Hamilton, Madison, and the Paradox at America’s Heart

Alexander Hamilton and James Madison (Portraits by John Trumbull, John Vanderlyn/Wikimedia)
The tension between nationalist ambitions and republican principles goes all the way back to our nation’s founding.

Editor’s Note: The following is an excerpt from Mr. Cost’s new book, The Price of Greatness: Alexander Hamilton, James Madison, and the Creation of American Oligarchy. It is adapted here with permission.

James Madison and Alexander Hamilton belonged to a political movement in the 1780s that generally cohered around three basic principles. The first was a commitment to liberal government, which emphasized the protection of individual rights. As Thomas Jefferson argued in the Declaration of Independence, “governments are instituted among men” to secure certain “unalienable rights,” including life, liberty, and the pursuit of happiness. The Virginia Declaration of Rights, authored by George Mason, added the protection of property to the list. This view of the ends of government was heavily influenced by the writings of English philosopher John Locke.

Second, they were part of the tradition of republicanism, or self-government. As Cicero put it, “res publica, res populi” (the commonwealth is the concern of a people), who are “associated with one another through agreement on law and community of interest.” Liberty, in the republican conception, has less to do with protecting property and more to do with the proper construction of the state. Citizens in a republic are free because they are governed by laws that they themselves have a hand in making and not by the whims of an arbitrary sovereign. Typically, republics were thought to be unstable — easily corrupted from their proper form in a tyranny (misrule by a king), oligarchy (misrule by the rich), or ochlocracy (misrule by the mob). Philosophers had concluded that a secure government required mixing the republican principle of majority rule with some other form, like monarchy, to create a balance between factions of society as a bulwark against decay. Montesquieu, a French philosopher and historian who was widely read in the United States at the time, had argued in The Spirit of the Laws that Great Britain’s — which balanced the democratically elected House of Commons against the aristocratic House of Lords and a hereditary sovereign — was the one system in the modern world founded on the spirit of liberty. The Founders, however, had rejected the mixing of classes or estates in government and sought to found a stable republic solely on the principle of majority rule.

Third, they were nationalists, arguing that the 13 states had to bind themselves more firmly together if the ideals of liberalism and republicanism were to be secured. This view was more practical than moral, as it involved a question of how to achieve the shared principles of liberalism and republicanism. It was also much more controversial. Though most Federalists and Anti-Federalists agreed in general on liberalism and republicanism, they disagreed on the nature of the union. The Anti-Federalists, having just thrown off the shackles of a distant government in the Revolution, were not too keen on sanctioning another one. Plus, the Federalists were arguing against the conventional view of republicanism, which held that a smaller republic was preferable, because the citizenry would be more homogeneous and better able to keep an eye on their representatives. Nevertheless, the miserable experiences of the 1780s — an impotent national Congress combined with selfish and often illiberal states — had convinced most Americans that a firmer union was necessary.

Liberalism, republicanism, and nationalism were broad categories, and it was up to each statesman to figure out for himself how they should be blended together. As such, it was typical for the Founders to disagree, if not on the big principles then at least on the finer points. Even Jefferson and Madison — whose friendship and political alliance endured for half a century — had respectful but sharp disagreements about the permanence of the Constitution and the role of the masses in government. Meanwhile, Hamilton and Madison agreed on enough points to align in the 1780s, but they always had vast disagreements, which came to the forefront in the 1790s.

It is not my intention to elaborate the full scope of their political thought, as that would be an unwieldly task; rather, I will emphasize certain themes within each view that help account for their complicated relationship. Hamilton’s program emphasized what I call national vigor. He thought it was necessary to develop the country’s commercial strength to bind the country together and strengthen its ability to rival foreign powers. In Federalist No. 11, he described this vision as “one great American system” that “would baffle all the combinations of European jealousy to restrain our growth.” This meant establishing a reliable currency, encouraging the expansion of credit, and promoting economic diversification. These policies admittedly rewarded the wealthy, but he had a bigger purpose in mind. He wished to turn the wealthy into mediators of the general welfare — dispensing benefits to them in the short run but ultimately reorienting their self-interests to the national interest. Hamilton’s vision of government was not “of, by, and for rich people,” as some critics have said, but rather a public–private partnership between the wealthy and the state, for the benefit of all Americans. The quintessential example of Hamilton’s approach was the Bank of the United States — mostly owned by private investors but holding federal tax revenues and serving as a lender for the government. Yes, the wealthy would profit from their ownership of the stock, but a well-run bank promised benefits that would flow throughout the whole economy.

Madison’s views, on the other hand, emphasized what I call republican balance. He believed that the government had to behave like a neutral judge, fairly dispensing policy benefits and burdens according to the merits of each case. As such, he thought Hamilton’s policies were too one-sided in their favoritism to the wealthy. The rest of the nation should derive some immediate benefits too. He also worried about the potential for Hamiltonian mediation to corrupt republican government. He perceived a dangerous dynamism inherent in the secretary’s use of the moneyed class to promote the general welfare. Institutions such as the Bank of the United States are not a one-way street: The government can employ it for the public good, but the bank’s directors and stockholders can leverage themselves at the public’s expense or even to take control of economic policy. In the parlance of classical republicanism, this is corruption, as the government begins to look like an oligarchy — rule by and for the rich at the expense of the national interest. Madison looked warily at the experience of Great Britain, which had empowered private corporations like the East India and South Sea Companies to execute national economic policy, only to see those private corporations come to wield political influence in Parliament and wreak economic havoc when their schemes failed. He feared the same dangers from Hamilton’s system.

It seemed as though the country could become a strong and mighty nation, or it could remain a true republic, but it could not be both. Hamilton was the advocate of vigorous nationalism, while Madison defended the principles of republicanism — and the tension inherent in these principles turned the old friends into bitter enemies.

As it turned out, both were right, each in his own way. Hamilton’s economic plan was brilliant and has rightly been praised for establishing the financial foundation for the Industrial Revolution in the United States. He borrowed the best ideas from the great European finance ministers in the 1700s and reimagined them for the American context. His plan for the national and state debts created a stable currency for the first time since the Revolution. The Bank of the United States kept tax revenues secure and was always ready to lend money to the government as the need arose. Moreover, it facilitated economic development by responsibly extending credit throughout the private sector. And though Hamilton’s program to protect American manufacturing was too controversial for the 1790s, it eventually came to form the basis of the nation’s industrial policy.

Even so, the criticisms Madison leveled against Hamilton had merit. The secretary’s program was egregiously one-sided, offering few direct benefits to common people, most of whom were farmers. Moreover, Hamilton’s policies did in practice breed corruption, in that they intermingled popular sovereignty with oligarchy. He wanted to redirect the interests of the moneyed class toward the needs of the nation, and he succeeded, but the relationship was dynamic, as Madison had feared. The wealthy effectively captured the government, at least in crucial instances. The protracted fight in 1790 over the assumption of state debts was in large part due to the defiance of wealthy speculators, who risked the national credit to reap a windfall profit. The Panic of 1792 was a product of speculative frenzy by this same group, whose key players had been in or were closely connected to the new government. Ultimately, they forced Hamilton to, in effect, buy them off with federal tax dollars.

The key lesson from the Madison–Hamilton battle is not that one was right and the other wrong, but that their feud represents a clash of fundamental American values. The Constitution was premised on liberalism, republicanism, and nationalism — on the supposition that only a stronger, more prosperous union of the states would protect individual rights and secure self-government. But after the Constitution was ratified in 1789, the principles of republicanism and nationalism came into conflict. It seemed as though the country could become a strong and mighty nation, or it could remain a true republic, but it could not be both. Hamilton was the advocate of vigorous nationalism, while Madison defended the principles of republicanism — and the tension inherent in these principles turned the old friends into bitter enemies.

Hamilton died in 1804, but his death did not bring an end to the conflict of values. Jefferson and Madison had their own ideal of national development, a vision that emphasized small farms as the backbone of a commercially vibrant nation. This was more in keeping with strict republican probity, but it did not do enough to keep the nation independent of European powers. After years of futile efforts to vindicate U.S. neutrality through peaceful means, the country returned to war with Great Britain in 1812. However, the United States was in no condition to wage such a conflict, and was lucky to sign a peace treaty in 1815 that ceded no territory or rights to Great Britain. By war’s end, it was clear to many that the old Jeffersonian vision for the nation was insufficient.

After the war, Madison and his Republican allies resolved to strengthen the nation’s economic foundations, and they embraced Hamilton’s old strategy of mediation. This was not simply a rote repetition of the old Hamiltonian system but an expansion and broadening of it. Whereas Hamilton had privileged the wealthy few, the Republicans invited all kinds of economic factions to receive benefits from the government. So the Second Bank of the United States would have branches dispersed across the country rather than concentrated in the northeast. Industrial protection would take the form of tariffs that benefited whole sectors of the economy rather than bounties or cash payments to a handful of firms. And an ambitious program of internal improvement would benefit many locales by directly connecting the country together via a network of roads and canals. In sum, the postwar Republican program was an effort to finally reconcile Hamiltonian nationalism with Madisonian republicanism.

Yet this hybrid of Hamiltonian economics and Madisonian civics was just as dangerous to republicanism as the Hamiltonian original. Once again, oligarchy began to creep into the republic, as the directors and stockholders of the Second Bank of the United States misused their public authority to line their own pockets and influence the course of public policy. Even more dangerous, this Hamiltonian–Madisonian synthesis gave rise to a new kind of mob rule, or what Madison called majoritarian factionalism, via federal tax policy. A diverse array of small economic factions eventually realized that they could combine into a legislative majority to manipulate the tariff rates for their own benefit, at the expense of the good of the nation. This produced the first great constitutional crisis of the young republic in 1832–1833, when South Carolina declared the Tariff of 1828 null and void.

And so the battle between Madison and Hamilton was not merely a clash of personalities but, rather, a durable conflict between nationalism and republicanism, two values at the very heart of the American creed. The preamble to the Constitution proclaims:

We, the people of the United States, in order to form a more perfect Union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution of the United States of America.

This single, forceful sentence introduces a Constitution grounded in the principles of liberalism, republicanism, and nationalism. The 13 states were to form a single nation, governed by the people for their own benefit, under the condition that certain rights cannot be abrogated. These three values, inextricably linked, serve as the foundation upon which our Constitution was framed. But as the quarrels between Madison and Hamilton illustrate, republicanism and nationalism are also in conflict with each other — in their day and in our own. Here then is a paradox at the heart of the Constitution. Just as a circle cannot be squared, our nationalist ambitions cannot always be reconciled to our republican principles.

Jay Cost is a visiting fellow at the American Enterprise Institute and the Center for Faith and Freedom at Grove City College.


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