Monday, October 06, 2008

What Hamilton has wrought

I mentioned my friend from Missouri. He has a knowledge of American history not many people will have. He doesn't have a degree in History unfortunately, but if you've got a passion for history perhaps you don't need no stinkin' degree!

His research interest has been the Civil War and he can break down why the northern and southern regions of the nation came to blows by the 1860s. He sympathizes more with the South and it's not because of slavery. He knows the position the south was in during the years before the shots were fired on Fort Sumter.

In anycase he can also break down the early days of the American republic. He doesn't like Abraham Lincoln, but I wonder if he despises Alexander Hamilton more. When it was time to write a new US Constitution (this nation having been under the Articles of Confederation previously) he wanted a sort of lifetime king. Or a President elected for life let's just say one not much different than the British monarchy that America had just left. My old friend said that the other delegates at that 1787-89 Con-Con told him to STFU n00b and he never returned to deliberate.

That being said that didn't mark the end of his prominence as in a new administration under a new regime as underscored by the brand spanking new US Constitution he had his ideas as to how this nation should conduct itself as far as its financial system goes.

For this we look at an article from LewRockwell:
The great debate between Hamilton and Jefferson over the purpose of government, which animates American politics to this day, was very much about economic policy. Hamilton was a compulsive statist who wanted to bring the corrupt British mercantilist system – the very system the American Revolution was fought to escape from – to America. He fought fiercely for his program of corporate welfare, protectionist tariffs, public debt, pervasive taxation, and a central bank run by politicians and their appointees out of the nation’s capital.

Jefferson and his followers opposed him every step of the way because they understood that Hamilton’s agenda was totally destructive of liberty. And unlike Hamilton, they took Adam Smith’s warnings against economic interventionism seriously.

Hamilton complained to George Washington that "we need a government of more energy" and expressed disgust over "an excessive concern for liberty in public men" like Jefferson. Hamilton "had perhaps the highest respect for government of any important American political thinker who ever lived," wrote Hamilton biographer Clinton Rossiter.

Hamilton and his political compatriots, the Federalists, understood that a mercantilist empire is a very bad thing if you are on the paying end, as the colonists were. But if you are on the receiving end, that’s altogether different. It’s good to be the king, as Mel Brooks would say.

Hamilton was neither the inventor of capitalism in America nor "the prophet of the capitalist revolution in America," as biographer Ron Chernow ludicrously asserts. He was the instigator of "crony capitalism," or government primarily for the benefit of the well-connected business class. Far from advocating capitalism, Hamilton was "befogged in the mists of mercantilism" according to the great late nineteenth century sociologist William Graham Sumner. 
Does this mean that the idea to bailout big business was largely Hamilton's idea. Like we're doing right now for Wall-Street after they made their bad loans and invested in these portfolios that turned out to be bad news. Another thing you might hear about especially if you listen to Congressman Ron Paul is debt. Hamilton believed in debt:
In a lengthy "report" to Congress on the topic of the public debt Hamilton said that "a national debt, if it is not excessive, will be to us a public blessing." He would spend the rest of his life politicking for excessive government spending – and debt. The reason Hamilton gave for favoring a large public debt was not to finance any particular project, or to stabilize financial markets, but to combine the interests of the affluent people of the country – particularly business people – to the government. As the owners of government bonds, he reasoned, they would forever support his agenda of higher taxes and bigger government. (He condemned Jefferson’s first inaugural address and its minimal government message as "the symptom of a pygmy mind.") No wonder one historian entitled his book on Hamilton "American Machiavelli."

Wall Street financiers naturally took an immediate liking to Hamilton’s idea, and became the financial cornerstone of the Federalist Party (and later, the Whigs and Republicans). When Hamilton engineered the nationalization of the states’ debt as treasury secretary – something that was totally unnecessary since many states like Virginia had nearly paid off their war debts – the plan was to cash out much of the old debt at face value. This immediately became public knowledge in New York City, but the news spread ever so slowly to the rest of the country. Consequently, Hamilton’s friends and supporters from New York City and New England went on a mad scramble down the eastern seaboard, purchasing bonds from hapless war veterans (who had been paid in bonds) for as little as two percent of par value. Huge fortunes were made by these slick New York speculators. Robert Morris pocketed a nifty $18 million. John Quincy Adams wrote to his father that the wealthiest Federalist lawyer in Massachusetts made a huge fortune with this caper. Hamilton participated in this parade of plunder himself, but claimed that the profits he made were for his brother-in-law.

The link between Wall Street and the federal government was cemented into place later on, when investment banks took on the responsibility of marketing the government’s bonds, which of course they still do to this day. Thus, Wall Street investment bankers became inveterate lobbyists for any and all tax increases (on the rest of the population, anyway) to assure that their own principal and interest would be paid, and that they could promise their clients – the purchasers of government bonds – that the bonds were a good investment. They were corrupt from the very beginning. 

When Hamilton and George Washington led some 15,000 conscripts into Pennsylvania to enforce the hated whiskey tax, the purpose was not only to collect the tax and reassure bondholders, but also to send a message to any future tax resisters. The volunteer officers who led the conscripts were mostly "from the ranks of the creditor aristocracy in the seaboard cities," wrote Claude Bowers in Jefferson and Hamilton. (The rebellion succeeded, nevertheless. George Washington pardoned all of the tax protesters despite Hamilton’s hysterical opposition and his desire to hang all of them.)
And also he helped to start this idea of central banking in this country over a century before America had the Federal Reserve Bank:
Hamilton is also considered to be the founding father of central banking since America’s first central bank, the Bank of the United States (BUS), existed primarily due to his efforts as Treasury Secretary. As William Graham Sumner wrote in his biography of Hamilton, however, "[A] national bank . . . was not essential to the work of the Federal Government." The real purpose of Hamilton’s bank, Sumner believed, was "the interweaving of the interests of wealthy men with those of their government." And interweave it did, providing cheap credit to business supporters of the Federalist Party, attempting to engineer boom-and-bust cycles to influence elections (called "political business cycles" in today’s parlance) and even financing the political campaigns of BUS supporters. 

The BUS was a disaster for the general public, however; excessive money creating by the BUS printing press caused 72 percent inflation in its first five years, from 1791 to 1796. It became so unpopular that its twenty-year charter was not renewed, but then the War of 1812 gave it a new life, and it was resurrected in 1817. It immediately caused the Panic of 1819, and did what all central banks have always done: generated boom-and-bust cycles for the next twenty years. The bursting of the housing bubble in our time is the latest example of this hoary tradition.

To be sure I'm not totally up on my economics, but is it not safe to say if debt isn't good for us everyday folks then why is it good for government. At the end of the day, Government debt isn't good for those of us who's taxes are going towards this debt. Ideally this should be common sense.

What do you think out there?

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