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This weekend marks one of those strange intersections that periodically occur in America where the juxtaposition of events triggers some deeper reflection. So we mark yet another Fourth of July at the end of a week that saw Congress move closer to passing a financial regulatory bill while Elena Kagan seems to be moving towards confirmation as our next Supreme Court justice.
As every third-grader knows Thomas Jefferson was the prime author of the Declaration of Independence, but even as we celebrate his words, I wonder how many today would call themselves Jeffersonians? Sadly not many today identify themselves as Jeffersonians and those few that do rarely really understand what it means.
Jefferson and Hamilton
It once was fashionable for historians to view our nation’s story as a conflict between the ideas of Alexander Hamilton and Thomas Jefferson. That characterization has been dismissed as both overly simplistic in terms of the nuances of the two men themselves and of American history. Yet in a symbolic sense the contrast continues.
Today any high school history student who has read their text book can recite the answer to a probable exam question about Hamilton and Jefferson, parroting back that Hamilton favored a strong central government and Jefferson a more decentralized one. Give them the ubiquitous “B” for repeating what both teacher and text book probably told them.
What is less appreciated today, but at the heart of the dispute in their own time– as well as ours– involves far more than government. It was — and still is — about culture. In a way each envisioned and America modeled after themselves.
Hamilton, the successful entrepreneur, foresaw an America of business people. The rural sage of Monticello, dreamed of a nation made up of independent small farmers. To say the difference is a moot point today is to deeply understand both men. Behind Hamilton’s entrepreneurial society lay a faith in the power of markets.
The relevant quote–which is often misquoted out of context–reads:
Industry will succeed and prosper in proportion as it is left to the exertions of individual enterprise. This favorite dogma, when taken as a general rule, is true; but as an exclusive one, it is false, and leads to error in the administration of public affairs. In matters of industry, human enterprise ought, doubtless, to be left free in the main, not fettered by too much regulation; but practical politicians know that it may be beneficially stimulated my prudent aids and encouragements on the part of the government. [The Papers of Alexander Hamilton, Alexander Hamilton, Harold Coffin Syrett, p. 467)
If you track this quote on the Internet you will find it used by liberals to justify government regulation and conservatives to argue for minimal regulation. The key word for those parsing this quote is "stimulated." Hamilton himself would define this as "help" not "regulate." This interpretation is bolstered by what follows as Hamilton defines "stimulation" as "prudent aids and encouragements."
Further confirmation of this interpretation comes from the entire context of the passage which occurs in a discussion of communications. Hamilton says:
Improvement of communications between the different parts of our country is an object well worthy of the national purse.
As one example, Hamilton probably would have favored grants to the railroads to build more track but opposed regulations on their conduct.
Jefferson, who is usually portrayed as the more idealistic of the two, actually had a healthy fear of markets. Where Hamilton saw the market in terms of Adam Smith's proverbial invisible hand, Jefferson did not believe markets were self-regulating but instead put his faith in the idea that if each American had economic independence, which he saw in terms of land ownership, then the nation would prosper.
The Good Times
In some ways, the prosperity of post-World War II America represented a triumph of Jeffersonianism because it precipitated a housing boom in which a majority of Americans became home-owners. Their suburban new homes with their expansive lawns even seemed an evocation of Jefferson's proverbial independent yeomen.
For awhile the housing boom made most Americans Jeffersonians--even if they did not realize it--with one exception that was also Jefferson's own personal and philosophical failing--race. The housing boom of the 1950s and 60s did not favor all Americans equally. Red-lining and discriminatory loan practices made the suburbs largely white enclaves which only recently have begun to open their doors to people of color.
Still, the housing boom did exactly what Jefferson had predicted: it gave millions of Americans an equity that they used to raise their own standards of living along with providing an entrance into higher education for many whose parents had never had the opportunity to advance beyond high school.
The Counterrevolution
Yet even as the Jeffersonian dream came true for many Americans, free-market Hamiltonians were pressing their own point of view. In short, some viewed the role of government in helping to create the housing boom as intervening in the market. It was not the kind of "aid" Hamilton had in mind (although Hamilton would have favored the building of the interstate highway system that facilitated it). Others saw housing and lending regulations--particularly the Depression's Glass-Steagall Banking Act that forbid banks from becoming involved in stock and financial manipulation--as restricting the market.
A counterrevolution first surfaced with the nomination of Barry Goldwater in 1964, but it would take almost two decades before that counterrevolution reached fruition with the ascendancy of Ronald Reagan. Although Reagan had grown up in a small town Jeffersonian setting, he was an avowed free market advocate.
Reagan set about remolding government so that it aided business in the way Hamilton had envisioned, but Ronald Reagan's genius lay in defining what were essentially Hamiltonian policies with Jeffersonian rhetoric. His famous "Morning in America" campaign commercial still stands not only as one of the best political ads ever, but also as an evocation of the Jeffersonian ideal.
Reagan's strategy for accomplishing this was to demonize taxes. Ever since politicians of both parties have treated the word as if it were a four-letter word, even though Reagan himself reversed field and raised taxes in an attempt to balance the budget. The Reagan equation essentially said that taxes and government regulations are what is preventing people from realizing the Jeffersonian dream.
Jeffersonians: Endangered Species
By the dawn of the new millennium few Americans identified themselves as Jeffersonians. In economics Hamiltonian monetarism ruled the roost in most colleges. The general equilibrium theory behind much of the complex econometric models and the policies of the monetarists who advised Ronald Reagan essentially was an updated version of the invisible hand, as several critics have pointed out.
This consensus brought about a unique situation in which economic advisors espousing the same basic philosophy shuttled from one party to another. Lawrence Summers is the classic example. He served on Ronald Reagan's Council of Economic Advisors, was Deputy Treasury Secretary and then Treasury Secretary under Bill Clinton, then became President of Harvard during most of the Bush years and currently is Barack Obama's director of the National Economic Council.
Such interchangeability between the two parties prompted Lewis Lehrman to make the following toast, standing on a staircase at the New-York Historical Society at a reception in honor of an exhibition called "Alexander Hamilton: The Man who Made Modern America":
Shall we all raise our glass to Alexander Hamilton? May I say for the evening "We are all Hamiltonians."
Lehrman is an investment banker and a former Republican candidate for governor of New York.
In a review of the Hamilton exhibit Jesse Lemisch wrote:
As we would expect from Richard Gilder and Lewis Lehrman, the two rich right-wingers who have in effect taken over the N-YHS, the exhibit leads inexorably to the re-election of George Bush, the rejection of the last thirty-five years of social history, and a paean to triumphalist capitalism.
Lemisch went on to accuse Gilder and Lehrman of essentially "buying" historians and history departments to further their point of view.
Barack Obama and Hamilton
Perhaps the strongest confirmation of what appears to be an underlying Hamiltonian consensus between the two parties comes in a 2008 speech by Barack Obama on "Renewing the American Economy." His remarks on Hamilton and Jefferson are worth quoting at length:
For Alexander Hamilton, the young secretary of the treasury, that task was bound to the vigor of the American economy. Hamilton had a strong belief in the power of the market, but he balanced that belief with a conviction that human enterprise, and I quote, "may be beneficially stimulated by prudent aids and encouragements on the part of the government." Government, he believed, had an important role to play in advancing our common prosperity. So he nationalized the state Revolutionary War debts, weaving together the economies of the states and creating an American system of credit and capital markets. And he encouraged manufacturing and infrastructure, so products could be moved to market. Hamilton met fierce opposition from Thomas Jefferson, who worried that this brand of capitalism would favor the interests of the few over the many. Jefferson preferred an agrarian economy, because he believed that it would give individual landowners freedom and that this freedom would nurture our democratic institutions. But despite their differences, there was one thing that Jefferson and Hamilton agreed on: that economic growth depended upon the talent and ingenuity of the American people; that in order to harness that talent, opportunity had to remain open to all; and that through education in particular, every American could climb the ladder of social and economic mobility and achieve the American dream.
To be honest, I had forgotten this speech, but it is most enlightening for its attempt to pull off what no one had believed possible--to somehow unite Hamilton and Jefferson. That should have sent up red flags at the time, but it did not. In this sense it is eerily like Ronald Reagan.
Note how Obama correctly defines Jefferson's views, then drops them. In Obama's words, Jefferson felt the Hamiltonian "brand of capitalism would favor the interests of the few over the many." This is the reason the Democratic Party holds Jefferson-Jackson dinners across the country every year, yet Barack Obama can do nothing more than let the quote die on the floor like a bad joke. It was as if he felt he had to cite Jefferson without agreeing with him.
Then comes the forced marriage of the two, which Obama defines as the belief that economic growth depended on the "the talent and ingenuity of the American people." Obama asserts two conditions are important for fostering that talent and ingenuity: opportunity open to all and education.
These are certainly laudable pronouncements, but they are also so broad they could have been uttered by virtually every American Chief Executive in the last century and a half--and written by any high school student council candidate. Has any American politician you know been against opportunity open to all or education? Let me know if you can think of one.
Obama makes no secret of his allegiance further in the speech, favorably citing the idea of free markets:
Throughout this saga, Americans have pursued their dreams within a free market that has been the engine of America's progress.
Although this statement is a simplistic, false and dangerous misreading of American history, He goes on to say:
A free market was never meant to be a free license to take whatever you can get, however you can get it.
But then, as we have seen above Hamilton never agreed with allowing "free license to take whatever you can get."
After a lengthy recitation of the sins of big business under the Bush Administration Obama makes the following strange statement:
In our 21st century economy, there is no dividing line between Main Street and Wall Street.
Does that mean Main Street becomes Wall Street with corporate executives insinuating themselves into our communities? I don't think Thomas Jefferson would have said something like that nor would have Woodrow Wilson or Franklin Roosevelt, but then Obama does not see their ideas as relevant:
I do not believe the government should stand in the way of innovation or turn back the clock on an older era of regulation.
This is where the red flags probably should have gone up since it is now widely conceded that the current financial crisis (and BTW a certain oil well still spewing in the Gulf of Mexico) is a result of not enforcing regulations or scuttling them. Obama then defined the core principles of this new economy:
First, if you can borrow from the government, you should be subject to government oversight and supervision. [Hasn't that always been true?]
Second, there needs to be general reform of the requirements to which all regulated financial institutions are subjected. [What kind of reform?]
Third, we need to streamline a framework of overlapping and competing regulatory agencies. [Streamline the agencies or what they do?]
Fourth, we need to regulate institutions for what they do, not what they are. [Isn't that exactly what Glass-Steagall did?]
Fifth, we must remain vigilant and crack down on trading activity that crosses the line to market manipulation. [Hasn't that always been the job of the SEC?]
Sixth, we need a process that identifies systemic risks to the financial system. [For whom? By whom?]
The Big Picture
It is interesting to review this speech after this week and as we head into the Fourth of July. What is notable is that at the time it sounded great after eight years of George W. Bush and a serious mortgage crisis. Yet if we subject the principles Obama articulates to the rhetorical standards of Hamilton and Jefferson, they seem to be overly vague and even ambiguous.
That vagueness and ambiguity lead us squarely to a financial reform bill that is not even half a loaf and a Supreme Court nominee so mediocre she has left no footprints either as a scholar or lawyer other than memos she wrote for Bill Clinton.
On this Fourth of July weekend I dare to raise a question no one wants to ask: has this Era of Bad Feelings become so poisonous that only mediocrity can survive? Are we condemned to an era of thousand page bills that promise much but deliver little? Are we facing a climate of opinion in which only small minds who take no bold stands or make bold statements are the only ones able to pass through the gauntlet of Congressional approval?
Where Are the Jeffersonians?
As communities across the nation ritually read the words of the Declaration of Independence, I ask, “Where are the Jeffersons of our time?”
Ever the foe of bigness, Thomas Jefferson would positively puke at the thought of “too big to fail.” Ever the spokesman for the average American, Jefferson would be scandalized by the current gaps between the rich and the rest of us. Ever fearful of economic concentration Jefferson would be aghast that six firms control almost two-thirds of the banking assets in this country–in violation of a federal law no one seems inclined to enforce– and that a few media giants control what we see and hear. Ever the defender of the farmer and small business person, Jefferson would weep at the endangered status of the independent yeoman and business owner. Walking the streets of the small towns he once hoped would sprout across the country he would shake his head sadly at vacant storefronts that mark businesses lost to national chains.
Jefferson envisioned an America where each of us had control over our destiny because we had the economic freedom that comes from owning our own land and running our own businesses, but that Jeffersonian dream has become a nightmare as home ownership no longer promises economic stability and a job no longer promises even a month of employment permanence.
On this Fourth of July as fireworks light the sky to the “oohs” and “ahs” of those of us watching them cascading towards the ground we need to celebrate the achievement of Thomas Jefferson, who would be proud our nation has survived for so long, and pledge that we will not let the dream that lay behind his words disappear in puffs of smoke like those fireworks.
Alexander Hamilton, Harold Coffin Syrett
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