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Politics and Economics in America by Clyde N. Wilson

Thomas Jefferson has left us an account of a supper-table conversation in the very earliest days of the U.S. government. Vice President John Adams (who was intended by nature for a preacher) declaimed at length about the virtues of the British government, which, he said, if purged of its corruption, would be perfection. Secretary of the Treasury Alexander Hamilton (a canny immigrant bastard with a Napoleon complex) differed sharply. It was its corruption, he avowed, that gave the British government its great stability and power. Add in Jefferson’s views, which agreed with neither, and you anticipate almost the whole history of American political economy.

Adams and Hamilton were Federalists. They believed that in America the people could not be denied a role in government, however unwise that might be. The people, fortunately, were usually an inert mass, but they could become dangerous. They might discover that they could vote themselves the wealth of their betters. So things had to be arranged properly. The people could have their say in a Commons, but the government needed a powerful executive above the people to give it initiative and force. (With some justice Jefferson referred to the Federalists as “monarchy men.” President Adams was obsessed with extravagant titles and ceremonies.) As Adams saw it, good government also required an upper house of senators (republican Lords), which had two essential benefits. It would give status and authority to the wealthy and powerful whose ambitions, as history showed, might otherwise undermine the republic. And it would provide a check on the expected rash actions of the people.

As the Jeffersonian philosopher John Taylor of Caroline pointed out, Adams, in a chimerical pursuit of checks and balances, was trying to create artificial orders where they did not exist.

Further, his vision, typical of his kind, mistook New England for the world, and he seemed ignorant of economics—the circulation of elites that would occur with a growing population settling a vast and nearly empty continent. Hamilton was right on the mark. If you wanted the wealth and power of society behind a strong government, you had to make it worth their while. You had to have a British-style public debt—in which wealth and power had an interest-bearing claim on government revenue. When Jefferson heard Hamilton declare that “a public debt is a public blessing,” he knew he had spotted the serpent in Eden.

The strongest element in the push for a new and stronger federal government with a revenue not dependent on the states had come from the holders of the debts from the War of Independence. By 1789 this debt was not owned by those who had provided goods and services to the cause but by monied men, chiefly in New York and Philadelphia, who had bought it up at cents on the dollar while it was “not worth a Continental.” The debt, of course, had to be paid. The centerpiece of Hamilton’s initiative was to pay off the debt to its current holders, a number of them members of Congress, at face value in interest-bearing government bonds. Only in this manner could the “good faith and credit” of the government, which was said to be essential, be established. Thus would the wealthy and powerful be embraced in alliance with the government.

Jeffersonians were often quite intelligent and sophisticated men, but they did not seem to grasp the arcane mysteries of finance. In fact, to them it looked like a bit of a swindle. A public debt could at best be an onerous necessity in wartime. Who was going to pay that interest to the privileged minority who owned those government bonds? Where else could it come from but the pockets of good folks who actually produced something? It was no spur to prosperity. It merely created what Taylor called a “paper aristocracy,” a class endowed by government with special privilege for which it contributed nothing in return. It reinstated the abuses that the American states had fought a war to be free of.

Continued - http://www.chroniclesmagazine.org/index.php/2009/04/16/it-ta...