Future generations will look back upon the financial crisis of ‘08 as the most sensational “whodunit” of the young century. Was the Bush administration behind it all? Or was it the Democrats and their beloved Community Reinvestment Act? Were greedy Wall Street bankers and financial speculators to blame? Or was it Alan Greenspan and the Federal Reserve?
Austrian economist Dr. Thomas J. DiLorenzo has assigned blame to all of the above in his prolific writings, but in his new book, Hamilton’s Curse: How Jefferson’s Arch Enemy Betrayed the American Revolution–and What It Means for Americans Today , Professor DiLorenzo says that, ultimately, it’s Alexander Hamilton we have to thank for this mess.
Hamilton, the nation’s first secretary of the Treasury, is revered by many Wall Street-oriented “conservatives” as the founder of American capitalism. DiLorenzo says that Hamilton can indeed be credited with the economic system we have today — but it ain’t capitalism. In fact, Hamilton was an ardent believer in mercantilism — the economic system that Adam Smith railed against his book The Wealth of Nations , considered by many to be the “bible” of capitalism.
Key to Hamilton’s mercantilist agenda was a national bank (the precursor of today’s Federal Reserve) and an enduring national debt — the latter of which Hamilton actually considered a “blessing.” After all, with a high debt and wealthy patrons as bond-holders, the interests of the financial elite would be intertwined with those of the young government. Thus the rich and powerful would support higher taxes (levied against the poor, of course) and bigger government. Hamilton also favored protectionism, corporate welfare, and the abolition of “states’ rights”: hardly the hallmarks of free-market capitalism!
After early success in the Washington and Adams administrations, Hamilton and mercantilism were dealt a nearly fatal blow with the election of Hamilton’s arch-rival Thomas Jefferson to the presidency in 1800. In fact, it was Jefferson’s vice president Aaron Burr who ended Hamilton’s career in politics — along with his life — just four years later, in an infamous duel.
But even as Jefferson’s political descendants had almost-uninterrupted control of the national government for sixty years, Hamilton’s ideas lived on. After Hamilton’s Federalist Party went the way of the dinosaurs, the new Whig Party became the standard-bearers of mercantilism. When they followed the Federalists into the ash-bin of history, it was the Republican Party — led by old Whig Abe Lincoln — that emerged as the champions of central banking, protectionism, corporate welfare, and government centralism.
After the Civil War, the Republican Party had a monopoly on national politics for five decades — save for the two glorious and nonconsecutive Grover Cleveland administrations. Cleveland was the last Jeffersonian president; an icon of classical liberalism (much like what we now call libertarianism). His wing of the Democratic Party, the Gold Democrats or Bourbon Democrats, were challenged by the Jacksonian populists, led by William Jennings Bryan. This infighting let another faction — the Wall Street-backed Hamiltonian “Progressives” — emerge with the party’s 1912 presidential nomination. Since then, Hamiltonianism has ruled over both the Republican and Democratic parties.
A year after Woodrow Wilson’s election, the Federal Reserve System was born and proceeded to inflate the money supply and set up for the inevitable Crash of ‘29. It is precisely this scenario that played out once again in the aftermath of 9/11, as President Bush and Alan Greenspan conspired to create the housing bubble in order to “stimulate the economy.” The Democrats, now also a Hamiltonian party, only made matters worse by aggrandizing Fannie Mae and Freddie Mac. It may be a stretch to blame the long-dead Hamilton for our current crisis. But his ideas, and their widespread acceptance on both the left and the right, are clearly to blame.