Hamilton’s general plan for safeguarding the republic from “the imprudence of democracy” was at bottom extremely simple. Its root-idea was that of consolidating the interests of certain broad classes of “the rich and well-born” with the interests of the government. He began with the government’s creditors. Many of these, probably a majority, were speculators who had bought the government’s war-bonds at a low price from original investors who were too poor to keep their holdings. Hamilton’s first move was for funding all the obligations of the government at face value, thereby putting the interests of the speculator on a par with those of the original holder, and fusing both classes into a solid bulwark of support for the government. This was inflation on a large scale, for the values represented by the government’s securities were in great part—probably sixty per cent—notoriously fictitious, and were so regarded even by their holders. A feeble minority in Congress, led by Madison, tried to amend Hamilton’s measure in a small way, by proposing a fair discrimination against the speculator, but without success.
Before any effective popular opposition could be organized, Hamilton’s bill was driven through a Congress which reckoned nearly half its membership among the security-holders. Its spokesmen in the House, according to Maclay, who listened to the debate, offered little argument, and contented themselves with a statesmanlike recourse to specious moralities. “Ames delivered a long string of studied sentences. . . . He had public faith, public credit, honour, and above all justice, as often over as an Indian would the Great Spirit, and if possible, with less meaning and to as little purpose. Hamilton at the head of the speculators, with all the courtiers, are on one side. This I call the party who are actuated by interest.” Hamilton’s own defence of indiscriminate funding was characteristic; he declared that the impoverished original holders should have had more confidence in their government than to sell out their holdings, and that the subsidizing of speculators would broadcast this salutary lesson.
Hamilton’s bill contained a supplementary measure which reached out after the State creditors, united them with the mass of Federal creditors, and applied a second fusing heat. The several States which had at their own expense supplied troops for the Revolutionary army, had borrowed money from their citizens for that purpose; and now Hamilton proposed that the Federal Government should assume these debts, again at face value—another huge inflation, resulting in “twenty millions of stock divided among the favoured States, and thrown in as pabulum to the stock-jobbing herd,” as Mr. Jefferson put it. Two groups of capitalist interest remained, awaiting Hamilton’s attentions; one of them actual, and the other inchoate. These were the interest of trade and commerce, and the interest of unattached capital looking for safe investment. There was no such breathless hurry about these, however, as there had been about digging into the impregnable intrenchments of funding and assumption. The first group had already received a small douceur in the shape of a moderate tariff, mostly for revenue, though it explicitly recognized the principle of protection; it was enough to keep them cheerful until more could be done for them. Considering the second group, Hamilton devised a plan for a Federal bank with a capital of ten million dollars, one-fifth of which should be subscribed by the Government, and the remainder distributed to the investing public in shares of four hundred dollars each. This tied up the fortunes of individual investors with the fortunes of the Government, and gave them a proprietary interest in maintaining the Government’s stability; also, and much more important, it tended powerfully to indoctrinate the public with the idea that the close association of banking and government is a natural one.
There was one great speculative interest remaining, the greatest of all, for which Hamilton saw no need of taking special thought. The position of the natural-resource monopolist was as impregnable under the Constitution as his opportunities were limitless in the natural endowment of the country. Hence the association of capital and monopoly would come about automatically; nothing could prevent it or dissolve it: and a fixed interest in the land of a country is a fixed interest in the stability of that country’s government—so in respect of these two prime desiderata, Hamilton could rest on his oars. In sum, then, the primary development of republicanism in America, for the most part under direction of Alexander Hamilton, effectively safeguarded the monopolist, the capitalist and the speculator. Its institutions embraced the interests of these three groups and opened the way for their harmonious progress in association. The only interest which it left open to free exploitation was that of the producer. Except in so far as the producer might incidentally and partially bear the character of monopolist, capitalist, speculator, his interest was unconsidered.
III
The debate over funding and assumption was at its height when Mr. Jefferson took his place in the Cabinet. There was relatively little trouble about funding, but assumption was dragging its keel; it failed in the House, but was restored by the Senate, and sent back to the House for reconsideration. “Going to the President’s one day,” Mr. Jefferson wrote in a private letter two years later, “I met Hamilton as I approached the door. His look was sombre, haggard and dejected beyond description; even his dress uncouth and neglected. He asked to speak with me.” He walked Mr. Jefferson back and forth before the President’s house for half an hour, urging him to use his influence with the Virginian members in behalf of assumption. He put it as a matter of preserving the Union, and quite sincerely; there was a great deal in what he said. New England, which comprised the principal creditor States, was in a position to hold the threat of secession over the rest of the country, as in fact it did at intervals for many years. Mr. Jefferson, aware, as he wrote Dr. Gilmer, that “the question had created greater animosities than I ever yet saw take place on any occasion,” was properly impressed by Hamilton’s representations. If assumption failed outright, he could see that the failure might amount to “something very like a dissolution of the government.” He had no sentimentalist’s repugnance to the idea of secession. At the end of his first term in the Presidency, he wrote frankly to Dr. Priestley that “whether we remain in one confederacy, or break into Atlantic and Mississippi confederacies, I believe not very important to the happiness of either part.” If now he “could scarcely contemplate a more incalculable evil than the breaking of the Union into two or more parts,” or if he condemned with indignation “the machinations of parricides who have endeavoured to bring into danger the Union of these States,” it was because of his ever-present fear that the country would be picked up piecemeal by “the plundering combinations of the old world.” Assumption in some form, then, should be admitted; but as he told President Washington, he hoped it would be “put into a just form, by assuming to the creditors of each State in proportion to the census of each State, so that the State will be exonerated towards its creditors just as much as it will have to contribute towards the assumption.” More than this he could not say. The formulation of the thing was in Hamilton’s department, not his, and while he had an instinctive dislike of Hamilton’s terms, he knew himself to be “really a stranger to the whole subject.” Moreover, he felt himself quite incompetent in financial matters at large; he had naïvely written the Treasury Board from Paris in 1785, that they were “very foreign to my talents.”
With regard to the practical matter of effecting assumption, however, he saw that it must be one of political trade-and-deal; it could not be anything else. The quid pro quo was the location of the national capital. The members from the Middle States wanted the capital at Philadelphia or Baltimore, and were indifferent about assumption, save as a trading-point with “the Eastern members, who have had it so much at heart.” After hearing Madison and Hamilton discuss the matter at his own dinner-table, the day after Hamilton had accosted him on the street, Mr. Jefferson decided that “the least bad of all the turns the thing can take” was to let Hamilton have his way on condition that the capital should be established at Georgetown on the Potomac. If there must be a bargain, it might as well
be one from which the producer as well as the speculator—especially the Virginian and Mid-Western producer—would stand to get something. He had written Washington the year before that he considered the union of the Ohio and Potomac rivers by the proposed Potomac Canal, as “among the strongest links of communication between the eastern and western sides of our confederacy. It will moreover add to the commerce of Virginia, in particular, all the upper parts of the Ohio and its waters.” In view of this, he now thought that placing the capital at the foot of the canal would tend to “vivify our agriculture and commerce.”
Thus Mr. Jefferson made what he afterwards called, with some exaggeration, the greatest political error of his life. Really, what he did or did not do in the premises was of little practical consequence to the ultimate issue, namely: what economic interests should control the government of the United States. He simply did not see the end of Hamilton’s plan; nor, it must be said, did Hamilton himself clearly see it, except with the eye of instinct. When one examines this collision of statesmanship, one is most struck, perhaps, by the rapidity with which one’s instincts invariably outrun one’s own interpretation of them. Both men represented an economic class-interest in government; in any proper use of the term, Mr. Jefferson seems to have been but little more a theoretical democrat than Hamilton. To view him as a theoretical or doctrinaire democrat is to disregard the most inadmissable inconsistencies, both in his public acts and in his expressions of governmental theory—inconsistencies which resolve themselves immediately when one views him as the representative of an economic class-interest. He was for control of government by the producing class; that is to say, by the immense majority which in every society actually applies labour and capital to natural resources for the production of wealth. His instincts reacted like the reflex action of an eyelid against anything that menaced that interest. Hamilton’s instinct reacted as promptly against anything that threatened to disturb the preponderance of the exploiting class—the minority, that is, which in every society appropriates without compensation the labour-products of the majority. The intellectual account which both gave themselves of the operation of this instinct, however, was as inadequate and sprawling as such accounts invariably are. Mr. Jefferson’s infatuation with Hamilton’s monarchism and Anglomania, for instance, his habitual view of him as “chained by native partialities to everything English,” and his public character “bewitched and perverted by the British example”—all this, however sincere, is no more competent than Hamilton’s own loose talk about “a womanish attachment to France and a womanish resentment against Great Britain.”
Others were more quick than Mr. Jefferson to assess the economic implications of Hamilton’s fiscal system. The science of economics was then in its cradle. By an odd coincidence, Mr. Jefferson had stood by the bedside of its birth in Paris; he knew its parents and godparents, both personally and by their writings, and yet seems never quite to have known what manner of child had been brought forth. As late as ten years before his death, he remarked that economics assumed the form of a science “first in the hands of the political sect in France, called the Economists. . . . Quesnay first, Gournay, Le Frosne, Turgot and Dupont de Nemours . . . led the way in these developments.” But the tone of his discussion is purely academic, never showing a sense of the vital relation which the work of these men bore to the fiscal system which he instinctively opposed. He had occasional brilliant flashes of insight into fundamental economics and its relation to government, but they were too brief and unsteady to be illuminating; they but deepened the darkness that followed them.
Others, however, almost immediately applied to Hamilton’s system a kind of homespun economic analysis that reached to its bottom. In dealing with funding and assumption, Mercer of Maryland, Jackson of Georgia and Taylor of Virginia, at once penetrated to the fundamental truth that all largesse to the speculator must ultimately be paid out of production, and that Hamilton’s proposal therefore was actually to put a gratuitous first lien on future labour. They also took the same ground of public policy in opposing the Bank bill. The bank project was simply a continuous monopoly of public funds, raised by taxation, by investors in a semi-private corporation—or rather, nominally semi-public but really private, since so large a proportion of the Senate and House were themselves investors who had already profited egregiously by funding and assumption, and who would certainly become shareholders in the new bank. All this, they insisted, was to be brought about at the uncompensated expense of production. A levy of taxes for this purpose was, according to Taylor, an outright conversion of labourmade values into law-made property, vested in hands which had done nothing to produce them. “An annuity to a great amount is suddenly conjured up by law,” said Taylor. “. . . It is paid out of labour, and labour in all countries falls on the poor. . . . But the aristocracy, as cunning as rapacious, have contrived to inflict upon labour a tax, constantly working for their emolument.” Mercer also had laid down the same principle a little earlier. “All public revenue or private income,” he declared, “is a contribution, mediate or immediate, of the labour of the industrious farmer or mechanic.”
It does not appear that Mr. Jefferson’s mind ever quite struck through to this fundamental ground of economic objection to Hamilton’s fiscal system, or that it ever effectively followed those which did. He sometimes speaks somewhat in the language of Taylor and Mercer, but his precision of terms seems rather casual than studied; as when, for instance, he wrote to John Adams in 1819, protesting against the sacrifice of “our citizens, their property and their labour, passive victims to the swindling tricks of bankers and mountebankers.” He had a clear view of Hamilton’s system, considered by its aspect of pure financiering. “The bank has just notified its proprietors,” he wrote in 1792, “that they may call for a dividend of ten per cent on their capital for the last six months. This makes a profit of twenty-six per cent per annum. Agriculture, commerce and everything useful must be neglected when the useless employment of money is so much more lucrative.” He had already written Edmund Pendleton in 1791, concerning Hamilton’s general scheme, that “as yet, the delirium of speculation is too strong to admit sober reflection. It remains to be seen whether in a country whose capital is too small to carry on its own commerce, to establish manufactures, erect buildings, etc., such sums should have been withdrawn from these useful pursuits to be employed in gambling.” In relation to the total wealth of the country, these sums were indeed so huge that one can quite understand a proximate and partial view of their employment, to the exclusion of economic theory. While an earthquake is going on, one does not generalize about the persistence of force. Mercer estimated the entire public debt, after its egregious inflation by Hamilton, at “one-fourth of the whole value of the property” of the United States. This is probably an exaggeration; but even cutting it down by one-half, one can imagine the menacing predominance of a single vested interest equal to one-eighth of a country’s total wealth. No wonder Mr. Jefferson complained bitterly that “the more debt Hamilton could rake up, the more plunder for his mercenaries.”
Clearest of all, Mr. Jefferson saw the political effect of Hamilton’s efforts in rearing up “that speculating phalanx, in and out of Congress, which has since been able to give laws to change the political complexion of the Government of the United States.” He wrote to President Washington in 1792, that “Alexander Hamilton’s system flowed from principles adverse to liberty, and was calculated to undermine and demolish the Republic by creating an influence of his Department over members of the Legislature. I saw this influence actually produced, and its first fruits to be the establishment of the great outlines of his project by the votes of the very persons who, having swallowed his bait, were laying themselves out to profit by his plans.” He gives a most vivid picture of the state of things ensuing upon the first trial of Hamilton’s strength in Congress, with reference to the Funding and Assumption bill. When it became known what form the bill would take, “this being known within doors
sooner than without, and especially than to those in distant parts of the Union, the base scramble began. Couriers and relay-horses by land, and swift-sailing pilot-boats by sea, were flying in all directions. Active partners and agents were associated and employed in every State, town and country neighbourhood, and this paper was bought up at five shillings, and often as low as two shillings in the pound, before the holder knew that Congress had already provided for its redemption at par. Immense sums were thus filched from the poor and ignorant. . . . Men thus enriched by the dexterity of a leader would follow of course the chief who was leading them to fortune, and become the zealous instrument of all his enterprises.”
Jefferson Page 15