In his retirement, Thomas Jefferson confessed his puzzlement at his nemesis Alexander Hamilton. Although a man “of acute understanding” and undoubted integrity in public and private life, Hamilton was nonetheless convinced that “corruption was essential to the government of a nation.” It is this theme of Hamiltonian corruption that is at the core of Jay Cost’s fine new book. Rather than see Hamilton through the prism of Jefferson, however, Cost places him in dialogue with James Madison. This is a brilliant choice, for throughout much of the 1780s Hamilton and Madison forged a powerful political alliance, fighting to strengthen the Confederation in Congress and then struggling to draft and ratify the federal Constitution. Underlying this alliance and friendship was a shared commitment to creating a regime capable of ensuring the national interest, securing individual liberty, and maintaining a republican government grounded in the consent of the electorate. What roiled this collaboration, Cost demonstrates, was a profound difference about the ends that government should pursue.
Hamilton’s goal was to promote rapid commercial and industrial development. To this end, he sought to secure the cooperation of the tiny financial elite of the northern seaports by assuring them a comfortable profit, a strategy Cost refers to as “mediation.” Hamilton’s plan was for the federal government to fund the national debt by issuing new bonds and honoring the old ones at face value, and to assume the wartime debts of the states. This would assure the profits of speculators who had purchased the original bonds at a deep discount from their original valuation, and it would also establish the credit of the new government while giving those financiers an interest in supporting it going forward. Allowing these financiers to use those securities to purchase stock in the new Bank of the United States would further ensure them an additional modest profit, while its creation would facilitate the collection of tax revenues, provide the federal government with a reliable source of emergency loans, and dramatically expand the money supply. Hamilton’s ultimate goal was to deploy that newly created capital in industrial projects whose profitability would be ensured by protective tariffs and bounties, a program that he was not able to enact but that would be pursued by subsequent statesmen.
To Madison, Hamilton’s entire scheme of mediation was anathema. In Madison’s view, government should not favor one sector over another but instead should pursue a “republican balance” that served the interests of all Americans. By favoring the financial sector, Hamilton had created the conditions for corruption. Madison was aghast as he saw financiers who had gone long on state debt descend on Congress to lobby for their interests, effectively holding the entire funding program hostage until they were guaranteed their speculative returns. Nor was he any more sanguine when he witnessed a cadre of moneyed men with inside information from the Treasury Department attempt to corner the market in securities in 1791.
The inevitable result was a panic the following year that forced Hamilton, then Treasury secretary, to spend $150,000 of public funds to shore up the market. As Madison saw it, wily speculators realized that their partnership with the government meant that their profits would be their own while potential losses would be covered with federal monies. Even worse than such financial chicanery was the way in which Hamilton’s project corrupted both policy and government. Hamilton’s obsession with commercial and industrial development flew in the face of the vision of an agrarian political economy that Madison shared with Jefferson, one that saw commercial and manufacturing states as weak because they depended on the fickle tastes of the market for their luxury goods.
Agrarian polities, by contrast, produced necessities that were always in demand, putting them in a stronger relative position. In the American case, this meant that the United States could force British acquiescence to open trade by practicing “commercial discrimination” (essentially, by restricting trade with Britain until it fully opened its ports or agreed to a reciprocal commercial pact) rather than supinely surrendering to such indignities as the Jay Treaty, which Hamilton championed. The British monarchy was, in Madison’s mind, “suffering from inexorable decline” because of its dependence on industry, while the agrarian American republic’s strength lay in the superior virtue of its landowners and their independence from market whims, which ensured their integrity and public virtue. In Hamilton’s plan to foster a British-style economy in the United States, Madison detected a plot to import a monarchical regime like that of Great Britain.
Madison may have been prescient in his fear of financial corruption, but in almost every other regard he was wrong. Britain was not in a weak commercial position, as the disastrous embargo of Jefferson’s second term demonstrated, nor was it on the verge of collapse, as the War of 1812 made evident. During the latter catastrophe, without a national bank (the charter of the first had expired in 1811), President Madison found it almost impossible to raise emergency funds and was reduced to helplessly watching as the British razed the nation’s capital. In the aftermath of these humiliating failures, Madison and his fellow Republicans executed a volte-face, chartering the Second Bank of the United States and installing protective tariffs to support fledgling industries. Unlike Hamilton’s mediation, the Republican iteration included a broader array of financial and, now, industrial interests, making it more politically palatable.
Unfortunately, it lacked the skillful administrative hand of Hamilton, resulting in significantly greater corruption, which was now deeply rooted in American political practice. Indeed, public crises over the bank and tariffs came to a crescendo at the end of Madison’s life. Cost chronicles the emergence of Republican ochlocracy, as shifting coalitions of interests aligned to capture the government to line their pockets. The great reforms of Republicans had not cleansed the Augean stables so much as enabled more snouts to get to the trough.
Cost’s account largely ends with the death of Madison, but a brief conclusion traces the path of corruption to the Progressive era and raises thoughtful concerns for our own. At fewer than 200 pages of text, this is a brief but thoroughly researched book written with admirable clarity. The treatment of Hamilton and Madison is judicious and scrupulously fair, acknowledging the sincerity and integrity of both statesmen. The analysis of their political thought is careful, and the accounts of various financial schemes (such accounts constitute almost a quarter of the text) are told with genuine brio.
If there is a flaw to this work, it is that it does not pursue its theme far enough. By focusing on the corruption of financial and industrial interests, it almost entirely ignores the really big game, real estate. Indeed, given the sheer amount of land in the U.S., real estate has always been the most popular arena for speculators. This was particularly true when the country was an overwhelmingly rural republic. As an acerbic Hamilton noted in 1795, “many of the noisy Patriots who were not in condition to be stock-jobbers, are land-jobbers, and have a becoming tenderness for this species of extravagance.” Hamilton was likely referring to the infamous Yazoo Act of that year, wherein the Republican legislature of Georgia sold 35,000,000 acres of federal land for a mere $500,000. When the newly elected legislature of 1796 learned that all but one of the previous legislators either had himself been a speculator or had received a bribe, it promptly repealed the act, expunged it from the records, and issued refunds to the original purchasers. Of course, by that point these purchasers had sold their titles at a handsome profit to unsuspecting Yankees who were left empty-handed.
This fraud, one of the most spectacular in American history, became a sore point for the Jefferson administration when it sent a commission to settle Georgia’s boundaries. The commission proposed compensating the state for its intrusion into the federal domain with a payment of $1,250,000, with 500,000 acres reserved to palliate the disgruntled northern purchasers. When this proposal was presented to Congress, it produced the first great schism in Republican ranks: House leader John Randolph denounced the plan as scandalously corrupt, effectively derailing it, and organized a resistance of purists known as the “Quids.” To be sure, Randolph never impugned the integrity of Jefferson, but he denounced those who had advanced the scheme, particularly its principal author, Secretary of State James Madison.
Unfortunately, the greatest corruption in our political system was not pecuniary but discursive, as interested parties claimed as truths propositions that were either purely conjectural or patently absurd. Madison’s vision of an agrarian political economy undoubtedly had great appeal to a rural nation and may have had a distinguished intellectual pedigree in the 17th-century writings of English political philosopher James Harrington, but it could hardly have been seriously believed to apply to the new American republic without the most motivated reasoning. Surely Madison knew all too well that it was urban tradesmen, workers, and merchants, not farmers, who had organized themselves as Sons of Liberty and formulated non-importation agreements in the run-up to independence.
And when Washington lacked the resources to break camp at the critical moment of the war, it was not rural landowners who descended on him with supplies and transport but the financier and speculator Robert Morris, who scrounged every dollar he could get his hands on to allow the Continental Army to march on Yorktown and secure victory. And was the molasses John Hancock imported to distill into rum or the silver and pewter wares produced by Paul Revere any more luxurious or superfluous than the tobacco grown by Chesapeake planters such as Madison and Jefferson? That, of course, assumes that tobacco was the most profitable staple of Virginia planters. Jefferson seems to have thought otherwise. He considered an enslaved woman who gave birth “every two years as more profitable than the best man of the farm,” since the former’s progeny was “an addition to the capital” of his estate, while the latter’s labors disappeared “in mere consumption.”
If, as Cost suggests, the price of Hamiltonian national greatness was oligarchy and financial corruption, the price of Madisonian balance was a broadening of that corruption to include political discourse itself. Alas, corruption, like faction, is the ineradicable result of a regime grounded in liberty. If there is any hope of constraining this corrosive vice, it surely lies in a desideratum of both Madison and Hamilton: popular republican government. As Cost notes at the end of his conclusion, “when the American people demand a return to republican propriety, the government itself will acquiesce.” Helping to spark that demand is one service provided by this invaluable work. That alone makes it essential reading for those concerned about the integrity of American political life.