CHAPTER 8

The Poisoned Fruits of “Hamilton’s Republic”

Hamilton was the defender of those who already had land and…wealth. He wanted these men to stay landed and wealthy and knew that laissez-faire would not do the trick. In order to keep the tops at the top, Hamilton proposed taxes, regulation, central banking—big government…. Alexander Hamilton, the first American champion of big business and big government, has won.

—TIMOTHY P. CARNEY, THE BIG RIPOFF: HOW BIG BUSINESS AND BIG GOVERNMENT STEAL YOUR MONEY

It is indeed true that Americans now live in Hamilton’s Republic. Many liberals delight in this fact. That is not surprising; after all, Hamilton was the godfather of economic interventionism and big government. But many conservatives embrace Hamilton as well. That might seem odd on its face, but the fact is that the real Hamilton has remained largely hidden from view in most historical treatments. Conservatives who genuinely believe in limited government are not generally exposed to the Hamilton who at the Constitutional Convention called for a kinglike permanent president and who subsequently dedicated himself to undermining the limits on governmental power laid out in the very Constitution he championed in The Federalist Papers. So-called neoconservatives, meanwhile, tend to revere Hamilton precisely because he so brilliantly undermined the Jeffersonian principles of limited government and established a political template for the pursuit of “national greatness” and “imperial glory” through big government.

But no matter how many contemporary historians, politicians, and pundits celebrate Hamilton’s influence, the fact is that his political legacy has been largely a curse on America, not a blessing. Many of America’s economic and political achievements for which neo-Hamiltonian writers often credit Hamilton have often occurred despite rather than because of the adoption of his principal ideas—centralized governmental bureaucracy, public debt, business-government “partnerships,” protectionism, heavy taxation and regulation, monetary manipulation through central banking, and corporate welfare. Moreover, many of the disasters of American history have their roots in Hamilton’s philosophy of centralized governmental power combined with mercantilist economics. This would include not only the War between the States, which claimed more than 600,000 American lives, but also the massive political corruption that followed the war, the U.S. government’s imperialist bent that began in the late nineteenth century with the Spanish-American War, the destruction of constitutional government by activist federal judges, the invasive tyranny of the IRS, our gargantuan national debt, and the monetary expansion and economic interventionism that led to the Great Depression. And this is only a partial list.

Indeed, as soon as Hamiltonianism snuffed out Jeffersonianism for good in 1913, President Woodrow Wilson was free to foolishly plunge America into the “Great War” in Europe. Wilson had campaigned on a promise to keep America out of the European war, and had states’ rights still existed in America, it is unlikely that he would have been able to rally support for the intervention. (As the historians Thomas Woods and Kevin R. C. Gutzman wrote, “Even the worst outrage Germany perpetrated against the United States—the 1915 sinking of the Lusitania, the famous British ocean liner, killing some 128 Americans on board—provoked very few calls for American intervention in the war.”¹) Wilson’s senseless intervention not only cost the lives of more than 100,000 Americans but also ended up strengthening the hands of both the Russian Communists and the Nazis in Germany.² As Jim Powell convincingly demonstrated in his book Wilson’s War, had Wilson not gotten America involved in World War I, there probably would not have been a World War II.

We have, ever since the early twentieth century, been burdened with the highly centralized governmental power of which Alexander Hamilton was the first and greatest champion. Hamilton, of course, is not responsible for every individual action that politicians and bureaucrats have undertaken in the two centuries since his death. But he failed to heed the ancient wisdom that monopolistic government would inevitably lead to tyranny, corruption, and foolish if not destructive economic interventionism. That is Hamilton’s curse.

CORPORATE WELFARE RUN AMOK

The name that neo-Hamiltonians give to corporate welfare policies, “economic nationalism,” is a sham. Hamiltonian “business-government partnerships,” as we have seen, use the coercive powers of the state to benefit a small group of Americans (politically connected businesses) at the expense of a much larger group of Americans (consumers and competing companies). In today’s world, neo-Hamiltonian mercantilism has run amok with almost too many “business-government partnerships” to count.

One of the latest analyses of neo-Hamiltonian mercantilism is Timothy P. Carney’s The Big Ripoff: How Big Business and Big Government Steal Your Money, published in 2006.³ Carney recognizes the Hamiltonian roots of what he calls “the big myth”—that “big business and big government are rivals—that big business wants small government.”⁴ In fact, big business (and some small and medium-sized ones too) has long been closely tied to the state, exactly as Hamilton wanted. Remember Hamilton’s scheme to attach the wealthy to the government by turning them into government bondholders, or by any other trick he could think of.

Carney provides hundreds of examples of how big business and big government collaborate to plunder the rest of America; a few of them illustrate how pervasive this corrupt system has been for a long, long time:

• Big business supported FDR’s Social Security taxes because it understood that the taxes would impose a disproportionate burden on their smaller competitors and place them at a competitive disadvantage.

• After World War II the much-heralded Marshall Plan was essentially a giant grant of corporate welfare for American corporations that did little to help with Europe’s postwar economic recovery.

• President Eisenhower oversaw the building of the Interstate Highway System, which was the biggest pork-barrel project in American history. Today the U.S. Department of Transportation still uses “highway grants” as a way of doling out more than $10 billion per year in corporate welfare.

• Major business groups supported President Nixon’s imposition of disastrous wage and price controls, in return, no doubt, for subsidies of all types from the administration.

• When President Gerald Ford proposed tax and spending cuts, he was denounced by major business leaders, such as Salomon Brothers, the Wall Street firm that made a fortune marketing the federal government’s bonds.

• President Carter was endorsed by the New York Post in 1980, a few days after his administration granted a subsidy to Rupert Murdoch, owner of the paper.

• Carter also created the U.S. Department of Energy, which distributes more than $5 billion in corporate welfare each year.

• President Reagan granted the ethanol industry tens of millions of dollars in corporate welfare, enacted protectionist trade policies in several industries, and increased federal taxes in 1986 by signing a law that eliminated almost all federal tax exemptions and deductions. He had the support of the big business community, which can be easily bought off with promises of individual tax breaks or subsidies.

• President George H. W. Bush endorsed various protectionist trade policies, in the long tradition of the Republican Party, and did nothing to end billions of dollars annually in corporate welfare from myriad government programs. President Clinton had a similar record.

• President George W. Bush imposed 50 percent steel industry tariffs and created hundreds of billions of dollars in profits for the pharmaceutical industry by further socializing the Medicare prescription drug benefit, among other things. The war in Iraq transferred tens of billions of dollars to American corporate contractors of all sorts.⁵

To understand the absurdity of referring to these neo-Hamiltonian corporate welfare schemes as “economic nationalism,” consider one such program, the federal government’s subsidies to cotton farmers. Government policy maintains that if the price of cotton on the world market falls below 52 cents per pound, the government will use taxpayer dollars to subsidize cotton farmers for the difference between the world price and 52 cents. In 2005 American cotton farmers had a record year, thanks to perfect weather conditions and the eradication of the dreaded boll weevil; a Texas cotton farmer named Eugene Bednarz, for example, harvested an incredible 4,000 bales of cotton.⁶ But the record supply of cotton also helped to drop the world price to 35 cents. So the U.S. government wrote Mr. Bednarz a check for $340,000 to cover the difference in price—or put more accurately, for doing absolutely nothing. Neither consumers nor taxpayers received anything in return for that expenditure of tax dollars. It was a pure transfer—legal plunder—from the taxpayers to Bednarz and hundreds of other cotton farmers. Texas cotton farmers alone pocketed $637.5 million in such subsidies in 2005.⁷

There are countless other examples of how corporate welfare works, as Carney shows. The federal government guarantees sugar farmers—mostly large corporate farms—a price of 18 cents per pound and provides other, indirect forms of corporate welfare by building canals and dikes, dredging lakes for the farmers at taxpayers’ expense, and giving below-market-rate loans.⁸

The federal government’s Overseas Private Investment Corporation (OPIC) subsidizes exports of American products. These products include everything from Ritz Hotels to oil to agricultural products to weapons.

Then there is the Export-Import Bank, which extends low-interest loans to foreign countries with the contingency that they use the money to purchase American products. Simply writing checks to corporations can be politically dangerous, so the government has conceived of various ruses, like this one, to keep the public in the dark. But this money ends up in the coffers of American corporations, and American taxpayers, who foot the bill, get nothing at all. Even worse, some foreign loans are for American corporations to build factories overseas, at the expense of building those same factories at home. And it is all spoken of as being charitable “foreign aid” to the downtrodden of the world.⁹

Cato Institute researchers have estimated very conservatively that the federal government dishes out at least $90 billion per year in corporate welfare of one form or another.¹⁰ And that’s just the result of direct expenditures; regulations and taxes that impose disproportionate economic burdens on smaller competitors would probably be impossible to measure. Protectionism, too, would add additional billions per year to the Cato Institute’s estimates.

The federal government is not the only source of corporate welfare, of course. Most egregiously, local governments use the power of “eminent domain” to condemn private residential property so it can be sold (at fire-sale prices) to corporations or real estate developers. The local governments’ property tax revenue then increases, which supposedly justifies this naked (legalized) theft of private property.¹¹

Eminent domain (which means “superior ownership”) was originally supposed to be used to acquire property “for public uses” such as roads, schools, or hospitals. But in politicians’ hunger for more and more tax revenue—and for corporate campaign contributions—they have perverted the law to allow condemnation of land for private use. This is not how local politicians describe it, however. They call it “urban redevelopment” or some other euphemism for “the common good.” It’s a localized version of “national greatness” rhetoric. America today is awash in neo-Hamiltonian mercantilism in the form of corporate welfare.

JUDICIAL MONARCHY

Though Hamilton fought for adoption of the Constitution, he did not, of course, pay much heed to what the document actually said. Despite the precise language the framers used to outline the narrow range of powers granted to the federal government, Hamilton suddenly claimed that there were “implied” and “resulting” powers of government. This was his way of trying to give the federal government a blank check to expand its powers. It was the exact opposite of Jefferson’s strict constructionist views, but over the long term Hamilton’s viewpoint would prevail. As we have seen, he was helped by his Federalist allies on the bench, especially Chief Justice John Marshall, who did their best to implement this view, and by other jurists who have followed their lead ever since.

This was the Hamiltonian judicial revolution. Hamilton argued in Federalist no. 78 that the judiciary was the “least dangerous” branch of government, but in fact, because he succeeded in pushing his judicial philosophy, he has made the American people the subjects of judicial tyranny. Americans today no longer live under a Constitution at all but are ruled by the arbitrary and often contradictory opinions of governmental lawyer/bureaucrats that invariably lead to more governmental power and less freedom.¹²

The Hamiltonian judicial revolution began in earnest in the 1930s. Between 1937 and 1995 the U.S. Supreme Court did not rule a single piece of federal legislation to be unconstitutional. There were no checks at all on the powers of government—exactly as Hamilton would have wanted it.¹³ To give the federal government a blank check, the Court adopted the amazing line of argument that the government needed to prove not that any of its programs were actually legitimate under the Constitution, only that they were “hypothetically legitimate.”¹⁴ Of course, any reasonably clever lawyer can dream up myriad hypothetical situations to justify virtually any kind of governmental action.

During the 1930s the Supreme Court became “FDR’s rubber stamp,” wrote the legal scholar Kevin R. C. Gutzman.¹⁵ It did so by reversing decades of previous Supreme Court precedents with creative language. Notably, in 1937 the Court suddenly “discovered” that a voluntary contract between employers and employees wasn’t always really a contract and should not therefore be protected by the Constitution’s Contract Clause, which prohibits state interference in legal, private contracts. That is how the Court declared a federal minimum wage law to be legal and constitutional, even though it was a crystal-clear example of the state’s interfering with, not protecting, freedom of contract.¹⁶ Earlier courts had ruled against minimum-wage legislation.

Similarly, the Court began declaring that almost any kind of human behavior had some kind of relationship to interstate commerce and that therefore the federal government had the right to regulate that behavior under the Constitution’s Commerce Clause. Recall that Hamilton himself was probably the first to expand the definition of the Commerce Clause in this way. He insisted that a legislature empowered to “regulate commerce” was not limited to merely regulating interstate tariffs, as others had supposed. To Hamilton, the Commerce Clause created the “implied power” to “police, tax, and encourage…all those undertakings covered by the words ‘trade,’ ‘manufacturing,’ ‘finance,’ and even ‘agriculture.’”¹⁷ In justifying his claim that the federal government had the “implied power” to regulate commerce within every state, he asked in his Opinion as to the Constitutionality of the Bank of the United States, “What regulation of commerce does not extend to the internal commerce of every State?”¹⁸

Jefferson mocked Hamilton’s twisted reasoning in an 1800 letter to Edward Livingston, saying, “Congress…[is] authorized to defend the nation. Ships are necessary for defence; copper is necessary for ships; mines necessary for copper; a company necessary to work mines; and who can doubt this reasoning who has ever played at ‘This is the House that Jack Built’? Under such a process of filiation of necessities the sweeping clause makes clean work.”¹⁹ It is fair to say that for several generations now the U.S. Supreme Court has been hard at work playing the very game that Jefferson mocked, using the Commerce Clause to make “clean work” of expanding the central government’s powers.

The largest source of Supreme Mischief is what legal scholars call “the Hamiltonian interpretation” of the Constitution’s General Welfare Clause.²⁰ This interpretation says that Congress can enact any law that it believes will advance “the general welfare”—as defined by Congress, of course. Hamilton had proposed this broad interpretation at the Constitutional Convention, but it was rejected. The framers accepted what is known as the “Madisonian interpretation,” which is the strict constructionist theory that Congress can do nothing more than vote to spend tax dollars, as designated by the Constitution’s enumerated powers. Nevertheless, Hamilton triumphed in the end, thanks to the Supreme Court.

The Court, in fact, has interpreted the General Welfare Clause more broadly than even Hamilton could have imagined. In the late 1930s Congress passed several pieces of agricultural legislation in response to the Supreme Court’s invalidation of the Agricultural Adjustment Act of 1933. In doing so, Congress embraced the Hamiltonian interpretation of the General Welfare Clause by stating that the clause “is not limited by the subsequently enumerated powers.”²¹ These laws still exist today; the Hamiltonian position was never challenged thereafter. Ever since, the only limitation to congressional spending is the imaginations of politicians and lobbyists—and the depth of the taxpayers’ pockets. Indeed, the job of every Washington lobbyist is to concoct arguments that what is really in the narrow private interests of themselves or their clients is really in “the national interest” and therefore serves “the general welfare.”

Ever since states’ rights essentially died in 1913, the citizens of the states have had no real ability to challenge the constitutionality of federal legislation. That’s why not a single federal law was ruled unconstitutional by the Supreme Court for almost sixty years. The state governments have become pathetic beggars, with a puppy dog penchant for sitting, standing, barking—whatever the federal government wants—in return for “federal grants.”

Actually “federal grants” are a matter of (1) the federal government confiscating funds from the taxpayers of the respective states, and (2) giving a few crumbs back, not to the taxpayers, but to state and local politicians, who then use the funds to buy votes for themselves with highway construction contracts, school construction contracts, and other forms of corporate welfare and pork-barrel spending. With federal grants, state and local politicians feel like they are getting something for nothing: they can buy votes with pork-barrel spending without having to raise taxes. (Or at least, they don’t have to raise local or state taxes, which would get them in trouble with voters. The federal government may raise taxes to pay for the spending, but local politicians can wash their hands of it even though the federal tax affects their constituents.)

The bribery power inherent in federal grants allows the federal government to regulate behavior at the state and local levels even if it does not have constitutional authorization to do so. For example:

In 1985, Nevada passed a law that increased its speed limit to 70 mph. The law also provided that if the federal officials threatened to cut off aid to the state, the limit was to be lowered. Within sixty seconds of the new law coming into effect, the Chief of the Nevada division of the Federal Highway Administration advised that the federal Department of Transportation declared that all future funds for state highways would be withheld unless the Nevada speed limit was reduced to 55 mph. (emphasis added)²²

Nevada was forced to retain the 55-mph speed limit.

When Congress passed the National Minimum Drinking Age Act in 1984, making it illegal for anyone under twenty-one years of age to drink alcohol, South Dakota challenged the law as a violation of the Twenty-first Amendment to the Constitution, which gives the states the power to regulate the sale of liquor. The mere threat of withdrawing federal funds from the state was all it took to defeat South Dakota’s protest. The Supreme Court rubber-stamped the federal government’s strong-arm tactics, saying it was a legitimate exercise of Congress’s spending powers.²³ It is illegal to bribe federal bureaucrats and politicians, but according to the Supreme Court, federal bureaucrats and politicians are free to bribe state and local officials.

Neo-Hamiltonian jurists have also snuffed out states’ rights by proclaiming that the Bill of Rights applied to the states as well as to the federal government. This is called the “incorporation doctrine.”²⁴ It runs contrary to the Constitution and its history. The Bill of Rights was intended to limit the power of the federal government, period. But political activists who are appointed as federal judges have made an end run around the constitutional amendment process by simply declaring that the Bill of Rights should also apply to the states. This was originally done in the name of allowing the federal government to protect minority rights, and no one could argue that some good was not done by this. Even some libertarians support the incorporation doctrine because it has been used at times to protect liberty. They tend to ignore completely, however, that it has also been used to aggrandize the state at the expense of individual liberty.²⁵ In fact, it has greatly expanded the federal government’s nanny-state proclivities to centrally plan everyone’s life, business, and behavior.

Neo-Hamiltonians applaud this increased regulatory power, of course. One liberal legal scholar, for instance, celebrates “our secret constitution”—that is, leftist judges’ tortured reinterpretations of the Constitution. The Columbia University law professor George P. Fletcher claims that the liberal rewriting of the Constitution via “constitutional law” is the result of self-anointed judges who have decided to discard the Constitution in favor of what they personally regard as “a higher law.”²⁶ If this sounds like judicial dictatorship, that’s because it is.

America has been “reinvented,” Fletcher approvingly states, thanks to Supreme Court judicial activism. “Truth and justice must prevail over legalistic formalities” like the Constitution, he says.²⁷ Moreover, he claims that those who “fight” in the name of a “higher law” are allowed “to sidestep the rules.”²⁸ This of course depends on who gets to define what “higher law” means. In reality, this argument is another version of Hamilton’s “common good” philosophy.

Fletcher says this “higher law” informed the Republican Party in the post-1865 era—the era of Hamiltonian hegemony—and he is right: the Republicans held a virtual monopoly on power for some fifty years after the war and could define “the common good” or “the higher law” any way that they wanted. The purpose of all of this, writes Fletcher, was to “strengthen the powers of government” and to achieve “the consolidation of the United States as a nation”—to give it more energy, as Hamilton would say.²⁹

To Thomas Jefferson, the American Revolution transferred sovereignty from the King of England to the American people. The people were to express that sovereignty as members of distinct political communities organized at the state and local levels. Today the people are not sovereign over their federal government; their federal government is sovereign over them. Much—perhaps most—of the people’s sovereignty has been assumed by nine unelected government lawyers with lifetime tenure. No wonder lawyers like Fletcher praise such an outcome. To a large extent, today’s statists do not need to get involved with messy democratic politics if they can rely on like-minded government lawyers instead. That is why the political battles over Supreme Court appointees have become so vicious. Hamilton the monarchist never had much trust in the American people, and his political heirs have long been in control of the governmental apparatus in America.

EXECUTIVE DICTATORSHIP

Hamilton expressed his monarchism most clearly in his plan, presented at the Constitutional Convention, for a permanent president who would appoint all the governors of the states and have veto power over all state legislation. While he did not persuade his fellow delegates of his plan for an American king, Hamiltonians have subsequently prevailed in installing monopolistic executive power, just as they have won out in so many other areas.

The framers of the Constitution intended the president to be the chief executive officer of a relatively small bureaucracy with tightly enumerated powers. From the very beginning of the republic, however, there was a Hamiltonian/Jeffersonian battle over executive power, with the Hamiltonians, of course, advocating more and more power. This power grew as political patronage expanded, allowing the executive branch to buy more and more political supporters. But it was not until the Lincoln administration—and all of its abuses of power (documented in Chapter 6)—that the American president was transformed into a Caesar.³⁰ The War between the States led to a great centralization of power, and that power was immediately used to accomplish the Hamiltonian agenda of economic nationalism and to promote the long-held New England belief of American “exceptionalism.”³¹

After Lincoln’s assassination, as Clyde Wilson explains, the president “was now the martyred savior in the world historical drama of American uniqueness.”³² A huge literature developed that depicted Lincoln as a Christ figure who died for America’s sins, and “the conflation of America with God’s plan for the perfection of human history was complete.”³³ “By the time we get to [President Bill] Clinton,” writes Wilson, “the imperial office itself had become the object of worship. It does not matter how tainted the credentials of its occupant. In the drama of salvation, a sleazy prevaricator can be the savior of the oppressed. It does not matter if this requires the murder of innocent women and children at home or abroad. The emperor can do no wrong.”³⁴

The deification of the presidency itself was necessary to achieve Hamilton’s dual objectives of “national greatness” and “imperial glory.” The Yale University professor David Gelernter, in a book entitled Americanism: The Fourth Great Western Religion, argues that ever since Lincoln, Americans have “worshipped” this new “religion” of Americanism and have used it to justify entering various wars around the world, from the Spanish-American War to World War I, to the war in Iraq in 2003.³⁵

The president can now enter a war without the consent of Congress, even though the Constitution requires a formal congressional declaration of war; can claim “executive privilege” whenever Congress or anyone else requests that he make public deliberations that are in the public interest; and can issue executive orders to do pretty much anything he chooses, including suspending all constitutional rights of American citizens by arbitrarily declaring them to be “enemy combatants,” and supervising the social engineering of all aspects of life, from cradle to grave.³⁶ Some good things can be done with executive orders, of course, but they represent an assault on the separation of powers and thus on our liberty. Executive orders allow presidents to assume the role of dictator with regard to certain policies.

Hamilton may not have personally approved of this outcome, but it is the end result of the type of government that he favored and that his political heirs have adopted.

ECONOMIC ABUSE

Another key part of Hamilton’s legacy is the economic instability that his policies of centralization and taxation have caused. From the beginning he was, as we have seen, the great champion of statism, and he made his case most explicitly in his calls for a national bank.

The logical consequence of Hamiltonian statism was the creation of the Federal Reserve Board. As the Fed itself proudly pronounces, Hamilton was the founding father of central banking in America, and ultimately economists greatly influenced by Hamilton himself provided the intellectual cover for the creation of the Fed. Of course, the Fed’s manipulation of the money supply has created the boom-and-bust cycle that periodically afflicts America.

Modern economic research has shown that the Fed has made numerous attempts to create a “political business cycle,” basically by using its powers over the money supply to pump up the economy with easy credit just before presidential elections. The economist Robert Weintraub documented how Fed monetary policy shifted to fit the preferences of newly elected presidents in 1953, 1961, 1969, 1974, and 1977—all years in which the presidency changed hands.³⁷ The policy was based, in other words, not on what was best for the cause of economic growth and stability but on the Fed chairman’s desire to please his boss. Remember, the Fed chairman, the head of a supposedly independent government agency, is appointed by the president. So taking such steps might be politically prudent for the Fed chairman and advantageous to the administration. But they will damage the nation as a whole, since these tactics generate a perpetual boom-and-bust cycle.

For example, President Dwight Eisenhower feared that inflation was a threat and publicly called for slower growth in the money supply, which was largely controlled by Fed policy. The money supply grew at the slowest pace in a decade during his administration, according to Weintraub’s research. When Lyndon Johnson wanted the Fed to step up the pace of its legalized counterfeiting operations to finance both the Vietnam War and a greatly enlarged welfare state, the Fed saw to it that the money supply grew more than twice as fast as it had during the Kennedy administration. These wildly varying rates of monetary growth all took place under the auspices of the same Fed chairman, William McChesney Martin.

Martin’s successor, Arthur Burns, was known as a conservative and a staunch supporter of President Richard Nixon. When Burns’s staff informed him in the fall of 1972 that the money supply was expected to grow three to four times faster than it had grown during the Johnson administration—an incredibly inflationary, and economically destabilizing, rate—he advocated even faster monetary growth to assure Nixon’s reelection.³⁸ And it apparently worked.

The Fed during the Nixon regime created what at the time was considered to be a dangerously high rate of inflation, so President Ford publicly called for slower monetary growth. Burns faithfully complied, currying favor with his new boss. But when Democrat Jimmy Carter replaced President Ford and expressed his desire for even faster monetary growth to finance an enlarged welfare state, Burns complied with him, too, almost doubling the rate of growth of money put into circulation.

The same pattern of behavior has been observed with other Fed chairmen up to the present day. Anyone who is reading this and can recall seeing Fed chairman Alan Greenspan ceremoniously seated next to Hillary Clinton at one of President Clinton’s State of the Union speeches now knows why that seemingly strange scene occurred.

In recent years, the Fed has been responsible for the NASDAQ crash and the bursting of the housing market “bubble.” In each instance, the Fed first made credit very inexpensive (low interest rates) and widely available. Businesses and individuals then went into debt much more than was prudent. In the former case, too many businesses became capitalized before they even demonstrated that there was a significant consumer market for their products. Cheap credit, courtesy of the Fed, allowed them to do so. A liquidation of billions of dollars of capital ensued. In the case of the housing market, the extraordinarily low interest rates that the Fed orchestrated from late 2001 to 2006 caused many thousands of ordinary citizens to become real estate speculators, overinvesting in real estate that they thought would never drop in price. This was on top of all the “professional” investors who did the same thing. When the real estate market slowed, and then declined, in 2006 and 2007, many of these investors found themselves deep in debt that they could not afford, and mortgage defaults and bankruptcies ballooned as the entire economy teetered on recession.

The legacy of a politicized monetary system is damaging enough, but it is not the only element of Hamilton’s statism for which we are paying the price today. Hamilton was, without exaggeration, the nation’s first abusive tax collector: the man who helped President Washington organize an army of some 13,000 tax collectors to drag a couple of dozen hapless Pennsylvanians all the way across that state, in winter, to a kangaroo court trial in Philadelphia, and who wanted to hang them all for protesting the piddling whiskey tax.

It is thus fitting that Hamilton’s statue in Washington, D.C., adorns the front of the U.S. Treasury Department, which oversees the Internal Revenue Service (IRS). In the same zealous spirit of coercion and intimidation that Hamilton pursued the whiskey tax rebels, the modern-day IRS goes about its business.

As the investigative journalist James Bovard has documented, the IRS “hypocritically requires mistake-free returns when its own books are in shambles. It demands exorbitant sums of money without regard to the accuracy of its claims. It doesn’t hesitate to use every possible legal maneuver to get what it wants, sometimes destroying businesses—and lives—in the process.”³⁹ Also, Bovard showed, the General Accounting Office (now known as the Government Accountability Office) discovered that the IRS made more than 20 million unjustified changes to tax returns in one year. These resulted in millions of wrongful demands for even more money from taxpayers, many of which individuals complied with, since there’s such pervasive fear of running afoul of the IRS.⁴⁰ In addition, the IRS seizes property to sell for “delinquent” taxes even when it sends the tax bills to the wrong address, and it employs an army of informants to snitch on their neighbors and coworkers.⁴¹ It conducts “economic reality audits” by going through taxpayers’ personal effects such as their clothing and personal spending records. In general it assumes that citizens have no right to financial privacy.

Hamilton wanted a standing army of tax collectors, and America got one when the internal revenue bureaucracy was created during the Lincoln regime.

ECONOMIC DEPENDENCY

Hamilton also succeeded in his gambit of tying affluent Americans to the federal government in order to ensure the government’s growth. It is with the growth of the central government in mind that he championed the national debt and increased taxation of the general public; the bondholders would support tax increases to assure that they got their money back.

Hamilton’s political heirs turned the game into a fine art. During the Lincoln administration the patronage of the federal government skyrocketed thanks to the building of the transcontinental railroads. During World War I government and business collaborated to produce war materials, and like all such efforts, the effort generally resulted in the creation of great wealth for politically connected businesses at the expense of the rest of society, which was forced to pay monopolistic prices for myriad goods and services. More of the same came about during the Great Depression, as the First New Deal attempted to cartelize manufacturing and agriculture. The support of big business for big government was cemented into place by World War I and the First New Deal.

In his book Hamilton’s Republic, Michael Lind includes Presidents Franklin Roosevelt and Lyndon Johnson in his pantheon of Hamiltonian political figures. “After FDR,” he writes, “Lyndon Baines Johnson…did the most to implement a version of…democratic Hamiltonianism.”⁴² This is correct in one important sense: the welfare state programs introduced by FDR and Johnson attached millions of Americans to the central government, creating a permanent voting bloc in favor of ever-increasing government. Hamilton wanted to tie affluent bondholders to government to assure their support for its perpetual expansion; his political heirs have succeeded in tying millions of others to the growth of the state—more than half the entire population, in fact. According to the economist Gary Shilling, 52.6 percent of Americans in 2007 received significant assistance of some kind from the federal government.⁴³

The pathologies created by these dependencies are well known and well documented: destruction of the work ethic; family breakup; millions of people trapped in poverty, since taking a job would mean losing thousands of dollars in government benefits; complete dependency on the state. Poverty in America became much worse as soon as government declared “war” on it in the 1960s, at which point it had been in decline for twenty years. Hamilton’s notion of tying the people to the government had also created an entire class of people, millions strong, who depend on the federal government.⁴⁴ No wonder one historian has called Hamilton the “American Machiavelli.”⁴⁵

A MERCANTILIST EMPIRE

Hamiltonianism now involves international as well as domestic corporate welfare of various forms. It began in the late nineteenth and early twentieth centuries, when many American manufacturing industries were “protected” from international competition with high tariffs—precisely as Hamilton advocated in his writings. This protectionism led to artificially inflated prices. But at the same time American manufacturers were striving to achieve “economies of scale”—declining costs per unit of production that come with a larger volume of production. Consequently they were producing much more than could be sold in American markets. The unsold surpluses in turn led to calls by business leaders to “open up” foreign markets for their products.⁴⁶ For example, Francis Thurber, president of the U.S. Export Association, declared in 1899, “We must have a place to dump our surplus, which otherwise will constantly depress prices and compel the shutting down of our mills…and changing our profits into losses.”⁴⁷ Other prominent American manufacturers, including Andrew Carnegie, made similar pleas. “Over time,” wrote the historian Joseph Stromberg, “more and more influential men in government and business came to see the securing of foreign markets as the best fix of all.”⁴⁸

Foreign markets would be “secured” by the U.S. government, using military force when necessary. The idea was, as Stromberg explained, that “by socializing the costs of finding, opening, and securing foreign markets through an active foreign policy, the U.S. government would guarantee prosperity.”⁴⁹ The U.S. government pursued the path of mercantilist empire, in other words. As a result, the United States now has a military presence in more than a hundred countries.

The effects of an international mercantilist empire are basically the same as those of a domestic empire, only larger. Mercantilist empires benefit politically connected businesses and industries and aggrandize the state, at the expense of the rest of society. Felix Morley noted several important features of “democratic empires” in his 1959 book, Freedom and Federalism.⁵⁰ First there is conquest, such as the American conquest of the Philippines and other territories. This leads to “territorial aggrandizement,” which is followed by the creation of military alliances to protect the conquered territory.⁵¹ Military alliances become a drain on the treasury, as allies must be constantly subsidized/bribed.

Morley identified other characteristics of empires, including the belief that there should be no debate over foreign policy. Such debate is said to be “unpatriotic.”⁵² A good contemporary example of this phenomenon would be how National Review magazine, which had become a mouthpiece for the Bush administration, in April 2003 ran a cover story entitled “Unpatriotic Conservatives” (written by the former Bush administration speechwriter David Frum) about certain conservatives who had expressed doubts over the wisdom of invading Iraq in 2003. The article was subtitled “A War Against America.”

The final characteristic of empires, according to Morley, is that they are sold to the public in grandiose terms about spreading blessings for all mankind, when in reality their main purpose is to allow those who pull the strings of the empire to accumulate money and power. The American empire is merely Hamiltonian mercantilism on a grand scale. As with all empires, the citizens tend to be the servants rather than the masters of their own government.