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The Federal Republic vs. Crony Capitalism

Historical memory often plays cruel tricks. People and ideas deserving of remembrance and celebration instead fade into obscurity, reserved only to the concerns of the historian. Such proved the fate of John Taylor of Caroline. A cavalry officer during the American Revolution as well as a devoted Anti-Federalist and Old Republican, Taylor was once considered a champion of agrarian republicanism and state sovereignty. Today, however, only serious students of American history and political thought know his work. Even then, many scholars dismiss Taylor as little more than an arch-conservative crank who defended outmoded ideas against the rising glory of national greatness. F. Thorton Miller’s edition of Taylor’s Tyranny Unmasked, the only modern scholarly edition in print, helps Taylor recover some of his former renown. While it is true that his writings lacked stylistic grace, Tyranny Unmasked reveals why Taylor’s creative, brilliant, and well-read mind made him “in some ways the most impressive political theorist that America has produced.”

Published in 1822 as a scathing attack on the federal government’s embrace of mercantile policies, particularly the Committee on Manufacturing’s 1821 report that supported protective tariffs, Tyranny Unmasked is more than just a flash-in-the-pan polemic. Taylor showed how in the American system of capitalism, elites used the power of government to line their pockets at the expense of everyone else. Recent events, such as Big Tech’s campaign of censorship and destruction of Parler, Tech Giant Bill Gates’ emergence as a leading policy expert on Covid-19, and Wall Street’s reaction to Reddit users beating short sellers at their own game, reveal that Taylor’s arguments remain critical today. For Taylor, only by understanding the nature of the tyranny found in this corrupt relationship of elites and government could it be exposed and defeated. Taylor explores that tyranny in three themes: the exchange vs. transfer economy, the rhetoric of tyranny, and the recovery of the constitutional order.

Taylor believed that from the moment of the Constitution’s adoption, a cabal of politicians and “capitalists,” by which he meant New England manufacturers and financiers, exploited the Constitution’s vague powers and its unclear delineation of authority between the state and federal governments to advance their self-interest and power. Using honeyed rhetoric to hide their wicked designs, this cabal threatened to destroy the virtue of frugal and agrarian republican society and convert the confederated states into a consolidated nation. Taylor had hoped that when the Republicans swept into power in 1800, they would break the power of these monied aristocrats and stockjobbers. War with England in 1812, a Federalist-controlled Supreme Court, and a Republican Party seduced by the very rhetoric it once opposed left him sorely disappointed. Tyranny Unmasked, therefore, represented one of Taylor’s last efforts to sound the alarm on the impending crisis befalling republican America.

The Exchange Economy and the Transfer Economy

Taylor’s warning about mercantile policy’s destructive nature hinged on his distinction between exchange and transfer economies. An exchange economy allowed citizens to engage voluntarily in economic activity for their mutual benefit. What might surprise readers is the degree to which Tyranny Unmasked offered an early American defense of the free market. Despite what most scholars have said about Taylor and his agrarian republicanism, he was not an opponent of a properly constructed commercial society. At the same time, readers should not view Taylor as a defender of modern capitalism. He did not accept a free market as an end of political society, and he rejected as unnatural any society in which commercial activity was the predominant economic characteristic. For him, contemporary capitalism’s clashes of self-interest, massive personal and public debts, and single-minded pursuits of luxury smacked too much of abandoning the frugality and disinterestedness required by republican liberty. 

Rather, Taylor viewed the free market as a means to help republican citizens and societies achieve economic and political independence, property, and happiness. The key to understanding Taylor’s views of the free market rests on what he considered a proper commercial society. Agriculture, he argued, must always be the driving force behind economics. Land offered “the most permanent source of profit.” Its “successful cultivation” offered “the best encourager of all other occupations and the best security for national prosperity.” As long as this first principle remained undisturbed, and the commerce that sprang from it remained open, voluntary, and debt free, he believed agriculture and commerce could and should live in happy tandem and cooperation. Taylor’s position on the relationship between agriculture and commerce reflected the teachings of Montesquieu and English country opposition that so deeply influenced Anti-Federalists and Old Republicans like Taylor. Even as Taylor drew upon this intellectual heritage, his explanation and defense of the exchange economy offered an early look at what Hayek, writing over a century later, would call “spontaneous order.” Taylor believed the organic division of labor between the agricultural and commercial classes found in the exchange economy “begets mutual markets, and mutual benefits.” 

Taylor believed the economic liberty and virtue of the independent farmer flourished only in a decentralized, republican, and constitutional order. Congress’s rhetoric of the glories gained from governmental intervention threatened that order.

Congress and their elitist allies’ mercantile policies of a national bank, federally supported internal improvements, protective tariffs, and excessive concern for the balance of trade ravaged this exchange economy in lustful pursuit of a transfer economy. Taylor defined a transfer economy as one in which political authority forcibly transferred one group’s property to those who carried the favor of those in power. The mutual benefits and organic division found in an exchange economy ceased in a transfer economy. Instead, a transfer economy existed for the sole purpose of benefiting and enriching one particular group at the expense of the rest. In a transfer economy, then, Congress picked economic winners and losers, with manufacturers winning and agriculturalists losing. Taylor lambasted this transfer economy as wholly unnatural, decidedly unrepublican, and clearly tyrannical. It created an economy that “takes away our money, transfers our property and comforts to those who did not earn them, and eats the food belonging to others.”

The Rhetoric of Tyranny

The tyranny lurking within protective tariffs and the transfer economy remained hidden to most Americans. Taylor did not blame Americans for their failure to detect it, however. Tyranny proved “wonderfully ingenious in the art of inventing specious phrases to spread over its nefarious designs.” Instead, he believed supporters of mercantilist policies dating back to Alexander Hamilton knowingly used a false rhetoric of national greatness, economic growth, and internal development, underpinned by overflowing treasuries and a favorable balance of trade to cloak their tyrannical actions.

Taylor considered this rhetoric of economic and national greatness foreign to a republic, and “borrowed from the fallacious European theories” of empire, aristocracy, and oppression. “The wealth and splendor of a government,” he argued, “is seldom or never the wealth and splendor of a nation.” Rather, it signaled an “overflow of government and exclusive privilege” that made government rich but its subjects poor. The much-ballyhooed balance of trade offered nothing more than a mercantilist fantasy and an excuse to establish their transfer economy. A real balance of trade was not possible, as it always left half the world in poverty. In the United States, all “inland people,” by which he meant farmers, never benefited from this supposed balance. Instead, they “must be made subject to domestic stratagems for transferring property by bounties, premiums, privileges, monopolies, and an expensive government,” all in the hopes of “realizing a dream”. 

What particularly worried Taylor was how this rhetoric hid the “civilized tyranny” of ambition and avarice by relying upon the people’s “generosity” towards government. As capitalist rhetoric molded the people’s character, it denigrated the virtues of frugality and justice while claiming extravagance and heavy taxation as “liberal and exalted.” This rhetoric proved so effective that, even as oppressive taxation bent the people’s heads in subservience, they continued to boast of their liberty. “Is a maniac, who believes himself to be a king, really a king?” Taylor asked pointedly. By looking through Congress’ rhetoric and analyzing the reality of what protective tariffs would bring, Taylor hoped Americans would see the oppression and calamities to republican society promised by protective tariffs.

Real republican societies consisted of equal citizens enjoying a roughly equal distribution of property, each capable of participating in government and pursuing their happiness since their republican governments practiced frugality and free trade. Hidden by the rhetoric of national glory, the transfer economy usurped republican practices by rewarding a privileged class on the backs of economic and moral impoverishment. It ground the people into slavery, forcing them to carry out the will of the privileged and powerful few who extracted wealth from the labor of the many. The excessive taxation of the many to pay for the bounties of the few, an economic system that restricted access only to the elite, and the destruction of agriculture eliminated any hope of republican equality, virtue, and individual happiness.

Recovering the Constitutional Order

Taylor believed the economic liberty and virtue of the independent farmer flourished only in a decentralized, republican, and constitutional order. Congress’s rhetoric of the glories gained from governmental intervention threatened that order. Although Congress genuflected towards the “federal phraseology,” their plans pointed towards consolidation. Taylor described it as the “loss of independent internal power by our confederated States, and an acquisition of supreme power by the Federal department.” Even as the capitalists “preyed” upon the people, they used their influence with the federal government to absorb the sovereignty of the states. The result would be an all-powerful, consolidated, and corrupt national government. With the states now powerless to respond, the ability of the small band of rich elites to successfully lobby for their particular interests would go unchecked. While the elites might benefit from this consolidation, it meant the shriveling of liberty to the vast majority of Americans.

The core of Congress’ constitutional rhetoric rested on the “fashionable mode of construction, which considers the constitution as a lump of fine gold, a small portion of which is so malleable, as to cover the whole mass.” That lump was the idea that Congress could legislate on all matters in the “national interest.” With bitter sarcasm, Taylor noted the “foolish and useless labor” of the framers in constructing a constitution of enumerated powers. What they should have done, instead, “was to form a Congress and to add one line, saying ‘that all national interests should depend on the discretion of that body.'” 

As Taylor reminded his readers, however, the framers did create a federal system in which the states remained sovereign and the federal government restrained by enumerated powers. Four “essential principles,” he argued, preserved American constitutional liberty: the first held that state constitutions “ought to be the act of people”; second, the federal constitution “ought to be the act of the people and the States” and unalterable but by three-fourths of the state governments; third, that a “definite and permanent division of power” should exist between the states and federal government; and, finally, each “should possess a right of taxation, which the other cannot take away”

The preservation of American liberty demanded a robust system of federalism. Taylor’s federalism, it must be noted, was not the layered, marbled, corporative, or new federalism of 20th or 21st-century America. Rather, his federalism was one in which the states retained sovereignty and, through the Tenth Amendment, used their sovereignty to prevent “indirect attempts to introduce a consolidated republic.” In addition, federalism embraced the “mutual inherent rights of self-preservation” and, thus, checked and balanced federal and state power. The framers may have divided power between the states and the federal government, but the states remained sovereign.

Although Taylor painted a bleak picture in which Americans had to choose between constitutional liberty or tyranny, he was not without hope. If “the present age sows the seeds of happiness or misery for future ages,” unmasking the tyranny of consolidation and special privileges was the first step towards a brighter future. Only by recovering, reclaiming, and perpetually returning to the American founding’s republican and constitutional principles would the fetters of tyranny be broken permanently. In an age of crony capitalism, when Wall Street, Big Tech, and the federal government seem virtually indistinguishable, Liberty Fund’s edition of Tyranny Unmasked should remind readers that, while historical memory has been cruel to John Taylor of Caroline, his teachings remain as prescient today as they were two centuries ago.

Reader Discussion

Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.

on February 22, 2021 at 08:12:08 am

Where does slavery fit into this picture? Surely he must have referred to it somewhere.

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Michael Hollerich
on February 22, 2021 at 13:24:09 pm

Taylor must be taken with a considerable grain of salt. The agrarian republic he idealizes was in fact the southern plantation economy underlain by slavery. Interestingly enough, most of the plantation owners never spent a day working in the fields or pushing a plow. Northerner John Adams, who was Taylor's principal counterpoint, actually was a farmer, who worked his own land. The most passionate defenders of the south's position were, in fact, hypocrites, who opposed federal power not because it infringed on actual rights or limited government, but because it was likely to uphold individual rights by ending or restricting the spread of slavery. The opposition to tariffs was likewise rooted not in concerns of actual crony capitalism but of its effect on slavery. And the complaints about northern financial interests was a longstanding criticism of the fact that the plantation class couldn't manage their own finances and disliked intensely the obligations their debts to northern banks entailed. Just saying...

Generally criticizing crony capitalism and its risks is correct and fine. The tariffs of the 19th century did not create a crony capitalist class because the internal economy was deregulated, government power was limited, hard money was present, taxes were low, and budgets were balanced. Protecting the economy from foreign intervention and favoring particular industries or groups are totally different things. The test is whether the foreign practice is something we would not allow our own government to do.

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ADM64
on February 22, 2021 at 20:03:09 pm

I greatly appreciate Coleman's drawing attention to Taylor's very interesting work and his providing such a full overview of Taylor's line of thought. Several of his themes seem to me quite close to the ideas of Adam Smith, so I wonder if he knew Smith and if so, how well? I can sympathize with Taylor's values, and I must say it's refreshing to think there may be someone who does not invoke "state rights" merely as a fig-leaf over one specific "right," namely, the "right" to keep millions of blacks who were forcibly and violently transferred to America enslaved (of course, I'd like to know the answer to Michael Hollerich's very apt question). Obviously, it's much too late to put the genii Taylor fears back in the bottle--at least by any methods he would have been able to think of. But it would be interesting to hear some really thoughtful discussions of what he can contribute to the solution of our current problems. Perhaps Liberty Fund should start a "great books" type discussion on Zoom of classic texts in the tradition.

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Donald Marshall

Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.