All things at Rome are for sale.

—Juvenal

Thomas Jefferson has left us an account of a supper-table conversation in the very earliest days of the U.S. government.  Vice President John Adams (who was intended by nature for a preacher) declaimed at length about the virtues of the British government, which, he said, if purged of its corruption, would be perfection.  Secretary of the Treasury Alexander Hamilton (a canny immigrant bastard with a Napoleon complex) differed sharply.  It was its corruption, he avowed, that gave the British government its great stability and power.  Add in Jefferson’s views, which agreed with neither, and you anticipate almost the whole history of American political economy.

Adams and Hamilton were Federalists.  They believed that in America the people could not be denied a role in government, however unwise that might be.  The people, fortunately, were usually an inert mass, but they could become dangerous.  They might discover that they could vote themselves the wealth of their betters.  So things had to be arranged properly.  The people could have their say in a Commons, but the government needed a powerful executive above the people to give it initiative and force.  (With some justice Jefferson referred to the Federalists as “monarchy men.”  President Adams was obsessed with extravagant titles and ceremonies.)  As Adams saw it, good government also required an upper house of senators (republican Lords), which had two essential benefits.  It would give status and authority to the wealthy and powerful whose ambitions, as history showed, might otherwise undermine the republic.  And it would provide a check on the expected rash actions of the people.

As the Jeffersonian philosopher John Taylor of Caroline pointed out, Adams, in a chimerical pursuit of checks and balances, was trying to create artificial orders where they did not exist.

Further, his vision, typical of his kind, mistook New England for the world, and he seemed ignorant of economics—the circulation of elites that would occur with a growing population settling a vast and nearly empty continent.  Hamilton was right on the mark.  If you wanted the wealth and power of society behind a strong government, you had to make it worth their while.  You had to have a British-style public debt—in which wealth and power had an interest-bearing claim on government revenue.  When Jefferson heard Hamilton declare that “a public debt is a public blessing,” he knew he had spotted the serpent in Eden.

The strongest element in the push for a new and stronger federal government with a revenue not dependent on the states had come from the holders of the debts from the War of Independence.  By 1789 this debt was not owned by those who had provided goods and services to the cause but by monied men, chiefly in New York and Philadelphia, who had bought it up at cents on the dollar while it was “not worth a Continental.”  The debt, of course, had to be paid.  The centerpiece of Hamilton’s initiative was to pay off the debt to its current holders, a number of them members of Congress, at face value in interest-bearing government bonds.  Only in this manner could the “good faith and credit” of the government, which was said to be essential, be established.  Thus would the wealthy and powerful be embraced in alliance with the government.

Jeffersonians were often quite intelligent and sophisticated men, but they did not seem to grasp the arcane mysteries of finance.  In fact, to them it looked like a bit of a swindle.  A public debt could at best be an onerous necessity in wartime.  Who was going to pay that interest to the privileged minority who owned those government bonds?  Where else could it come from but the pockets of good folks who actually produced something?  It was no spur to prosperity.  It merely created what Taylor called a “paper aristocracy,” a class endowed by government with special privilege for which it contributed nothing in return.  It reinstated the abuses that the American states had fought a war to be free of.

After all, most of the people were farmers—they produced something real out of the earth with their capital and labor, and supplied the overwhelming bulk of American exports that allowed trade with the world.  The worthy merchant saw that the farmer’s produce was sold and transported and that those things the farmer could not produce for himself were acquired in exchange.  The professional man and artisan gave necessary services for which a just compensation was due.  Even the manufacturer, when he asked no government bounty and provided goods that could not be found more cheaply elsewhere, played a useful role (though no free society could survive when dependent industrial workers became too numerous).  But what exactly did the speculator do for his profits?  Nothing except enjoy politically dictated privilege.

Taylor made a clear moral distinction between the producer and the speculator, whose occupation was to manipulate paper for the acquisition of wealth produced by other men.  Economists will doubtless find this a naive idea, and libertarians will avow that the speculator is a legitimate contributor to the smooth workings of the free market.  But it is a very basic question getting toward the proper nature of a good regime.  Mr. David Hartman has pointed out in these pages that the “financial sector” has of late enjoyed a third of all corporate profits, and speculation is generally held responsible for our current perils.  Could we learn anything useful for our present troubles by applying the distinction between producer and speculator?

Taylor argued at great length and in great depth that the whole Federalist case was based on a false understanding of society.  The masses preying on the wealth of the classes was fairly infrequent in history.  The masses were generally content merely to enjoy their modest own.  The norm of history was that the classes preyed on the earnings of the masses.  This was done either by force or by fraud—and the British/Hamiltonian public debt was the latest fad in frauds, covering up extortion by the mysteries of finance.  The law bearing the names of Senator Glass of Virginia and Representative Steagall of Alabama—the repeal of which is said to have brought on the present debacle—was a faint echo of Jeffersonian perception.

The Jeffersonians asked some very fundamental questions that have had no hearing since Lincoln, about things that have long now been taken for granted as normal.  Why should the government, which has an immense income of its own, have to borrow money and pay interest to private persons at all?  (Of course, deficits were not expected to become ordinary.)  The government might pay its expenses by issuing notes—redeemable promises to pay.  These would not need to be made arbitrary legal tender because they rested on the government’s credit.  Furthermore, since they were sound, they could circulate as money, providing a convenience and fulfilling the constitutional requirement to regulate the currency.  What did borrowing money from the rich in the form of interest-bearing bonds amount to except a guaranteed risk-free profit to certain well-connected interests?  Throughout the 19th century, when Treasury notes were proposed, the bankers, with the customary Whig-Republican dishonest demagoguery, raised the cry that the people would be forced to use the government’s money instead of the people’s (i.e., bankers’) money.  It was an unthinkable invasion of the people’s rights!

The public debt was thus bound up with the question of banking and currency, as Hamilton well knew when he pushed for a “national” bank—actually a private corporation in which the government invested and to which the government delegated certain privileges.  Until Lincoln, politicians argued ad nauseam about bank or no-bank, seldom touching the real question—that is, who would control the money supply.  Secretary of the Treasury Hamilton quietly did something far more significant than establishing the national bank: He issued an executive order by which the government would accept as if they were gold the paper notes issued by private banks controlled by his friends and supporters.

The love of it is the root of all evil, and yet the desire for it is nearly universal.  More, money is a mystery.  What is it?  Where does it come from?  Why does it increase or decrease in value?  Banks, it seems, and government are somehow involved in the answers to these questions.  I have been studying this subject as closely as I can for more than 20 years.  I know enough to know that I do not understand it.  I know enough to know that politicians and journalists haven’t a clue, and enough to doubt that most economists understand it.  It is possible that some financiers understand it, but why should they let us in on their immensely profitable knowledge?

And economic historians are the worst of all, since they generally repeat the deceptive party polemics of the past and don’t have any idea what was really going on.  For example, it is said that Andrew Jackson fought the national bank because he hated paper money and wanted a sound specie currency.  Yes, that is what he thought he was doing.  The Philadelphia national bank, though unconstitutional and a dangerous grant of power to private interests, actually kept the circulating paper of the country sound, an action which Martin Van Buren’s bankers in New York and elsewhere felt cramped their style.  Once the national bank was out of the way, they started loaning out paper notes with gay abandon.  The original issuers of unbacked paper make a profit out of the air.  As they circulate, the notes lose value.  Why, then, don’t depositors present their bad paper to the banks and demand specie, a puzzled Frédéric Bastiat asked the great pioneer American economist Condy Raguet?  Because the depositors know that the banks will retaliate by cutting off their credit and calling in their loans.  So, Jackson’s ill-advised (and illegal and arbitrary) actions against the national bank resulted not in a hard-money economy but in destructive inflation.

The trouble with judging economic policies is that sequences are not always consequences.  And the variables are many and large.  The air is full of the claims of politicians that their virtues have caused prosperity or the errors of their rivals have harmed the people.  And the claims of “experts” that their wisdom is responsible for good outcomes.  Most of what passes for the public discussion of economic policy are irresponsibly ignorant assertions or self-serving lies.  One might call the debate juvenile, if “childish” were not a more accurate label.  Remember, we are talking here about that mysterious thing the love of which is universal and the root of all evil.  As the old saying goes, “It takes brass to get gold.”  If you are good at it, swindling is a lot more profitable and fun than work.

What passes for the generally accepted history of American banking and currency, I am convinced, is as off-base as the account of Jackson and the Monster Bank.  Greenbacks, legal tender, the gold/silver ratio, the Federal Reserve—these are all described in terms of deceptive party rhetoric, when the real question is, which set of scoundrels gets to work the game?  True, the Federal Reserve is an atrocity, giving a private banking cartel the power to expand and contract the money supply, which means potential control of everything.  But the Federal Reserve, truly conspiratorial and outrageous, is only a concentrated version of Lincoln’s more dispersed national banking cartel.  The essential issue is deeper.  Who has the right to control the money supply and credit of our immense economy, and what should they rightly do with that power?

I agree with those folks who are eager to abolish the Federal Reserve.  It is not going to happen.  But if it did, what then?  Do you think the bankers and speculators wouldn’t have some other trick up their sleeves?  My friends, you’d better give this some more thought.  Jefferson and John Taylor will help.

With the third part of his program, direct subsidy of business and “protective” tariffs on imports to guarantee manufacturers a captive domestic market, Hamilton had less immediate success than with public debt and banking.  But by the 1820’s, agents of the Massachusetts and Pennsylvania industrialists were haunting the lobbies of the Capitol (hence lobbyists) to buy congressmen to vote “protection” (i.e., import taxes to exclude their foreign competition and allow them to sell at the highest possible prices) for their “infant industries.”  Even Hamilton would have been shocked by the near 50-percent blanket tariffs of the Abomination Act of 1828 and the Morrill Act of 1861.  A curious feature of tariff legislation was that, while “protection” was declared to be a great boon to all, certain items needed by the manufacturers that were not produced domestically were, by special provisions, exempted from import tax.  It is estimated that iron and steel tariffs added $6,000 per mile to the cost of railroad construction in the 19th century.  Is it any wonder that Rep. Thaddeus Stevens of Pennsylvania, who happened also to be an iron magnate, wanted a permanent Reconstruction that would keep the South forever without political power?

The case for tariff “protection” for American industry was and is based on the claim that it makes for national independence and self-sufficiency, and that it was responsible for American prosperity and high wages.  The libertarians are right about this.  How can forcing everyone to pay higher prices than necessary for what they buy be a cause of prosperity?  Tariffs do not create wealth; they shift it around to make some people more prosperous.  The great advance in wealth and industry in the United States during the 19th and early 20th centuries was a result of a hard-working, innovative population turned loose on a vast cornucopia of natural resources, not a product of tariff legislation cunningly crafted to benefit some at the expense of others.  Indeed, the tariff probably slowed development.

Does that mean that we should give up on protecting American industry and labor and sing hosannas to what now is praised or blamed as “free trade”?  No, because what we have now is as phony a version of free trade as Jackson’s version of sound money.  Adam Smith pointed out the general truth that free trade in goods between individuals of different countries, taking the benefit of comparative advantage, was good for his country and, indeed, for mankind in general.  His country was a given, and free trade could be of more use to it than government meddling.  Exchanging goods without interference was one thing.  Selling off the country is something else.  Neither Smith nor the antitariff Americans of the 19th century saw free trade as the international manipulation of money and labor-arbitrage that sacrifices citizens to foreigners for private profit (a modern version of the international slave trade).  The speculators have taken their game into realms remote from the benefit of their country and her producers.  They trade not in goods but in people, while they gamble on pieces of paper (or, rather, cyber entries).

Do real Americans have the right to protect our industry and our labor from an unprecedented type of predator in whatever way is best?  Of course we do.  But remember, when tariff protection was profitable to Northern capitalists and a loss to everyone else, the United States was a bastion of tariff protection.  Now that so-called free trade is profitable to Northern capitalists and a burden to everyone else, the United States has “free trade.”  The question is not free trade or no free trade—it is who deals the cards and collects the pot.  John Taylor, if he were here, could tell us, in his loquacious, humorous, colloquial veranda talk, that in arguing about surface issues put forward to disguise the depredations of the paper aristocracy, we are missing the point.