Will This Never Cease?

It won’t cease, no matter what I say. Still:

The well-regarded historian Thomas McCraw, author of the recently published The Founders and Finance, who died untimely only a few days ago, has a characteristically well-written, and persuasively liberal posthumous op-ed in today’s Times on Alexander Hamilton’s finance policies, which makes all the usual Hamiltonian — I don’t know what to call them, because they can’t be mistakes — presumptions? misconceptions? — that my book Founding Finance is in part out to challenge? correct? demolish?

In the wake of the election, the neoliberal desire to invoke Hamilton (yet again — Paulson, Geithner, Orszag et al were self-professed Hamiltonians) as a guide to current policy certainly raises some big questions. But as a writer on the period, I’m most bewildered by the reflexive Hamiltonian tendency to misconstrue what Hamilton actually did.

In this and many other cases, the miscontrual doesn’t even serve a useful purpose: McCraw’s most persuasive point — that obsessing about “fiscal cliffs” and lowering taxes and cutting benefits, etc., is not a realistic  way to deal with national finance problems — would be at least as strong with full acknowledgment of the real Hamilton plan.

To spare readers yet another review of the Hamilton basics, I refer those who want to delve deeper to this post from last year, and of course to Founding Finance. I’ll quibble for one sentence here with the idea that Hamilton “persuaded Congress to authorize new bonds to replace existing obligations, while reducing the interest rate to 4 percent from 6 percent”: that makes it sound as  if Hamilton was getting the creditors to take a haircut, but in fact he offered them multiple ways of taking their interest, including some that left the full 6% intact; it was the Senate that made the payout very slightly less of a bonanza for the investing class, but even then, payment to bondholders was well in excess of the bonds’ market value [UPDATE: No, that’s not quite the right way to put it. The bonds’ “market value” was fluctuating wildly, in anticipation of big payoffs or total default; the point is that the bonds would naturally have had no value at all in the absence of government’s funding them, and Hamilton wanted to fund them at full value, demanding no sacrifice at all of the holders, levying a national tax, collected most regressively from people who would never own a bond, for the purpose of enriching the bondholding class], for cogent reasons that Hamilton clarified and McCraw endorses.

And I must make a specific dissent from this strange assertion:

In a fiscal dilemma similar to ours but far worse, and with many fewer tools at the government’s disposal, he never considered austerity or big tax hikes or cuts as a solution. Only after the country was moving toward sustained prosperity did he increase taxes, including a controversial levy on whiskey.

That’s so wrong it’s just bizarre. First, and not so obviously given the usual gloss on this stuff, the situation wasn’t a “fiscal dilemma” for Hamilton. It was fruition of his and others’ efforts throughout the 1780’s to swell the debt to massive proportions as a driver of American nationhood. It was an awesome opportunity to finally do what he’d always wanted to do. (I lay all that out in Founding Finance, relying largely on the benchmark work of E.J. Ferguson.) But second, the idea that Hamilton waited to levy the whiskey tax until “the country was moving toward sustained prosperity” seems just weirdly fantastical, hopeful, sleight-of-hand to make Hamilton over into someone neoliberals can endorse today. Exasperation leads me to the somewhat absurd presumption that McCraw simply must have known that the whiskey excise was not only part and parcel of the funding and assumption plans but critical to them, according to Hamilton himself, who asked Congress to pass the revenue bill along with funding and assumption when he first presented them. Congress dragged its heels, but as there was no way to support funding and assumption without the whiskey tax, Congress passed it anyway in 1791. There was none of this made-up idea of waiting for the country to move forward before imposing new taxes: imposing new taxes — especially the deeply, deliberately regressive whiskey tax — was the whole key to getting the country to move forward, in Hamilton’s plainly expressed view.

I try to bring those events to life in my book. But as I discuss in Chapter Five, the huge, sodden weight of the consensus keeps stifling reality.

(“Yesterday. I could have thrown them all in the sea. Today. Even one. May be too much for me.”)

I never met Thomas McCraw. I’d been hoping to find a way to have these issues out in a public forum, since we had diametrically opposed books coming out at the same time; I was very startled and sorry to read about his death.  Anyway, I’ll never know, now, what he meant by some of this. But the larger issue, for me, is the relentlessness of the Hamiltonian effort to deny what Hamilton was doing — even when what he was really doing might make at least some of their points more forcefully.