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Source link: http://archive.mises.org/12533/jefferson-contra-hamilton-too-tame-too-late/

Jefferson Contra Hamilton: Too Tame, Too Late

April 22, 2010 by

Jefferson knew economics. He stood by the bedside of its birth in Paris; he knew its parents and godparents, both personally and by their writings. Yet he did not know what manner of child had been brought forth. FULL ARTICLE by Albert Jay Nock


maverick muse April 22, 2010 at 8:58 am

Great lesson.

If only Jefferson had been attracted to the topic of “economics” rather than simply exposed to it. In his day, the gentility Renaissance Man did not obsess on such matters without representing (as Hamilton did) the worst sort of opportunistic exploiters–the original Ugly American.

/Btw, though against the waste of tax funds required for the Treasury to alter currency, I note that Hamilton never deserved any honorable recognition from the laborers paid with his image on paper.

Dick Fox April 22, 2010 at 8:59 am

I am always amazed when libertarians praise Jefferson. They always seem to overlook that Jefferson exercised the greatest leap of government power perhaps in our nation’s history, the Louisiana Purchase. To quote Wikipedia:

“The purchase was a vital moment in the presidency of Thomas Jefferson. At the time, it faced domestic opposition as being possibly unconstitutional. Although he felt that the US Constitution did not contain any provisions for acquiring territory, Jefferson decided to purchase Louisiana because he felt uneasy about France and Spain having the power to block American trade access to the port of New Orleans.”

Now I have no problem with Jefferson’s purchase, but it dwarfs anything Hamilton may have done. Besides that Hamilton in less than four years took the US from a nation with a virtually nonexistent credit rating because we were not paying our war debts to the highest credit rating in Europe.

It is ironic that Nock criticizes Hamilton for demanding that the US honor its contractual commitments. This is a decidedly anti-libertarian position. Hamilton actually brought the US financial system back to a system of honor rather one subject to the whim of politicians.

Hamilton was not perfect but he was a far cry above anything we have in Washington today. Of course that isn’t much of a compliment.

Patrick April 24, 2010 at 12:05 am

a) I would argue that is is a bad thing for a government to obtain a higher credit-rating. That means it can borrow money more easily, which enables it to enslave the population more easily.

b) <> That is absurd. It is just the opposite. The libertarian position is for the government to default. Why? Because the government has no money of its own….or the government to “honor its contractual commitments” it has to plunder from the people (ie. violate their liberty!).

Do some more thinking on libertarian philosophy.

Thomas DiLorenzo April 22, 2010 at 11:42 am

Libertarians praise Jefferson because he was a brilliant articulator of the ideas of freedom, and the most forceful opponent of the dangerous statism of Hamilton and his compatriots. Hamilton was a tireless advocate of central banking, protectionism, corporate welfare, heavy taxation, a large public debt, centralized governmental power, a dictatorial “permanent” president, a standing army, and military adventurism in the name of “imperial glory.” He was a mercantilist and an imperialist. Jefferson organized the opposition on every one of these issues. When Jefferson said in his first inaugural address that “A wise and frugal Government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good govenment,” Hamilton condemned it as “the symptom of a pygmy mind.”

No libertarian I’ve ever heard of has ever said that Jefferson was perfect in every way, which is the gist of Dick Fox’s straw-man argument. Nor did Hamilton’s debt assumption create a great credit rating for the U.S. government, as Dick Fox erroneously claims. After nationalizing the debt, the national debt soared to over $80 million, and to service this debt, almost 80 percent of the annual expenditures of the government were required, as John C. Miller wrote in his book, The Federalist Era. Miller calls it “a staggering burden of debt.” That’s what Hamilton’s debt assumption scheme wrought.

Dick Fox April 23, 2010 at 10:50 am

I reread Professor DiLorenzo’s post to make sure I was being fair. Notice this quote.

When Jefferson said in his first inaugural address that “A wise and frugal Government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good govenment,” Hamilton condemned it as “the symptom of a pygmy mind.”

How would you characterize the Marxist labor theory of value? I believe I must agree with Hamilton here.

Patrick April 24, 2010 at 12:07 am

Dick: why are you asking how Dilorenzo characterizes the Marxist labor theory of value? It’s bogus! Value is subjective…it is not determined by labor input…Why are you asking this on Mises.org? This is an economics site.

Dick Fox April 26, 2010 at 7:56 am


Don’t be thick. It is Jefferson who holds the Marxist labor theory of value, and if you don’t know that that is an economic concept you need to start over with your economic education.

Dick Fox April 22, 2010 at 3:35 pm

Here is a portion of an article I wrote for another site. You will read nothing on economics like this from Jefferson.

Hamilton’s Solution

Immediately after his confirmation Congress assigned Hamilton an unprecedented task, one that has been left undone for 15 years. He was ordered to prepare a report on the public credit, and to present it to the congress in three months. Hamilton set to the task and almost totally by his own efforts and his own hand completed and submitted the Report on the Public Credit to congress on January 9, 1790.

During the war Hamilton had used his free time to study both government organization and government finance. He knew that few, if any, of the members of congress understood national finance so his report not only reported the status of the public credit, but was a primer on national finance and a blueprint for legislation to cure the national economic ills.

Hamilton, never shy, began the report, not with details of the contemporary financial conditions, but rather striking at the source of the problem, the reputation of the government.

“For when the credit of a country is in any degree questionable it never fails to give an extravagant premium in one shape or another, upon all the loans it has occasion to make. Nor does the evil end here; the same disadvantage must be sustained upon whatever is to be bought on terms of future payment.”

Then, continuing to emphasize the importance of reputation, he addressed the primary argument of necessity.

“Every breech of the public engagements, whether from choice or necessity, is in different degrees hurtful to public credit.”

Hamilton then rhetorically asked and answered the obvious question.

“If the maintenance of public credit, then, be truly so important … by what means is it to be effected? The ready answer … is, by good faith, by a punctual performance of contracts.”

Obviously Hamilton had correctly identified the problem, but his opening remarks were anything but politically correct. Most of the members of the current congress had also been members of the congress under the Articles of Confederation, and some were directly involved in managing the national finances. Criticism of the current situation as stemming from a moral problem was a direct challenge to many members of this sitting congress.

But Hamilton’s blow to their honor was small compared to his recommended solution. His first suggestion met with little opposition, because it was necessary to repair the national reputation and to secure a place in the nations of the world. The congress could understand the necessity.

“…that part of the debt which has been contracted abroad, and is denominated the foreign debt, ought to be provided for, according to the precise terms of the contracts relating to it…. [This] is agreed on all hands….”

But the members of congress looked on the domestic debt as an extension of taxation. They essentially forced the holders of domestic debt, soldiers, merchants, and others who had sacrificed for the war effort, to shoulder even more of the burden. But Hamilton understood that the reputation of the nation was also determined by how it honored its domestic commitments and so he placed the challenge right at the feet of the members of congress.

“It is to be regretted that there is not the same unanimity of sentiment on this part, as on the other.”

Hamilton rejected anything short of full redemption of all debt, because anything less

“… is inconsistent with justice … a breech of contract; in violation of the rights of a fair purchaser.”

But not only were all debts to be assumed, they were to be paid at specie value and with interest where applicable including the useless continental money.

“And let all sums of the Continental money now in the treasuries of the respective states … be credited at specie value.”

To most this seems like an honest, common sense approach, but Hamilton’s report was like a thunderclap in the city of New York. New York City had been the home of the Continental Congress since 1785, but it was also the financial center of the country. When word of Hamilton’s proposal was leaked to the financial district, it spread like wildfire. Speculators were posted throughout the states prepared to buy government paper, and one Connecticut congressman was reported to have hired two ships to head south to buy as much government debt as possible. Later documents showed that even Hamilton’s assistant, William Duer, created a syndicate with financier William Bingham to buy backcountry securities.18 Government paper in general had been selling for $0.10 on the dollar in distressed areas, but as news of Hamilton’s report slipped out speculators began to offer three to four times the normal rate.

When southern legislators learned of the speculators attempts to profit from Hamilton’s proposal, a cry went up from members of congress appalled that speculators would take advantage of the poor holders of government debt. They leveled their attacks directly at Hamilton, and attempted to change his plan by having the original holders of the debt compensated. Though Hamilton had addressed this argument in the report, his plan faced powerful opposition, significantly from Madison and Jefferson. But what was lost in the debate was the fact that Hamilton’s plan had produced immediate results. Virtually overnight the current value of government debt began to recover.

Hamilton and Money

Hamilton, unlike most others, had a much deeper understanding of the national debt. He understood that restoring faith in the national finances would do much more than simply facilitate the nation’s ability to borrow, and what he saw was “less obvious, though not less true.”

“It is a well known fact, that in countries in which the national debt is properly funded, and an object of established confidence, it answers most of the purposes of money. Transfers of stock or public debt are there equivalent to payments in specie; or in other words, stock, in the principal transactions of business, passes current as specie.”

With this understanding Hamilton knew it was critical that he win his battle with the southern legislators. If they succeeded it would be a critical defeat to the acceptance of government bills as money. If government bills of credit were restricted in exchange from one person to another person they would not function as money.

“… notice the effect … upon two persons, who may be supposed two years ago to have purchased, each, securities at three shillings in the pound and one of them to retain those bought by him, till the discrimination should take place; the other have parted with those bought by him within a month past at nine shillings. The former, who had had most confidence in the government, would in his case only receive at the rate of three shillings and the interest while the latter, who had less confidence would receive for what cost him the same money at the rate of nine shillings and his representative, standing in his place, would be entitled to a like rate.

The impolicy of a discrimination results from two considerations; one, that it proceeds upon a principle destructive of the quality of the public debt, to the stock of the nation which is essential to its capacity for answering the purposes of money – that is the security of transfer, the other that as well on this account, as because it includes a breach of faith, it renders property in the funds less valuable; consequently induces lenders to demand a higher premium for what they lend, and produces every other inconvenience of a bad state of public credit.

It will be perceived at first sight, that the transferable quality of stock is essential to its operation as money….”

But we must not confuse Hamilton’s understanding of debt as money to be a recommendation to issue fiat money. In his Report on the National Bank presented to congress December 13, 1790, he states clearly:

“… the emitting of paper money by the authority of government is wisely prohibited to the individual states by the national constitution. And the spirit of that prohibition ought not to be disregarded by the government of the United States.”

Then continuing to make the distinction he stated:

“Among other material differences between a paper currency, issued by the mere authority of Government, and one issued by a Bank, payable in coin, is this – That in the first case, there is no standard to which an appeal can be made, as to the quantity which will only satisfy, or which will surcharge the circulation; in the last, that standard results from the demand. If more should be issued, than is necessary, it will return upon the bank. Its emissions, as elsewhere intimated must always be in a compound ratio to the fund and to the demand: whence it is evident, that there is a limitation in the nature of the thing: while the discretion of the government is the only measure of the extent of the emissions, by its own authority.”

But from 1775 through 1779, when the Continental ceased trading, the aggregate amount issued had increased from the initial $2,000,000 offering to $242,000,000. Why would Hamilton want to increase the existing supply of money? Wasn’t this exactly the action that doomed the Continental?

Returning to the Report on Public Credit we can see that Hamilton had a complete understanding of money and of the real reason the Continental failed.

“But these good effects of a public debt are only to be looked for when, but being well funded, it has acquired an adequate and stable value. Till then, it has rather a contrary tendency. The fluctuation and insecurity incident to it in an unfunded state render it a mere commodity, and a precarious one. As such, being only an object of occasional and particular speculation, all the money applied to it is so much diverted from the more useful channels of circulation in fact, one serious inconvenience of an unfunded debt is, that it contributes to the scarcity of money.”

The nation faced not a glut of money because of the Continental, but a shortage of money due to its failure.

Hamilton’s Words Today

When Hamilton informed President Washington on December 1, 1794 of his intention to resign he had served as Secretary of the Treasury only slightly more than 5 years, but during that time he had taken the nation’s credit from the lowest rating in Europe to one of the highest. In 1789 no nation would willingly loan additional funds to the United States but in 1794 United States bonds were selling in Europe for 10% over par. Tallyrand wrote that the bonds of the United States were “safe and free from reverses. They have been funded in such a sound manner and the property of this country is growing so rapidly that there can be no doubt of their solvency.”

Dick Fox April 22, 2010 at 4:04 pm

So what of Jefferson’s economics. He was virtually ignorant but acted in a way as if he understood. He wanted the US to become an agririan utopia. And is presidency was much more autocratic than either Washington or Adams.

But let me not use my words. Here from Wikipedia.

The Embargo Act of 1807 … was drafted at the request of President Thomas Jefferson and subsequently passed by the Tenth U.S. Congress…. Congress initially acted to enforce a bill prohibiting imports, but supplements to the bill eventually banned exports as well.

The Act:

laid an embargo on all ships and vessels under U.S. jurisdiction,
prevented such ships and vessels from obtaining clearance to undertake voyages to foreign ports or places,
allowed the President of the United States to make exceptions for vessels under his immediate direction,
authorized the President to enforce these provisions via instructions to revenue officers and the Navy,
was not construed to prevent the departure of any foreign ship or vessel, with or without cargo on-board,
required a bond or surety from merchant ships on a voyage between U.S. ports, and
exempted warships from the embargo provisions.

Jefferson’s Secretary of the Treasury Albert Gallatin was against the entire notion, foreseeing correctly the impossibility of enforcing the policy and the negative public reaction. “As to the hope that it may…induce England to treat us better,” wrote Gallatin to Jefferson shortly after the bill had become law, “I think is entirely groundless…government prohibitions do always more mischief than had been calculated; and it is not without much hesitation that a statesman should hazard to regulate the concerns of individuals as if he could do it better than themselves.”

Since the bill hindered U.S. ships from leaving American ports bound for foreign trade; it had the side-effect of hindering American exploration.

Although he was born into one of the wealthiest families in North America, Thomas Jefferson was deeply in debt when he died.

But that is enough. I do not want to attack Jefferson only respond so that he is seen in an honest light.

B April 22, 2010 at 10:51 pm

I think both of you have established that Jefferson and Hamilton were quite far from ideal. I do, however, sympathize with Dick Fox’s stance. Jefferson certainly produced inspirational words, but the gap between his actions and his libertarian writings seems too wide for me to reconcile.

Michael A. Clem April 23, 2010 at 8:40 am

I dunno–I still think that Hamilton was more dangerous than Jefferson. An in-depth look at the Founding Fathers and early presidents might be used as an argument against minarchism.

mr taco April 23, 2010 at 4:03 pm

i like Jefferson better because he is on my twenty dollar bill and Hamilton is on the ten dollar bill

that right there speaks about their character

Del Lindley April 23, 2010 at 6:17 pm

You had better look again because Jackson is on all of my twenties. By your measure it is Jackson that beats Hamilton, and this makes sense if we use their level of central bank distrust as the measuring stick. I believe Jefferson is on the rarely seen two dollar bill.

mr taco April 24, 2010 at 3:50 am

oops idiot moment
nothing to see here people

Zorg April 24, 2010 at 2:37 am

It’s not hard to figure out why there is a gap between Jefferson’s idealistic writings
and his concrete political actions. It is the political system itself which shapes the people
who participate in it. Once the institution of the federal gov’t is established, it’s just
foolish to expect that people will go there and not use its power – especially when they
can define the limits of its power either implicitly or explicitly. The power is there
*precisely* to be used.

As soon as the “general government” was established it began giving itself more and
more power. In the case of Jefferson’s Louisiana Purchase, it was something that he
correctly perceived he could do and get away with. This is defining your powers
implicitly; you simply take action. If there is no huge outcry (and even if there is),
you establish a precedent by a pattern of acting. Then suddenly people will find this
power retroactively in the Constitution and call you crazy for questioning it! We
all know that the word of the Constitution will not jump up and stop people from
taking action. They are just words. It’s always about PR, isn’t it, and 51%?

This is why I find it hard to have any faith in reforming central gov’ts. They are
designed to resist reform. They should be collapsed, ignored, pulled away from.
Fighting over control of them just seems to give them legitimacy over and over again.
At least we can look to Jefferson for his vision of decentralized power and his
support of nullification as a way to free ourselves from the delusion that we can reform
the devil.

I think Jefferson and others simply thought that if things got too bad that the
states would just resist and pull away, so perhaps he could afford to be a bit
nonchalant about strict adherence to the Constitution thinking that there would
be some sort of self-regulation. This is fine theory and it can still be possible, but in
retrospect the founders didn’t give us much of a way out. The fact that there is
no an explicit right to secession in that document has always bothered me. Did
this simple consideration escape them? I suppose the 9th and 10th were meant
to substitute, but since they depend upon who’s interpreting them, what good are
they? I doubt anyone could pull off explaining away the word “secede” the way they
do “powers not delegated.”

Anyway, we shouldn’t expect these people to have been perfect. They were all
swept along by history just as we are. Even if you’re Jefferson, you’re still just one
individual. I still think he’s the best of that whole crowd, and we can learn from his
words if not all his actions.

Dick Fox April 26, 2010 at 8:21 am


I do believe the only government that will ever function as a protector of the liberty of its people is a liberal, constitutional, democratic republic as designed by the US Constitutional Convention.

The problem comes from two sides. On one side are those who would constrain the constitution to such a point that a federal government cannot exist. On this side you find the supporters of the old Articles of Confederation and the Jeffersonians.

On the other side you will find the despots like Aaron Burr.

But the concept of James Madison and Alexander Hamilton when they began planning the Constitutional Convention were workable and brilliant.

The essence of Madison’s thought can be found in his last veto two days before he left office. In it he stated:

Veto of federal public works bill
March 3, 1817
To the House of Representatives of the United States:

The legislative powers vested in Congress are specified and enumerated in the eighth section of the first article of the Constitution, and it does not appear that the power proposed to be exercised by the bill is among the enumerated powers, or that it falls by any just interpretation with the power to make laws necessary and proper for carrying into execution those or other powers vested by the Constitution in the Government of the United States.

Hamilton took the idea of Madison and argued to President Washington that there must be implied powers in the constitution to fulfill the specific and enumerated power in the eighth section. Contrary to popular myth Hamilton never argued against Madison’s concept of specific and enumerated powers. He did reject Jefferson’s position that those activities that allow the federal government from exercising the specific and enumerated powers are also unconstitutional. Hamilton would be right at home with a requirement that all laws detail their constitutional authority. In the end Jefferson proved Hamilton right when Jefferson himself exercised the impled powers to perform his requirements as President.

I do believe in our form of government and I do fight to return us to the foundational principles.

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