How Alexander Hamilton Turned This Marxist into a Classical Liberal
By Robert E. Wright, Nef Family Chair of Political Economy, Augustana University, American Institute for Economic Research, Museum of American Finance, Historians Against Slavery, &c.
For ConSource’s Constitution Day Fundraiser at the Pierre Hotel, Manhattan, New York, 17 September 2019
In high school and as a Social Studies education major at Buffalo
State College, I was a flaming Marxist. Proof, from my high school yearbook, is
on the screen [SLIDE 2]. If Cassie calling me Karl with a K in addition to my
real nickname of Moose and threatening to warn my college of the arrival of my
spectre, a reference to the first line of Marx’s Communist Manifesto, is
insufficient proof, the slide now on the screen [SLIDE 3] is brutally direct. Sorry
to say, though, that unlike some people I can’t produce my annotated calendars,
but if I could, they would reveal the exact dates that I attended Communist
Party gatherings. Either I threw them out or never made them in the first
place. You be the judge.
Today, I don’t recall who either of these people were but the
second one was right. Not about me dying a commie pinko but about the vacuity
of Marxism. Ten years after graduating from high school, I was an emerging
classical liberal. By then, I held a Ph.D., a wife, and a toddler -- no need to
get into details about the order. An old joke posits that anyone who is 20 and
is not a Marxist has no heart, but anyone who is 30 and is still a Marxist has
no brain. I like to think I possess a bit of both organs but to some extent I
was mugged by the reality of the fall of the Wall and all.
Mostly, though, it was Alexander Hamilton who saved me from a life
of Leftist lunacy. Some of you may still think of Hamilton as a would-be
autocrat who espoused high tariffs and a big government and oversized national
debt. Actually, though, he was a classical liberal, or, in today’s parlance,
more Libertarian than Republican, and certainly no Trumpian. In fact, I fear
that if Hamilton were alive today he would charge the Oval Office, bayonets
fixed, and seize it as he did Redoubt Number Ten at Yorktown.
I am not pulling your leg about Hamilton saving me from communism
and sundry other lame isms. I named my first-born son Alexander Hamilton Was …
my last name, which is Wright. Again, proof is on the screen [SLIDE 4]. And
just in case you think I forged his Social Security card, which isn’t difficult
to do these days, here is more proof, from the Wall Street Journal,
which, of course, is always right about everything [SLIDE 5].
Upon learning about my son’s name, and the names of my other two
kids -- I kid you not Madison and TJ -- people often ask me, what was Hamilton
right about? Just about everything, as it turns out, but that W leading off my
name was not just a way of making sure that I was among the last called for
everything, along with a handful of Yangs, Youngs, and Ziebachs. Double U R I G
H T actually means a maker of things, as in cartwright or wheelwright. So
Hamilton was correct about most things but more importantly he was a maker,
specifically of this still great country of ours. Great as in Great War or
Great Depression anyway.
As you can imagine, the only thing more thrilling for me than
learning that the musical Hamilton was a huge hit was being invited to New York
to watch it, and comped a ticket for one of Lin’s last shows after the big Tony
award wins. In return, all I had to do was to write a review of the musical for
The Independent Review. So I went for broke and reviewed it in verse and
even included an extra scene, “What Bondholders Want.” Again, evidence is on the
screen [SLIDE 6].
I composed a new scene because it was the only way that I could
prove the thesis of my review, which was that Lin could have written an
engaging musical that actually explained what specifically made Hamilton so important.
I will perform it for you here tonight, for the first time in public, but with
a few caveats [SLIDE 7].
First, I am not a rapper by trade or even by hobby, though
I sometimes listen to some NWA, Biggie, or Eminem when in the mood. Second, the
scene contains three different singers but there is currently only one of me,
so I will use different voices for Hamilton, the Company, and Burr. For the
Company, which refers to the entire cast, not a business entity, I will try to
sound like the Spice Girls, for reasons that will soon become apparent to
anyone who recalls the 1990s. For Burr, I will try to sound like Humpty Hump, the
persona of rapper Gregory Jacobs and developer of the Humpty dance, which
debuted in December 1989. As you can see from the album cover, now pictured on
the screen [SLIDE 8], Humpty was something of a clownish figure, much like
Burr. Finally, and most importantly, following the lead of The Spinners and
other musical performers, not only do I give you permission to record my
performance and put it up on social media, I beg of you to do so. I’ll
put Lin up on screen [SLIDE 9] during this so you don’t have to look at Humpty
the whole time and so you can imagine how good this would sound with him
performing it.
**What Bondholders Want**
HAMILTON: Our
humiliation was the government of the new nation
And its inability to pay
our farmers, soldiers, or sailors
the proper remuneration,
due to its distressed monetary situation,
a situation called
bankruptcy that led mere individuals straight to the jailers.
When Continentals and
other forms of fiat money lost all their worth,
because the rebel
governments printed them in too much girth,
All that was left to do,
was for officers and quartermasters to pay on cue,
using a written device
that in common vernacular is called an IOU,
an evidence of a debt
that could be kept or traded, for pennies on the dollar.
When the government
didn’t pay the interest on time, bondholders began to holler.
COMPANY: What do they
want, what do they want, what do bondholders really, really want?
HAMILTON: What
bondholders want, what they really, really want is:
security
negotiability
liquidity
punctuality
and banality.
COMPANY: Bondholders
want security, negotiability, liquidity, punctuality, and banality.
HAMILTON: They want
security, negotiability, liquidity, punctuality, and banality.
BURR: They got their
brain on their bonds, and their bonds on their brain.
It seems what they want
is for it to rain, rain, rain, and never with any pain.
But how are you going to
give the bondholders what they want?
COMPANY: One shot is all
you’ve got, one shot is all you’ve got.
HAMILTON: One shot is
all I’ve got, so on these policies I will bank:
tariffs, discrimination,
funding and assumption, and a bank.
I’m going to give
bondholders security, negotiability, liquidity, punctuality, and banality in
the form of tariffs, discrimination, funding and assumption, and a bank.
COMPANY: One shot is all
you’ve got, one shot is all you’ve got.
HAMILTON: One shot is
all I’ve got.
COMPANY: Bondholders
want security.
HAMILTON: Bondholders
have no recourse to the sheriff.
To give them security we
must tie payment to my tariff.
COMPANY: Bondholders
want security.
HAMILTON: A tariff is
just a tax on stuff imported from abroad.
A tax so easy to
administer, taxpayers will not find it sinister.
When people see it in
action, all they can do is applaud.
COMPANY: Bondholders
want security.
HAMILTON: The key is to
maximize revenue, so there’ll be some residue,
after the government has
paid bondholders just their just due.
COMPANY: Bondholders
want security.
HAMILTON: Paying
bondholders as promised is the key to it all.
COMPANY: Bondholders
want security.
HAMILTON: Anything less
and the government will take a nasty fall.
BURR: Bondholders got
their gains on their brains, and their brains on their gains.
HAMILTON: Bondholders
also want negotiability.
COMPANY: Bondholders
want negotiability.
HAMILTON:
Discrimination, paying only the present holders of bonds owed by the nation,
supports negotiability,
the ability to sell bonds and not worry about proration.
COMPANY: Bondholders
want negotiability.
HAMILTON: The common law
on this point is clear,
People who sell debt
instruments for any reason, including poverty or fear,
Are not entitled to
takebacks, even those who sold low after buying dear.
ALL: Caveat venditor!
BURR: On this point
there can be no negotiation, bondholders want negotiability.
HAMILTON: Bondholders
also want liquidity.
COMPANY: Bondholders
want liquidity.
HAMILTON: Liquidity,
liquidity, to buy or sell quickly is that ability.
COMPANY: Bondholders
want liquidity.
HAMILTON: So as part of
my funding plan, I took a cacophony
Of scores of different
notes, I told bondholders to give them to me
In exchange for three
new bonds called Deferred, Six, and Three
COMPANY: Bondholders
want liquidity.
HAMILTON: We all know
that when we assume, we make an ass of you and me.
But when the debts of
the several states I assume, I make yet more liquidity.
BURR: Make the markets
rain liquidity.
HAMILTON: Bondholders
also want punctuality.
COMPANY: Bondholders
want punctuality.
HAMILTON: That means
making payments quarterly, right on the dot.
But sometimes tariff
revenues do not quite hit the spot.
COMPANY: Bondholders
want punctuality.
HAMILTON: That is why
the Bank of the United States I did make.
To ensure the government
never missed a bond payment for goodness sake.
COMPANY: Not by a single
day, no matter what.
BURR: Pay them
everything they are due, and always right on cue!
HAMILTON: Bondholders
also want banality.
COMPANY: Bondholders
want banality.
HAMILTON: That means
that they like things slow and steady.
No revolutions,
usurpations, armed forces at the ready.
Or anything that could
cause panic, as in 1792, when into the maw
I stepped with a piece
of new policy now called Hamilton’s Law:
Lend freely at a penalty
rate to all with good collateral until the credit markets thaw.
BURR: They won’t cabal
because they want it banal.
Cuz they got their
brains on the rain, the precious, specious rain.
HAMILTON: Before I
close, two myths I must dispose.
I discussed, but never
said I wanted, a tariff of protection.
That lie was set forth
decades later by a German named List,
who was a damned liar,
or very British-style pissed.
I wanted
industrialization, but sought it from another direction,
Paterson, New Jersey,
and the Society for the Establishment of Useful Manufactures, y’all!
Finally, I am not some
big debt freak.
What I said was quite
unique.
A bigger debt, if not
excessive, will be to us a blessing.
COMPANY: If not excessive,
if not excessive.
BURR: Liquidity was the
lettuce but cementing the union was the dressing.
HAMILTON: Every child,
woman, and man who owns a federal bond,
Will protect the new government and never abscond.
**End Scene**
Thank you(!)? Had I received any encouragement, I could have
written many such scenes. It’s not easy, especially when you have no talent and
little experience, but it could be done. I’m going to spare you that pain
tonight, though, by simply narrating the Founding, and Hamilton’s germinal role
in it. Germinal, by the way, is the gender-neutral version of seminal.
To fully grasp the scene, the first thing you need to know is that
the American Revolution was not at its root about taxation without
representation, it was about a sudden switch of monetary and trade policy.
Taxes were simply the straw that broke the colonists’ back. The University of
Virginia’s Ron Michener and I realized that way back when I became his
colleague in 1999, well before subprime mortgages or trade wars were major
news. We were not reading the present into the past but rather were deep in a
variety of primary sources all pointing in the same direction.
Critics found our mounds of evidence circumstantial but then one
day in 2008 I found the smoking gun, not only miscatalogued by the New Jersey
Historical Society in Newark but interleaved with another document penned
twenty years later! Ever since, the executive director over there has blocked the
smoking gun’s publication for reasons he never made clear to me. Fair use,
however, allows me to share some of a transcript of it with you tonight [SLIDE
10]. The document verifies what Michener and I already knew, that the colonists
were ticked off at the Mother Country because she drastically reduced the money
supply following the French and Indian War by greatly reducing the stock of
paper money, called bills of credit, and blocking colonists’ access to foreign
trade and hence gold and silver coins. The rapid decrease in the money supply
raised interest rates and depressed land prices, leading to a refinancing
crisis in an economy where most mortgages ran only a year or two and ended with
balloon payments.
Here is some of what the anonymous author of the smoking gun
letter, written in mid-1768 in response to some unnamed Brits’ query about what
was up the colonists’ keister, replied:
I must
observe that it is not the Stamp Act or New Duty Act alone that had put the
Colonies so much out of humour tho the principal Clamour has been on that Head
but their distressed Situation had prepared them so generally to lay hold of
these Occasions, and how they came to be so I must trace back to commencement
of the late War. There was then little paper Money in the Colonies, but all
Ranks lived frugally within what they got and there transactions and Dealings
did not exceed the Currency among them, there Trade to England was small and
they made Remittances by their West India Trade for the Country People in
general were contented with their own Produce and Manufactures, the Price of
Land was so low that they could soon pay for it out of what they raised … but
mark the great Change a short Time produced. … Extraordinary Levies, laid the Colonies
under a Necessity of issuing Notes or Paper Bills of Credit payable in future
Periods by Taxes, for to raise the Sum wanted within the year, or by Loan as in
England, was equally impossible, but being secured by the Legislature to be
sunk by future Taxes they never depreciated, but on the contrary when the
largest Sum was current Viz in the year 1760 Exchange was 25 P cent lower than
at present, or it took £25 less of our Paper to buy a Bill of £100 Sterg
on London than at present. … This money being plenty, both in Specie and Bills
of Credit and Labour
high, and Land high, the Price of every thing encreased People were not afraid
of entering into deep Engagements equivalent to our Circulation, which being
since called in by Taxes or remitted for Goods occasioned a sudden Stagnation,
and by calling upon and suing one another brought many to ruin. … The Men of
War are also expensive especially when so many are kept up. They are of no
Manner of Use, but often cramp Trade by stoping and detaining Merchants ships
and pressing their Men. … Another capital Greivance and Inconvenience to these
middle Colonies is being restrained from issuing Notes or Bills of Credit … to recount
our Distress for want of this Medium were Endless or by what unaccountable
Policy G. Britain acts in the Restriction. … It must not be forgot that our
Trade to the Spanish and French West Indies was laid under the severest Restrictions,
and the Spanish Ships were even prevented laying out their Money in our Ports.
O wise Grenville! To this miserable and discontented Situation were we reduced
about the year 1765 and in November the ever odious and memorable Stamp Act was
to take Place, which we look’d upon as equally inexpedient and illegal and
which never could have been carried into Execution. … We are unfortunate that
our Situation is not sufficiently known or properly represented to the
Ministers at Home; it is true we have agents there but few of them are
acquainted with our Circumstances, and when called upon seldom speak the
Sentiments of their Constituents, and often insinuate rather what is agreeable
than real. … the Colonies in general are composed of Emigrates from England who
little dream’d they forfeited their Liberties while they extended the British
Dominions.
What made the real estate boom and bust a big deal was that back
then only creditors could discharge bankrupts and most were loathe to do so because
creditors invariably owed yet others. Credit was very much a web, rather than a
pyramid, and a voracious Black Widow spider sat its center because creditors
could put bankrupts into debtors’ prisons where they had to somehow pay their
board while they quote languished, or, worse, wallowed in idleness and
profligacy unquote. Many died, the victim of a system designed to get debtors
to cough up hidden assets and completely unprepared for a monetary and trade policy-induced
real estate crash.
Banks did not step up to the rescue because the British did not
allow the colonists to form joint-stock commercial banks. Devoid of effective
intermediaries, without the power to issue government fiat money, and with
trade routes that could have led to the importation of gold and silver coins
blocked, the colonists could only limp by on trade credit, commodity barter,
and innovative instruments like the squirrel scalp bounties that circulated in
Bucks County north of Philadelphia in the latter half of the 1760s.
By the time the young Hamilton, now pictured on screen [SLIDE 11],
arrived on the mainland in 1772, the dispute between the colonists and their
Imperial overlords had further intensified. Hamilton soon proved himself a
prolific writer by entering the evolving debate with a series of pro-Patriot essays
steeped in classical liberal ideas, including limited government.
Hamilton of course played a major role in the war, both on the
battlefield and as one of General Washington’s closest advisors. Even in the
throes of the long conflict, Hamilton strategized about future policies and
governance structures. With peace came continued national bankruptcy, domestic
insurrection, and economic recession. With a little help from his friends, he
swept that all aside and established the nation’s modern economic growth trend,
now pictured on screen [SLIDE 12]. The per capita economic output data, stated in
real or inflation-adjusted terms, is rendered on a log scale so that the rate
of growth can be discerned by the eye. The greatness of the Great Depression and
World War II are readily discernible, but most recessions appear as mere blips
in the overall story of America’s economic growth, the red trend line. Even the
Depression eventually succumbed as the economy returned to its long-term trend.
Several economic historians have shown, in different ways, that the return to
trend would have occurred even without World War II, but that is a story for
another evening. Note that after Hamilton’s time, the economy performed under
trend for a long time. That was due to suboptimal policies, including slavery
and protective tariffs, of which more a bit later.
I shudder to think that my 20-year-old quote unquote commie Pinko self
was prepared to walk into middle and high school classrooms and tell students
that the Revolution was about taxation without representation, Washington was
the hero of the Revolution, Madison was key to the Constitution, and Jefferson
and his Revolution of 1800 saved the early Republic from the little, evil
monster Hamilton.
Thankfully, I stank at teaching yutes and my master mentor
teacher suggested that in lieu of finishing student teaching I get a degree in
History and go to graduate school for the same. Once there, I started reading
primary sources for myself and enjoyed epiphany after epiphany. Hamilton, it
turned out, was no elitist. He was a poor immigrant, a point – spoiler alert --
that Lin’s musical does make amply clear. Like any classical liberal worthy of
the name, Hamilton did not seek special privileges for favored groups but
sought instead to lay out the fundamental principles of liberty for all.
Unlike the Lord of Monticello, Hamilton opposed slavery, an
institution that classical liberals came to find appalling. Hamilton’s record
as an abolitionist was imperfect, but better than most of his contemporaries. Had
Hamilton died of old age, I am convinced that he would have elucidated the
thesis that I set forth in the book now pictured on screen [SLIDE 13], to wit
that enslaving others creates negative externalities akin to pollution. Slavery,
in other words, is profitable for the enslaver but an impediment to overall
growth and development. It therefore essentially impoverishes everyone to some
degree, except the enslavers who manage to reduce the costs of controlling
slaves with sundry public subsidies like slave patrols, public whipping posts,
and fugitive slave acts. With the distinction between private profit and
overall economic growth and development clearly in place in the early
nineteenth century instead of the 1850s, the Civil War may not have occurred at
all, or it may have erupted in 1820 instead of the Missouri Compromise, or in 1833
in response to the Nullification Crisis.
When Hamilton called for a president-for-life, he was thinking
carefully about incentives. A president-for-life would be concerned with
implementing long-term policies, not winning the next election. The Founders applied
Hamilton’s reasoning to members of the Supreme Court, who serve life terms.
Later, policymakers mandated single, long-term appointments for certain key
positions, like Federal Reserve governors. President-for-life sounds appalling
today only because the presidency has grown so powerful. Had we gone Hamilton’s
route, you best believe that POTUS would be checked much more heavily than
today. A president-for-life would almost certainly not have tariff authority,
for example.
Contrary
to myth, Hamilton did not believe in a BIG national
government. Time and again he made clear that he wanted an ENERGETIC
government, one that could fulfill its limited mandate completely at the least
possible cost. He wanted efficiency, not size. On screen now is the cover of a
book that firmly establishes this point [SLIDE 14].
Hamilton also did not believe in the perpetuation of a huge
national debt. Those who quote him as saying that a national debt would be a
blessing leave out a crucial qualifying clause: quote if it is not excessive
unquote. He specified in detail what an excessive national debt would look like
and, brothers and sisters, I am chagrined to report that we have one today
because we gave up on Hamilton’s unwritten fiscal constitution during the Nixon
administration. It is now completely moribund, as the book now pictured on
screen details [SLIDE 15]. The main gist of the Fiscal Constitution was that
during times of peace and prosperity, the national debt was to be paid down in
nominal and real terms. During recessions, federal government budget deficits
were to be kept below the average rate of economic growth. Large deficits were
allowable only to fight wars or obtain territory but when peace returned
surpluses were to be applied to the debt, not to concocting new areas of
spending. These rules were easier to follow, Hamilton showed, when each new
bond issue was tied to a specific tax sufficient to service and eventually
extinguish the debt.
Unlike most of his contemporaries, Hamilton was a debt realist, a
point clearly established by the book now pictured on your screen [SLIDE 16].
Some believed the national debt, at least that part owned domestically, was not
a problem because it was money that Americans quote unquote owed to themselves,
which didn’t make a whole lot of sense to people paying taxes to service bonds
owned by others. Some believed that all government debt was morally wrong, an
imposition on future generations, so the national debt should be paid off as
quickly as possible. Hamilton reasoned that a debt incurred to win a just war
or to acquire new lands was no imposition but to spark a recession by ramping
up taxes merely to repay the debt quickly certainly was. So his debt repayment
plan called for slow and steady.
Moreover, Hamilton realized that federal bondholders cemented the
Union by rendering them loyal to their debtor, a point carefully proven in the
book now on your screen [SLIDE 17]. The looney who wrote it actually tracked
down the residences of many of the nation’s early bondholders, which he was
able to do because the bonds were registered and not bearer instruments. He
also tracked down the occupations of over a hundred federal bondholders who
lived in Jefferson’s Virginia. The foreign debt likewise served to align the
interests of foreign nations with America, a point that all those who decried
our debt to Britain then, and Japan and China more recently, too oft forget.
Most interestingly of all, perhaps, I learned that Hamilton did
not implement, or even espouse, protective tariffs, a point forcefully made by
the three books now pictured on screen [SLIDE 18]. Hamilton’s tariffs were all about
the revenue. In other words, they were designed to fund the government, and
especially to service the national debt, not to encourage manufacturing.
Following Adam Smith’s notion that all that was requisite to spark economic
growth was peace, easy taxes, and a tolerable administration of justice,
Hamilton opted for the easiest taxes to collect, those on imported goods. His
tariffs exempted many foreign goods used as inputs in domestically-produced
goods and imposed progressively higher levies on imports according to their
elasticity of demand, or the degree of their luxuriousness in the parlance of
the day. Foreign-made carriages and fancy liquors, for example, bore higher
tariffs than common fabrics.
Hamilton imposed excise taxes on domestic whiskey production in
order to discourage its production given the relatively high tariffs
placed on the foreign stuff. His Report on Manufactures makes this
clear. It also makes clear that, unlike his previous reports on public credit
and the national bank, the report was more of a primer, a lesson in the
economics of international trade. It makes no sweeping recommendations for
legislation but rather discusses the tradeoffs involved in interfering with
international trade and correctly identifies production bounties as the least
costly method of encouraging domestic manufacturers, and argues that they should
be implemented if, and only if, that was something that Congress wanted to do.
But tariffs, subsidies, and other distortions of trade, Hamilton makes clear in
the report, are merited only in a second-best world, one, in other words, in
which other countries impose high tariffs first.
Contrast Hamilton’s Report on Manufactures with his Report
on a National Bank and you will see exactly what I mean. In the latter,
Hamilton laid out very specific reasons for establishing a central bank,
detailed its structure, and specified its goals, which included providing a
backstop in the event that federal revenues ever fell short of the sums needed
to service the national debt. You will sometimes see scholars describe the Bank
of the United States as a quasi-central bank because it did not have the same
degree of monetary policy discretion that central banks do today. That is true
because Hamilton put the U.S. on a bimetallic standard. Indeed his Report on
the Establishment of the Mint led directly to the Mint Act, which defined
the dollar as specific weights and fineness of gold and silver. Although the
Bank of the United States could signal its desired monetary policy stance to
state banks, which had grown rapidly in number and importance since the end of
the Revolution, by the speed with which it redeemed their notes for gold and
silver, it allowed international market conditions to determine the domestic
money supply and interest rate.
Of course, at the time the Bank of England and the world’s few
other central banks did likewise. So, I don’t consider the Bank of the United
States a quasi-central bank, I consider it what it was, an
eighteenth-century central bank, and that was no mean thing. In addition to servicing
the national debt when revenue tariffs fell short and acting as the federal
government’s main depository and paying agent, the Bank of the United States
also acted as a lender of last resort during financial panics, like those
experienced in 1791 and especially 1792. What is commonly called Bagehot’s Rule
should be called Hamilton’s Rule because Hamilton was the first to stymie a
panic by having the central bank lend freely at a penalty rate to all who could
provide ample collateral. Unfortunately, he never wrote a book about it.
I like to stress Hamilton’s Rule because some of those rational
enough to accede to the points all these books shown on screen make still like
to retreat to the claim that all Hamilton did was to copy British precedent. In
fact, Hamilton did not adopt British financial precedents, he adapted them.
Adoption of foreign institutions rarely works well. Just ask the newly-formed
Latin American republics that adopted the U.S. Constitution or the Indian tribal
governments induced to adopt American municipal forms in the early twentieth
century. Hamilton’s intelligent adaptation of foreign financial practices and institutions,
however, saved the early U.S. republic from many embarrassments that could have
led to its dissolution.
Hamilton also astutely adapted British legal practices to
America’s legal scene, a point well made in the book now pictured on screen
[SLIDE 19]. What that otherwise wonderful book misses, though, is Hamilton’s
contribution to corporation formation and governance. He showed that if need be
businesses could voluntarily associate instead of formally incorporate and still
enjoy the two main benefits of formal incorporation, limited liability and
perpetual succession, by contract instead of by law. Facing such competition, legislators
in most cases were not unduly stingy with special acts of incorporation. In
fact, the book now pictured on screen [SLIDE 20] shows that over 22,000
businesses received formal special charters in the U.S. before the Civil War.
Incorporation became so easy, in fact, that general acts of incorporation were
already becoming the norm in the antebellum era and of course are the standard
today for both for- and non-profit organizations.
My forthcoming book, Liberty Lost, will detail the
importance of non-profits to America’s democracy and provide the first count of
all those that received special acts of incorporation before the Civil War. It
appears that specially-incorporated non-profits actually outnumbered
for-profits. DeTocqueville was right, without the capital W.
Ease of incorporation also plays a germinal role in my most recent
book, now pictured on screen [SLIDE 21]. Thanks to the ease of incorporation
made possible by Hamilton’s adaptation of British common law to American
realities, groups excluded from financial institutions and markets could, and
often did, simply form their own. Artisans, blacks, farmers, Hispanics, Jews,
immigrants, Indians, mountain folk, women, and other excluded groups all eventually
entered the financial services market and failed, survived, or thrived on the
merits of their respective business plans and their execution, all thanks to
seeds planted by a so-called elitist monarchist economic nationalist! The
abolitionist immigrant Hamilton was really a champion of the common person, competitive
markets and institutions, and effective government.
By drafting several early important charters and by-laws,
including those of the Bank of New York, the Bank of the United States, and the
Merchants Bank, Hamilton also helped to establish rules of corporate governance
that U.S. corporations used to great effect for over a century. Early U.S.
corporations were basically mini-republics replete with checks and balances designed
to ensure that major stockholders and managers could not expropriate the
resources of minority stockholders, many of whom were minors, women, or busy businessmen.
Mistakes were made, even with Hamilton’s own Society for the Establishment of
Useful Manufactures, but they were relatively few and minor. Confidence ran so
high, in fact, that investors purchased shares in mere startups in
unintermediated direct public offerings. Well, technically, again thanks in
part to Hamilton, they purchased call options on shares, which they paid for in
instalments as the newly-formed corporations geared up operations and achieved
identifiable milestones.
I say thanks to Hamilton in part because there were, as the book
now on the screen makes clear [SLIDE 22], numerous financial founding fathers,
including Thomas Willing, the first president of the Bank of North America and
the first president of the Bank of the United States, and his partner Robert
Morris, the so-called Financier of the Revolution. Their stories are also
interesting and complex. Maybe one day I will compose a musical starring them,
or Albert Gallatin or Stephen Girard, or maybe the entire ensemble of financial
founders. That story would be set in Philadelphia, America’s first financial
center and the subject of the book now pictured on the screen [SLIDE 23]. Or
maybe not, as I am currently hot on the trail of Wilma Soss, a postwar feminist,
corporate gadfly, radio journalist, economic pundit, and financial literacy
advocate whose life is worthy of more than the biography I am currently writing
with Bucknell’s Jan Traflet. Saucy Soss is now pictured on the screen [SLIDE 24],
as is an advertisement for the movie made about her in the early 1950s called The
Solid Gold Cadillac. In any event, I promise not to appear personally in
anything requiring singing.
Thanks so much for your time and
attention. These remarks and slides will be posted on my blog,
Finance: History and Policy at http://financehistoryandpolicy.blogspot.com/ which
is now pictured on the screen
[SLIDE 25].
I’ll now entertain your questions
with what I hope will be entertaining responses.
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