Why Did This Happen?

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Let us briefly review some of the more notorious behavior of the federal government in recent years that has spawned the current economic crisis. First, every law and government agency having anything to do with housing policy, from HUD to the Fed, FDIC, Comptroller of the Currency, Office of Thrift Supervision, enforcers of equal-lending laws, Fannie Mae and Freddie Mac, the Community Reinvestment Act, Congress, and more, did everything possible to force or bribe mortgage lenders into making trillions of dollars of bad loans to unqualified "subprime" borrowers. Among the various rationales that were given for this monumentally stupid policy were "discrimination," which the Fed admitted there was no evidence of when confronted by Forbes journalists Peter Brimelow and Leslie Spencer in the 1990s. Banks and mortgage lenders made trillions of dollars of bad loans as the Fed assured them that the risk could be swept away when Fannie and Freddie "securitized" the loans and sold them. And there was always an implicit (wink, wink) promise of a bailout if worse came to worse (as it did).

HUD announced in the early 1990s that its top policy priority was to sharply increase the percentage of Americans who owned their own homes, whether they could afford to own a home or not. The home building and mortgage finance industries applauded and supported this brand of egalitarianism run amok. The real culprit, however, was the Greenspan Fed, which flooded the markets with cheap credit, creating the housing market bubble which of course has now burst. Has anyone seen or heard from Alan Greenspan in the past eighteen months, by the way?

Wall Street bankers simply made the most of the incentives created for them by government. There was no sudden outburst of "greed" on Wall Street, as some of the dumber academics and pundits claim to be the cause of the current economic depression.

Having created an economic depression, the same government then threatened the end of the world as we know it unless we all acquiesced in giving trillions of dollars to the financiers of the Democratic and Republican parties, the big Wall Street banks. More than 70 percent of the public opposed this according to opinion polls which, during the presidential campaign, were treated as Holy Gospel by the media and Washington elite. When billionaire New York City Mayor Michael Bloomberg sued the Fed to learn who, exactly, the money was given to, the federal courts essentially gave him a great big middle finger and told him to get lost.

During the 1970s many American pundits ridiculed the British practice of bailing out failing industries because it caused "the British Disease," i.e., a grossly inefficient and uncompetitive economy. Subsidizing business failure breeds more failure. We are now doing the same thing, but many orders of magnitude greater. The most egregious example of this disastrous policy is the billions of tax dollars promised General Motors and Chrysler and their productivity-destroying unions.

Economists used to fear inflation when the monetary base grew any faster than say, 5 percent per year; today it grows faster than 100 percent, or higher, as the federal government attempts to print and spend money like it’s growing on trees. Ordinary citizens instinctively understand that this is insane, but the government has about as much respect for them and their opinions as the federal courts had for Mayor Bloomberg.

Economists also used to warn about the accumulation of too much government debt. Some still do, but the federal government pays no attention at all to them as it accumulated over a trillion dollars in debt in the past year alone. Every baby born in America who becomes a productive, taxpaying citizen will automatically owe hundreds of thousands of dollars to the IRS as his or her share of the national debt.

The Obama administration has proceeded to impose extremely burdensome environmental regulations which will deepen the depression, and lusts to take at least another trillion dollars out of the private sector (for starters) in order to buy votes with it and guarantee Obama’s reelection. Most Americans are very easily duped by simply calling this economically-devastating political scam a "stimulus package." It, too, will only deepen the depression. The money has to be taken from the private sector one way or another. It will only depress the private economy even further while ballooning government even more.

How Did This Happen?

How did America in the twenty-first century end up with a government that is so highly centralized that the president alone can order the expenditure of hundreds of billions of dollars without the consent of Congress, let alone the public? How did we end up with a government that creates severe economic hardship for average citizens while showering big, politically-connected businesses with literally trillions of dollars in "bailout" money? Is this the real purpose of the Fed, as opposed to all of its happy talk about its supposed duty to "stabilize" the economy? And why is it that the Constitution is completely ignored, if not ridiculed, by the same Washington politicians who all that take an oath to defend the Constitution?

How did the federal judiciary become mere accomplices in our government-for-the-privileged-only "democracy" that routinely tells citizens to get lost whenever they inquire about how their tax dollars are being spent? And is it really desirable to have over half of the entire adult population "on the government dole" in one form or another so that they never oppose an expansion of the state for fear of losing their own subsidies? How and when was this system created?

The answer to all of these questions is that ideas do matter, and that the vast majority of Americans long ago abandoned the Jeffersonian ideas that "that government is best which governs least"; that if we are to have a central government, it must be "bound by the chains of the Constitution"; that the only possible way of controlling the federal Leviathan state is by empowering the citizens through political communities organized at the state and local level ("states’ rights"); that citizens, if left to their own devices, will prosper by pursuing their own self-interests under a rule of law; and that the only legitimate purpose of government is the protection of our God-given rights to life, liberty, and the pursuit of happiness.

Americans are fond of quoting Jefferson, George Will once wrote, but "we live in Hamilton’s country." George Will was right. The great debate between Jefferson and Hamilton over the nature of government in America was decisively won by the Hamiltonian nationalists by the end of the nineteenth century (Grover Cleveland was the last president who had genuine Jeffersonian sympathies). Hamiltonian nationalism has festered ever since and has become the reigning American political philosophy, leaving us with the current economic debacle. Hamilton himself condemned Jefferson’s political philosophy shortly after President Jefferson delivered his first inaugural address by calling it "the symptom of a pygmy mind."

What is Hamiltonian nationalism? Hamilton himself argued at the constitutional convention for a "permanent president" who would appoint all the governors of the states, who would in turn have veto power over all state legislation. States’ rights would have been destroyed, and America would have essentially become a monarchy. That’s where America stands today, for all practical purposes. Especially since the advent of the federal income tax in 1913, the states are mere appendages of the central state who can be easily bribed into doing whatever the federal executive wants them to do. All it takes is a threat to withdraw a few million dollars in highway grants. Consequently, Americans have long been servants rather than masters of their own central government as their presidents wield dictatorial powers.

American presidents have far more dictatorial powers than any European monarchs of Hamilton’s time had. Today an American president can, on his own, order the bombing of any country in the world without offering an explanation to anyone; eavesdrop on any phone conversation or email; and imprison citizens without due process by calling them "enemy combatants." The "imperial presidency" was a part of Hamilton’s grand plan, and that is exactly what we have today.

Hamilton was a foreign policy imperialist who wanted to go to war with France (for starters) in order to pursue "imperial glory" (and "glory" for himself as well). Jefferson, on the other hand, understood that war was always and everywhere the great destroyer of wealth and liberty. Hamilton was the original neo-con when it comes to foreign policy.

Hamilton was the founding father of central banking, according to a Fed publication entitled "A History of Central Banking in America." He wanted a bank run by politicians out of the nation’s capital and partly capitalized with tax dollars as a vehicle for financing his other main objective: corporate welfare. As the founder of America’s first central bank, the Bank of the United States, he wanted to use the bank to subsidize his (and his political party’s) political power base, which was primarily Northern merchants and bankers, such as his political mentor Robert Morris.

It was Morris who urged President George Washington to appoint Hamilton as the first treasury secretary despite the fact that he had little knowledge and no experience in finance (apart from being a clerk for slave-owning molasses exporters in the Caribbean as a teenager) when the Revolutionary War ended. The Fed’s trillion-dollar bailout of irresponsible bankers is Hamilton nationalism par excellence.

Hamilton was also the founding father of "crony capitalism" in America with all of his schemes for subsidizing businesses and his advocacy of protectionism, as outlined in his famous Report on Manufactures. He coined the phrase "The American System" to describe this Americanized version of British mercantilism (corporate welfare, protectionism, and central banking).

America’s national debt now stands at about $10 trillion; $70 trillion and counting if one includes the unfunded liabilities of Social Security, Medicare, government pensions, and Lord knows whatever other promises will be made during the current crisis. This too is pure Hamiltonianism, for it was Hamilton who called the public debt "a public blessing." It was a blessing, he said, because it would help to grow the state by attaching the wealthier people of the country to the state. As government bondholders they would always be relied upon to support higher taxes and a bigger government, reasoned America’s Machiavelli, a man whom his nemesis Jefferson once called "a political colossus." "We need a government of more energy," Hamilton once complained to George Washington.

Hamilton succeeded beyond his wildest dreams in this regard. It is not only the bondholders but also the investment bankers who market the bonds for the government who have long been a powerful political force for bigger government. That’s why the Treasury Secretary is almost always the CEO of Goldman Sachs or some other Wall Street financial institution such as the New York Fed. Ever since the New Deal, politicians have realized, in fine Hamiltonian tradition, that the poor as well as the rich can be bribed into becoming reliable lobbyists for statism, all at the expense of the middle class taxpayers.

Hamilton did caution against "excessive debt," but then he spent the rest of his life recklessly advancing the cause of excessive and unconstitutional government, excessive debt and all. It was Hamilton who first invented the notion of "implied powers" of the Constitution, and taught generations of lawyers how to subvert the General Welfare and Commerce Clauses of the Constitution to render its restrictions on federal power meaningless. As constitutional historian Clinton Rossiter wrote in Alexander Hamilton and the Constitution, ever since the 1930s "the principles of nationalism and broad construction [of the Constitution] expounded by Hamilton and his disciples" monopolized "discussion of constitutional law." The "formula" for unlimited government, Rossiter approvingly proclaimed, was invented by Hamilton and refined by his political disciples: "the commerce power + the war powers + the power to tax and spend for the general welfare x the loosest possible reading of the words u2018necessary and proper.’"

Just as the ideas of Karl Marx provided the ideological rationale for socialism during the twentieth century, Hamilton’s mercantilist/nationalist/monarchist ideas comprise the essential ideological underpinnings of the American empire. In his book, Hamilton’s Republic, Michael Lind assembled essays and excerpts from essays and speeches from a pantheon of Hamiltonian-minded politicians, pundits, and intellectuals throughout history. Among Hamilton’s ideological disciples who contributed to America becoming "Hamilton’s country," writes Lind, are: Ralph Waldo Emerson, Herman Melville, Theodore Roosevelt, Herbert Croly (founding editor of The New Republic), historian Samuel Beer, James Wilson, John Jay, George Washington, John Marshall, Daniel Webster, Edward Everett, Francis Lieber, Abraham Lincoln, Samuel Huntington, Henry Cabot Lodge, Walter Lippmann, George C. Marshall, Dean Acheson, John Quincy Adams, Friedrich List, Henry Carey, FDR, and Lyndon Johnson.

Lind is correct when he writes that "however powerful Jeffersonian rhetoric remains in American public discourse, it is the Hamiltonians who have won the major struggles to determine what kind of country the United States would be." The above-mentioned men may have relied mostly on persuasion and propaganda, but force, coercion, and the waging of total war on American civilians as well as combatants was also necessary. "Lincoln and Grant settled the question of whether the United States was a nation-state [the Hamiltonian view] or a loose alliance among sovereign states [the Jeffersonian view]," writes Lind. In the eyes of Hamiltonian nationalists the legitimacy of the powers of the central government always come down to this argument — that might makes right.

Lind also celebrates the Hamiltonian "victory" during and after the New Deal when "The New Deal of Franklin Delano Roosevelt and the Great Society of Lyndon Baines Johnson made a majority of American citizens direct beneficiaries of federal entitlement programs — to the horror of Jeffersonians, who beheld a virtuous population being corrupted by dependence on the state."

The only way out of this mess for America — or at least part of America — is to re-embrace the Jeffersonian vision and abandon the dangerous statist superstitions of Hamilton and his followers, from the notion of a "living constitution" to the necessity of a monopolistic, nationalized money supply, to the "blessings" of unlimited public debt, and the absurd notion that one man, Alexander Hamilton, was the sole "architect" of the entire U.S. economy (Pat Buchanan’s favorite Hamiltonian superstition).

Accepting the Jeffersonian philosophy would also include taking seriously the right to peaceful secession, as Jefferson himself did. In his latter years the author of America’s declaration of secession from the British empire predicted that America would probably become several different republics through acts of peaceful secession. He further said that he would wish them all well, since they would all be "our children." The last thing to have entered his mind would have been to wage war on any seceding region, killing its citizens by the hundreds of thousands, burning its towns, and plundering its wealth. He would have thought of such actions as being more barbaric than anything any European despot had ever done. He certainly would not have celebrated such barbaric actions in the name of "national unity," a "new birth of freedom," or "the glory of the coming of the Lord" as generations of Hamiltonians have done.

Thomas J. DiLorenzo [send him mail] is professor of economics at Loyola College in Maryland and the author of The Real Lincoln; Lincoln Unmasked: What You’re Not Supposed To Know about Dishonest Abe and How Capitalism Saved America. His latest book is Hamilton’s Curse: How Jefferson’s Archenemy Betrayed the American Revolution — And What It Means for America Today.

Thomas DiLorenzo Archives at LRC

Thomas DiLorenzo Archives at Mises.org

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