Liberal Hamiltonians (One Sect of) in “Vanity Fair” Get Whiskey Rebellion, Tea Party, Hamilton Himself Way Wrong

Or: How Liberalist Consensus Fails Both History and Politics

This is just classic:

With their steadfast resistance to taxes, their hostility toward central government, and their willingness to risk a national default, today’s Republican candidates tap into a different American tradition–one that begins not with tea but with whiskey: the Whiskey Rebellion of 1794.

To understand that rebellion and why President George Washington was willing to send troops to put it down, go back to the early days of the Revolution and look at what really motivated the founders.

So runs the apparent thesis statement — the straw man, really, since “that rebellion,” supposedly so important to understand, almost never comes up again in the piece — of an essay by Simon Johnson and James Kwak, intended to criticize Tea Party history and economics, in the current issue of Vanity Fair. In the top-five “most popular” online VF pieces, the essay is a perfect example of its (to me) dispiriting type: seemingly learned, reasonable-sounding, liberal; presented for a general readership by noted thinkers; glib, complacent, superficial, and therefore fatally flawed to the point of being just flat-out wrong in its effort to examine both the American populism of the 18th century and today’s populism, as represented by the Tea Party and other current right-wing sensibilities. (Or, for that matter, left-wing sensibilities.)

As such, the piece distills (ha! ha!) all the many ways in which highly informed, well-regarded, no-doubt well-meaning authors can so easily, almost reflexively, abuse history, especially when it comes to finance and economics.

Especially distressing about the piece is how many details the authors can get right, obvious and unexciting details to any student of the period, while somehow managing to ignore the all-important historical context that would give the piece any useful meaning for general readers. So they get all the big stuff, and indeed a certain number of critical facts, wrong, and wrong in a damaging way. Even as they tell their story, purportedly imparting historical wisdom to help us understand current debates, Johnson and Kwak prevent us from engaging with the realities of that history, or with today’s political conflicts over public debt and taxes, their ostensible subjects.

The main idea of the piece, right enough as far as it goes and as far as I’m concerned (and hardly meant to provoke Vanity Fair‘s readership to any new thought): the Tea Party is wrong about the founding-era history on which its claims are based. The Tea Party and the “constitutional conservatives” think the founding was about disempowering government, keeping taxes miniscule, and having no national debt. It wasn’t.

Because yes, yes, it’s true, as the authors say: Alexander Hamilton, the nation’s first treasury secretary, believed that a nation could thrive as such only if it enjoyed access to credit supported by reliable taxation. And yes: the Constitution enabled the Congress to tax, and the first Congress, advised by Hamilton, assumed all the state war debts in the federal one, levying taxes proposed by Hamilton to pay for the program. So yes: when Tea Party people say “the founders” excoriated debt and hated taxes, they’re not talking about Hamilton, or the Washington administration, or the first Congress, or even the Constitution as drafted, amended, and ratified.

Those observations are banal, but the piece is far worse than banal. The truisms lose all meaning when the authors try to develop their ideas both in terms of the founding period and in terms of today’s politics.

Just to begin with, it is fatally patronizing, in the characteristic way of this sort of article, to assume that Tea Party people have no answers to these factoids. As I’ve learned when engaging in debate with, for one, Tea Party leader Patrick Leahy (a discussion in which we actually asked each other legit questions, in a genuine effort to find out just what the hell the other one could possibly be thinking!), many “constitutional conservatives” believe that elements of Hamiltonian finance, especially the central bank, were unconstitutional, indeed that Hamilton betrayed the Constitution, whose essential meanings Jefferson and Madison then fought to save.

The Vanity Fair authors and I might agree that Leahy and other “constitutional conservatives” are wrong about that. But the constitutional conservatives have the Jefferson and Madison of the 1790’s very much on their side, and anyone who wants to argue with the Tea Party on that issue had better be ready to assess and cope with TJ’s and JM’s war on Hamilton — cope with those founders’ outright claim that they’d been subjected to a Hamiltonian bait-and-switch in the 1780’s. (I’ve tried to do so, here and here, for example.) Just because TJ and JM got together with Hamilton in the famous compromise of 1789 [UPDATE: No, it was 1790, meant to look that up before I posted!], Johnson and Kwak permit themselves to be as quick as so many in the Tea Party are to sum up what some fictional group, labeled “the founders,” supposedly believed.

They thereby elide the dire political and ideological struggles that roiled the 1790’s, and which might help us think realistically about the 2010’s. The issue to me isn’t whether Madison or Hamilton was “right,” following their fabled breakup. The issue for me is the tendentiousness of so many historically based articles like this, which preach to the liberal choir with a mix of overdetermined assumptions and (as I’ll note) flat-out misinformation, thus defeating thought. The feeling is that if liberals have to be right about the virtues of taxes and public debt, and if Hamilton represents the founding of that liberal policy (and he does, of course), we wouldn’t want to get too far into how strongly Jefferson and Madison, whom liberals often lionize too, condemned that policy as nothing but a machine for corruption, an abomination against liberty.

That would get confusing. People might have to think about conflicts that may be irreducible. Then how would we know why the Tea Party is so wrong? Better just to try to sum up Hamiltionian finance and ascribe it to “the founders.”

But much worse, I think, is the way the authors of the Vanity Fair piece actively misrepresent Hamilton’s finance theory itself. They say this tired, inaccurate thing, found as well in most Hamilton biographies:

The most pressing issue was what to do about the new nation’s debt. Both the Continental Congress and the individual states had accumulated massive debts during the Revolutionary War–close to $80 million, an enormous amount in those days. Hamilton–now secretary of the Treasury under his old boss, now President Washington–wanted the new federal government to assume the states’ debt and pay them back in full. Since the government did not have enough cash to pay off those debts, he proposed to borrow new money by issuing Treasury bonds—and to pay off those bonds with new taxes on liquor, tea, and coffee.

Given what they say elsewhere in the piece, the authors themselves must know that purely from a Hamiltonian point of view, that’s nonsense. Hamilton is famous for “funding and assumption” — not “payoff-in-full and assumption.” He did not want first and foremost to pay off the domestic public debt (though, yes, he responsibly created a “sinking fund” for each issuance of debt), and if he had, he’d be nothing but an obscure footnote today. He wanted to fund the debt. That’s the whole point of Hamiltonian finance, cribbed in large part from the innovations of Walpole and others in England, as so gloriously hymned in their very piece by Johnson and Kwak themselves.

These writers are noted scholars who, I believe, actually do know the difference between paying off a credit card debt, say, and funding that debt by paying interest on it every month. Yet as in all writings by Hamiltonians, that all-important difference is blurred at the crucial moment in the story. [UPDATE: Hamilton’s best-known biographer of the moment, Ron Chernow, has done the same thing.]

Why won’t the Hamiltonians, who praise their boy to the skies for his innovative approach to sustaining a domestic public debt, ever admit what he believed sustaining such a debt required? Hamilton wanted, quite cogently and explicitly, to tax people who would never own a bond, in order to give the American investor-and-lender class a reliable 6% interest — tax-free, of course — on its investment in the nation’s bonded debt. His purpose, learned in part from Hume, and also (though Johnson and Kwak, like Hamilton, are pro-Brit and anti-French) Jacques Necker, was to consolidate wealth upward and yoke it to national purpose. Without that, no nation.

Would admitting this — Hamilton did! — make him look bad? Thus turn off liberals who are supposed to get on the Hamilton bandwagon in their war on the Tea Party? The truth is really more interesting.

The most important fact of Hamilton’s life and thought left out of Johnson’s and Kwak’s ode, an absence that entirely distorts the financial history of our founding era, is Hamilton’s close relationship to the debt before he became treasury secretary. Either disingenuousness or ignorance is at play in the common description “the most pressing issue was what to do about the new nation’s debt.” The debt was not, to Hamilton, anything like a pressing problem. He was urgently pressed by excitement, as secretary, about bringing to fruition what he’d been working on, regarding that debt, since 1783. In the orbit of the financier Robert Morris, he’d done everything he could to swell that debt to the proportions it achieved — since, again, the whole nationalist philosophy, learned from the problematically corrupt Morris, whom the authors don’t even mention (nicer to picture the kid poring over Hume), depends on a goodly pool of investment. Concentrating wealth involved sustaining a public debt; sustaining a public debt involved concentrating wealth.

Morris, Hamilton’s mentor, had always wanted to assume the state debts in the federal one and fund it via a full slate of federal taxes: “to open the purses of the people,” as he forthrightly put it. In 1791, a student subtler than his master got to actually do it.

This stuff is well known. That’s what’s weird.

Anyway, once all that is clarified, the philosophy of the so-called whiskey rebels becomes clearer. They were not, Johnson and Kwak to the contrary, anti-tax, antifederalist, or anti-central-government. They were not especially allied with Madison’s and Jefferson’s libertarian, “Republican” assault on Hamilton; they were nothing like today’s Republican Party. What they said they objected to about the whiskey tax, which anyone can readily find out, is that it did not operate “in proportion to property.” That is, they wanted what they called “equal taxation.” Some even wanted progressive taxation. When Hamilton and Washington went out to western Pennsylvania to kick doors without warrants, make mass arrests, hold detainees indefinitely on no charge and no evidence, etc., without even bothering to ask Congress to suspend habeas corpus, it was the rebels’ critique of the Hamiltonian finance, for favoring the wealthy at the brutal expense of all others, that the administration was dedicating itself to snuffing out.

And the administration succeeded. This Vanity Fair piece reminds me painfully, yet again, that the liberaloid consensus has won the war of words and dominates history by falsifying history at least as egregiously as the Tea Party does. It was Hamilton who first called the uprising “the whiskey rebellion,” to make it look as if it were over whiskey. It worked. So I’m not going to go into detail — yet again! — about the whiskey tax, or about how deep regressiveness was built so carefully and pervasively into that tax by Hamilton, or go into the rebellion itself, how Hamilton hoped to bring overwhelming federal force before the thing had even grown violent, or the manifestly illegal suppression and occupation of western Pennsylvania. [UPDATE: Kwak actually told Leonard Lopate, in an interview on the piece, that a whiskey tax is something you can pass on to your customer. Exactly: that’s just what Hamilton said, when structuring the law to charge big producers a lower tax and small ones a higher one, in an effort to drive the small ones out of business.] Anyone who wants to find out about all that can easily do so; legit arguments could of course take place, but Johnson and Kwak don’t seem to care about any of it. Their piece opens by throwing out a reference to the Whiskey Rebellion, drawing a parallel they never support, and barely returns to it. They don’t expect their readers — or possibly themselves — to think any of it through.

Lionizing liberal/conservative establishment finance, the piece’s real effect is to keep us from understanding the deep, powerful economic conflicts that marked our coming into being as a nation, and have emerged recently in movements from the Tea Party to Occupy Wall Street. And to me, that effect is a big, fat bummer.