over those purposes is almost 100 years old. In 1913, the historian Charles Beard published "An Economic Interpretation of the Constitution of the United States." There Beard argued that because delegates of the convention came overwhelmingly from the bond-holding class, the government they put into effect represents less a glorious triumph of republican philosophy than a rearguard action of money elites to assure their own payoffs. Beard's startling contention was that the framers acted at least as much on financial self-interest as on principle.

If that contention remains startling, we can thank an immense effort, carried out over generations, to throw out not only Beard's particular economic interpretation of the convention, but along with it any suggestion that struggles between elites and ordinary Americans over public and private finance played a role in framing our Constitution. It's not surprising that many of the popular founding father biographers routinely avoid the issue. But entire careers in academic history -- major ones, like Edmund Morgan's -- have been largely dedicated to depicting a founding generation acting with perfect intellectual consistency almost entirely on principle. Wherever self-interest did arise, Morgan suggests (in his popular book "The Birth of the Republic" and elsewhere), the nature of the founding mission was such that it enabled even greed to inspire the founders to good. In that kind of history, everyday political struggles over money between ordinary Americans and American elites just don't play.

Beard did err. A pro-Jefferson, anti-Hamilton bent led him to associate self-interest mainly with the high-finance elites; he saw the land-based, state-sovereign philosophy of many planters as tending more naturally toward democracy, and he miscast people like Jefferson and Samuel Adams as Paine-like democrats. Randolph's opening speech at the convention shows a confluence between Virginia planters and Philadelphia financiers on ending democratic finance (men who would never again agree on anything agreed on that!). As the historian Staughton Lynd has wisely suggested, citing Robert Brown in an essay in the anthology "Towards a New Past", had Beard referred less specifically to bondholding, and more generally to property-owning, he would have been standing on firm ground.

But many take Beard's errors as ample cause for heaving big sighs of relief, writing off any mention of founding conflicts over money and finance as "economic determinism," and resting easy in a certainty that, the founders' own words to the contrary, economic struggles played no important role in making us who we are as a people. "No, that's Beard," runs the objection to mentioning founding economic struggles. "Haven't you heard? Beard's been debunked."

Debunking Beard is full of bunk. Beard's leading critic, the historian and right-wing activist Forrest McDonald (he served, for example, as chairman of the Goldwater for President Committee of Rhode Island), rejected Beard's economic analysis in favor of uncritical adoration for the founders' sheer greatness. In his 1958 book "We the People", McDonald purported to dismantle Beard's argument with his own supposedly more accurate economic studies, but in a 1986 article in "The Journal of Economic History," Robert McGuire and Robert Ohsfeldt used what economists call "regression analysis" to show that McDonald set premises and drew conclusions far more tendentious than Beard's. McGuire's recent book "To Form a More Perfect Union" strengthens both the critique of McDonald and the adjustment and rehabilitation of Beard.

To men of the constitutional convention, some of our modern economic analyses might seem strangely redundant. If we know how to read them, the founders often tell us, unabashedly and in their own words, what they were trying to do. McDonald claimed that, Beard to the contrary, a multitude of interests prevailed at the convention, not just one. Well, that's true. What's striking is that despite their well-known mutual antipathies, on a well-known multitude of fateful issues those northerners and southerners, planters and moneymen, slaveholders and manumissionists, city dwellers and countrymen, nationalists and state sovereigntists meeting in Philadelphia in 1787 shared a desire even stronger than their antipathy for one another: stop the American democratic finance movement once and for all.

The fight wasn't over. But the men of the constitutional convention were making no bones about trying to win it.

How John Adams and Thomas Paine Clashed Over Economic Equality

Mar 28, 2011William Hogeland

In "Common Sense," Paine pushed for economic equality for ordinary Americans. Which made John Adams a bit queasy.

Here's John Adams on Thomas Paine's famous 1776 pamphlet "Common Sense": "What a poor, ignorant, malicious, short-sighted, crapulous mass." Then comes Paine on Adams: "John was not born for immortality."

Paine and Adams may have been alone among the founders for having literary styles adequate to their mutual disregard. "The spissitude [sic!] of the black liquor which is spread in such quantities by this writer," Adams wrote of Paine, "prevents its daubing." Paine: "Some people talk of impeaching John Adams, but I am for softer measures. I would keep him to make fun of."

They went on and on.

The Paine-Adams antipathy wasn't just personal. Its sources lay in the founding generation's deep political divisions over economic equality. Those who don't know there was a founding political division over economic equality can thank the many historians -- including even some biographers of finance-savvy founders like Superintendent of Finance Robert Morris -- who feel more comfortable with philosophies of government, issues in constitutional law, and (if they get into economics at all) the legacies of Robert Walpole, Jacques Necker, and David Hume than with day-to-day American economic realities, and with the full range of 18th-century thinking from elite to working-class, on monetary and finance policy.

Things John Adams hated about "Common Sense" are revealing. One was the pamphlet's widespread reputation as the tipping point for America's declaration of independence from England. Adams thought that was nonsense. The only novel thing in "Common Sense," Adams believed -- and he meant it in a bad way -- wasn't what he cast as its belated, derivative call for American independence. It was what he blasted as Paine's "democratical" plan for a new kind of American government, which flew in the face of the balanced republicanism that Adams loved. That part of the pamphlet was its only important part to John Adams, but it is often ignored or glossed over in favor of celebrating what Adams thought the pamphlet never did: persuade Americans to support independence.

In proposing a new American government, Paine scoffed caustically at the whole idea of balance and the covalence among branches that we're taught to revere as exceptionally American, but were really derived from the post-Settlement English constitution. Where Adams saw checks and balances as key to liberty, Paine wanted an executive branch subordinated to a hyper-representative legislature (a single house, with no check from any elite "upper" house) and a judiciary directly elected by the people.

Most horrifying to Adams, Paine wanted citizens to have the vote regardless of property ownership. While in "Common Sense" Paine dialed back his thoughts on equality, arguing only for easy access to the franchise, in other works he promoted smashing the ancient equation that liberty-loving Whigs had always made between property and representation. Paine wanted the less propertied and -- horrors! -- even the unpropertied not only to vote in a free America, but also to hold office.

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Paine's goal in giving the lower sort and the poor access to political power was economic equality. When ordinary Americans held power, they would pass laws promoting the interests of ordinary Americans -- and obstructing, not coincidentally, the interests of finance elites. And that's just what happened in Pennsylvania beginning in 1776, when Paine's friends wrote a constitution for that state, based largely on Paine's ideas, removing the property qualification for the first meaningful time anywhere. Assemblies elected under that constitution passed anti-monopoly laws, worked to bring about government debt relief, and took away the charter of the bank founded by the high financier Robert Morris for the purpose of enriching himself and his friends.

The ideas in "Common Sense" that John Adams feared and loathed became realities in Pennsylvania. Many historians celebrating Paine's goals of liberty and independence fail to acknowledge that for Paine, those goals were inextricable from political equality for the people he spoke for: ordinary working Americans.

One of the most fascinating moments in Paine's career therefore occurred when he went to work for the high financier Robert Morris himself, writing at Morris's behest on behalf of federal taxation in the service of national unity. Paine's democratic populist friends saw Morris's taxes, and indeed Morris's wish for national unity, as a means of shoring up American wealth and pushing back the economic gains ordinary people had made in the Revolutionary period. Paine excoriated Morris for chicanery during the Revolution and helped create the economically democratic government that took away Morris's bank and made the fat cat investor accountable to public opinion. In the 1780s, sudden support for Morris's nationalist finance made Paine look like a sellout. He lost friends among his 1776 allies for equality.

But unlike many of his populist friends, Paine wanted a strong national government for America. Many economic populists of the period made the mistake of placing hopes for popular finance in antifederalism and then in the emerging "states rights" thinking of the anti-Hamilton elites. Populists had reason to feel more sympathy for state governments than for a national one: legislatures from time to time had been susceptible to the will of the less enfranchised, expressed through rioting; states had issued paper currencies and established land banks. And nationalists like Morris and Hamilton were indeed out to end all that. They wanted to make finance and monetary policy national matters, empowering suppression of debtor riots and enforcement of taxes collected for the benefit of an interstate money elite.

Paine, however, was impatient with the anti-nationalism of his fellow democrats. Skeptical of knee-jerk populism, he had high hopes for national finance. The strangest of bedfellows, Paine and Morris were working together at weird cross purposes. Paine's vision, diametrically opposed to Morris's, was like Morris's in being a national one. Along with "the madman of the Alleghenies" Herman Husband, who also saw through state-focused elites' pandering to populism and thought an egalitarian national government might be better empowered to hold greed in check, Paine's radical democracy made him an offbeat kind of Federalist. Gazing farther than most of the popular finance activists of his time, he looked for a strong national government that would amplify the democratic gains he'd helped achieve in Pennsylvania.

The United States government, in Paine's vision, would justify its national power by regulating elite finance throughout the states, promoting the interests of ordinary Americans everywhere, and increasing social equality by law. For Thomas Paine, American finance policy must dedicate itself to economic equality.

Bretton Woods, the New Deal and the Great Society -- circa 1776

Mar 21, 2011William Hogeland

How a farmer, a weaver, and a backwoods prophet took on the money interest in founding-era politics -- and won.

One of the better-known episodes in American founding finance occurred in 1791, when Alexander Hamilton, the first Treasury Secretary, proposed forming the United States' first central bank. James Madison of Virginia, serving in the House of Representatives, objected. Prefiguring the Republican lawmakers who recently pledged not to introduce legislation without first citing the constitutional provision enabling it, Madison asserted that because the Constitution doesn't grant Congress a specific power to form banks, a national bank would be unconstitutional.

Hamilton famously responded by arguing that if a power to do something is constitutional, then powers necessary to doing it must be constitutional too, even when not enumerated. If Congress determines that exercising its power to do anything "necessary and proper" in the discharge of its duties calls for forming a bank, it can form a bank. Any unconstitutionality, for Hamilton, would require a specific prohibition against banks ("Congress shall make no law...," etc.).

So that's typically how history students and readers get introduced to a key founding moment in American public finance: ideologically, intellectually and legally, in the context of a constitutional dispute between the lions of ratification Hamilton and Madison, two thirds of the "Publius" who authored "The Federalist," now coming at odds in the fledgling republic. Anyone hoping to find anything related to how money and credit might flow to ordinary Americans will be disappointed. Hamilton was arguing for the nationalist finance agenda he'd been pursuing since becoming a young protégé of the financier Robert Morris in the early 1780s. Democratic ideas about popular finance were just what Morris and Hamilton had been trying to quell. With a national government in place at last, central banking would be critical.

And in opposing central banking, Madison was arguing on behalf of security in property, limits on power, representative consent, and a land-based economy. He condemned Hamilton's finance plan as crass, urban, and Yankee: un-republican, that is, to Madison. No democrat, Madison would never have endorsed paper currencies, legal relief for the debtor class, and demands by the less propertied for better access to the franchise -- the program advocated by American populist regulators in their struggle against elite finance. Madison's famous "Federalist No. 10" expresses a genteel revulsion for paper finance and social equality at least as deep as Robert Morris's.

It's therefore been easy for many well-regarded historians -- riveted by great men, perpetually rehearsing the Hamilton-Madison binary -- to dismiss founding-era democratic finance theory and practice. Robert Whitehill? Herman Husband? William Findley? Names rarely conjured. The irony is that to Alexander Hamilton and Robert Morris, those names were anything but obscure. Little-remembered today, they made Morris seethe with exasperation precisely over issues of central banking and public debt. Our founding egalitarians' successes and failures complicate received historical binaries and offer intriguing models for today's struggles over public and private finance.

Robert Whitehill was a farmer, Herman Husband a career activist, William Findley a weaver. All lived in western parts of Pennsylvania, where antipathy prevailed both for big planters tying up land and eastern slicksters tying up money and credit. Whitehill led an early 1770s movement for western independence from Philadelphia, as important to his constituency as American independence from England. Husband had led the North Carolina Regulation in the 1760s, barely escaping hanging; as a fugitive in the Pennsylvania wilderness, he experienced Biblical visions of a democratically ruled America, the New Jerusalem. Findley was a natural pol, anything but visionary: he thrived under Jefferson but exemplifies the rough-and-tumble politics of the Jackson era.

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What the three shared, along with passion for democratic finance, was sudden electability under the new Pennsylvania Constitution, which in 1776 shocked famous founders from John Adams to Hamilton by smashing the old Whig connection between representative rights and property ownership. (Whitehill helped write it.) With the unpropertied voting in Pennsylvania, Husband entered the Pennsylvania assembly in the mighty year of 1776, Whitehill and Findley in the early 1780s. For the first time, democratic finance was no longer a crowd protest but a legislative effort.

Husband really was a prophet. He proposed such things anathema to the creditor class as going off the gold standard and managing a slow, deliberate rate of paper depreciation; imposing taxes on wealth and income; making those taxes progressive; and instituting programs for supporting the elderly after they could no longer work. Prefiguring Bretton Woods, the New Deal, and Great Society by nearly two centuries, Husband became known as "the madman of the Alleghenies."

Whitehill and Findley attacked the bank that Robert Morris had founded in Philadelphia. Its charter belonged to the people of Pennsylvania, they asserted, not Morris, and the bank served no public function, existing only to enrich its founders. They proposed revoking the charter, establishing a land bank for small-scale lending, and issuing legal-tender paper to enable small transactions and debt relief. They wanted the electorate, via representatives in the assembly, to regulate public and private finance on behalf of ordinary working people.

Robert Morris himself was serving in the assembly, so floor debate was intense. His merchant constituents were panicking. Investors everywhere in America relied on the bank for gigantic, poorly secured loans to fund their speculations in the land bubble, the bond rollercoaster, and their own fabulous lifestyles. James Wilson, one of the bank's directors, had personally borrowed more than $250,000 from the bank for the purpose of wild speculation. Wilson too served in the Pennsylvania assembly, and in hopes of saving the charter, he and Morris found themselves forced to duke it out with the low-rent likes of Whitehill and Findley.

In a stunning benchmark legislative victory for popular finance, the Pennsylvania assembly did revoke the bank's charter. When the charter came up in the next session, the assembly refused to reinstate it. The people had won. Rich men far and wide gasped in fear of what a democratic American legislature might achieve. Morris announced that a mob was confiscating his property. But for once there was nothing he could do. In a democratic process of republican government, struggling against an enormously powerful money interest in politics, economic fairness had prevailed. That was 1785.

Skeptics of our early democratic finance point to Pennsylvania's bumpy ride under its 1776 constitution, suggesting that the Whitehills, Husbands, and Findleys turned out to be naive in comparison to men like Morris, Wilson, and Hamilton -- financial sophisticates who could quote the philosopher David Hume and the economist Jacques Necker. Morris was "financier of the Revolution," after all. Wilson was the brilliant lawyer who helped author the U.S. Constitution.

So in judging the relative effectiveness of popular versus elite finance, it's worth considering some outcomes. The sophisticates Morris and Wilson, like many of our best-certified wizards today, persisted in speculating well past the point where rationality would suggest stopping, often in manifestly dubious ventures. The unabashed scale and mounting danger of their adventuring will sound familiar. In a time of widespread economic depression, Morris at one point owned most of western New York and many millions of acres in Pennsylvania and the South. Wilson borrowed at rates of up to 30% to invest, among other things, in what turned out to be the Yazoo land fraud in Georgia.

And inevitably, just as today, it all came crashing down. Wilson was serving on the U.S. Supreme Court when his increasingly desperate throwing of good money after bad finally landed the great legal scholar in debtors prison. Our mighty founding financier Robert Morris? He ended up in debtors prison too. In 1800, the first Bankruptcy Act was passed -- in large part to get Robert Morris out of jail.

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Created Equal? Founding Era Tensions on Economic Fairness

Constitutional Convention Delegates Had Common Goal: Ending Democratic Finance

How John Adams and Thomas Paine Clashed Over Economic Equality

Bretton Woods, the New Deal and the Great Society -- circa 1776

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