During the 1780s, in both war and peace, Alexander Hamilton and James Madison shared a number of political principles. They had a similar view of human nature, supported republican self-government, and wanted the national government to assume greater powers because of what they perceived to be the flaws under the Articles of Confederation. Their collaboration culminated in the creation of the Federalist as the definitive defense of the Constitution during the ratification debate. It seemed as if their fruitful partnership would endure in the new republic.
The 1790s saw the rapid fracturing of this key relationship of the American founding. The fierce debate engendered by Hamilton’s financial plans including the federal assumption of state debts, the national bank, and government sponsorship of manufactures and internal improvements split the relationship. Madison increasingly allied himself with Thomas Jefferson, and they feared that the centralizing tendencies in Hamilton’s policies were creating a monarchical and aristocratic system that threatened republican self-government. For his part, Hamilton was shocked and disturbed by Madison’s apparent betrayal and thought that the myopic opposition would hinder and destroy the national Union and new republic.
Their division revealed important differences of political philosophy, argues Jay Cost in his thought-provoking new book, The Price of Greatness: Alexander Hamilton, James Madison, and the Creation of American Oligarchy. The author points out that the main difference between the two statesmen was based upon Hamiltonian advocacy of economic nationalism binding the wealthy to the national government and Union, whereas the Madisonian project focused on republicanism guided by ensuring justice for all groups.
While Cost deftly addresses the opposing political and economic philosophies of the two men and sprinkles the book with important and interesting biographical details relevant to the collaboration of the two founders, his main project is to explain the creation of an American oligarchy since the founding. The charge falls heavily upon Hamilton in the 1790s, with Madison as his greatest adversary who sought to prevent it.
Hamilton wanted to win the allegiance of the wealthy to the new government by appealing to their self-interest. Cost notes this was done through the redemption of Revolutionary War debt certificates, the national assumption of the state debts, and the creation of the National Bank. While Cost admits that Hamilton’s objective was to build an integrated economy with a broad prosperity for all classes, he argues that Hamilton exhibited “a shocking naivete regarding the greed and small-mindedness of the speculator class.” In Cost’s estimation, a shadowy group enriched themselves at the expense of the public good, corrupted the new government, and contributed to the rise of an oligarchy.
In the early 1790s, a fierce debate occurred because of the question of who would benefit from the government’s redemption of Revolutionary War debt certificates, which were sold by most veterans to speculators for pennies on the dollar. Cost names the unsavory William Duer and associates, some members of Congress, and eastern investors with insider information. The creation of the National Bank led to another speculative mania and trading on insider information. Duer made another killing on bank stock from his position in the Treasury Department but soon ran afoul of the law after the bubble burst. He landed in prison when he was unable to cover his losses. Hamilton believed that the bank was too big to fail and secured loans for a bailout. Madison, Jefferson, and several southerners thought this was plain evidence of the corruption engendered by Hamilton’s financial plans and confirmed all of their fears about centralization.
Cost admits that Hamilton’s financial plans worked well and put the economy on a solid footing in the prosperous 1790s. He argues that “Madison’s worry that it could become a political machine turned out to be unwarranted.” Cost also observes that in the long-run, Madison’s concerns about the bank came to fruition. He writes, “That the bank had been well run did not alter the fact that such an institution could potentially become a political machine, corrupting the balance of power the Constitution tried to distribute among the people.”
Indeed, this is true of many of the republican political institutions and capitalist economic institutions of a self-governing society. Madison addressed the control yet ultimate trust of human nature evident in republican government in Federalist 55:
As there is a degree of depravity in mankind which requires a certain degree of circumspection and distrust, so there are other qualities in human nature which justify a certain portion of esteem and confidence. Republican government presupposes the existence of these qualities in a higher degree than any other form.
But the fact remains that the Federalist domestic and foreign policies of the 1790s such as enforcement of the whiskey tax or American neutrality did not seem to have led to the creation of an American oligarchy. There was not a small cabal of individuals or families controlling the strings of government or the economy. As we examine the domestic and foreign policy events of the decade, there may have been a few questionable episodic schemes related to finance that were carried out but there was no oligarchy running the country.
Curiously, the story continues about halfway through the book without one of its protagonists (because Hamilton perished in the duel with Aaron Burr) and delves into the Republican presidencies of Jefferson and Madison which swept in a Jeffersonian wave of spending cuts and smaller government—including the expiration of the national bank in 1811—into national policy. As Cost notes, the Republican policies were disastrous for the country, leaving it woefully unprepared to fight the War of 1812. After the war, President Madison had a change of heart and embraced a Second National Bank, mildly protective tariffs, and internal improvements, albeit with a constitutional amendment for the latter.
Cost argues that Madison had become a Hamiltonian while president: “Madison not only adopted old Hamiltonian policies but also accepted his approach to governance. Hamilton’s program was built on the idea that the government could use select factions in society as mediators of the general welfare.” This caused significant problems later when a fraudulent plot was hatched with bank shares again leading to the Panic of 1819, though as the author points out, the corrupt managers were removed. Nevertheless, President Andrew Jackson’s veto of the bank and bank president Nicholas Biddle’s consequent contraction of credit triggered a severe recession and made the people and their economic well-being the victims of politics.
Again, the shenanigans related to the Second Bank were specific events that were evidence of corruption and demonstrated the dangers of government involvement in the economy but were hardly signs that an oligarchy had taken root and controlled public policy.
The same is even truer for the last example from the book on the debate over the 1828 “Tariff of Abominations.” The tariff advanced the economic interests of the mid-Atlantic and the West over those of the South. South Carolinian John Calhoun, formerly an economic nationalist, feared that the tariff represented an example of majority faction that greatly concerned Madison at the time of the Constitutional Convention. Calhoun, Cost argues, correctly analyzed that majority faction was a great threat to American self-government. However, Calhoun’s solution of “concurrent majorities” that would allow states to nullify federal law and overturn constitutional majority rule was a strange innovation that would upset the very basis of republicanism.
The Price of Greatness ends with a quick summary of post-Civil War Gilded Age corruption. It’s a shame that this section was so brief, because it is here that Cost offers the clearest examples with the firmest evidence of how a moneyed elite definitely conspired with public officials to subvert the public good and create a more organized oligarchy in the United States for decades. Moreover, the strength of this section compared to the ones on the founding seem to point to the fact that it was the later undermining of American institutions rather than a flawed founding under Hamilton and Madison that was the real culprit behind the growth of an American oligarchy in the late nineteenth century.
The Price of Greatness is a valuable contribution to the discussion of public policy and corruption today. By rooting the topic in the founding and the ideas of two of its most important statesmen, Cost’s book will enliven current policy debates by grounding them in constitutionalism and the political philosophy of the founding. The book asks its readers to reconsider the ways that corruption all too easily flows from the federal government spending trillions of dollars that benefits certain groups. With good reason, Cost questions the influence of an oligarchic elite on our political system and the erosion of popular sovereignty and self-rule in our republic today.