A Republic No More. Jay Cost

In a private letter to Washington dated September 9, 1792, Jefferson argued:

      [Hamilton’s system is] calculated to undermine and demolish the republic, by creating an influence of his department over the members of the legislature. I saw this influence actually produced, & its first fruits to be the establishment of the great outlines of his project by the votes of the very persons who, having swallowed his bait were laying themselves out to profit by his plans: & that had these persons withdrawn, as those interested in a question ever should, the vote of the disinterested majority was clearly the reverse of what they made it. These were no longer the votes then of the representatives of the people, but of deserters from the rights & interests of the people: & it was impossible to consider their decisions, which had nothing in view but to enrich themselves, as the measures of the fair majority.⁶¹

      Taking these concerns about private gains and public corruption together, Madison worried to Jefferson that the holders of Bank shares “will become the pretorian band of the Government, at once its tool & its tyrant; bribed by its largesses & overawing it by clamours & combinations.”⁶² In other words, the Hamiltonian finance system threatened the balance that he sought to construct in the Constitution and that he defended in the Federalist Papers. Who, in the original schema, was supposed to check an executive branch that was too partial to one faction? The answer: the legislative branch. But Madison and Jefferson believed that the new institution, one not envisioned by the Constitutional Convention (and indeed voted down by it), had stymied this vital check by bribing them. This, in turn, freed the Bank to pursue a fractious agenda, and gave Duer an opening to make his run, almost bringing the economy down with him.

      Fortunately, the sound and sure management of the Treasury by the exemplary Hamilton meant that the worst fears of the Republicans were not to be realized—at least not in the 1790s. Still, their critique of the Bank identifies the basic trajectory that corruption will take over the next 225 years. Some new government power may be a necessary tonic to a national ailment, but absent corresponding revisions to the institutions that exercise that power, it has the potential to distort the vital process of checks and balances, which in turn can breed corruption. In the case of the Bank, it granted new powers to an extraconstitutional institution that, per the Republicans, were used in part to bribe legislators. The result may have been benevolent in the grand scheme of things, but that had more to do with the singularity of Hamilton. Bank policies were indeed factional and could indeed have been catastrophic, if the secretary had not acted so effectively to stop the panic induced by Duer’s failed scheme.

      What can we make of this now, almost 225 years after this feud burned so hot? For starters, Hamilton’s program was an ingenious plan to modernize the U.S. financial system, stabilize government debt, and diversify the economy. Even a cursory survey of the American economy in the late 1780s demonstrates that such a program was sensible, if not absolutely vital, for the nation’s long-term prosperity. That moderate Republicans (including, above all Madison himself!) some twenty years later would finally adopt much of his program, which in turn formed the basis of Whig and Lincolnian Republican economic policy for the next century, demonstrates just how perspicacious it was.

      Meanwhile, the Jeffersonian Republicans were much less pragmatic. The gentry farmers of Virginia may have dreamed of a true republic in the sense that the Country Party imagined it, but what of Napoleon? What of George III? What of Charles IV? The great powers of Europe were not finished with the American continent, not by a long shot, and were intent—as Hamilton argues persuasively—on forcing America into a “passive commerce.” Hamilton doubted that the structure of the Constitution, at least as Madison envisioned it, was sufficient to ensure America’s security in the international world.

      This has been the general consensus of historians for generations, and it is by and large fair. But there is another way to look at the matter, one that is more sympathetic to Jefferson and especially Madison, who clearly and rightly saw civic dangers lurking in the shadows cast by Hamilton’s Bank. Return to those three criticisms that they leveled so effectively, for they are causally linked: Hamilton had extended the power of the government beyond its original scope, his argument about the Necessary and Proper Clause notwithstanding; this extension undermined the balance between powers and structures that the Framers had implemented, as patronage from the executive-run Bank came to influence members of Congress; and the final result produced factionalism, corruption, and almost—were it not for Hamilton’s vigorous intervention—economic catastrophe.

      This gets to the heart of the Madisonian perspective on the Constitution. His system was designed to survive venality and self-interestedness; indeed, as noted above, it assumed a baseline presence of such vices. As Madison writes in Federalist #51, “ambition must be made to counteract ambition,” which implies a soundly designed structure remains in place to make it so. Unbalancing the system, as the Bank did, prevented it from counteracting ambition against ambition properly, giving an undue advantage to the financial elites in the Northeast, especially Duer. We can see that most clearly in how the Bank ensnared members of Congress, according to Beckley. As Jefferson asserted to Washington, a fair vote on the Bank might have produced a very different result, had it not been for the profit members were taking from the Bank. Little wonder that Madison flipped from being a proponent of federally chartered institutions to one of its fiercest critics. This sort of behavior is exactly what had appalled him in the states in the 1780s.

      Historians, political pundits, and the civic minded have long viewed the fight over the Bank as the opening salvo in the battle between partisans in the debate over more or less government, a conflict that continues to this very day. It also serves as an epitome for the argument of this book. For the style of corruption bred by the Bank will recur time and again: ambitious national leaders see some problem that the existing powers granted under the plain meaning of the Constitution do not allow; they expand those powers successfully; this may or may not solve the problem, but it disrupts the balance the Constitution hopes to achieve; and it lends itself to corruption as one faction or another can take advantage of the new weaknesses within the system.

      And, as we shall see in the next chapter, such innovations in governmental power—once successfully claimed—are virtually irrevocable. The Republicans rode to power on a wave of popular discontent in 1800, but once installed in office, they accepted many Hamiltonian innovations and added several new powers to the federal menu. Corruption, unsurprisingly, followed soon thereafter, in no small part because the managers of these powers could not hold a candle to Hamilton.

      As Madison argues in Federalist #10:

      It is in vain to say that enlightened statesmen will be able to adjust these clashing interests, and render them all subservient to the public good. Enlightened statesmen will not always be at the helm. Nor, in many cases, can such an adjustment be made at all without taking into view indirect and remote considerations, which will rarely prevail over the immediate interest which one party may find in disregarding the rights of another or the good of the whole.⁶³

      Fortunately, there was an enlightened statesmen to manage the nation’s financial affairs in the early 1790s. As we shall see, Gallatin—himself possessed of extraordinary capacities—would manage ably the Bank after the Republicans took control. But, per Madison, it is in vain to say that men like Hamilton and Gallatin will be there when they are most needed. The Bank may not have exhibited the worst potentialities that Madison feared, but its successor would. As hack politicians replaced exemplary souls at its helm, a corrupt Second Bank would bring the country unneeded economic misery in 1819. And worse would soon follow.

       2

       “The Spirit of the Nation Forbids It”

       Nationalism and Corruption from Jefferson to Jackson