HAMILTON - AMERICA's FIRST CAPITALIST

[Part of Constituting America’s 90 Day Study - Days that Shaped America]

Alexander Hamilton was America’s first Chief Operations Officer (COO).

Along with James Madison, Hamilton crafted the best operating system ever devised in human history.  The U.S. Constitution provided a framework for sharing power and resolving differences.  Madison and Hamilton provided details for operationalizing the Constitution with their Federal Papers essays.  These Papers remain integral to interpreting the original intent for court cases to this day.

America was blessed with George Washington, the most indispensable person in our nation’s history. However, Washington needed to augment his phenomenal leadership skills with Hamilton’s management acumen.  During the American Revolution, Hamilton translated Washington’s military strategy into clear and concise orders to his commanders.  Now as President, Washington needed Hamilton to translate the Founders’ vision, and his policies, into reality.

With Jefferson still conducting diplomacy in Europe, Hamilton became not just the first Treasury Secretary, but effectively functioned as Washington’s “prime minister”.  Decisions and documents, down to minute detail, flowed from Hamilton’s pen, creating the Executive Branch. 

Hamilton’s love of administrative detail was matched by his devotion to commerce.

He was the only “modern man” among the Founders.  Hamilton grew-up outside the American colonies and had a full appreciation of how nations interacted.  As an accounting clerk for various trading companies in the West Indies, Hamilton developed a deep understanding for the inner workings of international trade and finance.  His was America’s first “capitalist”.  The systems and institutions he put in place laid the foundation for America becoming the greatest economic power in the world.

Hamilton greatest achievement was managing the onerous debts arising from the Revolutionary War.  Each state incurred debt as their individual state militias needed to be paid for back wages.  Both national and state level soldiers were paid in bonds or “IOUs”.  After the war many cash-strapped soldiers sold these bonds/“IOUs” to speculators for a fraction of their worth.  Countless suppliers of their armed forces sued for nonpayment.  The paper currency issued during the war was “not worth a Continental” and legions of war veterans, farmers, merchants, and craftsman (like blacksmiths, barrel makers, and carpenters) demanded payment, declaring Continental script were “IOUs”.

The total debt was $79 million: $54 million owed by the national government and $25 million owed by the states.  Hamilton saw repayment of this debt as a strategic and moral imperative: “States, like individuals, who observe their engagements are respected and trusted, while the reverse is the fate of those who pursue an opposite conduct.”

Without a debt repayment strategy, the IOUs and lawsuits would continue to cripple America’s economy with unbridled speculation and uncertainty. Trust in the Federal government’s ability to meet its obligations had to be restored.  Something had to be done.  Hamilton declared, “In nothing are appearances of greater moment than in whatever regards credit.”

Repayment of debts would allow America to enter into international agreements and borrow funds for investing in business ventures and stimulate economic growth.  Hamilton observed that the American economy was stagnating from a limited money supply, deflation of land values, and no liquid capital. He also was concerned that if America was seen as financially broke and politically fragmented, foreign governments may lure individual states with separate debt financing arrangements. 

The solution was to consolidate all public debt and set aside some of the steady federal revenue to service interest and payoff the principal.  These were revolutionary and futuristic concepts in 1790.

It was his conviction that, “an assumption of the debts of particular states by the union and a like provision for them as for those of the union will be a measure of sound policy and substantial justice.”

Hamilton determined that consolidating all the Revolutionary War debt would accomplish several things.  [1] It would bring order from chaos with one large debt instead of thousands of smaller ones.  [2] It would simplify the management and repayment of the debt. [3] It would establish loyalty among the creditors and bond/IOU holders who would promote the stability and success of the federal government to assure their claims were paid. 

Another aspect of Hamilton’s solution was that the U.S. Constitution gave the federal government the exclusive right to collect import duties.  The Federal Government assuming state debt would prevent states from trying to return to the Article of Confederation when states levied duties on interstate commerce.  Hamilton wanted to unify America and forge a national economy.

The critical element in assuming all debt was to have a unified America attract foreign investment through issuing federal government bonds.  Such bonded debt would create investment partners who would forge trade relationships that allowed the U.S. Government to raise the necessary revenue to meet its debt obligations.  Hamilton sought to create a web of economic loyalties and relationships that bound everyone to supporting everyone’s economic wellbeing.  In doing so, Hamilton would establish America as a major player in the modern international financial system.

Hamilton’s vision and how to implement it, was at the core of his fifty-one-page “Report on Public Credit” to the Congress.  It was his hope that Congress would pass the necessary legislation to authorize implementation of this integrated plan.  Any editions or subtractions would ruin his delicate balance between the various economic interests.  Hamilton worried, “Credit is the entire thing. Every part of it has the nicest sympathy with every other part.  Wound one limb and the whole tree shrinks and decays.”

Many in Congress rejected the plan as confusing and overly complex.  Some saw it as too much like the way England financed its wars.  Other declared it a bailout for speculators.  Even Madison refuted it.  As the assumption plan related to spending, its first test was in the House of Representatives.

The House debate was a sensation.  Packed galleries watched Madison rail against the plan as a “betrayal of the American Revolution”.  Hamilton, a member of the Executive Branch, mustered his votes behind the scenes. On April 12, 1790, the House defeated the debt assumption plan: 29 ayes to 31 nays.

The death of debt assumption found resurrection in the future location of the nation’s capital.  Hamilton and northerners wanted the capital to remain in New York or return to Philadelphia.  Southerners wanted in in the South and located outside an existing urban area.  Jefferson saw this as a struggle between his vision of an agrarian nation versus the grime of industry.  Madison and Henry Lee had purchased land along the Potomac River in the hopes that Jefferson would prevail.

All sides wanted a final decision on the future of the Nation’s Capital, and symbolically the character of the nation.  To break the stalemate, the key players, Jefferson, Hamilton, Madison, and several others gathered for dinner on June 20, 1790, at Jefferson’s townhouse in New York City. 

After much food, libations, and discussion a deal was struck.  The Nation’s Capital would be along the banks of the Potomac between Georgetown in Maryland and Alexandria in Virginia.  In exchange for Hamilton convincing northerners to support this location, Jefferson and Madison would support passage of Hamilton’s Debt Assumption plan.

On July 10, 1790 the House passed the Residence Act moving the temporary Capital back to Philadelphia and designating a ten-square mile area along the Potomac as the permanent Capital.  The House then passed the Assumption bill on July 26.  The Senate approved the plan on August 4, 1790.

Senator Daniel Webster placed Hamilton’s achievement into historical perspective. 

“The fabled birth of Minerva from the brain of Jove was hardly more sudden or perfect than the financial system of the United States as it burst forth from the conception of Alexander Hamilton.”

SAVING FEDERALISM = SAVING AMERICA

“CONSTITUTING AMERICA” SERIES ON LOCAL GOVERNMENT

America is built on local government.  The future of our nation depends on local communities remaining at the core of representative democracy.

In 1831, the Frenchman, Alexis Clerel, the Vicount de Tocqueville, along with his colleague Gustave de Beaumont, was sent by the French government to study America.  While their mission was officially to review prisons, their nine-month journey produced one of the great classics on America’s civic culture.

“Democracy in America” was published in two volumes (1835 and 1840).  It remains a foundational document describing American exceptionalism.

At its core is de Tocqueville’s description of local government:

The village or township is the only association which is so perfectly natural that wherever a number of men are collected it seems to constitute itself. The town, or tithing, as the smallest division of a community, must necessarily exist in all nations….

….local assemblies of citizens constitute the strength of free nations. Town-meetings are to liberty what primary schools are to science; they bring it within the people’s reach, they teach men how to use and how to enjoy it. A nation may establish a system of free government, but without the spirit of municipal institutions it cannot have the spirit of liberty.

America has always been a nation of communities.  Its pattern of settlement, through Royal Charters, gave wide latitude for establishing local governance.  Being over 5,500 miles from London, made detailed oversight of colonies impossible.  By necessity, and by desire, colonists embraced local authority over distant rule from a capitol or nation.  When distant rulers attempted to increase their control, colonists ignited a Revolution.

As de Tocqueville explains:

The revolution of the United States was the result of a mature and dignified taste for freedom, and not of a vague or ill-defined craving for independence.

The first form of government was the Articles of Confederation, which created a very weak national government.  External threats and internal dysfunction led to the U.S. Constitution, with extensive safeguards for local sovereignty.

America established a federal government, which means power is shared between national and state government, and the majority of governmental actions take place at the local level.  This is institutionalized in the Tenth Amendment of the U.S. Constitution:

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

Today, America is governed by 87,576 local units.  This includes 3,034 counties, 19,429 municipalities (cities, towns, villages), 16,504 townships, 13,506 school districts, and 35,052 special districts (such as water & sewer, fire, and conservation).

These independent, and interdependent, local governments reflect the diversity that is unique to America.  In America, the preferred government is one closest to those its serves.

de Tocqueville links local government to being fundamental to a free people:

In the township, as well as everywhere else, the people are the only source of power; but in no stage of government does the body of citizens exercise a more immediate influence. In America ‘the people’ is a master whose exigencies demand obedience to the utmost limits of possibility.

Municipal independence is therefore a natural consequence of the principle of the sovereignty of the people in the United States: all the American republics recognize it more or less;

de Tocqueville uses the townships of New England as his primary example of the effectiveness of local government and their role in establishing America’s unique democracy:

The native of New England is attached to his township because it is independent and free: his co-operation in its affairs ensures his attachment to its interest; the well-being it affords him secures his affection; and its welfare is the aim of his ambition and of his future exertions: he takes a part in every occurrence in the place; he practices the art of government in the small sphere within his reach; he accustoms himself to those forms which can alone ensure the steady progress of liberty; he imbibes their spirit; he acquires a taste for order, comprehends the union or the balance of powers, and collects clear practical notions on the nature of his duties and the extent of his rights.

While discourse over major national and global issues attract the most attention, it is local government that most directly affects our daily lives.  The quality of the school children attend, the condition of roads driven, the safety of neighborhoods, the taste and pressure of water coming from the tap, saving lives and property from fire or accident, are locally governed and provided.

de Tocqueville noted the benefits of locally focused government in America:

In no country in the world do the citizens make such exertions for the common weal; and I am acquainted with no people which has established schools as numerous and as efficacious, places of public worship better suited to the wants of the inhabitants, or roads kept in better repair.

He saw local government promoting individual initiative while restraining growth of a centralized state:

As the administrative authority is within the reach of the citizens, whom it in some degree represents, it excites neither their jealousy nor their hatred; as its resources are limited, everyone feels that he must not rely solely on its assistance…This action of individual exertions, joined to that of the public authorities, frequently performs what the most energetic central administration would be unable to execute.

Thanks to the strength of local government, America remains an inspiration for all those who seek free and open societies. 

While chronicling America in its early years, de Tocqueville recognized how the United States’ embrace of local governance already served as a model for a better world:

I believe that provincial [local] institutions are useful to all nations, but nowhere do they appear to me to be more indispensable than amongst a democratic people.

The only nations which deny the utility of provincial [local] liberties are those which have fewest of them; in other words, those who are unacquainted with the institution are the only persons who pass a censure upon it.