Alexander Hamilton Statue at Treasury

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

Posted: 25 Apr 2011 10:41 AM PDT

By William Hogeland, the author of the narrative histories Declaration and The Whiskey Rebellion and a collection of essays, Inventing American History who blogs at http://www.williamhogeland.com. Cross posted from New Deal 2.0
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.
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.