America's Founders Were Pro-Big Government, But Only Because It Suited Their Interests


Recently, PolicyMic pundit Mathew Rozsa authored an article "Memo to Ron Paul and Glenn Beck: America's Founders Were Not Anti-Government" in which he makes the case that many of the founding fathers wanted a progressive centralized national state. On this point, I agree with him 100%. However, Rozsa then goes on to claim that Federalists like Alexander Hamilton wanted a centralized state for purely benevolent reasons. On this point, I disagree with him 100%.

Rozsa states that a “Constitutional Convention was the need for central economic authority” and that “the federal government lacked the instruments with which to effectively confront economic crises that were national in scope,” as the reasons why the Federalists advocated for a centralized state. I claim this is entirely false. The Federalists were rich businessmen who wanted to benefit from political graft. They desired a system of mercantilism, such as that operated by the Crown, only they wanted to be the direct beneficiaries of such a system.

Historian Murray Rothbard writes in The Mystery of Banking (p. 192) that Hamilton and his political allies like Sen. Robert Morris (one of the richest men in America) sought “to reimpose in the new United States a system of mercantilism and big government similar to that in Great Britain, against which the colonists had rebelled. The object was to have a strong central government, particularly a strong president or king as chief executive, built up by high taxes and heavy public debt.”

Hamilton intended to use public debt to enrich himself, his political allies and his business partners by having the national bank buy up Revolutionary War bonds.

Douglas Adair, an editor of The Federalist Papers (1980 Penguin Books edition, p. 171) writes, “with devious brilliance, Hamilton set out, by a program of class legislation, to unite the propertied interests of the Eastern seaboard into a cohesive administration party, while at the same time he attempted to make the executive dominant over the Congress by a lavish use of the spoils system. In carrying out his scheme ... Hamilton transformed every financial transaction of the Treasury Department into an orgy of speculation and graft in which selected senators, congressmen, and certain of their richer constituents throughout the nation participated.”

Adair is making a direct reference to the purchase of war bonds here. Because news traveled slowly on horseback at the time, this provided political insiders a massive arbitrage opportunity.  The politicos bought up all the Revolutionary War bonds from unsuspecting war veterans and then cashed those bonds out at face value which made them a tremendous profit. They bought the bonds from the veterans for as little as 2% of par value. In effect, this became the first instance of political insider trading in U.S. history – and it was a massive one.

Rozsa also states that, “George Washington chartered the First National Bank, created the federal post office, and enforced the government's right to levy unpopular taxes by quashing the Whiskey Rebellion.” But what Rozsa fails to mention are the reasons why Washington agreed to these schemes. Washington was originally opposed to the idea of a national bank, but agreed to sign the bank into law after negotiating the property lines of where the future Washington, D.C., was to be built so that it bounded his slave-operated plantation, Mount Vernon; thereby raising its property value.

As for the Whiskey Rebellion, it points out the unpopularity of federal taxes with the public at the time. The people didn’t want whiskey taxes, only the politicians and bankers wanted taxes, and they were willing to use violence to collect them.  

Rothbard writes in The Whiskey Rebellion: a Model for Our Time, “Rather than the whiskey tax rebellion being localized and swiftly put down, the true story turns out to be very different. The entire American back-country was gripped by a non-violent, civil disobedient refusal to pay the hated tax on whiskey. No local juries could be found to convict tax delinquents. The Whiskey Rebellion was actually widespread and successful, for it eventually forced the federal government to repeal the excise tax.”

Any discussion that talks about why Hamilton and the Federalists wanted a centralized economic authority should include the monetary interests behind such a scheme. They wanted to rob the public and enrich themselves. Obviously nothing has changed since the time of Hamilton.  Cronyism, bailouts, political graft, bond price manipulation, and political insider trading today dwarf what even Hamilton could have imagined.

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