A Republic No More. Jay Cost

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СКАЧАТЬ which is exactly what he thought was happening here. Regardless of what he wanted in 1787, he believed that what the government was doing was contrary to the guarantees about the Constitution that its advocates made during the ratification debates, and therefore what the people thought it meant when their representatives assented to it.⁵⁴ From this perspective, it is easy to appreciate why Madison would fear this power grab, even if it was a power he thought the government should have, as a sign that the Constitution’s republican balance, which was his paramount concern, was being disrupted.

      Second, the Republicans worried that Hamilton’s program was showering benefits upon a select few, notably friends of Hamilton as well as the commercial interests in the Northeast. In point of fact, the Republicans were absolutely correct. Though Hamilton himself did not become wealthy due to his economic policy, many people with connections to him most certainly did. For instance, rumors of Hamilton’s funding plan were so widely known in certain circles before he released its details that a speculator as far away as Amsterdam had advance warning. Ultimately, this facilitated a transfer of wealth from the South and West to the Northeast, as speculators who were in the know sent their agents to the back areas of the country to snatch up as much government paper as they could.⁵⁵

      Nobody was more culpable in this corruption than William Duer, Hamilton’s friend and first assistant secretary of the treasury. Previously a business partner of Hamilton’s wealthy father-in-law, William Schuyler, Duer was well positioned to collect information about Hamilton’s intentions, and when he left the Treasury Department he put his knowledge to good use. In late 1791 and early 1792, Duer and members of a speculative company tried to corner the market on U.S. debt securities, and in so doing overextended their credit lines. When they couldn’t pay their creditors, a panic began and a run on Bank deposits threatened to bring the whole American financial system down. It was only through the acumen of Hamilton, who directed some $100,000 in Bank open-market purchases of securities, that the credit crisis was quelled.⁵⁶

      Ultimately, the core driver of the Republican complaint on this front was essentially the provision of a government rent to those who had the means to take advantage. With the new government backing the Bank, it was a sure-fire winner. Writing to Jefferson from New York City in the summer of 1791, Madison was appalled by the speculative frenzy that had been launched:

      It seems admitted on all hands now that the plan of the institution gives a moral certainty of gain to the Subscribers with scarce a physical possibility of loss. The subscriptions are consequently a mere scramble for so much public plunder which will be engrossed by those already loaded with the spoils of individuals. . . . It pretty clearly appears also in what proportions the public debt lies in the Country. What sort of hands hold it, and by whom the people of the U.S. are to be governed.⁵⁷

      A month later, Madison wrote his friend once again:

      It is said that packet boats & expresses are again sent from this place to the Southern States, to buy up the paper of all sorts which has risen in the market here. These & other abuses make it a problem whether the system of the old paper under a bad Government, or of the new under a good one, be chargeable with the greater substantial injustice. The true difference seems to be that by the former the few were the victims to the many; by the latter the many to the few.⁵⁸

      In the view of the Republicans, this was precisely the sort of occurrence that a good government was supposed to prevent. How can one region of the nation, one class of society, or one clique with insider information profit at the expense of the rest of the citizenry? The answer, they believed, was that the republic had been corrupted, in much the same way they believed that Rome and England had been transformed from republics into something much worse.⁵⁹ Per Madison, this result was just as bad as that which had occurred under the Articles of Confederation. In the 1780s, fractious majorities in the states legislated against the rights of the minority and the good of all; now, however a northeastern minority was violating private rights and public good.

      How could a minority possibly get away with plundering a majority like this? The answer lies in the Republicans’ third cogent attack on the Hamiltonian system: it had employed the Bank to buy off a faction within the legislature, much as the Republicans believed King George III had done with the Parliament. To buttress these claims, the Republicans relied heavily on the accounts of John Beckley, the first clerk of the House of Representatives and a staunch ally of Jefferson and Madison. In late winter of 1793, Beckley had reported to Jefferson that some nineteen members of the House, plus an additional seven in the Senate, were “paper men” (i.e., had invested heavily in Bank shares). Beckley also reported to Jefferson rumors of Hamilton bending the rules to benefit well-positioned investors.⁶⁰ In a private letter to Washington dated September 9, 1792, Jefferson argued:

      [Hamilton’s system is] calculated to undermine and demolish the republic, by creating an influence of his department over the members of the legislature. I saw this influence actually produced, & 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: & that had these persons withdrawn, as those interested in a question ever should, the vote of the disinterested majority was clearly the reverse of what they made it. These were no longer the votes then of the representatives of the people, but of deserters from the rights & interests of the people: & it was impossible to consider their decisions, which had nothing in view but to enrich themselves, as the measures of the fair majority.⁶¹

      Taking these concerns about private gains and public corruption together, Madison worried to Jefferson that the holders of Bank shares “will become the pretorian band of the Government, at once its tool & its tyrant; bribed by its largesses & overawing it by clamours & combinations.”⁶² In other words, the Hamiltonian finance system threatened the balance that he sought to construct in the Constitution and that he defended in the Federalist Papers. Who, in the original schema, was supposed to check an executive branch that was too partial to one faction? The answer: the legislative branch. But Madison and Jefferson believed that the new institution, one not envisioned by the Constitutional Convention (and indeed voted down by it), had stymied this vital check by bribing them. This, in turn, freed the Bank to pursue a fractious agenda, and gave Duer an opening to make his run, almost bringing the economy down with him.

      Fortunately, the sound and sure management of the Treasury by the exemplary Hamilton meant that the worst fears of the Republicans were not to be realized—at least not in the 1790s. Still, their critique of the Bank identifies the basic trajectory that corruption will take over the next 225 years. Some new government power may be a necessary tonic to a national ailment, but absent corresponding revisions to the institutions that exercise that power, it has the potential to distort the vital process of checks and balances, which in turn can breed corruption. In the case of the Bank, it granted new powers to an extraconstitutional institution that, per the Republicans, were used in part to bribe legislators. The result may have been benevolent in the grand scheme of things, but that had more to do with the singularity of Hamilton. Bank policies were indeed factional and could indeed have been catastrophic, if the secretary had not acted so effectively to stop the panic induced by Duer’s failed scheme.

      What can we make of this now, almost 225 years after this feud burned so hot? For starters, Hamilton’s program was an ingenious plan to modernize the U.S. financial system, stabilize government debt, and diversify the economy. Even a cursory survey of the American economy in the late 1780s demonstrates that such a program was sensible, if not absolutely vital, for the nation’s long-term prosperity. That moderate Republicans (including, above all Madison himself!) some twenty years later would finally adopt much of his program, which in turn formed the basis of Whig and Lincolnian Republican economic policy for the next century, demonstrates just how perspicacious it was.

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