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Living with Hamilton's Curse

December 29, 2008

Tags BiographiesU.S. HistoryMonetary Theory

[Hamilton's Curse: How Jefferson's Archenemy Betrayed the American Revolution — and What It Means for America Today. By Thomas J. DiLorenzo. Crown Forum. 2008. 245 pages.]

After you read the dedication of Hamilton's Curse, you know that the book is going to be good: "Dedicated to the memory of Professor Murray N. Rothbard, a brilliant scholar and tireless defender of the free society." DiLorenzo proves to be an outstanding practitioner of a Rothbardian brand of history, a fact that should come as no surprise to readers of his earlier books, The Real Lincoln, Lincoln Unmasked, and How Capitalism Saved America.[1]

DiLorenzo's title, 18th-century in its expansiveness, succinctly sums up his main theme. Thomas Jefferson supported the American Revolution in order to promote individual liberty. To secure this end, it was essential that the central government be strictly limited in its powers. America, in the Jeffersonian view, was an alliance of sovereign states, and the adoption of the Constitution, though it increased the power of the national government, did not fundamentally change this arrangement.

Alexander Hamilton disagreed. He bemoaned the limited powers given to the central government under the Articles of Confederation and continually agitated for a new scheme of authority. At the Constitutional Convention, it became clear how radical were his plans. He favored a permanent president and senate and wanted the federal government to have the power to appoint state governors.

What was behind this radical plan of centralization, fortunately rejected by the majority of the convention? DiLorenzo follows up the brilliant suggestion of Cecilia Kenyon that Hamilton was the "Rousseau of the Right." Rousseau thought that society should be guided by the "general will," but what exactly that concept entailed has perplexed later commentators. It cannot be equated with what the majority of a certain society wishes: it is only when the people's decisions properly reflect the common good, untrammeled by faction, that the general will operates. But if the general will need not result from straightforward voting, how is it to be determined? One answer, for which there is some textual support in Rousseau, is that a wise legislator will guide the people toward what they really want. Those who dissent will "be forced to be free."

This was precisely Hamilton's view. Government, directed by the wise such as himself, would guide the people toward what was good for them. Clinton Rossiter, a Cornell political scientist,

catalogued how some version of "the general will" appears hundreds of times in Hamilton's speeches, letters, and writings… Hamilton more pointedly than any other political thinker of his time, introduced the concept of the "public good" into American thought. (p. 23, quoting Rossiter)[2]

Hamilton did not secure what he wanted at the Convention, and in his contributions to the Federalist Papers, he sometimes for purposes of propaganda defended the limited government that he really rejected. But with the onset of the new government in 1789, he by no means abandoned his goal of centralized power. He had been, during the American Revolution, George Washington's military aide; and the new president appointed him secretary of the Treasury. In that capacity, he bombarded Washington with advice on interpreting the Constitution.

The powers of the central government in his view were not confined to those expressly delegated to it — far from it. The national government had also various powers "implied" by its express grants, though the logic of these implications escaped those not enamored of big government. "'Implied powers' are powers that are not actually in the Constitution but that statists like Hamilton wish were there" (p. 26). The government also had "resulting" powers: these were not even present in the Constitution by implication but "resulted" from new situations. If, e.g., the government conquered new territory, it acquired sovereign power over it. "'This would be rather the result from the whole mass of the government … than a consequence of … powers specially enumerated'" (p. 28, quoting Hamilton).

As if this were not enough, Hamilton did not scruple to interpret the words of the Constitution against their plain sense. Congress was granted the power to pass laws "necessary and proper" for its enumerated powers. To Hamilton, "necessary" meant "convenient"; what was the small matter of the dictionary to stand in the way of the public interest?

In other words, such powers should be made up, even fabricated, on the whims of politicians posing as guardians of the "public good." He [Hamilton] went on to say that any act of government is to be permitted if it is not expressly prohibited by the Constitution, something he forgot to mention in The Federalist Papers. (p. 61)

Thus, in his report to Washington on the constitutionality of a national bank, Hamilton held that, since Congress had the power to coin money, and in his opinion a national bank would be helpful for a monetary system, the bank passed the constitutional test. Jefferson disagreed. Regardless of whether Hamilton was right about the desirability of a bank — and Jefferson of course rejected Hamilton's view of the matter — a bank was not "necessary" and hence had no constitutional warrant.

As his opinion on the bank suggests, much of Hamilton's centralizing plans aimed at economic goals. Once more in contrast to Jefferson, he believed that the government should guide the economy. He returned to the mercantilist system famously condemned by Adam Smith in The Wealth of Nations. (Murray Rothbard has noted that Smith failed completely to repudiate mercantilism; nevertheless, he strongly criticized the main planks of that system.)

For Hamilton, economics and politics were inextricably mixed. Here DiLorenzo follows Douglass Adair, perhaps the foremost 20th-century student of the Federalist Papers. By tying members of the business elite of the states to the new central government, in large part through their involvement in government debt, the power of the national government would be secured.

"With devious brilliance, Hamilton set out, by a program of class legislation, to unite the propertied interests of the eastern seaboard into a cohesive administration party, while at the same time he attempted to make the executive dominant over the Congress by a lavish use of the spoils system." (pp. 45–46, quoting Adair)

We have already alluded to two of the components of Hamilton's economic system, a public debt and a national bank. Protective tariffs in his view were also vital. By tariffs, as well as "bounties," the industrial power of the nation could be built up. But why does the growth of industry require the government's help? In Hamilton's famous argument, "infant industries" needed time to establish themselves before they were fit to face the rigors of international competition. DiLorenzo responds that in practice, the infants never reach maturity. The subsidies remain in perpetuity.

Unfortunately, Hamilton was not an aberration. He had many influential followers and successors; and DiLorenzo finds that efforts to centralize economic and political power run through our history, like the proverbial red thread in the ropes of the British navy. One of the foremost of DiLorenzo's long list of villains is John Marshall, the third chief justice and, incidentally, Jefferson's cousin. Marshall was avid to interpret the Constitution in accord with Hamilton's passion for national power. In McCulloch v. Maryland, (1819) he upheld the constitutionality of the first Bank of the United States, agreeing with Hamilton on the lax interpretation of "necessary and proper."

As the legal scholar Edwin S. Corwin pointed out, it is "well known" that for his written opinion in this case, Marshall depended on Alexander Hamilton's earlier argument about the constitutionality of the BUS [Bank of the United States], which he had written on February 23, 1791. (p. 87)

In Fletcher v Peck (1810), Marshall set aside state legislation as a violation of a valid contract, even though the "contract" in question was fraudulent. He did so in order to enhance federal supremacy.[3]

Readers of our author's earlier books will not be surprised to find Henry Clay on the list of miscreants. All the basic elements of Clay's famous American System came from Hamilton: high tariffs, government promotion of industry, and investment in "internal improvements" such as canals and turnpikes. "Henry Clay, leader of the Whig Party … would adopt Hamilton's agenda as his own under the rubric of 'The American System,' a slogan that Hamilton himself coined" (p. 116). DiLorenzo points out that these programs exacerbated regional strife, since they advanced the interests of the more industrialized Northern states at the expense of the South.

Of course Clay had a follower of his own — Abraham Lincoln, who viewed himself as Clay's disciple. He too favored high tariffs, and his insistence on collecting the "duties and imposts," as he put it in his First Inaugural, made inevitable the War Between the States. Once the war began, Lincoln proceeded to enact as much of the American System as he could, e.g., massive subsidies to railroads and continued high tariffs. To pay for the war and his nationalist economic program, a federal income tax was imposed in 1862.

DiLorenzo carries forward his theme to the "Hamiltonian Revolution of 1913." In that year the 16th Amendment, making a federal income tax, was ratified; and the Federal Reserve System was established. The details of these efforts at monetary nationalism will be familiar to many readers of The Mises Review. What many will find surprising, though, is the importance of other great constitutional change of that fateful year, the 17th Amendment. This called for the direct election of senators. At first, one might wonder what this has to do with the Hamiltonian program. Was this not simply an effort to make politicians more directly responsible to the people?

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DiLorenzo shows the fallacy of this common opinion. Under the old system, senators acted as virtual ambassadors of the states. Sometimes, the state legislature instructed senators how to vote; and if the senators did not feel able to obey these instructions, they resigned. This was an important check on federal power, which the new system ended.

Our author, nothing if not consistent, sees the 20th-century usurpations of power, both in domestic and foreign affairs, by the federal government as Hamiltonian in character. America's entry into World War I, e.g., came about through Woodrow Wilson's desire to have America play a dominant role in shaping the world. Limited government and states' rights, in the style of Thomas Jefferson, was not to his liking. His insistence on a powerful nation, led of course by a strong chief executive, was quintessentially Hamiltonian. In this stress on Hamilton's continuing influence, he has support from some who view matters with decidedly different value judgments. Michael Lind, an ardent economic nationalist, sees Franklin Roosevelt and Lyndon Johnson as followers of Hamilton. To DiLorenzo, but decidedly not to Lind, we suffer from the "poisoned fruits" of Hamilton's program.

Hamilton's Curse fits in very well with DiLorenzo's earlier books. He here identifies the inception of a basic and malign influence, economic nationalism, on American history. In his two books on Lincoln, he describes the main 19th-century exponent of that policy; and in How Capitalism Saved America, he discusses the system of economic freedom that economic nationalism endeavors to restrict and replace.

David Gordon covers new books in economics, politics, philosophy, and law for The Mises Review, the quarterly review of literature in the social sciences, published since 1995 by the Mises Institute. He is author of The Essential Rothbard, available in the Mises Store. Comment on the blog.

This review originally appeared in The Mises Review, Fall 2008.

Notes

[1] See my reviews of these books in The Mises Review, in the order of the books given, for the issues of Summer 2002, Summer 2007, and Fall 2004, respectively.

[2] Adopting Rousseau's view need not result in opposition to states' rights. Someone might think that small states, rather than large nations, give the best chance for the general will to be discerned properly.

[3] The author, following Judge Andrew Napolitano, takes a very expansive view of Marshall's claims in Marbury v. Madison (1803). I am inclined to think that Marshall did not here argue for judicial supremacy over the other branches of government.


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