Founding Brothers (9 page)

The word that captured the
essence of the Virginians’ political mentality was
consolidation,
as in “the dreaded consolidation that was denied
by the friends of the new government, when it was under consideration.”
The term conveyed the political fear, so potent among the Antifederalist
critics of the constitutional settlement of 1788, that the states would be
absorbed by the new federal government. It echoed the ideological fear, so
effective as a weapon against the taxes imposed by Parliament and decrees of
George III, that once arbitrary power was acknowledged to reside elsewhere, all
liberty was lost. And at a primal level it suggested the unconscious fear of
being swallowed up by a larger creature, the terror of being completely
consumed, eaten alive. If Madison had ever managed to convince himself that
these historically sanctioned fears had been banished with the creation of the
new national government, the debate over assumption demonstrated that they were
still very much alive. Indeed, because of their historical and rhetorical
association with the successful war against British imperialism, they were the
most potent forces in the entire political culture.
¹⁹

What Madison
actually thought about the most frantic expressions of Virginian mistrust is
difficult to know. Along with John Adams, Madison was America’s most
astute student of the role of the passions as a political force. But, unlike
Adams, Madison’s mastery of his own passions took the form of total
suppression. His letters back home to Virginia tended to endorse the legitimacy
of the threat posed by assumption, but also to counsel patience, to urge, as
much by their tone as the content, a less apocalyptic attitude.
Hamilton’s fiscal program was certainly a menacing shadow over the new
federal edifice. But talk of secession was premature and counterproductive.
After all, with Washington as president, Jefferson as secretary of state,
Edmund Randolph as attorney general—he might have added Madison as
dominant presence in the Congress—Virginia’s interests were hardly
unrepresented in the capital. As for the threatening insults from their
northern brethren in the government, pay them little attention. “We shall
risk their prophetic menaces,” he noted confidently, “if we should
continue to have a majority.” For on assumption, unlike the earlier
debate over funding, Madison had the votes. Assumption would never pass.
²⁰

I
T GOES WITHOUT
saying that Alexander
Hamilton’s understanding of the issues raised by his fiscal program, and
the Virginia-writ-large squadrons that were mobilizing south of the Potomac to
oppose it, was blissfully free of all the Madisonian ambiguities. Once Hamilton
encountered a major obstacle to the advancement of any cause in which he
believed, he instinctively hurled himself onto the offensive, never looked
back, and waited for no stragglers. Whether the objective was a British parapet
at Yorktown, the admiration of the legal and merchant elite in New York, or the
ratification of the Constitution, Hamilton’s pattern was the same: to
unleash his formidable energies in great bursts of conspicuous productivity;
imposing his own personality on events in an ostentatious, out-of-my-way style
that was precisely the opposite of Madison’s preference for stealth;
irritating more modest and cautious colleagues with his casual presumption that
both his overall vision and his mastery of the details were self-evidently
superior; irritating them even more when events generally proved him
right.

Critics of his take-charge temperament and his dashing
Hamilton-to-the-rescue demeanor would make a plausible case that they were
excessive compensations for his lowly (indeed bastardly) origins. Some
biographers, pursuing the same interpretive line, have suggested that his
deep-rooted insecurities drove him onto the plains of Weehawken and then into
the fatal gaze of Aaron Burr. But if insecurity was the primal source of
Hamilton’s incredible energy, one would have to conclude that providence
had conspired to produce at the most opportune moment perhaps the most creative
liability in American history.
²¹

Like Madison
in 1790, Hamilton was at the peak of his powers. He wrote the forty thousand
words of his
Report on the Public Credit
in a three-month surge and
with the same kind of desperate speed he had turned out his fifty-one
contributions to
The Federalist Papers.
Scholars on the lookout for
the theoretical sources that may have shaped his thinking have invariably
discovered multiple influences: Adam Smith, Jacques Necker, Malachai
Postlethwayt, and David Hume top the list, with Hume a particularly forceful
influence on the contours of his thinking about the dynamics of economic growth
(much as Hume influenced Madison’s thinking about the dynamics of
political stability). It is also well established that Hamilton’s intense
dedication to a centralized solution to the fiscal problems facing the new
government emerged, again like Madison’s, out of his frustrating
experience with the inadequate and hopelessly divided authority of the
Confederation government in the 1780s. Finally, the historic significance of
Hamilton’s
Report
has attracted the attention of specialists in
sufficient number to inject a technical dimension into the
appraisal—familiarity with sinking funds, tontines, floating rates of
interest, and liquidity has become essential for a full appreciation of his
economic proficiency.
²²

All well and
good, but for our purposes these otherwise-valuable insights are mere subplots
almost designed to carry us down side trails while blithely humming a tune
about the rough equivalence of forests and trees. What Hamilton thought he was
doing was essentially simple: The economy of the United States was a tangled
mess of foreign and domestic debt that he was determined to unravel, then place
on firm fiscal footing by restoring public credit. All this was to be achieved
with a keen and shrewd appreciation for the dynamic potential of
America’s latent commercial energies, but unencumbered by even the
slightest concern with how the resultant system might appear to those not
sharing his nationalist vision.

On the question of funding the domestic
debt, for example, Hamilton regarded Madison’s proposal to distinguish
between original and present holders of government securities as naïve and
mischievous. To be sure, some injustice might be done the wartime veterans. But
who was Madison to lecture him about the venerable sacrifice made by American
soldiers, Madison having never fired a shot in anger, now wrapping himself in
some rhetorical rendition of the bloodstained uniform he had never worn? More
to the point, the original holders had not been coerced to sell. They had done
so freely and for an infinite variety of reasons. Sorting out the multiple
transactions, prices, and motives would be an administrative nightmare. Indeed,
anyone proposing such a course must come under suspicion as a devotee of
paralysis. The whole point of the funding scheme was to move past such
ambiguous entanglements, to establish the kind of clear and discernible
reimbursement policy that inspired trust, and to concentrate the debt in those
hands most likely to use it in the interests of the community’s
productivity and growth.
²³

On the
question of assuming the state debts, Madison’s opposition struck
Hamilton as even more illogical and blatantly sinister. Had not Madison himself
advocated the assumption of state debts on several occasions in the 1780s? Had
not they locked arms together as “Publius” to justify the need for
a national government with sovereign power over the states? Indeed, had not
Madison been the most ardent advocate at the Constitutional Convention for a
clear assertion of federal sovereignty? Of course there were massive accounting
problems in calculating the different state debts, not the least of the
difficulties being sloppy records kept by several southern states, with
Virginia topping the list for administrative disarray. But the final numbers
were hardly set in stone. If Virginia wanted to negotiate these calculations,
well, it was the kind of thing that could always be worked out among
friends.

But friends did not make ominous charges that the whole
assumption proposal was a plot to lure the states into some Faustian bargain in
which they lost the political semblance of childlike innocence, an innocence in
fact already abandoned, wisely so, when the Constitution was ratified.
Assumption was not a plot to destroy the political integrity of the states; it
was a plan to consolidate their debts and nationalize the economy for the
benefit of all. Hamilton simply took it for granted that the new government
created by the Constitution was, as he phrased it in his
Report,
“cloathed with powers competent to calling for the resources of the
community”; and he, as the officer responsible for fiscal policy, was
simply the chosen instrument to implement this collective effort.
²⁴

Therein lay
the problem, and not just because Madison and his Virginia constituents heard
such words as
consolidate
and
nationalize
like alarm bells in
the night; or, as one of Hamilton’s fondest biographers put it, because
the secretary of the treasury was “more adept at meeting financial crises
than mending political fences.” The real difficulty was that
Hamilton’s plan was very much a projection of his own audacious
personality. In fact, once one steps back from the specific provisions for
calculating and funding the various state and federal debts, perhaps the best
way to understand the grand design of Hamilton’s
Report
, and
the implicit presumptions that animated its visionary sense of where the
new American republic was heading, is to see it as Hamilton’s distinctive
temperament and cast of mind superimposed on the fluid conditions of an
emergent nation.
²⁵

First,
there is the implication, floating between the lines of the entire
Report,
that an authoritative new presence has appeared on the scene
and taken charge. The command ethos went beyond matters of personality (though
Hamilton was certainly auditioning for the part), and it even went beyond
questions of constitutionality (though the
Report
certainly announced
the unequivocal sovereignty of the federal government). More sweepingly, it
suggested that the enormous but latent potential of the American economy
required more than mere release to achieve its full potential. Hamilton was
hardly unique in his recognition that the vast resources of the North American
continent constituted a repository of riches that, once unlocked, offered
prospects of unparalleled prosperity and national destiny. He was, however,
distinctive for his sense that the mobilization of these resources required
abiding management and strategic orchestration at the national level. Madison,
and to an even greater extent Jefferson, seemed to think that economic policy
consisted of getting out of the way to allow the natural laws of economic
recovery and growth to proceed. But Hamilton thought the conditions for
economic development needed to be created, then enduringly overseen. His model
was England, with its national bank, regulated commerce, and powerful finance
ministers. From the perspective south of the Potomac, of course, these were the
institutions and symbols the American Revolution had supposedly repudiated
forever.

Second, there is the Hamiltonian confidence that the
concentration of political and economic power was a dynamic force; it was not a
threatening cluster of invasive corruption, but a synergistic fusion of
developmental energies. Hamilton was tone-deaf to the familiar refrains in the
republican song about the inherent evil of aggregated power, a tune that the
emerging chorus of dissenters in Virginia was replaying under the new label of
“consolidation.” For Hamilton, consolidation was a wonderful idea.
While Madison’s frame of reference was instinctively political, and
idealized the dispersal of power naturally checked by the inherent diversity of
diffused interest groups, Hamilton’s cast of mind was instinctively
economic. He visualized the concentration of capital in the hands of a select
few as the essential precondition for commercial investment and economic
growth. One of the reasons he did not mind if original holders of government
securities sold out to speculators was that he preferred to see the money in
fewer hands. When money was spread out, it was only money. When concentrated,
it was capital. And the main reason he welcomed the enlargement of the federal
debt produced by assuming the state debts was that, once properly funded, it
enlarged the pool of government credit for investment purposes by the wealthy
few who held the notes. In this limited sense at least, Hamilton regarded the
national debt as “a national blessing,” for it permitted the
clustering of resources in the hands of a small group of enterprising men who
would invest and not just spend it. For Madison, on the other hand, “a
Public Debt is a Public curse,” and “in a Representative Government
greater than in any other.”
²⁶

Finally,
there is Hamilton’s enshrinement of the urban elite—the merchants,
bankers, and business leaders—as the central figures in the emergent
American society. These were the kind of men who had rescued him from obscurity
in the tropics as a youth and then, once he had displayed his brilliance,
welcomed him into the inner circles of New York society. Hamilton himself was a
kind of Horatio Alger hero who aspired to fame more than fortune, but he
understood the world of banking, investing, and speculating from within. He
wrote no idyllic testimonials to merchants and moneymen comparable to
Jefferson’s hymns to the bucolic splendor of America’s yeomen
farmers, but his entire financial plan was an implicit endorsement of commerce
as America’s economic lifeblood and of men of trade and commerce as its
chief beneficiaries and silent heroes. Hamilton did not design his system, as
his critics frequently claimed, primarily to enrich the commercial elite. He
designed it to channel their talent and resources into productive activities
that served the public interest. Nor did his insider knowledge of interest
rates ever tempt him to take personal advantage: “But you remember the
saying with regard to Caesar’s Wife,” he wrote to Henry Lee.
“I think the spirit of it applicable to every man concerned in the
administration of the finances of a Country.” Nevertheless, he was
excessively trusting of some of his speculator friends; and he only fired his
assistant in the Treasury Department, William Duer, after Duer’s mixing
of personal and public funds reached criminal proportions. Duer was the epitome
of the enterprising speculator whom he trusted and who ultimately proved
untrustworthy.
²⁷