American Spirits #31 - Funding the New Nation

0:00Thank you for joining us for this old glory club podcast. If you would like to receive this or any other old glory club productions add free Please head over to our sub-stack and subscribe There you will find an RSS fee that will keep you up to date with all the old glory club productions including articles and Podcasts once again, we would like to thank all of our listeners and supporters for their continued interest in this project of ours. Thank you 31st installment of American Spirits. We are back once again with our esteemed new co-host Mr. George Bagley Here to discuss the funding of the new nation. Mr. Bagley, wherever did they get the money? Indeed, it's quite a story It's been so pleasant to retreat into the history of the early Republic in In these these weird times that we're in history certainly is a refuge for the mind in times when the news gets so confusing

1:04I wanted to start out with a note I think I mentioned in the previous stream that Robert Morris Went into debtors prison and I attributed it to the failure of the continental congress bonds Which he was managing at the time it seems he went into debtors prison for another reason it had to do with other Speculate speculations that he was involved in he went over his head and things failed and he went to debtors prison But it wasn't about the continental congress bonds. I wanted to correct myself on that Even our erata are compelling here on American Spirits I hope so Charlie welcome to you as well Yeah, thanks for handling the hosting duties for me today while I am not predisposed to do so, but I am here By the rain or snow or hail will stop Charlie from I can't come up with a rhyme

2:08No considering what we're trying to rhyme with we can't talk about it anyway Yeah, so I did a good amount of the reading You had sent over mr. Bagby one of the books actually can you give us the title? It's one of your your tallman books is it not Well, it's it's in production right now. It's over 75% ready I've got to order the cover but I've I've already arranged for that It's called Washington and his colleagues and it's one of the Chronicles of America series and it is focused Mostly on the Washington administration the first presidential administration and it also goes over into John Adams's administration Which is I think very interesting I'm on a mission to read more about the Adams's I find them very compelling figures the controversial ones I like them because they did not They weren't interested in Flattering the populace

3:09They were very opinionated driven men Very well-informed statesmen some of our very best and most creative Oh, whatever else you guys read about them In the course of the last uh 31 Explorations of the history of the early American Republic. I have Come to the conclusion which surprised me the John Adams was the single most consequential man in the American founding I really like John Adams and I make no apologies for that he was such an extraordinary figure And he even made it into Russell Kirk's conservative reader Which is a wonderful a wonderful little book if you can get it. It's the the Viking Portable series There there are millions of these things around you've got the portable thorough and the portable twain and The portable conrad and things like that the Greek historian reader and there's a portable conservative reader

4:11Which has selections from Edmund Burke and also Alexander Hamilton and John Adams among many others, but of the excerpts and the other Adams In this benighted age of popular culture it is Abigail Adams who got a Broadway musical Oh, well, that's Broadway for you I'm not a not a fan of Broadway as such With apologies to our friend mr. D um So I wanted to frame our conversation today um the continental congress was in such hopeless debt uh the debt I didn't look up the exact figure it was in the hundreds of millions Which was just an insurmountable quantity Back then especially for an authority that had no taxing power And that was in the days when a dollar was an ounce of silver

5:15Indeed We ought to calculate for that. I don't know what that would amount to now, but they they did Um defraud their bondholders By devaluing it to tens of millions so they just knocked a not to decimal point off of it For or something they they move the decimal point on on the total of the debt and devalued the entire debt Now when the constitution is ratified by the states the constitution does contain a line of honoring the debts of the former regime But it was still an outstanding question in in what way that would be honored Maybe the new regime would also move the decimal point again Or something really nobody knew what the bonds were going to end up getting redeemed for Oh pardon me. I've got to rescue my cat. Oh no We are uh great. I just wanted to get out

6:17Feline rescue here on American spirits He was wanting to sit in my lap, but cats get other ideas Um So the the constitution has this clause about honoring the debts of the former regime But no one knew how it was going to happen So when Washington is inaugurated financial stability is his number one priority And a major mandate this was something that gave Much credibility to the federalist scheme with the Philadelphia constitution It was going to be a solvent fiscally responsible government much unlike the previous government Um in the last years of the continental congress They had enough credibility uh with this with this uh scheme of the federalists to organize a new constitution They uh got An opportunity to refinance their debt with the Dutch Republic

7:19So this was a consolidation kind of loan with the Dutch And it rounded the interest into the new loan But that ended up being the only interest that the continental congress was good for In its in its term Well it was the interest that got refinanced with the Dutch Um the bonds at the time of Washington's inauguration were typically trading for 20 to 100 So uh someone with a $100 bond Would get $20 for it sometimes more but it was it was Uh a very very steep discount um and there were speculators. There was this new class of speculators running around that were um They were Grabbing up these bonds They were going out into the countryside

8:21And in particular to areas hard hit by the action of the war for independence Like South Carolina Like North Carolina like Virginia Uh places where in upstate New York places where the uh where the enemy armies had been marching and The continental army had basis of supply So the continental congress was paying for everything with io use During war and this is where most of these bonds had come from uh there was a a substantial amount that was owed a broad 11.7 million Uh foreign debt um The uh debt to the the French and the Spanish had not been serviced at all um And there was uh over $50 million total So when Washington takes power the the congress

9:22Uh assembles in new york city. That's the first capital city Uh new york city furnishes a public building that's deemed federal hall Uh federal hall is a new building now later on it was made into A branch bank of the bank of the united states It was It was still called federal hall And now it is a national park Just across the street from the Dow Jones Stock market exchange it's on wall street And it's only a very short distance from the grave of Alexander Hamilton himself At Trinity Church Um So he ends up he ends up going to rest down there eventually himself but Um when congress assembles they establish the first cabinet departments So the first executive departments they establish the department of state

10:26And Washington chooses are very able French ambassador Thomas Jefferson To head the department of state state only has like four employees at this point uh Jefferson has a few clerks and a messenger Accordor I suppose um he establishes the war department Similarly, uh the war department is extremely small uh with the staff of a five or something um it's General Henry Knox who famously Moved the artillery that had been captured at Tykonda roga over to assist in the siege of Boston Hmm, and so general Knox is Washington's uh war secretary Um, we also have Uh, we also have treasury so and and the attorney general uh, I don't know um I don't know of any staff the department of justice is actually created much later

11:29Um the Confederacy in the civil war has Department of Justice headed by an attorney general before the united states actually develops a department of justice That that actually gets organized after the civil war Um, but we've got the attorney general. I've been Randolph of Virginia uh formally an anti-federalist Uh Jefferson was known for anti-federalists uh democratic sentiments Uh, so we see Washington is choosing some of his cabinet um They are of of differing political backgrounds and persuasions Um, but the most important of all the departments is treasury and treasury is staffed very generously uh, there are revenue collectors customs agents in the port cities um A large staff This dwarfs all of the other departments

12:32You add up the staff in officers all the other departments. They they don't compare it all to the mammoth structure of treasury at the very beginning And this is all testimony to the priority of financial stabilization so As Congress is is voting on establishing and funding the executive departments They are also working on the bill of rights uh promised by the federalists to sued the concerns of the anti-federalists and the ratification debates And they also quickly uh pass the very first federal taxes. So we see the tariff act of 1789 This amounts to over 80% of federal income as late as 1800 So this is the major funding device for the federal government and the way to retire the debt

13:35It's a 5% ad volorum duty on imports Uh, there are certain protective measures for American industries built into this original funding bill So there are protective duties on textiles Iron and certain domestically produced luxuries Overly over and above the 5% flat rate That is correct. Okay So this is this is remarkable because this shows us a protective policy Before Hamilton even makes any statements about you text policy or were uh national economic uh vision And to what extent was Hamilton driving the car as opposed to congress on this? Uh, that's a that's a good question and my sources did not reveal that um We do have a major report from Hamilton two years after this

14:40where he does propose more extensive protective duties to foster American industries Uh, but we see that that predates his proposal the federalist congress Um, and they are majority federalist by persuasion not surprisingly uh the men that advocated for the ratification of the constitution Are the ones that went in majority to the to the capital as the congressman. It's the first congress um in 89 Alongside the terror fact we also have the tonnage act Uh, this is a tax on ships docking at American ports So there is a difference in the tax uh foreign ships have a certain tax rate American built ships with foreign owners Have a more advantageous tax rate

15:42And then American built ships with American owners have the lowest of all So we see in the tonnage act a preference a special protection and sponsorship of American shipbuilders Um, we also have the collection act of 89 once again establishing customs houses and officers in American port cities And these are remarkable buildings many of them still stand Um, there are quite a few of them that are in obscure places that are no longer major ports of entry Like sag harbor in long island There was a customs house there that was actually the second largest port in New York At the time Um, and now it's it's the Hamptons, you know, it there's uh No industry or or maritime trade going on there and it's kind of funny to think there was a big customs house there at one point

16:44But these are Uh, these are very beautiful buildings typically um, I'm thinking of New Haven, Connecticut Or no new London Connecticut new London Connecticut has uh this this beautiful uh Dark gray granite Uh federal building it was the customs house is right down on the waterfront And that's one of the difficult Yeah, it's funny how Places tend to change in that way. I'm in Chicago and Chicago of course was once another one of America's great ports And now virtually no portage goes on in Chicago proper. It's all shifted uh south to Calumette and uh All of the areas which used to be dockside wolves are now very expensive office buildings and condos so it's a Funny how things change over time Indeed Um The the other major revenue act

17:45Which we will come back to later is the excise act of 1791 so another another means for the federal government to raise revenue according to the constitution is excise taxes and these are taxes on certain kinds of production So the the main excise tax in 91 is whiskey um, it charged a rate of six cents to 18 cents per gallon And this was a minor revenue stream of you know over 80% of the federal revenues are actually coming from the uh The tonnage act in the in the duties and the ports I mean imagine the occasion minimal of any controversy Um, no, this was a really big deal um because of Because of the way the excise tax was written it was

18:48quite expensive for small producers and it was far more advantageous as far as Many less taxes for big producers. So if you produced whiskey in large quantities Then you had a much lower tax rate so it favored Uh the professional manufacturers of whiskey and it was very disadvantageous to people that produce small amounts such as rustic farmers who had no other way to Refine their produce and get it to market then to distill it Was this arrangement accidental or was there a policy behind this uh tilting of the field in that way Well historians have gone both ways on that of More Jeffersonian historians who do not like Hamilton's centralization policies and his of his special sponsorship of American manufacturers

19:51Say that this is by design that it was meant to disadvantage farmers and it was a way of Of transferring economic activity into the cities putting more production in the hands of American capitalists uh further essentializing the economy and There are the defenders of Hamilton Which say that this is a mere accident that this was not intended Now with with Hamilton's response later to the whiskey rebellion Um, I I wonder about that reasoning because Hamilton really didn't want to crush the uh whiskey rebels In western Pennsylvania. He wanted to lead the army Washington turned him down Washington personally went out there with 30,000 men which was larger than any force that he had commanded during the war of independence

20:51Up till that time it was the largest force of Americans ever assembled in battle array Um, and there was no fight um I'm jumping ahead to the whiskey rebellion here, but it it's very interesting this takes place in Washington's second administration so it's kind of long a betting before it actually comes to a head um But another another problem with the excise act of 91 is that Of any revenues who who catch of people in arrears on this tax or trying to produce whiskey without paying this tax They are sent The accused are sent to a federal court which required them to travel all the way to Philadelphia Or the or the nearest federal courthouse in in the case of other states And that was a very Long-honorous expensive journey to make for them

21:52Um, so Jefferson ends up repealing that excise act Um, and uh also reforming uh to require it any um Let's see It may be Washington that reforms it by the end of his administration where he requires them to go to the local courthouse instead of traveling all the way to Philadelphia It was one of his compromises after the whiskey rebellion But uh, that's that's all a little bit ahead of us Um, so in 1790 Once Hamilton has had a chance to organize treasury. He's had he's had some months To work he presents to congress his first report on the public credit He Proposes to consolidate not just all of the debts of the continental congress at par To be paid in full

22:52um to uh finance a New new loans to settle Long-outstanding debts and kind of roll it over Um, but he also proposes to consolidate the state debts Into a national debt So this is the proposal to create the national debt um there is uh There is an outstanding argument going on it it uh takes place in congress and at the state level about Who should Whose bonds should be redeemed now the proposal is to redeem all of the bonds and that this is a Financial priority. So they want to set up a schedule. They want to start paying uh Paying on these bonds and then pay them all off at in a set time frame

23:52Um, but a lot of these bonds had changed hands They'd gone over to the speculators who had been buying them up Uh coming out of mostly new york and philadelphia um new york is not the The super gigantic banking powerhouse that it is now But it was one of the few american cities that did have banking services I believe there were two banks in new york at the time and Alexander Hamilton actually started one of them Um, that was what he was doing when he was called into treasury um philadelphia was the more substantial of the two cities They had about the same population at the time But philadelphia is remarkable as having a American stock exchange So these are both major financial centers of the Quakers are very famous for their

24:53Acumen with finance and banking And that's one of the reasons why philadelphia Has this this outsized presence at the time philadelphia very very well could have been the first city in america Uh, it's a it's a kind of a curiosity of history that it shifts to new york But we'll see some of the reasons why that happened um The argument in congress and at at more local and regional levels Is should we find the original bondholders and redeem the bonds to them And Hamilton cuts to the point in his report on the credit and he says it's impossible to know And that's entirely reasonable there was never any central record of who the bonds were originally given to There is an awful lot of official paper floating out there And changing hands

25:53And it is Payable to the bearer on demand Notwithstanding whether it's possible Why would it even be desirable to do that with people calling for Contracts of sales of that would be Invalidated by fiat just because or what why was that even a debate It was a debate because it meant the it meant meant that Whoever had sold their bond To a speculator was Moving all of the redeemed money and interest into one of the major cities hmm And this was a political concern and and economic concern at the time we recall in our previous episode we were talking about how the Uh Republican administrations of the states i say Republican as opposed to monarchy right the American independent states

26:54We're moving their capital cities inland at this time And the their Explicit purpose for this was to get the political class Up further away from the merchant class From the bankers and speculators from the business interests that congregated in the cities Hmm, so the capital of South Carolina has moved from Charleston to Colombia This is this is part of redistricting processes going on in the states because the old districts for representation even in colonial times Were very unbalanced in the representation of the coastline where the preponderance of the population lived Long before But in the in the decades leading up to American independence you see Large number of people going out into the country especially the um

27:58The decade following the french and indian war um Indian troubles on the frontier had been settled you had the the great um the great line drawn down the aliginies which was supposed to be a supposed to mark a Protected area for the Native Americans behind the aliginies The Americans weren't supposed to go over that line But everything up to the aliginies was open for sale and settlement And so you have a lot of people going into the backcountry And those same people they tend to be religious to centers like abtists um you you have more established uh Old world congregations the Episcopalians Predominating that are out on in the tidewater area and on the coastline and in the cities So there's a religious difference between the two and the political

29:02Organization favors the coastline favors the original capital city and environs And they want to move the capital inland they want to get their political class away from the merchant They are redistricting their states to give the the uh inland parts More representation in the state legislatures and on the national level There's broad awareness. Well a lot of the the rustics out in the farm country Have surrendered their bonds to speculators. This will move all of the redeemed money for those bonds To the cities which means the cities are going to have this huge new uh influx of capital Through the redemption of these bonds um, it was a um small investment that's going to reap Really huge rewards for people that were willing to speculate

30:04And they don't want that movement of capital to happen. So uh This is this is part of the anti-federalist concern and I I believe I had mentioned before how the anti-federalists uh were stronger in the countryside in certain states Um, and this was this was a key to The win of the federalists in Virginia. They actually call the vote in the convention before Some of the country delegates had arrived at the convention And the suspicion was they were all going to be anti-federalists So the longer they delayed the vote the more likely it was to fail um So this is one of the concerns, but but Hamilton's answer is The only the only reasonable answer to the question Um, are we going to recognize that property has legally changed hands and There really wasn't an alternative to that um and Hamilton

31:05Spells it out very clearly in his report We can't find Who the bonds were originally made to And if we made a call for that Then we would be opening ourselves to limitless fraud Because how can you prove that someone used to have a bond When we don't have any central record So this was entirely reasonable on Hamilton's part What was what was really more of a legitimate political concern was the inequity among the states themselves And this was something I believe I touched on last time The southern states that had large western frontiers Were in a much better position to retire their war debts So it's it's not just the continental Congress that has debt It's also the state governments that have a lot of war debt And this was a crushing burden for many of them

32:06Some of some of which had special reasons but um states that did not see any Any military action during the war such as Delaware actually Um, they didn't have war debts Uh, and also they had a a small population and it's a diminutive place Um places like North Carolina they were selling off the lands over the Alligenis They were selling off Tennessee Uh, they retire their war debts this way and they are not burdened by excessive taxation um The Virginians are selling Kentucky Uh, they are retiring their debts by land sales in the west And Kentucky is uh is captured uh in part in the in the course of the war for independence And then the the uh lands north of the Ohio are seated uh to the continental Congress in the Treaty of Paris

33:09But the northern states are having a really hard time with their debts and South Carolina Partly because South Carolina doesn't have access to the west to sell land So we have this very disproportionate spread among the states When Hamilton suggests consolidating the state debts it's going to affect the states differently So After Hamilton gives his first report We see some very interesting things happen um speculators Go bananas Now the report is physically given to congress in New York City Which means that the New York City speculator market Are some of the very first recipients of this information that the plan is to pay off the bonds Not just not just the continental congress bonds but also the state bonds the state bonds which are also in

34:13A seemingly hopeless situation Massachusetts is under a very crushing burden Connecticut um new hamster Uh, there's a lot of argument about just who has rights to Vermont and of course Vermont comes out ahead and They they kind of declare their independence during the war of independence Um and act as a uh an allied power even though there's hardly anyone there at the time and then Vermont kind of kind of disclaims all all of the uh All of the arguments from New York and New Hampshire about who has the area they they say they're there There are own state and they become a state in the union um Delightful place for Mont I I like Vermont's role in our history um But these speculators they go on the fastest ships that will carry them To Massachusetts to South Carolina And they start buying all of the bonds they can get their hands on at whatever price

35:18And so the exchange for the bonds rises because all of a sudden there's this new demand There are lots of speculators going out trying to grab as many bonds as they can And of course they go right back to New York However Congress Demers on Hamilton's plan and it's because well there's there's Uh self-serving arguments perhaps about the original bond holders and that's just an unworkable sort of position Uh you have people speaking out on that Uh, but the more legitimate claim is wait a second what does Virginia get out of this We don't need our state bonds redeemed by the federal government. We actually don't have many Hmm. Oh, we're managing our situation fine. This is going to help Massachusetts. It's going to rescue South Carolina What are we getting out of this and so they stop it

36:19now Hamilton is very Disturbed by this he is very upset Coincidentally Thomas Jefferson arrives from France Right after the failure of Hamilton's proposal in Congress Hamilton is outside of the executive residence in New York City. He had just been to see Washington He didn't see a way to get this through without some compromise between the sections and Jefferson describes him as looking disheveled and sleepless When he finds him outside the executive mansion and Jefferson asks him what's wrong and Hamilton explains this is This is the solution to our Financial troubles, but I've got to get it through Congress somehow and I don't see any way of doing it So Jefferson invites Hamilton to dinner

37:19And they dine together like the next day Of James Madison shows up and James Madison is the speaker of the house a congressman from Virginia and a friend of Hamilton And he's also a very close associate of Jefferson So they meet at Jefferson's for dinner And what comes out of this is a congressional deal a compromise The states with little debt are going to get a financial payout from the federal government And the national capital is going to be moved south It will be moved first to Philadelphia for 10 years Then it will be moved to the Potomac River where Maryland and Virginia both southern states are going to mark out a 10 mile

38:20or 10 square miles on the banks of the Potomac for the federal city And that will be the future capital of the United States So that passes Congress and what comes out of it is Delaware gets $100,000 because they don't have any debt to retire And that's in this is proportionally calculated in Delaware's case because they are a very small state North Carolina gets 2.4 million and Virginia gets 3.5 million from the Treasury And Hamilton gets his consolidation So Washington then creates the national debt And the capital is going to be moved southwards Now this is a good occasion to talk about different interpretations of the new federal government We on American spirits have previously done a stream about Charles Beard

39:26And his book The Economic Interpretation of the Constitution from 1913 Beard's thesis is that The federal government is formed not out of political idealism or program But primarily for economic concerns That it had a particularly aristocratic design Beard's argument and this is a very this is a very common argument in American history Is that the federalist movement and the Philadelphia Constitution Are particularly aristocratic as opposed to democratic Particularly indirect as opposed to direct in the representation Consumption that reference to what Beard used Yes, yes indeed And he didn't like that No, he did not He says it is a

40:28Thermadorian reaction to democracy which is more evident in the in the Revolutionary period That the federalists were made up primarily of class interests of creditors, manufacturers and shippers Opposed to the agrarian Republicans who were more democratic in their outlook Now when you talked about Beard Did you talk about Macdonald? I don't remember Charlie do you remember talking about forest Macdonald? Nope Well forest Macdonald is the scholarly answer to Beard Oh, the definitely not we have not gotten to the counterbeard narrative yet Oh, okay Well, I only need to touch on it here we'll get back to Hamilton here in just a second But Forest Macdonald wrote a book called We the People the Economic Origins of the Constitution in 1958

41:33previous to this he was he was known for regional histories He wrote a he wrote a book about the development of electrical utilities in Wisconsin Right, he this wasn't of general interest But he he makes a major statement in the historiography with his publication in 58 and becomes a a standard American historian like he's a major American historian And he has an a really great body of work. I'm a fan of forest Macdonald And I'll go as far as to say I'm a fan of Beard as well. They both been big influences on me Um, but forest Macdonald what he did was he went out and he did uh character investigations into the major federalist figures So he went to the state conventions and he did analysis of federalists in the state conventions

42:34the first federal congress the federalist members of the congress and so on and what he demonstrated is that they're actually very diverse in their class in their class associations that The federalists are they are very engaged with creditors, manufacturers, banking interests, shipbuilders, merchants and the like But there are also lots of farmers who are self identified as federalists Some of them hold bonds some of them don't this is not a clear cut thing Nor is it a class conspiracy as Beard might might paint it So it's not a division between capital and landed property according to Macdonald now that said The effect is quite Hamiltonian So we we can look at that and and ask the questions well perhaps the federalists are exactly as as Macdonald

43:41uh implies and and we don't have any good reasons to think otherwise this was this book has been thoroughly investigated since his publication and no one's come up with a compelling thesis with good evidence contrary Macdonald um So Macdonald is saying it's coalitions of interests and that there are legitimate uh political concerns beyond the economic And we have every reason to to take his word on that But the effect the effect is centralization now To be clear Macdonald is also a fan of Hamilton In spite of his unreconstructed southern wig uh perspective He he is he describes himself it in other places as an unreconstructed

44:44uh southerner uh a partisan on civil war matters and such But he also is a fan of Hamilton and wrote a biography of Hamilton in 79 Um, he praises Hamilton for favoring a egalitarian uh entrepreneurial spirit in American history over the establishment agrarian interests of his time um That he favored entrepreneurs and speculators as opposed to the old oligarchy in america And that's a that's an interesting perspective Um, I i've appreciation for that Though though I have my issues with Hamilton that that's beside the point we're here to talk about what Hamilton did and I want to give him full credit as a visionary of american politics and economics he he deserves All of the credit for that he he

45:45He envisioned the world that we see Today um, he still is the basis of any number of arguments about uh economic Uh or political economy in our own time whenever anyone talks about terror policy They need to reference Hamilton and that was because he formed the original policy And we've been arguing about it ever since basically And the the view of him that you say mcdonald takes Actually throws into relief An interesting philosophical question about what is freedom really Do we center freedom around the rights of the individual to farm his family plot and participate in a jiffrasonian democracy Or do we center freedom around the right to compete the right to be an entrepreneur or to innovate It's it's two very different visions of what freedom is in its attention that is dominated our history for centuries

46:47Absolutely And that's that's Even more to the point That Hamilton has far more influence on our vision of what is good for america In our situation now Hmm then jifferson could possibly have Yeah, and that's because jifferson lost And that's because jifferson's world is gone now We do not have a substantial Number of property owning americans not certainly not in farming. It's about two percent of the population now That's Making they're living off of farming and all almost all of that is consolidated right it's gigantic holdings And if you broaden it beyond just farming and just consider the yeoman as an economic unit the The plumber who owns his own business the trucker who owns his own truck

47:48Uh this this small economic unit whether it be agrarian or otherwise Is coming under increasing pressure as time marches on Absolutely and that's that's one of the reasons why we I say we're living in Hamilton's world. He foresaw this He made foundational policy to support that vision and Now we're living in that organization um almost almost completely um It's no longer a nation of owners And this was this was part of Hamilton's vision of political good And that's an important element here. So we we got to the passage of the consolidation of the debt What's more consequential in the long run is Hamilton's second report on the on the public credit

48:51Where he proposes the national bank which is the theme of our series here in 1791 so while while the revenue legislation is going through While the debt is getting consolidated Hamilton makes a a Seminal report on manufacturers with in which we see the gist of his policy Hamilton believes manufacturing is the future that manufacturing is the course for empire for making a consumer economy for patronizing it with domestic industry for Building up domestic capital and making america into a powerful banking house

49:51Hamilton wants to be he wants the united states to be an international creditor nation So he first begins his report talking about agriculture that agriculture is ubiquitous in the united states that Practitioners of agriculture the farmers they're economically independent. They also don't have money in their pockets and Hamilton sees wealth in the exchange of money for goods and services He wants to expand the liquidity of the american consumer He he doesn't say consumer but this is this is the um The import here he wants increased consumption in america he wants increased circulation of money in america

50:52He says manufacturers are promising they raise the standard of living They increased the circulation of money people are going to have bank accounts people are going to take out loans on credit As the banking system gets gets established that will This will increase The stock of money in circulation because loans Are made out of fractional reserve practices in banking now. This is something in in Hamilton's report on manufacturing Which is visionary which is prescient Because Hamilton is one of the first men of his era to Grasp the importance of credit to expand the monetary supply So it's not that fractional reserve banking is something new Hamilton under

51:53Hamilton just has a deeper perceptive understanding of the The effects of a large banking establishment the effects of people having Loans out in the bank more money to spend now that they pay off in the future And the interest on the currency actually replaces or it it uh it puts money into circulation. This is a means of money creation Yes This is a point very few Americans understand today that money is not printed Money is lent and it is in the act of lending that money is created effectively ex-neelo Yes, and and that is one of the philosophical Charges against lending money out on interest that it is an unnatural means of production Mm-hmm that it's not a natural force. It's made of Artifice it's a A human creation to make wealth out of nothing

52:57Um, and therefore it is unnatural. It's taking gold and silver and multiplying them and you you put Cats together and you get kittens you put chickens together and you get baby chicks But if you you put corn together and it makes more corn You put gold and silver together in your purse. It's not supposed to generate more golden silver That's not how they naturally behave. So this is an unnatural generation Um, and that's the old philosophical and theological problem with usery just in summary but the The Hamiltonian vision is a vision of an america full of consumers financialized using credit tools to move wealth from the future into the present um, increasingly urban Increasing increasingly employed for wages. So they have money in their pockets. They're they're developing

53:57savings accounts They have money to invest in these great manufacturing schemes and such. They're going to buy the the products of the manufacturers and such He specifically rejects the commodity vision of wealth and happiness That man is most satisfied In using the tools of nature the natural generative properties of nature breeding cattle Farming the land tilling the earth and bringing products out of the earth and doing all those other things Which he says it does make them very economically independent, but we want them to have credit We want them to help expand them on the monetary supply. We want them to have savings accounts We want them to be buying goods and services So this is Hamilton's vision and you can see how

54:58This plays into our world. This is the world that we live in. We can scarcely imagine another now Hamilton says oh go ahead. Oh, please Um Hamilton says the key to generating more manufacturers and Increasing This standard in American society is government protection for what he calls infant industries in America so he wants A protective tariff system now we see that actually predates his report We already have disproportionate tariffs Specifically to protect the competition of certain American industries Textiles iron certain luxuries um Hamilton talks a lot about The manufacturing of textiles that's just getting underway in New England at this time

56:02um Congress is investing in American made goods To furnish the the capital and such. They're buying carpets manufactured in Massachusetts They're buying um fixtures in such Candelabras and such that are manufactured domestically so there's a patronage there. This all makes good sense But Hamilton says we need a policy of government protection now he proposes a scheme In in embryo here it develops with his followers in later times Uh, people like Henry Clay a good example of this a scheme to Use the money collected in the protective tariffs Because this is an additional tax To protect domestic industry That should be set in a different fund To develop inland waterways To develop port systems

57:03To be invested in canals and government built highways All of which will serve to make American industry that much more competitive And not just American industry American agriculture William Clannon wrote an excellent book natures metropolis when he describes The truly revolutionary nature of the economic prospects afforded to the American farmer by America's great inland waterway system Which allows you to move goods at vastly less expense than you can overland The Mississippi River and its tributaries the great lakes These comprise more miles of navigable waterway than in the rest of the world combined And what you could effectively do was you could go out to Illinois or to Kansas or the Missouri And you could throw wheat on the ground and within a year you could be exporting your crop for a profit for Capital and labor investment. It was unprecedented small versus the return you could get on it and Cronin argues that this

58:10Was the the real engine behind the expansion of the American economy It is a huge natural resource are our inland waterways are incredible Um and this later on this is a branch in our American political organization where you have A lot of support especially in the agricultural west and in the south Especially among the planters For a certain amount of internal improvements They would like the federal government to improve the waterways Um make them more navigable Some some canals bypasses of rapids things like that Um are part of that Indeed soared who is a remembered today for his icebox Uh was really really made his bones Um on the eerie canal in New York and getting that getting the inland waterway system set up

59:13Indeed and the eerie canal is one of the great examples of success In an internal improvement and that was done by the state of New York on your own initiative. It did not have federal aid Um and there there have been other attempts to make canals of for Economic gain in such the eerie canal Surprised many because it was such a roaring success almost immediately um and uh retired the investments with profits Uh only only uh years after it opened it was such a huge economic boon And it of course it connects Lake eerie to the Hudson Valley Mm-hmm So that that's a good example. It was governor Dewitt Clinton of New York who was one of the major guides for that project But we see with Hamilton he has a vision of an economic empire and certainly an uh

1:00:15economic nationalism Uh we see in his first report on on public credit He wants to make the state level financeeers indebted to the federal government to uh point their attentions To the federal government that had relieved their financial distress redeemed their bonds and so on It consolidates the economic interests in the union And not with state authorities Um hamilton wants a A more active economic policy Uh to protect industry So protective tariffs and an internal improvements program uh building canals and uh removing obstructions from waterways and the rest That is going to foster a bigger economic union Now the problem with this um he's he

1:01:18Suggests policies to congress congress does not readily respond They do allocate money for the building of lighthouses And this is one of one of hamilton's uh Responsibilities and treasury Uh the federal government acquires all of the pre-existing lighthouses Uh on the coastline To federally administrative and also starts building new ones That's really the only major federal outlay of money for the proposed internal improvements But there is a sectional issue here Because once again, we see it's the northern states that have investments in mills It's northern states where virtually all the urban areas of america are located Uh as far as we have a consumer market

1:02:18It is mostly in the northern states especially for domestic luxuries Um, so hamilton's proposed protection of industry Though he paints it as National economic union and prosperity from which all sections will benefit Uh, this is something that is received with great dismay from the southerners Who are partly because of the disproportionate Redemption of state bonds Um are already the generous party you might say in the uh federal program Um, they are the ones that have to be treated with for the compromise And they do not like this proposal for increased economic centralization Of for government sponsorship of private business In tax protection They say that this is opportunity for favoritism

1:03:21Special privileges and special lobbying interests in the government All of which are arguments that should be familiar to us whenever we hear Any anyone protesting uh proposed protective tariffs these things still come up now Hmm So he justifies all of this From the general welfare clause and the preamble of the constitution Which is exactly what the anti-federal federalists said would happen that this is a vague Description of government power and it could be interpreted in any number of ways Um, the southerners Also argue this is going to create a colonial relation between the sections Uh, the southern states producing raw materials almost exclusively

1:04:22The northern states taking raw materials and then selling the finished product back to the southern states Hmm So it looks like the triangle trade across the Atlantic all over again Which was a major argument against the british empire back in 1776 Now that is a visionary um Observation a discrimination of the basic problem Uh, that there are economic disparities between the sections and this is why The sections of the union are going to side differently on this question over the history of this argument Um, Hamilton says the general welfare clause Justifies his action because general welfare covers quote Everything the interests of learning of agriculture of manufacturing and of commerce It is rather general

1:05:24Yeah, entirely general. I mean he mentions learning We we had to wait till Jimmy Carter to get the Department of Education Maybe that's a blessing Madison speaks out against Hamilton's proposal on this occasion So we see Madison breaking with Hamilton And we may recall Madison was one of the high federalists at the very start of the Philadelphia Convention In favor of a much more centralized structure for the proposed constitution In in favor to some degree of of Hamilton's proposal to abolish the state governments To make the state legislatures subordinate to a presidential veto Uh, and to appoint the state governors from the executive branch Um, Madison rejects Hamilton's report on manufacturers and the general welfare clause though in earlier in his career He had interpreted the general welfare clause in similar ways

1:06:28So Madison is tricky Because you can find him In on several different sides of these questions at different points in his career. Oh yes, he's all over the place Yes, he's very mercurial figure um Madison says government tied down to the specified powers which explain and define the general terms Is essential he says the meaning of the general terms must be sought in the subsequent enumerations Which limits and details them Now this this will Grow more clear as we understand the opposition to the bank of the United States later on Of course, Jefferson is is uh very much of that opinion as well Uh, though We might say much more consistent Correct me if I'm wrong, but didn't we have an amendment about this?

1:07:29Uh, do do unlike me what what is your reference the tenth amendment which uh, oh Reserves to the states and the people respectively all powers not explicitly designated to the Congress Yes Uh, and that that does come into play in a short period of time uh with the Kentucky and Virginia resolutions in 98 Mm-hmm of which Madison and Jefferson were the authors of those resolutions and so we see There we might we might interpret that as a retreat from federal level arguments and policy To the interposition of the states In federal policy The states blocking federal policy in fact That's what the Kentucky and Virginia resolutions were And uh, we'll we'll have occasion to remark on them. I'm sure So um in January of 91

1:08:30Hamilton gives his report his first report on the public credit in December of 91 he gives his second report on the public credit And this is his very ambitious report Um, surprising the first report was met with such opposition in congress that it failed initially And Hamilton had to broker a compromise with Jefferson The second report he actually gets passed in congress his proposal for uh, financial policy In 1791 he goes to congress with his report proposing the Bank of the United States This is a private corporation a federally chartered corporation to do banking Uh proposed to have branches Across the country uh in in cities of It would work in conjunction with the Custom houses so federal revenues could be deposited in the bank of the United States

1:09:32Bank of the United States was going to have this exclusive province as the depository of treasury funds um The Matter was whether or not congress had power to charter a corporation Now in the debate that follows the opponents of the bank of the United States Reference the Philadelphia Convention Which we we must remember of the proceedings of which were still Underwraps There were records They were released many years later After the death of most involved So it was not public knowledge just what was debated at the Philadelphia Convention what was proposed and so on But it was a fact the Philadelphia Conventioneers that wrote the Constitution had debated the power to

1:10:34charter corporations On the federal level uh, these would be businesses with licenses to operate in all of member of the member states in the union Mm, and they had rejected it So the power is never explicitly stated Hamilton Uh, proposes this Private corporation with 80% public ownership So it would be majority public um, and this was not all americans either when when the corporation was chartered it came online Uh, after congress passes the bill in Washington does sign it into law Uh, there are substantial numbers of foreign investors who arrive in by shares But it would establish a huge pool of credit It would be the financier to the federal government it would have The largest by far Uh as as far as credit to loan out

1:11:35In the fractional reserve banking practice They would finance the federal government they would uh retire the old bonds issue new ones Roll them over and also gradually pay them off Um important to note here uh, Hamilton in his first report. I I forgot forgot to mention He gave the very famous line a national debt will be to us a public blessing If not substantial Um, and that qualification in there is very important because hamilton was explicitly talking about paying it off Uh, he's also talking about in the short term rolling it over into these new institutions So hamilton does not want a An insurmountable public debt Uh, hamilton Indeed would probably die of heart failure if he saw our current national debt

1:12:37You you must remember he he's not saying debt is a good thing in and of itself What hamilton is saying is actually something very Uh involved in its a businessman's way of thinking If a lot of people If you owe money to a lot of people then a lot of people want you to succeed And this is it this is Hamilton's reasoning here He wants foreign creditors to look on the welfare of the United States Um, if I was to loan you mr. Quinn a million dollars to run a men's habit ashery I'll let's say you could run the tie bar in Chicago Um, wonderful Uh, wonderful place Um, sells shirts and ties uh, I I uh have some of their wares and I like them

1:13:39Um, I would tell everyone after I've loaned you the million dollars Uh, to go and patronize your Your men's habit ashery I'd want everyone to buy your silk ties I'd want everyone to go and get suited up at your shop because I don't want you to go bust If you owe friends a thousand dollars you have a problem If you owe friends three million dollars Louis has a problem Absolutely And this is a businessman's way of thinking and Hamilton was a very uh, a very Accomplished businessman and finance here he understood these things Um, so he wants to set up this private corporation with these special privileges As regards the US government so the argument He bases in the necessary and proper clause that Congress may make laws necessary and proper

1:14:40for the United States This is what we call the broad construction of the Constitution of a very expansive Sort of way of reading the Constitution and of uh reading special powers for the federal government into the document He says that the powers are implied in the clause So even though It doesn't say that the federal government has chartered has a power to charter corporations That it's an implied power And therefore we can go through with this um This is one of one of his concerns is a major shortage of circulating currency in the United States um They're We we had uh until this time We had attempted official currencies the continental dollar was a colossal failure because it was backed by nothing but these worthless bonds

1:15:47um and There there are lots of experiments at the local level um, so In various places at various times utility companies could be authorized to issue circulating media That could be uh redeemed with the company itself um Or redeemed You know at at a discount based on how people thought that company was doing There were private banks that issued notes Um, there were many ways of filling in this shortage of hard currency of of circulating media Um, and the United States was using Anything that that anyone could get their hands on and so mexican silver was circulating Dutch guilders are circulating German followers, which is the the origin of our word dollar It's a the name of a valley in Germany that produced very good

1:16:48Uh hard metals for circulation. I think it was silver Oh, I'm not entirely sure what the thawler was originally Um, it was a Saxon currency and not mistaken Yes. Yeah, it was a valley in Saxony somewhere called thawler um Yes Pounds sterling were circulating you know french francs were circulating all all the stuff was circulating in america And it was very difficult to exchange it because they were all differently denominated in such Um, and then there were all these private currencies circulating hamilton wanted to solve this problem Uh, by a central bank So the bank of the united states from the very start it has powers that we would associate today with the federal reserve and we might say that hamilton is the The man who imagined what would become our current federal reserve system

1:17:50Like the bank of the united states the federal reserve is also a private institution with special With special government powers involved in it. So the president appoints the board members of the fed Uh, the fed issues the currency Uh, our our dollars are federal reserve notes today um hamilton tried to set up a mint um in in uh conjunction with the second report The mint was a failure because of a mistake in valuing the silver So they were minting silver coin, but the silver coin was all going abroad because if you melted it down You actually got more than the face value Mm-hmm So there was a problem with the way that that was measured at the time and of course the price of silver does fluctuate So that's that's always a problem with hard currency um, but He um, wants the bank the united states to be the new buyer of american bonds

1:18:54Which of course we know whenever whenever our governments and trouble the fed steps in and starts buying up all of our bonds Um, he wants capital investment for increased industry in commerce And I mentioned the branch banks now. This is where hamilton meets his most bitter opposition of all the things that he proposes Thomas Jefferson regrets his Dealing with hamilton on the first report and the consolidation of the debt He says it was the worst decision he had ever made To treat with hamilton and advocate for hamilton's policy on that occasion um kind of in retrospect after he sees hamilton's bank report and uh loses his argument with washington Jefferson said later in life I have ever been the enemy of banks My zeal against those institutions was so warm and open at the establishment of the bank of the united states

1:19:59That I was derided as a maniac By the tribe of bank mongers Who were seeking to thilch from the public their baron gains A tribe of bank mongers. That's an interesting turn of phrase Yes, it is Well, you you note in jeffersons of diatribe The baron gains of the banks Which shows us jeffersons Traditional support which you would have in common with Aristotle That wealth naturally comes from the natural sources of reproduction in uh the vegetable world and the animal world and so on and that Money does not naturally reproduce itself and should not by artifice So he is he is of that philosophical persuasion and of course that is

1:21:03That is so foreign to our conception of how money works today It's not something that we have experience with most of us because most of us don't have Connection with bringing wealth out of the land or bringing wealth out of our animals And such that's something that's foreign to most americans now and and most people in the modern world And so we find jeffersons position as quaint as that of Dante who puts usurers in hell With the Sodomites by the way and for the same reason because they have perverted God's natural plan of reproduction It's a curious image in Dante and the inferno Well, this goes to congress and and here is where i i conclude for us today The northern congressmen were very enthusiastic for hamilton So north of the mason dixon line

1:22:05hamilton gets 33 For the bank of the united states and only one against The southern vote is quite opposite 19 against in the states south of mason and dixon's line only six four hamilton's bank There is a veto consideration on this and this is an occasion for An awful lot of comment and we will get to that in our next episode George washington asks his cabinet for their opinions on the bill because it is of such constitutional importance Jefferson and attorney general john Randolph write Opinions against the ratification or against signing into law the bank bank of the united states Alexander hamilton from treasury

1:23:06writes in favor of his baby And George washington accepts hamilton's argument and signs the bill into law And that will be the discussion of our next episode on american spirits the debate of jeferson and hamilton concerning the bank and it's constitutionally constitutionality Hmm Indeed, that is a A wavy subject which as you have elucidated today profound implications if somewhat interrupted into implications for a little while there But nevertheless profound implications for the current world we inhabit Absolutely Mr. Bagley I hope that you are appropriately proud of our upright and morally correct chat for just as in the course of nature three gold pieces

1:24:06Set together will not generate any further issue So it is that three talking heads gabbling at each other for an hour have generated no super chats. So Wala in your moral rectitude chat Your Aristotle would be proud Mr. Bagley do you have anything to shield in hopes of perhaps squeezing something from this endeavour Before we sign up for the evening Yes, indeed. Um, I have my website which is www dot tall men books that's m e n tall men books dot com Where you can find all of the books that i've republished Um, I have a few more that will come online tomorrow a new series of biographies of famous american indian leaders Now I have three of those coming on So do check that out. I've got several dozen books there including my new american history text

1:25:09Which i reproduced from the 1920s On american history by david muzzi that's one of my new offerings Ah, that sounds very exciting And I commend to your attention whether it be for approbation or a probium The fact that miss dawn browning has written in that the last moment to gift one membership to this chat to the old gory club Thank you miss browning as ever your generosity is a light of sunshine that shines upon my shriveled heart Charlie, have you any validiction? Uh, I suppose we'll need to do a more more hammer strain as we want more money. That's the only way Ha ha ha indeed All right, well, thank you very much George Thank you very much Charlie and thank you very much chat