Investor’s View Magazine
Ron Chernow - Alexander Hamilton reviewed by Michael Swanson
Years ago I remember reading through a collection of letters by Thomas Jefferson and noticing how he wrote about Alexander Hamilton in what seemed like paranoid terms. To Jefferson Hamilton was in league with British interests who sought to turn the United States into their economic vassal. Hamilton’s opponents claimed that he used the power vested in him as the nation’s first Treasury Secretary to corrupt Congress, work in league with British speculators, and ruin the country. In a letter to Philip Mazzei Jefferson claimed that Hamilton headed a cabal of men “who prefer the calm of despotism to the boisterous sea of liberty, British merchants and Americans trading on British capital, speculators and holders in the banks and public funds, a contrivance invented for the purposes of corruption and for assimilating us in all things to the rotten as well as the sound parts of the English model.” Such talk seems crazy. It made no sense to me.
Influenced by the comments of Hamilton’s cotemporaries, most writers since have given him little respect, although they strayed away from the seeming paranoid conspiracy theories of Thomas Jefferson. John Adams called Hamilton the “bastard brat of a Scott pedlar.” Of Hamilton, Woodrow Wilson, said he was “a very great man, but not a great American.” Noah Webster blasted him as “the evil genius of this country” while the poet Ezra Pound said he is “the Prime snot in ALL American history.”
In recent years Thomas Jefferson has been knocked off his pedestal. Proof of a sexual relationship with his slave Sally Hemmings and a more modern sensibility about slavery and racism have rubbed away Jefferson’s luster. Now Alexander Hamilton is finely making a come back and the closer look that he deserves. Four years ago Richard Brookhiser, an editor for The National Review, wrote a glowing biography of Hamilton, which portrayed him as the creator of our country’s financial system and the father of American capitalism. Now Ron Chernow has just come out with a biography of the man that quickly jumped on to The New York Times list of best sellers and is ranked number 24 in Amazon.Com sales. Like Brookhiser, Chernow, who has written books on J.P. Morgan and John D. Rockefeller, gives Hamilton his proper due, calling him “the prophet of the capitalist revolution in America.”
Hamilton earned this accolade by creating the nation’s first tax and budget system, customs service, coast guard, and central bank. He also worked to build a strong national union by tying the states together with a national debt and binding them together with a powerful central government, executive branch, and independent judiciary, all under the opposition of many of the leaders of the American Revolution and Founding Fathers, including Jefferson, Patrick Henry, and James Madison. As Chernow writes, “today, we are indisputably the heirs to Hamilton’s America, and to repudiate his legacy is, in many ways, to repudiate the modern world.”
Chernow’s book has received glowing reviews. Lyndon Johnson biographer Robert Caro says it’s a “monumental contribution to our understandings of the beginnings of the American republic.” The book is a “superbly written and carefully researched biography,” according to the Wall Street Journal. Amazon.com trumpets it as “what may be the most comprehensive modern examination of the often overlooked Founding Father.”
The book is crisp and a delightful read. Chernow does a great job tracing the arc of Hamilton’s life, from his childhood as an illegitimate son in the Caribbean, his service as Washington’s aide-de-camp, his authorship of the bulk of The Federalist Papers, his years as head of the Federalist party and the Treasury, and of course his fateful duel with Aaron Burr. As a man who rose from poverty and obscurity to be at almost every pivotal moment of the early years of the American Republic, Hamilton’s life is indeed a fascinating one.
Chernow digs new ground here. Using 50 previously undiscovered essays written by Hamilton and records in Great Britain and eight Caribbean islands, he gives fresh insight to Hamilton’s childhood and personal life. In Hamilton’s personal letters Chernow discovers hints that he had a homosexual relationship with his close friend John Laurens during the Revolutionary War. Once Hamilton married he had multiple sexual affairs with various women, the most famous being his affair with Maria Cosway. Chernow doesn’t think this was purely a moral problem on Hamilton’s part. His wife “produced eight children in a twenty-year span. As a result, Eliza was either pregnant or consumed with child rearing throughout their marriage, which may have encouraged Hamilton’s womanizing,” Chernow writes.
Chernow’s book is aimed straight at Hamilton detractors and seeks to rehabilitate his image. Contemporary critics unleashed fury on Hamilton’s plans as Treasury Secretary. He bravely bore the brunt of this “partisan bickering,” because “he was laying the groundwork for a great nation,” Chernow writes. Central to Hamilton’s program was a scheme to nationalize the debts created by the Revolutionary War. It serves as a key example of how Chernow defends Hamilton.
After the Revolutionary War the total debt of the United Sates was $77.1 million. Out of this $11.7 million was owed to foreign governments, $40.4 million was domestically held, and $25 million was owed by the states. Hamilton centralized the debts, turning all of the state debts into the responsibility of the federal government. He believed that this would allow the Treasury Department to issue government bonds and debt bills, which could be used for collateral and would function as money. Critics charged that Hamilton was in fact institutionalizing the debt and insuring that it not only would never be completely paid off, but would also be used as a way for the federal government to try to manipulate the economy. Chernow argues that the plan was simply too complicated for its critics to understand. “They were befuddled by the complexity of Hamilton’s plan and its array of options for creditors. Opponents sensed that he was moving too fast, on too many fronts, for them to grasp all his intentions,” he writes.
Opponents of Hamilton’s plan also feared that it favored well-connected speculators and political insiders over patriotic citizens. Many soldiers had been paid by government debt IOUs during the Revolutionary War, which crashed in price. The soldiers in turn had sold their debt bills to speculators for as little as .15 cents on the dollar. Hamilton’s plan promised to pay the bills at par value, so people who bought them at such depressed prices stood to make fortunes. As rumors of Hamilton’s plan got out, speculators bid the value of the bonds up.
James Madison became the chief opponent of the plan. He wanted the debt paid off too, but once he saw the buying frenzy he became convinced that speculators were using insider connections to trick war veterans into selling. He complained that many of them “are still exploring the interior and distant parts of the Union in order to take advantage of the holders.” As historian Joseph Ellis explains Madison’s fears in his book Founding Brothers, Madison had visualized the new American republic “as an exalted arena where only the ablest and most intellectually talented officials would congregate, the finest fruits plucked from the more motley state governments, now replaced by an obnoxious collection of financiers and money changers, the kind of social parasites whom Jesus had symbolically driven from the temple. The promise of the American Revolution, at least as Madison understood it, was falling into enemy hands.”
At the time all of Hamilton’s financial plans came under attack as being corrupt and designed to benefit well-connected financiers. Chernow answers this charge by writing, “in reality, as soon as he took office, Hamilton established ethical standards and promulgated a policy that employees could not deal in government securities, setting a critical precedent for America’s civil service.” Chernow also claims opponents of Hamilton merely used attacks against him as a way to cover up their own sins and protect their own interests. The debate over the national bank, for instance “allowed southern slaveholders to proclaim that northern financiers were the evil ones and that slaveholders were the virtuous populists, upright men of soil. It was testimony to the political genius of Thomas Jefferson and James Madison that they diverted attention away from the grisly realities of southern slavery by casting a lurid spotlight on Hamilton’s system as the paramount embodiment of evil,” Chernow writes.
However, this seems unlikely. It is an argument designed to play on contemporary sensibilities, which has little sympathy for slave masters. Slavery was an awful system, but it wasn’t threatened in the early years of the American Republic. Jefferson and Madison did not need to protect slavery. It wouldn’t come under attack until after both of them were dead. In fact one may argue that using this method of reasoning is Chernow’s way of deflecting attention away from Jefferson and Madison’s real arguments.
Despite Chernow’s quick denial, the historical record backs up their claims of corruption. Hamilton was in fact one of the largest traders in public debt paper in New York. Old loan books in the Treasury Department show transactions worth $23,189.21, $15,594.61, $8036.50, and $20,689.21 in March, October, and November of 1791. While Treasury Secretary he employed two agents, Thomas Willing in Philadelphia and William Seton in New York, who carried out regular securities transactions for his brother in law, John Barker Church. In a letter Alexander Hamilton dated February 24, 1790, Thomas Willing discusses selling stocks under his order for Church:
Sir:
I have had this day the honor of yours inclosing your power of substitution on behalf of Mr. Church. At present the sale of stock, and indeed every other money transaction is nearly at a stand. The produce of the State and the sale of Bills of Exchange will alone command it, until we receive a supply from sea.
Mr. Constable has informed me of the purchase he had made of 20 shares and when they appear the transfer will be completed.
I observe what you say respecting the sale of Mr. Church’s shares and shall do whatever may be in my power to dispose of them, whenever I receive the certificates and your orders to make the sale. I am, Sir, with great respect,
Your obedient servant,
Thomas Willing
Other letters show that William Seton also bought United States Bank stock for Church under Hamilton’s orders. In one letter he even says that he is “loth to enter into the market without further orders from you.” None of this is in Chernow’s book. Hamilton’s relationship with Church, who had a seat in the British parliament, deserves closer scrutiny. If one is to defend Hamilton against corruption charges one must do more than simply attack those making the charges.
Chernow notes that Hamilton first displayed an interest in financial matters during the Revolutionary war in a series of letters to Robert Morris, one of the largest financiers of the day. Morris received a charter from Congress, then operating under the Articles of Confederation, to open up the Bank of North America, the country’s first central bank, which operated with a fractional reserve system. These letters were used as a basis for four newspaper editorials, which first brought Hamilton’s economic ideas to the public.
In them Hamilton argued that unless more power was given to a strong federal union the states would break away from each other and fall into civil war. He claimed that the federal government needed the power to tax, regulate trade, and appoint military officers. At the end of his final essay he made the statement that Morris’s national bank could prove to be the key support for the entire federal government, because it would wed the “interest of the monied men with the resources of the government.” Chernow argues that for Hamilton, “the kernel of many of his later theories first germinated in these essays.”
What is interesting is that if one takes a close look at the Bank of North America one will find John Church listed as one of its largest shareholders. It isn’t hard to imagine that Hamilton became interested in financial matters due in part to his familial and social ties to the largest financiers in America. In fact it is easy to conclude that his career was spent acting as an agent for their interests, or wedding them to “the resources of the government” as he put it.
The Bank of North America became the depository of all congressional funds until its role as the nation’s central bank came to an end. It then became a private commercial bank chartered in Pennsylvania. In 1791, Hamilton helped commission the Bank of the United States that acted as the Federal government’s first central bank. Thomas Willing served as its first President. According to Murray Rothbard, in his treatise A History of Money and Banking in the United States, “the establishment of the Bank of the United States precipitated a grave constitutional argument, the Jeffersonians arguing that the Constitution gave the federal government no power to establish a bank. Hamilton, in turn, paved the way for virtually unlimited expansion of federal power by maintaining that the Constitution implied a grant of power for carrying out vague national goals.”
Even Chernow admits that there was more than simply a defense of slavery in Jefferson’s attacks against Hamilton’s programs. “Most of all, Jefferson wished to preserve state sovereignty against federal infringement. Since Hamilton’s agenda was to strengthen the central government, bolster the executive branch at the expense of the legislature, and subordinate the sate, it embodied everything Jefferson abhorred,” he writes.
It is Hamilton’s support for a strong executive and government intervention in the economy and that has made him an icon for neoconservative thinkers. It is no coincidence that it was Richard Brookhiser, who is a neoconservative himself, who recently popularized the rehabilitation of Alexander Hamilton. Neoconservatives favor Keynesian deficit spending to influence the economy, tax cuts, and intervention and nation building in foreign affairs. Although neoconservatives now dominate the Republican Party, they differ from traditional conservatives who favor balanced budgets and are skeptical of nation building adventures. Just as they imagine Hamilton creating the groundwork for the American union with his creation of institutions such as the Bank of America, neoconservatives imagine that they can bring freedom and democracy to other countries, such as Iraq, by introducing government institutions into them. With Hamilton they imagine their theoretical forefather, who by fact of being one of the leaders of the young American Republic allows them to cast their ideas as being an integral part of American history.
In a review for the New York Times, neoconservative intellectual David Brooks goes so far as claiming that Alexander Hamilton “created capitalism.” He excitedly claims that Hamilton “saw that America could be a capitalist superpower, and he figured out which institutions it would need to realize that destiny.“ For Brooks “his greatest achievements came as Treasury secretary. He was confronted by an economically weak and fractious nation. He nationalized the debt, binding the states together and creating the fluid capital markets that are today the engine of world capitalism, he writes.” “He started a political tradition, dormant in our own day, in which energetic government doesn't oppose market dynamism but is organized to enhance it,” he continues.
However, in another review Thomas DiLorenzo, author of The Real Lincoln, argues that claiming that Alexander Hamilton “created capitalism” is spacious at best. DiLorenzo notes that financial markets trace their origins to the stock exchanges in Amerstam, Italy, France, and England, which were formed centuries before Hamilton was born. In the United States securities were first traded in New York long before Hamilton was Treasury Secretary. He didn’t invent stock trading, banking, or industry.
Dilorenzo argues that economies are hardly the creations of governments. “Such fantasies are typical of the neocons or neo-Jacobins, as Claes Ryn would call them. They seem unaware of or unwilling to accept the fundamental idea that the civil society is the result of the peaceful efforts of many individuals who collaborate and cooperate for their own mutual benefit. It is not created by any one Great Central Planner. "Democracy" cannot be created by political fiat; the institutions of democracy evolved over many centuries,” he argues.
It isn’t hard to make the troubling connection to the current war in Iraq. The idea that we can unilaterally create a democracy in Iraq by implanting institutions of our own design on the country, as people like David Brooks argue in editorials, is a dangerous fantasy. The Iraqi people must develop their own civic culture and private civic institutions that will support Democracy for one to be viable in Iraq. Fundamentalist religious movements, which are hardly conducive to democracy, now act as the country’s main civic power. It will take time for alternatives to develop.
Neoconservatives portray Alexander Hamilton a historically. They take him out of history and use him as an icon for their movement. In their cartoonish view of history they whitewash the reality of his personal corruption and scandalous life and try to tear down his opponents such as Thomas Jefferson. If you like a country with a powerful judicial system that makes laws on its own, an executive branch that governs without administrative fiat, an ineffective legislative branch, a country with the largest current account deficit in history thanks to a Federal Reserve gone out of control, and a war hawk faction who risk turning the nation into a pitiful giant then you’ll like the neoconservatives’ so called Hamiltonian vision of America.
The real history of Hamilton is a warning cry against the corruption that can be created when a centralized government intervenes in the economy. When government creates bureaucracies and regulatory bodies it also creates interests that use those institutions for their own private benefit. It creates one group of losers and one group of winners, who win not by beating their competition through innovation, better services, or cheaper products, but through insider connections and outright bribery. The corruption that encircled Hamilton’s rule over the Treasury is simply the beginning of this all too familiar story. Now Jefferson’s seemingly paranoid rantings about Hamilton make sense. At first he supported many of Hamilton’s programs, but after he understood their consequences he opposed them. In a letter to George Washington he said, “I was duped into it by the Secretary of the Treasury and made a tool for forwarding his schemes, not then sufficiently understood by me; and of all the errors of my political life, this has occasioned me the deepest regret.”
Ron Chernow has made a literary career out of obscuring the corruption behind the financial powers of our country. In The House of Morgan, he crafted a well-written chronicle of the Bank of Morgan, which, although it had fascinating tidbits, obscured the bank’s power by claiming that it has completely receded into history. His book The Death of the Banker: The Decline and Fall of the Great Financial Dynasties and the Triumph of the Small Investor, brings this agenda to its apogee.
In that book he makes the claim that “Main Street can no longer clash too vigorously with Wall Street since the two sides have grown indistinguishable from the rise of giant brokerage chains and mutual fund groups." In reality global finance is still concentrated and controlled in few hands. The idea that individuals yield great power in the world economy only masks that reality. And make no doubt about it, it is a corrupt reality that yields the power of the Federal Reserve, the World Bank, the International Monetary Fund, and at times the United States Treasury to promote its interest over that of individual investors or the country as a whole.
Alexander Hamilton may have presided over the wedding of these interests with the power of government bureaucracies, but they have only grown even more corrupt and powerful since his time. The individual investor has not triumphed. If you doubt that then you have to wonder why retired people who saw their savings vaporized when the Nasdaq crashed in 2000 were not bailed out by the government, while international bankers have been bailed out over and over again by Alan Greenspan and the Federal government in the past decade. Tax payers and the national economy paid the bill when they were rescued from bad investment decisions they made in Mexico, Latin America, Asia, and Russia. Greenspan even bailed out the Long Term Capital Management Hedge Fund in 1998 by forcing interest rates down to an artificial level and thereby precipitating the bubble in the Nasdaq and its horrible consequences. Apparently when some make investment mistakes they are written away by the Alexander Hamiltons of our times. He is a prologue to the precarious financial imbalances that have exploded on our country and a lesson in why they happened. John Adams got right when he said, “an aristocracy of bank paper is as bad as the nobility of France or England.” |
