Our Founding Financial Dictator?


When I appeared on MSNBC’s "Morning Joe" show recently to discuss my new book, Hamilton’s Curse, one of the first things fellow guest Pat Buchanan said to me was, "How could you criticize Hamilton? He’s the architect of the American economy!" Hamilton biographer Ron Chernow claims that Hamilton was "the prophet of the capitalist revolution in America"; and New York Times columnist David Brooks has written that Hamilton single-handedly "created capitalism." Forrest McDonald gives Hamilton almost all of the credit for America’s becoming the richest nation "in the history of the world."

What have these men been smoking? If the study of economics has taught the world anything over the past 250 years, it is that a capitalist economy is the result of human action but not of human design, as F.A. Hayek said. It is the result of the efforts of thousands, or millions, of workers, consumers, entrepreneurs, inventors, marketers, and business managers of all kinds. Not even the Russian communists claimed that a socialist economy could possibly be the work of one man: They "planned" their economy with politburos and central-planning committees.

Hayek’s most famous insight, which was the topic of his Nobel Prize acceptance speech, was that no human mind could possibly process all of the information that is required in even the smallest market society. This is because most of the information that is used is not scientific information but "information of time and place," i.e., the nitty-gritty, detailed information that millions of individuals utilize to perform their jobs, from the butcher at the local grocery store to the automobile technician, the school teacher, the farmer, to the CEOs of the largest corporations. No computer is capable of processing this information, which is constantly changing, day by day. Hayek called the bogus notion that one man, or one committee, could possibly be the "architect" of an entire economy "the pretense of knowledge" and "the fatal conceit." It helps to explain why socialism never worked, and it also explains the foolishness of the claims about Hamilton that are made by his worshippers who seem to think of him as some kind of Wizard of Oz rather than as the rather egomaniacal, statist politician that he was.

Nor was Hamilton "the prophet of capitalism," as Ron Chernow has said. Chernow apparently does not know what capitalism is, for Hamilton was an enemy of free-market capitalism and early America’s foremost proponent of mercantilism, the system of government-granted monopolies, corporate welfare, protectionist tariffs, and other policies that generally benefited politically-connected businesses at the expense of the rest of society. It was exactly this system that the real prophet of capitalism during Hamilton’s time, Adam Smith, criticized so effectively in his great treatise The Wealth of Nations. Thomas Jefferson knew what he was talking about when he said that Hamilton’s interventionist schemes, from protectionism to corporate welfare to central banking were "the means by which the corrupt British system of government could be introduced into the United States." In his 1905 biography of Hamilton William Graham Sumner wrote that Hamilton’s entire being "quivered" with the urge to personally regulate and plan all commerce in America. This impulse of Hamilton’s was not on behalf of capitalism but of central planning, the hallmark of early twentieth century socialism.

Hamilton ignored or was unaware of most of the scholarship of economics of his time, as well as the history of capitalism. As Nathan Rosenberg and L.E. Birdzell, Jr. wrote in How the West Grew Rich, "By 1750, three hundred years of gradual expansion of markets had been accompanied by a corresponding expansion in production, both in agriculture and handicrafts." And all of this occurred without any one "architect." Indeed, the attempt by communist Russia to impose committees of "architects" as central planners of the Russian economy destroyed generations of accumulated capital and production, and placed that country far behind the more capitalistic countries like the U.S. in terms of economic growth and prosperity.

The institutions of capitalism that were developed in Europe were imported to the U.S. by British culture. Economic development was occurring all around Hamilton as a result of the free market, although it was hindered by various government regulations and taxes. Hamilton seems to have been oblivious to all of this in his voluminous writings on economics, which William Graham Sumner concluded were a mass of confusion, "befogged in the mists of mercantilism."

By the eve of the American Revolution, New England had developed a highly successful commercial fishing industry that accounted for 10 percent of all exports to Europe. New Englanders pioneered the whale oil industry (the chief source of light) and had become master shipbuilders with the third largest fleet in the world.

The South and the Mid-West developed America’s agriculture industry, and by 1776 the American economy was ten times larger than it was at the turn of the century. All of this occurred long before Hamilton wrote any of his "reports" to Congress on manufacturing, public debt and central banking, and without the benefit of any central-planning architect.

The notion that any one man could possibly be an "architect" of an entire economy seems to be a form of adolescent hero worship that some people have never outgrown. Opinion makers, columnists, and book authors who make such claims are behaving in an extraordinarily negligent way when they refuse to educate themselves on some of these most elementary economic concepts — concepts that are routinely taught to college freshmen — while making pronouncements about the origins of American capitalism. Sometimes this negligence becomes totally absurd. A recent historical exhibit in New York City was labeled: "Alexander Hamilton: The Man Who Made America."