The following is a guest post from Mike O’Connor (the second of a series–see the first post here). Mike is one of the original USIH bloggers and a founder of the Society for U.S. Intellectual History. He is the author of A Commercial Republic: America’s Enduring Debate over Democratic Capitalism, which will be published in May by the University Press of Kansas. The book’s Facebook page can be found here, and information from the publisher is available here.
“The past,” it has been observed, “is a foreign country: they do things differently there.” The wisdom of L.P. Hartley’s observation, however, is most often honored in the breach, as the tendency to incorporate the thinking of historical actors into a contemporary worldview is quite prominent in the today’s United States. In the modern era, wrote Daniel Rodgers, few bother to make distinctions between the past and present. “One travel[s] between past, present and future in the momentary blink of the imagination,” as if “through a wrinkle in time.” Jill Lepore has characterized this trend, specifically as it relates to the cult of the American founders, as “antihistory”: from its perspective, “either we’re there, two hundred years ago, or they’re here, among us.”
It is perhaps unsurprising, then, that this distortion pervades the modern understanding of the origins of government economic intervention in the United States. The popular perception of the 1790s as a period riven by a great intellectual and political chasm, with Alexander Hamilton on one side and Thomas Jefferson on the other, is a useful one: personal enmity and ideological incommensurability played a large role in the period’s political debates. Yet little of value emerges beyond that basic framework.
Conventional wisdom designates Hamilton the “conservative” and Jefferson a “liberal.” These labels, which even at their best tend to obscure more than they illuminate, become completely meaningless when applied to Federalist-era political economy. Regarding the most important issues of the day, Hamilton favored government economic intervention, an industrial economy, and the growth of American cities. His most influential and articulate opponents—foremost among them Jefferson and James Madison—ferociously opposed all of these things. Yet neither the “pro-business” Hamilton nor the “anti-government” Jefferson and Madison took positions that would resonate with modern-day audiences. Specifically, none of these men based their positions on the notion that the free market embodies the fairest and most equitable system of producing and distributing society’s goods. The partisans who conducted the original debate over federal intervention in the American economy did so on their own terms, and no position figured as a precursor of any twenty-first century analogue.
Perhaps the primary reason that late eighteenth century positions seem so unfamiliar is that the issue to which they offered responses is no longer resonant. Political figures of the 1790s exhibited little concern about whether the government could impose upon private businesses through, say, regulation or taxation. Instead, Americans of this period debated whether the government of the United States should support the nation’s economy. Only with this distinction in mind do the positions of Hamilton’s Federalists and Madison’s and Jefferson’s Republicans become comprehensible to modern sensibilities.
Hamilton’s motivations were primarily nationalist. The United States was a new, weak country teetering on the edge of insolvency. Washington’s secretary of the Treasury recognized that a nation whose finances were so shaky that its own citizens were afraid to invest in it would be forced to depend for capital on the good will of foreign banks and governments. Furthermore, a country that could not raise its own funds or manufacture its own industrial goods (including, significantly but not exclusively, weapons) was one that was vulnerable to economic and military attack. Given these convictions, Hamilton strongly opposed the notion that the United States should be content with whatever results emerged from market competition, believing that the nation’s economy was so underdeveloped that even necessary businesses were likely to fail. Under these circumstances, Hamilton believed, “There is no purpose, to which public money can be more beneficially applied, than to the acquisition of a new and useful branch of industry; no [c]onsideration more valuable than a permanent addition to the general stock of productive labour [sic].” Such a position—which favored business and industry, advocated for government economic intervention, and minimized the role of the market—was a creature of the 1790s. It can find no place within the categories provided by modern political and intellectual taxonomy.
In order to achieve his desired results, Hamilton fashioned a series of policies that would create several interlocking and mutually reinforcing institutions whose purpose was to shore up the nation’s credit and stimulate the growth of American industry. He proposed that the federal government assume state debts from the Revolutionary War, that the federal liability be securitized and sold as an investment vehicle, that the US found a national bank and, finally, that the federal government invest directly in emerging private industrial enterprises.
Hamilton’s opponents noted, not unfairly, that those who founded industries, borrowed from banks, and invested in federal bonds tended to be wealthy. The secretary’s policies, they argued, were little more than a giveaway of public benefits to an already privileged class. Yet their strongest objections confronted directly the heart of Hamilton’s project: Republicans of the 1790s simply did not want an industrial or commercial economy. They distrusted the market and believed that only farmers, who raised their own food, could exhibit the independence necessary to sustain the virtues upon which a healthy republic depended. Jefferson famously called agriculturalists “the chosen people of God,” but he also observed that “[c]orruption of morals…is a mark set on those” who “depend” for their “subsistence…on the casualties and caprice of customers.” Madison held that industrial capitalism offered only “the most servile dependence of one class upon another class.” On their view, the market was a corrupting influence, one to be avoided whenever possible. Though Jefferson and Madison recognized that capitalist institutions and practices were already in place in the young United States, the two founders saw the acceleration of their development as a curse, not a lodestar for government policy. The Republican position opposed government economic intervention because they wished to avoid, or at least delay, a flowering of market-oriented activity in the United States. Today, of course, those who oppose economic intervention often do so on the grounds that the determinations of the market are the most just and efficient, and should be respected. Again, the positions that defined the debate over government economic intervention for the first generation of Americans, when properly understood, have little resonance among today’s political partisans.
Though Hamilton’s political influence was waning when he was killed by Aaron Burr in 1804, his ideas exerted a lasting influence. Each of his recommended policies was eventually adopted, and the principle of government economic stewardship was established relatively early in the nation’s history. Since then, few American politicians or intellectuals have succeeded in challenging the understanding that the government bears responsibility for the performance of the nation’s economy. The last significant attempt to do so defined the political economy of the Jacksonian era, which will be the subject of my next post.