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Sunday, June 3, 2012

President Washington's Dilemma, or The Birth of US Capitalism

Capitalism is born and the stage becomes set for an insidious contest among ordinary citizens to accumulate the trappings of material wealth, as a symbol of success and status for other ordinary citizens.
 Does this system facilitate the pursuit of happiness?  Or, was it implemented simply to fulfill a numbers game?  You decide.

President George Washington was faced with quite a dilemma.  The new constitution of 1789 was not intended to embody a particular economic theory.  The difficulty was in weighing the advice of his cabinet members, which was at odds.  On the one side was the financial plan of his Secretary of the Treasury, Alexander Hamilton, and on the other the opposition of his Secretary of State, Thomas Jefferson.

Discussed previously and summarized briefly here, Hamilton’s financial plan set forth a banking system structured on the successful British model of capitalism. It specified, among other things, the creation of a central banking system under one supreme National Bank.  This bank was to be in corporation form, chartered under the authority of the new federal government of the US (today seen in the form of the Federal Reserve, headed by Benjamin Bernanke).

Hamilton’s plan conceived a new class of speculative wealth and money-making, endorsed by the full faith and credit of the US government.  Members of Congress, as well as the bankers and speculators, all more or less positioned on the inside, were the earliest plan subscribers and beneficiaries.  By and through its undertaking the new federal government created a system of preference for the so called moneyed class over the remaining classes of society that were not moneyed.

In contrast, Jefferson represented a class of citizens whose prosperity was derived from a farming economy.  As such, he objected strenuously to Hamilton’s plan, since it created an artificial class of wealth with certain inherent privileges to certain of its benefactors, which were not the privileges of all citizens.  As such, it clashed with and violated Jefferson’s ideals, which were in direct conflict.  Specifically, in Jefferson’s opinion, Hamilton’s

system flowed from principles adverse to liberty, and was calculated to undermine and demolish the republic, by creating an influence of his department (i.e.: Treasury, within the executive branch) over members of the legislature (i.e.: Congress).

As Hamilton well knew, the “influence” to which Jefferson was referring, and which Hamilton’s banking system created, was inherently susceptible to corruption, according to the laws of human nature.  In permitting some to hold for life, some hereditary, an influence by patronage or corruption over the popular legislative branch, the free election of the people would be reduced to a minimum.  The government would consequently be narrowed into fewer hands and approximated to a hereditary form.

Economically, according to Jefferson, Hamilton’s plan meant the need for a paradigm shift to restore simple republican principles.  In this context, a traditional, “real” economy had to be restored, where a bushel of wheat was worth whatever a bushel of wheat was worth at the particular time it was brought to market.  This was opposed to a contrived, artificial, futures trading economy of corrupt Wall Street money speculators that Hamilton’s plan created, attracted and nurtured.  Once unleashed, the ominous, dark side of human nature was unfortunately showcased in full display.

And so here was President Washington’s dilemma in full view.  In the end, the president endorsed Hamilton’s plan, based on a balancing of interests.  On the one hand, the idea was that the plan would do the greatest amount of good for the greatest number of people (on the “happiness” scale!).  On the other hand, the plan would invariably cause collateral damage to the system, however small it would likely be portrayed.  Yes, in the end it was simply a numbers game.

As early as July 4, 1792, in the time period immediately preceding Washington’s re-election to a second Presidential term, a proponent of Thomas Jefferson published a provocative article.  A set of rules were set forth “‘for changing a limited republican government into an unlimited hereditary one’, the most important of these being to increase the national debt and establish a bank.”  However, by the time he had his turn as chief executive, and with the popular support to do as he wished, Thomas Jefferson performed an interesting about face.  Although he viewed the national bank as both an unnecessary and corruptive influence, he chose to extend its charter, on the evolving theory, simply, that “the ends be legitimate.”

The stage had thus been set, and would be intensified later by the material progress of the Industrial Revolution, for the US to become the greatest and most wealthy goods producing machine in the world.  Well, one where wars would no longer be fought, at least internally, over God, thanks to the 1st Amendment’s expression of freedom of religion.  This was the positive aspect.  We know the negative ramifications. And, consider this inevitable clash: When capitalism is intermingled with the principles of Jefferson’s separation of church and state, the new standard of worship for American society is no longer God, but money.

It certainly turned out to be a wise decision --- for empire.  But reducing the Almighty to secondary status would not be without continuing moral consequences.  For a nation which prided its foundation on Christian principles, was it the right decision?  If as it is argued by many that America has lost its way, is the self-interest component which has become so pronounced the primary culprit?  Is the ordinary citizen “happy” that noble virtues like compassion and mercy yield to organized corruption which expresses the moral sickness of a greedy society?

-Michael D’Angelo


  1. I, for one, am not.

  2. What, pray tell, was the scalable - yet incorruptable - economic system that God was reccommending at the time that Hamilton's economic theories layed the basis for the United States to become the dominant economic power of the wole world?