Hamilton's Economic Bailout

In light of President Obama's recent address to Congress regarding the $750 billion plus economic stimulus package, I thought it might be fun to discuss America's first "economic bailout."

As we all know, the eight-year war for American independence with Great Britain was extremely costly. At the war's conclusion, the thirteen separate states had each incurred a tremendous debt, due to the tremendous economic burden brought on by the revolution itself. According to Alexander Hamilton, the nation's first Secretary of the Treasury, the total debt of the United States was a whopping $77.1 million (or roughly $750 billion by today's standards). Of this, $11.7 million was owed to foreign governments, $40,4 million was the result of domestic debt, and $25 million the result of war expenditures of the various states (Ellis, Founding Brothers, 55). As a result, each state's credit was shot leaving them with little credibility on the international stage.

It was under these circumstances that Alexander Hamilton proposed a "bailout" of sorts. Under his plan of assumption, Hamilton suggested that the nation's legitimacy on the international market might be improved if the federal government were to assume the entire debs of the various states. Not only would his plan call for a radical new concept in terms of the federal government's scope and responsibility, but it would remove a measure of state sovereignty when it came to economics.

As could be expected, not everyone was happy with the deal. Most opponents of Hamilton's plan were furious over the fact that Hamilton proposed to pay off at face value all of the war bonds, which had not only been purchased by the masses, but had been used as a means of payment to thousands of veterans of the war. What infuriated these opponents was the fact that the war bonds, which had become virtually worthless, had been sold by the masses to greedy speculators (many who were friends of Hamilton) for a fraction of their original worth. Once Hamilton proposed to pay off the bonds at face value, these speculators stood to make a fortune off of what had once been a worthless bond.

The anger over the war bond saga was evident across the nation. In a letter to James Madison, Dr. Benjamin Rush wrote the following, which captures just how polarizing and upsetting Hamilton's plan had become:

Never have I heard more rage expressed against the Oppressors of our country during the late War than I daily hear against the men who...are to reap all the benefits of the revolution, at the expense of the greatest part of the Virtue & property that purchased it.

James Madison and his Virginian comrade, Thomas Jefferson, felt the same. The idea of subjugating the economic sovereignty of the states to the federal government seemed like a violation of everything the Revolution had stood for.

To make a long story short, Hamilton's economic plan of assumption was finally supported by Madison, Jefferson and other influential Virginians, who had originally opposed it, in exchange for the nation's capital to be built on the Potomac. In a historical compromise, Hamilton conceded the location of the federal capital to his Virginian opponents, in exchange for their support of his economic plan. Simply put, the compromise killed two birds with one stone.

Historians have, for the most part, praised Hamilton's economic plan as a stroke of brilliance. The plan delivered the infant United States from the brink of economic turmoil and gave the federal government more centralized control over the economic future of the nation. The economic "bailout" of the states eliminated a large amount of the economic tension between the smaller, more vulnerable states and the larger juggernaut states like Virginia, who had a virtual monopoly on American commerce. By placing the economic future of the nation in the hands of the federal government, Hamilton foreshadowed the often-repeated debate in America between a powerful, centralized union and the independent sovereignty of the states.

Is "Spreading the Wealth" anti-Capitalist?

In one of his recent posts, conservative blogger Andrew Sullivan points out an interesting quote from Adam Smith -- the so-called "father" of capitalism. The quote comes from Smith's extremely popular and influential book, Wealth of Nations. Smith states:

The necessaries of life occasion the great expense of the poor...The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess...It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion. [my emphasis].

As everyone that follows politics knows, Barack Obama's "spreading the wealth" comment has caused conservatives to go on the attack, labeling Obama as a socialist. Keeping Adam Smith's comment above in mind, could we argue that Obama is actually MORE of a capitalist "purist" than McCain?

In a letter to Benjamin Vaughn, Benjamin Franklin pointed out his distrust of the elite having too much money and power in their hands. Using an analogy to prove his point, Franklin writes:

When by virtue of the first Laws Part of the Society accumulated Wealth and grew Powerful, they enacted others more severe, and would protect their Property at the Expence of Humanity. This was abusing their Powers, and commencing a Tyranny. If a Savage before he enter’d into Society had been told, Your Neighbour by this Means may become Owner of 100 Deer, but if your Brother, or your Son, or yourself, having no Deer of your own, and being hungry should kill one of them, an infamous Death must be the Consequence; he would probably have prefer’d his Liberty, and his common Right of killing any Deer, to all the Advantages of Society that might be propos’d to him.

So, is true capitalism that which prevents any form of redistributing wealth? Or can capitalism encourage AT LEAST some equality between the wealthy and the middle class?

America's Jubilee and the Market Revolution

President John Quincy Adams, the Republic’s 6th executive chief, awoke around 7:00a.m. to a rainy, but sunny day in the nation’s capital. The thermometer read 78 degrees, and the clouds looked as though they would soon disappear. Today was going to be a beautiful day. After a brief breakfast, the President met with his cabinet in the Executive Mansion and then made his way via the Presidential carriage to the capital building. A large procession, complete with military escort, trumpeters, cavalry, and a military band accompanied the President. An energized crowd gathered to watch the spectacle, eager to commence the day’s festivities. After all, today was no ordinary day. Today was America’s Jubilee: July 4, 1826!

"America's Jubilee" was arguably the most festive July 4th our country has ever celebrated. Parades, festivals, dances, etc. were held all throughout the infant nation in celebration of America's 50th birthday. Even the legendary Marquis de Lafayette was welcomed from France with the highest of pomp and circumstance. A countless number of songs and poems were written to commemorate this landmark day. Here is one of my favorites that I found on an old broadside. The poem was written by a woman from Philadelphia named K.A. Ware:

The deeds of our heroes, their courage sublime,
Have long been the pride, and the theme of our story
And their triumphs shall mark the divisions of time,
And be hallow’d as the Epochs of National glory!
On this festival Day,
Our glad homage we’ll pay
To the God of the Pilgrims! who lighted their way,
And ne’er shall his flame on our altars decline,
Till earth shall to chaos her empire resign! (From America's Time Capsule: Three Centuries of Broadsides)

One of the most interesting aspects of "America's Jubilee -- as evidenced by the poem above -- is the powerful sense that America's prosperity was directly attributed to divinity. As we all know, by the early part of the 19th century, America's religious landscape had undergone a renovation of monumental proportions. The emergence of a second Great Awakening, combined with the groundbreaking impact of the Market Revolution, caused Americans to drastically change their perception of providence and its role in American history.

The Market Revolution's impact on religion not only redefined social norms, but also forced Americans to accept a profit-driven culture as being divinely sanctioned. The communal subsistence culture, which had tied family members and neighbors together in a tight web of economic and social interdependence, was now being replaced by the profit-driven mentality of the Market Revolution. By "establishing capitalist hegemony over economy, politics and culture," the Market Revolution introduced American society to the tempting world of profit-seeking and worldly wealth (Charles Sellers, The Market Revolution, 5). Thus, Americans sought a religious "sanction" of sorts to guide and justify their capitalist intentions.

By the time of "America's Jubilee," the entire nation was literally being swept by a wildfire of capitalist and religious fervor. The quintessential example of this enthusiasm can be seen in early 19th century western New York, an area that evangelist preacher, Charles Finney, dubbed "The Burned-over District." Joseph Smith, a resident of western New York and eventual founder of the Mormon faith, best described the atmosphere of the enthusiastic region when he wrote the following:

There was in the place where we lived an unusual excitement on the subject of religion. It commenced with the Methodists, but soon became general among all the sects in that region of the country, indeed the whole district of the Country seemed affected by it and great multitudes united themselves to the different religious parties, which created no small stir and division among the people…Priest contended against priest, and convert against convert so that all their good feelings one for another were entirely lost in a strife of words and a contest about opinions. (Joseph Smith, Jr., “1839 History,” The Papers of Joseph Smith, vol. I, 269-270.)

Not only had a wave of enthusiastic religion swept across the New York landscape -- as it had most of the country -- but the Market Revolution's influence had taken as strong of a hold in these same regions. The completion of the Erie Canal, for example, catapulted New York to the avant-garde of capitalist economics.

Naturally, this conflict between the forces of capitalism and the forces of religion caused an intense revolution in the social and cultural norms of American society. A countless number of impoverished citizens sought the solace of traditional communal religion and neighborhood subsistence. As a result, hundreds of communal religious sects were created to meet the needs of the people. Religious enthusiasts like Ann Lee, who became the founder of the Shaker movement, inspired her followers to embrace a communal lifestyle of celibacy and nonresistance, claiming that she had received a divine manifestation of Christ’s impending return. Jemima Wilkinson, who founded the Community of the Publick Universal Friend, also claimed divine revelation, and insisted that Christ had chosen her as his personal messenger, sent to prepare the world for millennial glory. Like Ann Lee, Wilkinson also established a communal order of celibacy and economic equality. The New Israelites, led by a man named Winchell and Oliver Cowdery, also preached divine revelation that pointed to an impending millennial apocalypse. And perhaps the most effective of these religious communities, the Mormons, traveled to the most distant regions on the American continent to establish what they called "Zion."

America's Jubilee should thus be seen as a marker of sorts, in which enthusiastic religion and capitalism combined to literally revolutionize the social landscape of America. Even Thomas Jefferson, who was never one for religious rhetoric, seemed to be caught up in the spirit of "America's Jubilee." In one of his last letters to John Adams, Jefferson seems to support the notion that America's destiny was sanctioned by the heavens. In almost prophetic form, Jefferson wrote:

"We shall have our follies without doubt. Some one or more of them will always be afloat. But ours will be the follies of enthusiasm, not bigotry. Bigotry is the disease of ignorance, of morbid minds; enthusiasm of the free and buoyant. Education and free discussion are the antidotes of both. We are destined to be a barrier against the returns of ignorance and barbarism. Old Europe will have to lean on our shoulders and hobble along by our side, under the monkish trammels of priests and kings." (Thomas Jefferson to John Adams, August 1, 1816).

Though traditional in his views on religion, Jefferson himself acknowledges a destiny for the future of America, which he sees as surpassing the greatness of Europe -- impressive for a man who had preached of the superiority of France nearly all his life.

In the end, "America's Jubilee" was not only a celebration of the nation's 50 birthday, but was also an unconscious recognition of the future greatness of American society. By adapting religious ideology to fit the sweeping changes of the Market Revolution, 19th century Americans were able to effectively develop a providential destiny for their nation, which eventually transformed the religious landscape of the entire county.

Hamilton, Economics, and the Capital

The most important member of George Washington’s cabinet was arguably Alexander Hamilton. As Secretary of the Treasury, Hamilton faced the tremendous burden of tackling the nation's debt crisis. The Revolutionary War had left the states with massive debts, and many European nations were reluctant to establish credit with American merchants. To correct the problem, Hamilton proposed that the national government should assume the debts of the states, that a national bank be established, and that all holders of war bonds/securities be paid at face value. By assuming the states debts, Hamilton was essentially doing what he felt the national government had been given power to do. As Joseph Ellis points out, "the federal government was implicitly, even covertly, assuming sovereign authority over the economics of all the states."

Opponents of Hamilton's economic plan saw it as an evil scheme to wrestle power away from the people and to secure it for the national government. Some suggested that Hamilton was doing this by shifting the balance of power from the legislative branch (Congress) to the executive branch (the Presidency). Other opponents had a different take on Hamilton's economic plan. Many saw it as a carbon copy of England, which would benefit the rich at the expense of the poor. Many southern leaders interpreted the plan as "the prostration of agriculture at the feet of commerce."

There were also many in the public who lamented the fact that war bonds, which had been used to pay war veterans, were being bought up by rich speculators. These speculators were paying well below face value for the bonds, and then waiting for Hamilton's plan to go into effect. These speculators knew they stood to gain huge profits once Hamilton's plan was accepted. Critics argued that many veterans were being swindled out of their money. Congressman James Jackson called the speculators, "rapacious wolves seeking whom they may devour."

Eventually, opponents of Hamilton's plan (especially the Virginia elite) would lend their support for it, in exchange for the location of the new national capital to be located on the Potomac. Thomas Jefferson and James Madison used their political influence to sway public support in favor of Hamilton's plan. In return, the new capital of the nation was established in Virginia. Many leaders within the government felt that this compromise "gave birth to combinations, parties, intrigues, jealousies...to such a degree to give serious alarm to the friends of the government." Hamilton's economic plan served as one of the first hurdles for the infant nation to learn to overcome. Whether the compromise was seen as a good or bad thing, it did prove that politicians with differing opinions could find a way to come to a compromise and get things done.

Erie Canal and the "Burned-over District"

One of the largest achievements of the early 19th century is the completion of the Erie Canal. Though ignored by the federal government, Governor Henry Clinton of New York was able to gain the funding necessary to complete the project. The canal turned out to be such a huge success that the debt for the project was paid off within the first year of the canal's operation.

The Erie Canal brought a tremendous amount of wealth and commerce to the state of New York. In fact, it is because of the Erie Canal that New York earned the nickname "The Empire State."

What a lot of people don't know when it comes to the Erie Canal is that its construction helped to spark the fires of religious revival throughout the state. The area of western New York, which evangelist Charles Finney dubbed "the burned-over district," was a particular hot bet for religious fanaticism, scarcely seen in any other part of the American republic. Though the construction of the Erie Canal cannot be given full credit for this surge of religious enthusiasm, it can be credited for being one of the major factors that led to this phenomenon.

In his work The Market Revolution, historian Charles Sellers suggests that the construction of the Erie Canal brought an infusion of market capitalism that forced religions to adapt. While many of these religions embraced the Market Revolution in western New York, others fought against it. A sudden surge in the number of religious communal societies, each embracing a communistic economy and the hope of a rapidly approaching millennium, became the antithesis to the capitalist changes enveloping New York. These societies saw capitalism as an evil to be avoided. The various religious leaders that emerged from western New York at this time (Ann Lee, Charles Finney, Joseph Smith, Jonathan Edwards to name just a few) labored to protect their "flocks" from the clutches of capitalist enthusiasm, each gaining different degrees of success.

Many of the established religions (Methodists, Quakers, Baptists, Catholics to name just a few) also flooded the region with missionaries, as the expansion westward marked a change in how religions addressed the need for new converts. Other religious ideologies, such as Universalism, Unitarianism and Deism affected the way citizens understood religion.

What interests me about these movements is how they were so closely related with capitalism and the Market Revolution. As the market's influence grew, so too did the religious zeal of the various dogmas. Capitalism was seen as an evil to be combated, instead of a practice to be embraced. It is amazing how different things are today!

The American REVOLUTIONS

One of the biggest problems with the historiography of the American Revolution is that we often view it as being a massive force of radical change, which literally swept across the colonial countryside. We rarely examine the revolution at a microscopic level, but instead subscribe to the notion that the American Revolution encompassed any and all radical changes in colonial American society. Changes in religion, culture, employment, travel, economics, and social structure are rarely examined on an individual level, but are instead considered components of the whole.

Instead of viewing the revolution at a macro level, I believe that one can gain a better understanding and appreciation of the American Revolution by examining the numerous individual revolutions, which together created the atmosphere of independence. After all, the Founding Fathers (and the entire revolutionary generation as a whole) understood the revolution in these terms.

First off, I think it is important for us to ascertain just how long the American Revolution (as a whole) lasted. The war, which was merely a byproduct of all the revolutionary movements, lasted eight long years, but the Revolution itself lasted much longer.

The Great Awakening: Prior to the Stamp Act, Boston Tea Party, etc., colonial America was gripped by a religious revolution that literally transformed the way people understood deity. Instead of completely relying on a pastor for one's salvation, the Great Awakening inspired common citizens to develop an individual relationship with God. Salvation, in essence, became a personal endeavor. This new movement brought about a greater understanding on personal independence, which would play a large role in American Independence. Religions themselves began to actively recruit converts by promoting education, social programs, and community activism. In every sense of the word the Great Awakening was a religious revolution.

Breakdown of Traditional Social Constructs: Gordon Wood is without question the premiere historian on this issue. In his Pulitzer Prizewinning Book The Radicalism of the American Revolution, Wood suggests that one of the most important factors that led to independence was the transformation of the American social ideology. Instead of following the traditional social norms of Britain, in which the gentry class enjoyed the finer things of life, American colonial structure permitted a common civilian to climb the social ladder of success. By no means does this suggest that every member of colonial American society was on the same social level. Instead, we should think of colonial America as a society with less social tradition and less social disparity between elites and commoners. Wood's example of British v. colonial homes is a good illustration of this idea. Wood points out that in Britain, a common gentry would have enjoyed an estate of roughly 50-100 bedrooms, dozens of servants, and a large amount of land. In colonial America, however, the typical home of an American gentleman was 10-15 bedrooms, with much less land. The difference between the social world of Britain and America is another key ingredient in the push for independence.

The Market Revolution: Historian Charles Sellers is the foremost expert on the Market Revolution. His research has literally transformed our understanding of Jacksonian America, and of capitalism in America. Contrary to popular belief, good old-fashioned American capitalism did not begin with the Puritans in 1620. Instead, colonial America relied on the neighborhood exchange system of economics, in which each family provided for itself. There were no large markets in the early years of the United States. In fact, very little money was printed or used as a means of conducting business. Colonial families literally banded with their neighbors, creating a neighborhood exchange system, which became very anti-capitalist in nature. It was rare for colonial families to ever sell their surpluss of goods to a larger market. Instead the surplus was traded with one's neighbors, in exchange for their services.

The Market Revolution, which came along in the early years of the 19th century, changed all that. Americans began to specialize in the production of a specific good or service, which was sold for a profit. The rise of the textile industry helped to fuel this newly emerging market economy, which transformed the American perspective on labor. Instead of viewing labor as a loathsome activity that was reserved for the poor of society, labor was seen as a noble endeavor. The ideology of putting in a "hard day's work" was born. It is here that the "American Dream" was born.

The Transportation Revolution: In many ways, the Transportation Revolution is a byproduct of the Market Revolution. Colonial American society was literally situated in a savage world. The thick forests of the east, combined with its often-harsh climates, made life difficult for early colonists. The road system in the early years of the American Republic was virtually non-existent. Families that lived on the frontier lands had a very difficult time traveling to the coast or to the cities. In fact, 90% of colonists never traveled further than 30 miles from the place they were born.

The Transportation Revolution would change all that. With the advent of the steam engine, railroads, and the canal system, Americans had a much easier time getting around. Businesses and farms found these new advancements extremely advantageous for shipping and distributing their goods. Missionaries were able to stretch their web even further, thanks to the new advances in transportation. Citizens could now be better informed, thanks to the quicker exchange of information between cities.

These are just a few of the many revolutions that took place before, during, and after America's war for independence. A closer look into these individual events will show that they are, in reality, all linked. It is likely that one would not have existed without the other. When taken all together, they help to create a society that was able to embrace even further changes to their way of life. In short, these are the REVOLUTIONS of the American Revolution.

The Market Revolution in Jacksonan America

I realize that this posting may seem like it doesn't belong on a blog of the American Revolution but hear me out. The Market Revolution (or Capitalist Revolution) is one of the newest and most groundbreaking historical events in recent years. The idea was proposed by Charles Sellers, a professor of American history and author of the landmark book "The Market Revolution." In this book, Sellers explains how American society in the early parts of the 19th century evolved from a localized neighborhood economy to a thriving capitalist society. This change completely revolutionized American society at virtually every level. Cultural and religious ideals were changed, along with the concept of labor. Instead of seeing labor as a necessary evil (which most of our Founding Fathers believed), labor was seen as a blessing from god. Many common people found themselves able to climb the social ladder by working hard and making lots of money (which was very uncommon in the 18th century).

So why do I bring this up? Because the American Revolution was the catalyst that allowed these changes to take place. Instead of seeing the American Revolution as a war between "patriot and loyalist" or "the oppressed rebels and the evil empire," we should strive to understand it as a social revolution. Historian Gordon Wood suggests that the American Revolution was the most successful revolution in world history because it changed political, governmental, social, cultural and religious norms. The colonists were not fighting an "evil" nemesis, but instead were fighting for changes to their social structure (even though many of them never realized it).

We must stop the ridiculous notion that the American Revolution was a war against "evil" oppression. Yes, the British oppressed the colonists to a certain degree, but let us remember that the American colonies were the most prosperous place on earth for the common man. There was more freedom and equality to practice religion, embark on business ventures, or protest in those small colonies than anywhere else on the planet.

The Market Revolution became one of the major changes that these colonists created upon winning their independence. The Market Revolution established the ideology of the American Dream, and helped propel the United States to the front of world affairs.

The American Revolution: A Blessing for England?

Is it possible that the American Revolution was just as beneficial (if not more beneficial during the 19th century) for Great Britain? In his book "Rise and Fall of the British Empire" author Lawrence James devotes an entire chapter to this assertion. He claims that during the years immediately following the war with the American colonies that Britain reaped huge rewards.

For the British, the reality of parting ways with its former American colonies was better than most expected. Trade between the two nations actually increased after 1783, particularly cotton exports, which augmented from 15.5 million pounds in the 1780’s to 28.6 million pounds in 1800 (James, 119). Along with an increase in trade, the British Empire benefited by not having to pay for the protection of its American colonies, which had proven very costly in the past. American colonial independence also added a measure of credence to Adam Smith’s assertions that the American colonies were more of a liability than an asset. In his book Wealth of Nations, Smith pointed out that colonies were beneficial to empire, so long as control could be maintained. The American colonies, however, had become “less in the view and less in the power of the mother country,” and were therefore a liability

The reality of the post-war period was that the American colonists needed the British more than the British needed the colonists. As James points out in his book:

“Naturally there were alarms about the commercial consequences of a break between Britain and America,” but those fears subsided as British experts came to the realization that the infant American republic, 'could not survive economically without Britain'” (119).

The fact that the United States joined in an economic accord with thier former rivals is also indicative of how powerful the British economy really was. This economic agreement between America and Britain (known as the Jay Treaty) helped to deliver the former colonies from economic ruin (not to mention the fact that it made Britain a lot of money). As Joseph Ellis points out in his book Founding Brothers: The Revolutionary Generation, “The Jay Treaty, in effect, bet on England…as the hegemonic European power of the Future, which proved prophetic” (136-137).

Often we look at the American Revolution from the perspective of the colonists. When we take a step back, however, and examine the revolution's impact on everyone involved, we can see just how "revolutionary" the American Revolution really was. Not only did it benefit the colonies, but it also greatly benefited Britain.