Organized Crime

As soon as the federal government announced its multi-trillion dollar bailouts of Wall Street plutocrats during the first years of The Great Recession, defenders of the bailouts pulled out what they apparently considered was a secret weapon: the myth of Alexander Hamilton as the supposed inventor of American capitalism. Hamilton, it was said, would approve of the bailouts for it was he, after all, who first proposed protectionist tariffs for “infant” industries, and the introduction of European-style mercantilism in America, complete with myriad subsidies and “bounties” for various industries. (Hamilton did so in his famous Report on Manufactures).

One Wall Street institution—Forbes magazine—published an article entitled “Alexander Hamilton versus Ron Paul” to make the point that libertarian critiques of corporate welfare should be dismissed because Hamilton was supposedly such a great statesman and economic genius compared to Congressman Ron Paul and his like-minded supporters.

The Wall Street Journal joined in the Hamilton worship by publishing an article by business historian John Steele Gordon in which he argued that our real problem is that central banking is not centralized enough and we need more central planning by the Fed, not less. Gordon called for an economic strongman in the form of a financial markets dictator/regulator; he supported the bailouts; and blamed the crisis on—Thomas Jefferson!

Jefferson opposed the creation of America’s first central bank, the Bank of the United States, which had been championed by Hamilton. He was a hard-money advocate who did not trust politicians with money. It is this kind of thinking, said Gordon, which was the cause of the Great Recession. In reality, it was the Fed’s policy of pursuing zero interest rates for year after year, coupled with the federal government’s policies of forcing or enticing mortgage lenders to make trillions of dollars of bad loans to unqualified borrowers (securitized by Fannie Mae and Freddie Mac) that created the housing bubble.

What all of this frantic Hamilton idolatry demonstrated is how the myth of Alexander Hamilton as some kind of ingenius central economic planner is the ideological cornerstone of the American system of crony capitalism financed by a huge public debt and legalized counterfeiting through central banking. It is this system that was the main cause of The Great Recession, not opposition to the system as Gordon and others argued.

The Real Hamilton

Hamilton was the intellectual leader of the group of men at the time of the founding who wanted to import the system of British mercantilism and imperialistic government to America. As long as they were on the paying side of British mercantilism and imperialism, they opposed it and even fought a revolution against it. But being on the collecting side was a different matter. It’s good to be the king, as actor/comedian Mel Brooks might say.

It was Hamilton who coined the phrase “The American System” to describe the policies of corporate welfare, protectionist tariffs, central banking, and a large public debt, which he said would be a “blessing” to America. Unlike his political nemesis Thomas Jefferson, who was deeply educated in the economics of his day, having studied Adam Smith, John Baptiste Say, Richard Cantillon, and others. Hamilton either ignored or dismissed, or was unaware of this knowledge. Instead, he spread mercantilist myths that had been invented by public relations apologists such as Sir James Steuart for British mercantilists.

Hamilton championed the cause of a large public debt not to establish the good credit of the U.S. government or to finance any particular government programs, but for the Machiavellian reason of tying the economic self-interest of the wealthy to the government. It would be the wealthy who would purchase government bonds, he argued, so that they would naturally become a powerful lobbying force for higher taxes and bigger government. They would do so to assure that there was always enough tax revenue in the Treasury to guarantee that they would receive the interest payments on their bonds. He was right: government bondholders, and the investment bankers who market the government’s bonds, have always been supportive of Big Government. This is why Wall Street investment bankers were first in line for government bailouts as soon as the Great Recession commenced. The state takes care of its own, first and foremost, as any Mafia-style gang would do.

Hamilton’s main arguments in favor of an empire of crony capitalists were put forth in his Report on Manufactures. In his 1905 biography of Hamilton William Graham Sumner wrote that Hamilton’s report advocated “the old system of mercantilism of the English school, turned around and adjusted to the situation of the United States.” Jefferson himself once wrote that Hamilton’s “schemes” for protectionism, corporate welfare, and central banking were “the means by which the corrupt British system of government could be introduced into the United States.” Sumner and Jefferson were right.

Hamiltonian mercantilism is essentially the economic and political system that Americans have lived under for several generations: A king-like president who rules through executive orders and disregards constitutional constraints on his powers; state governments that are mere puppets of the central government; corporate welfare run amok; tens of trillions of dollars of accumulated government debt; and perpetual boom-and-bust cycles (and periodic price inflation) caused by the fumbling antics of the faux central planners at the Federal Reserve Board. This is Hamilton’s curse on America—a curse that must be exorcized if American freedom and prosperity are ever to be reinvigorated.