ALEXANDER HAMILTON

Alexander Hamilton
From a painting by John Trumbull

Alexander Hamilton
An Essay

BY
WILLIAM S. CULBERTSON, Ph. D,

This essay won the John A. Porter Prize,
Yale University, 1910

NEW HAVEN: YALE UNIVERSITY PRESS
LONDON: HENRY FROWDE
OXFORD UNIVERSITY PRESS
MCMXI

Copyright, 1911,
BY
The Kingsley Trust Association

Co by Z

TO
MY FATHER AND MOTHER

TERMS OF FOUNDATION OF THE JOHN
A. PORTER UNIVERSITY PRIZE
(As Originally Established in 1872)
At a meeting of the President and Fellows of
Yale College, held in New Haven, March 13,
1872, an offer was received from the Kingsley
Trust Association, dated at New Haven, Decem
ber 15, 1 87 1, placing at the disposal of the Cor
poration of Yale College, annually, the sum of two
hundred and fifty dollars, to constitute a prize to
be called the John A. Porter Prize, and to be
awarded for an English essay, upon the following
conditions, viz. :
"i. The prize may be competed for by any
member of any department of the College, pursu
ing a regular course for a degree, who shall have
been a member for at least one academic year prior
to the time when the prize shall be awarded.
"2. The prize shall be awarded by three
judges, two to be appointed by the President of the
College, and one by the Trustees of the Kingsley
Trust Association; such judges to be chosen or
appointed on or before the first day of the second
academic term. The award of the prize shall be
announced on Commencement Day.
[vii]

TERMS OF FOUNDATION

"3. Subjects shall be chosen, and the length
and character of the essays may be specified by the
Trustees of the Kingsley Trust Association. The
subjects shall be publicly announced on or before
the first day of the second academic term of the
present collegiate year, and hereafter within the
first two weeks of the first academic term.
"4. If in any year, in the opinion of the judges,
none of the competing essays be of sufficient excel
lence, the prize shall not be awarded.
"5. Competing essays shall be transmitted to
the judges within one week after the opening of the
third academic term, under cover, signed by a
fictitious name, and accompanied by the real name
of the writer in a sealed enclosure.
"6. The Trustees reserve the right to retain
all competing manuscripts, and the right of publi
cation of the same; each essay must, therefore, be
accompanied by an assignment of the right of copy
right, "7, These terms and conditions may at any
time be altered by the Trustees of the Kingsley
Trust Association, with the consent of the Presi
dent and Fellows of the College."
Resolved, That the foregoing offer be accepted
upon the above-named conditions.
Attest, Franklin B. Dexter, Secretary.
[ viii ]

THE JOHN ADDISON PORTER PRIZE IN
YALE UNIVERSITY
The John Addison Porter Prize consists of the
income of a fund of $10,000, given by the Kings-
ley Trust Association, the corporate name of the
Scroll and Key Society of Yale College. It was
established in 1872, and named in honor of Pro
fessor John Addison Porter of the Class of 1842,
one of the founders of the Association. The
original endowment was in the amount of $5000,
but, in 1909, the endowment was doubled and the
prize is now $450.
The prize was originally given for an English
essay on one of a given list of subjects. With the
increase of the endowment the conditions of the
competition were changed and are now as follows :
" I . The prize is offered for a work of scholar
ship in any field where it is possible, through origi
nal effort, to gather and relate facts or principles,
or both, and to present the results in such a liter
ary form as to make the product of general human
interest. "2. No list of subjects for essays in competi
tion for the prize is prescribed.
"3. Competition for the prize is open to all
resident students in the University who are candi
dates for a degree. [ix]

JOHN ADDISON PORTER PRIZE
"4. No essay will be excluded because it has
already received some other award.
"5. No essay will be excluded because it has
already received credit in course.
"6. No essay will be considered for this prize
unless it be specially submitted for that purpose.
"7. Essays may be submitted anonymously or
not, at the option of the writer.
"8. All essays competing for the prize must be
sent addressed to the John Addison Porter Prize
Committee, in care of the Secretary of Yale Uni
versity, New Haven, Conn., before April i, of
each year.
"9. If none of the competing essays is deemed
of sufficient merit, the prize will not be awarded.
"10. The Association may, at its pleasure,
print the winning essay. In this case a surrender
of copyright by the author will be required.
"11. If the winning essay is not printed by the
Association the author may make arrangements to
publish the prize-winning essay. In this case the
line "This essay won the John A. Porter Prize,
Yale University" (with the year) shall appear on
the title page of the printed essay.
"12. The winner of the prize will be under no
obligation to print the prize-winning essay."
Inquiries regarding the prize can be addressed
to the Committee on the John A. Porter Prize,
care of the Secretary of Yale University.
[X]

PREFACE
This essay was awarded the John Addison
Porter Prize of Yale University in 1 910. I have
made some changes in the manuscript as it was
originally submitted. I have, in some cases,
altered the form of statement; in others, cut out
passages which seemed unnecessary. In chapters
seven, eight and nine I have added certain unpub
lished material which, since the prize was
awarded, I have found among Hamilton's papers
in the Library of Congress. But these changes
and additions have all been in accord with the
outline and conclusions of the original manu
script and the essay as now published is sub
stantially as it won the prize.
The material here published for the first time
relates to manufactures. No attempt has been
made to publish anything except a few passages
which throw light on the problem of this essay.
I refer to the unpublished preliminary drafts of
the Report on Manufactures as "MS. Manufac
tures, I, 2, and 3." The unpublished letters which
I have used are referred to by the volume and
page in Hamilton's papers in the Library of Con
gress. I have used the Federal Edition of his
works and it is referred to throughout the essay
as "Works." [xi]

PREFACE

This essay is published by the Kingsley Trust
Association (the corporate name of "Scroll and
Key" Society of Yale College), by whom this
prize was founded. For assistance in writing the
essay I am chiefly indebted to Prof. Henry C.
Emery of Yale University. Under his influence
I became interested in the study of Hamilton as
a thinker, and his suggestions and criticisms have
assisted me materially in my endeavor to interpret
the writings of Hamilton in the light of the move
ments of thought in the nineteenth century. Since
it is impossible in almost all cases to separate his
ideas from my own, it is altogether fitting that I
should recognize here his influence upon my think
ing which has been no less deep than his friend
ship has been kind.
W. S. c.
Yale University, June, 19 ii.

[xii]

CONTENTS

Page
Chapter i. Introduction  i
Chapter 2, Nationalism  4
Chapter 3. The Problem .... 17
Chapter 4. National Defence and Neu
trality  36
Chapter 5. Authority  49
Chapter 6. Finance and Unity ... 64
Chapter 7. Dangers of Homogeneous
Expansion , . . . 86
Chapter 8. Manufactures . . . , 112
Chapter 9. Protection  127

[ xiii ]

CHAPTER FIRST
Introduction
The facts of the life of Alexander Hamilton
are so familiar that a mere catalogue of them will
serve to refresh the mind of the reader. He was
born January ii, 1757, on the little island of
Nevis, one of the Leeward group southeast from
Porto Rico. His father was a Scotch merchant
and his mother was of Huguenot descent. At the
age of twelve he became a clerk in Cruger's store
at St. Croix. Three years later, assisted by his
relatives, he came to New York and in the fall of
1773 entered what is now Columbia University.
On the outbreak of the Revolution he quit the
classroom for the field and in 1777, at the age of
twenty, we find him military secretary to Washing
ton. In 1780, he found time to marry Miss Betsy
Schuyler; in 1781, after resigning from Washing
ton's official family, he distinguished himself by
capturing the first redoubt at Yorktown. During
the next year he was called to the bar. In 1786,
he represented New York in the Philadelphia
Convention and in 1789, Washington called him
to be Secretary of the Treasury — an office which
he held a little over five years. He returned then
to the practice of the law, in order to support his
[1]

ALEXANDER HAMILTON

large family; but he continued, until he was shot
by Burr on July ii, 1804, to take an active inter
est in public affairs.
Hamilton was a contemporary with Frederick
the Great, the Pitts, Fox, Burke, Adam Smith,
Washington, Turgot, and Napoleon. He was
born during the Seven Years War, which in
Europe raised Prussia to a place of first rank
among the powers and which in India and
America established the British Empire on the
ruins of French ambition. He died two months
after the victor of Marengo was crowned heredi
tary emperor of the French. He saw the French
Revolution begin in bloodshed and terror ; he saw
it end in despotism. Above all, he saw and helped
achieve, first, American independence, and then
American unity.
Many views have been expressed about Hamil
ton and his work. Some writers have seen in him
a paragon of wisdom and virtue ; they are blind to
his faults and to the merits of his opponents.
Others have condemned him as a Tory and reac
tionary in politics and as a defender of the
fallacies of mercantilism in economics. Still
others have seen in him a champion of the capital
istic class with no thought or sympathy for the
proletarian masses. These writers have made
illuminating studies of Hamilton and his work,
but they seem to fail to grasp the significance of
[2]

INTRODUCTION

the idea of nationality which dominated every
phase of his political and economic thinking.
The object of this essay is to avoid writing
either biography or history. Valuable works
already exist on the life of Hamilton and on the
history of his times. This essay is addressed to
those who are interested in knowing the relation
of Hamilton to one of the great historic move
ments of thought of the nineteenth century. Its
object is to state, first, the general principles of
nationalism and their relation to other theories
of society and, secondly, to show from Hamilton's
writings how, in each problem of practical states
manship which confronted him, these were the
principles which influenced and determined his
action. The purpose of this essay is not to deter
mine whether the ideas of Hamilton were right
or wrong; it is to state, sympathetically, his theory
of society and to formulate a philosophic basis for
his public acts and writings.

[3]

CHAPTER SECOND
Nationalism
There are according to Emery three economic
theories of society: "the classical theory of com
peting individuals; the socialistic theory of com
peting classes; and the protectionist theory of
competing nations."* The classical theory is the
individualism of Adam Smith. This astute Scotch
man believed that if every man, as long as he does
not violate the laws of justice, is left perfectly free
to pursue his own interest in his own way, and to
bring both his industry and capital into competi
tion with those of every other man, the obvious
and simple system of natural liberty will establish
itself of its own accord.*" He regarded the inter
est of the individual and society as identical since,
as he put it, the individual by the study of his own
advantages naturally, or rather necessarily, is led
to prefer that employment which is most advan
tageous to society." It was the height of pre
sumption, he thought, to endeavor to regulate the
employment of labor and capital, for from the
nature of the case, any such regulation was sure
* Emery, H. C, The New Protectionism. Yale Alumni
Weekly, vol. 13, p. 51.
•> Smith, A., Wealth of Nations (1776) (Cannan edition),
Book 4, ch. 9, vol. 2, p. 184.
0 Ibid., Book 4, ch. 2, vol. 1, p. 419.
[4]

NATIONALISM

to divert labor and capital from the more to the
less productive enterprises.
As a protest against certain excesses of regula
tion and against economic fallacies which existed
in the public mind in 1776, Adam Smith's doc
trine of individual freedom was valuable; but
before the nineteenth century was half gone the
weaknesses of free competition had begun to show
themselves. Against this individualistic theory of society
must be set, as shown above in the quotation from
Emery, the two opposing theories which came as
reactions to it. The first reaction is found in the
socialism of Karl Marx and Ferdinand Lassalle,
To these men the interest of society requires that
the interest of the individual be made subservient
to the interest of his particular class. Marx re
garded all history as the history of class-struggle ;
the lower or exploited class succeeding from time
to time in overthrowing the ruling class and estab
lishing in the place of the old civilization a civiliza
tion after its own image.* Lassalle held that the
influence of a class in a community depends upon
the relative amount of power that it possesses and
that, as it increases in power, the real constitution
of the country reflects its rule.*" These men
believed that the individual, and in their day the
a Marx, K., Communist Manifesto (1848).
''Lassalle, F., Ueber Verfassungswesen (1862).
[5]

ALEXANDER HAMILTON

laborer in particular, who was being exploited
under the regime of free competition, could find
his only salvation in furthering class solidarity.
The most powerful motive impelling men to
action, they held, was not selfish desires, but
loyalty to class and to the interests of class.
The second great reaction against the doctrine
of Adam Smith is nationalism. In this philoso
phy, which is the modern child of the old mercan
tile doctrine of Cromwell, Colbert, and Frederick
the Great, there are two fundamental conceptions :
"first, that the welfare of the nation is not the
same thing as the welfare of the individuals which
constitute it, and therefore, it is the duty of the
statesman to adopt a positive policy which will
secure the welfare of the nation ; second, that the
interests of different nations are not harmonious
but antagonistic."*
In this essay we will study Hamilton's relations
to these three movements of thought. Although
Marx did not formulate the socialist theory until
almost a half century after Hamilton's death,
modern writers have endeavored to interpret
Hamilton in the light of it. As will appear later,
however, there were then no classes in the social
istic sense in America and, if there had been,
Hamilton would have regarded any philosophy
» Emery, H. C, The New Protectionism, Yale Alumni
Weekly, vol. 13, p. 51.
[6]

NATIONALISM

with suspicion that put their interests above the
interests of the nation. Hamilton's relation to
the doctrine of individual freedom was far more
close. Individualism was the popular creed of his
time ; in politics it appeared in the Declaration of
Independence and the ideas of the French Revolu
tion; in economics it appeared in the "Wealth of
Nations." We will endeavor to show that Hamil
ton, on the one hand, opposed this philosophy, and
on the other, formulated anew the nationalistic
interpretation of history.
We will find it helpful, before proceeding to a
study of Hamilton's writings, to enlarge on the
idea of nationalism as it has been understood both
before and since Hamilton's day. The nationalist
denies that the interests of nations are comple
mentary. He holds that very often their interests
may be antagonistic, because of differences in race ;
devotion to language, institutions and traditions;
the rivalry of civilizations ; and national competi
tion for trade routes and markets. To him, in the
words of List, "a nation Is the medium between
individuals and mankind, a separate society of in
dividuals, who, possessing common government,
common laws, rights, institutions, interests, com
mon history, and glory, common defence and
security of their rights, riches, and lives, constitute
one body free and independent, following only the
dictates of its interests, as regards other indepen-
[7]

ALEXANDER HAMILTON

dent bodies, and possessing power to regulate the
interests of the individuals constituting that body,
in order to create the greatest quantity of common
welfare in the interior and the greatest quantity
of security as regards other nations."* The
nationalist beheves that deeper than man's selfish
interest, deeper even than his loyalty to his class,
is his loyalty to his nation and to the national ideas
under which he lives. Individuals and classes, he
says, are led, by wise statesmanship, to cooperate
within the nation in order to make their group
powerful against other groups ; and the welfare of
particular interests is thereby made subservient to
the strength and prosperity of the whole. If a
nation because of its undeveloped economic organi
zation needs protection, the nationalist thinks that
it is the duty of government by means of tariffs,
prohibitions and even war, to equalize conditions
and stimulate the development of economic life.
The mercantile doctrine, the ancestor of modern
nationalism, was, some writers have believed, a
policy eminently fitted to the age in which it
flourished. In the ages of Cromwell, Colbert, and
Frederick the Great, political power was used to
make the economic organization effective against
other nations and these statesmen did not hesitate
to use legislation and force to establish the su-
»List, F., Outlines of American Political Economy (1827),
Letter 2.

[8]

NATIONALISM

premacy of their groups. "For it was precisely
those governments," SchmoUer goes so far as to
say, "which understood how to put the might of
their fleets and admiralties, the apparatus of
customs laws and navigation laws, with rapidity,
boldness, and clear purpose, at the service of the
economic interests of the nation and state, which
obtained thereby the lead in the struggle and in
riches and industrial prosperity,"*
The age of mercantilism was an age in which
the interests of the leading nations were antagon
istic; it was an age of struggle for trade routes,
for markets, and for colonies; it was an age in
which that group won success whose members were
most deeply devoted to the national cause and
whose statesmen directed, with great power, the
force of government against rival groups.
It is interesting to note that a feeling, very much
like the feeling which inspired the nations which
rose to power under mercantilism, has been a
powerful factor in modern politics. "Seldom in
history," Emery wrote in 1902, "has the feeling of
the unity of a race, on the one hand, and the
antagonism of diverse races, on the other, been so
consciously held, or played so important a role in
actual politics as in recent years,"" The revival
a Schmoller, G., The Mercantile System, p. 72.
''Emery, H. C, The New Protectionism, Yale Alumni
Weekly, vol. 13, p. 53.
[9]

ALEXANDER HAMILTON

of national rivalry, which began in the seventies, at
least seriously checked the movement for univer
sal peace which characterized the fifties and sixties.
The rapid rise of transportation facilities revived
the competition for neutral markets ; the pressure
of population and national desire for empire
renewed the scramble for colonies; protective
tariffs, increase of armaments, and wars again
emphasized the fact that national psychology is
a force to be reckoned with. Many believe that
Germany's successful rise to wealth and power,
since her unification, has been largely due to the
national ambition, pride, and enthusiasm awak
ened by the war with France. However that may
be, it Is evident that along with the world-wide re
vival of nationalistic ideas, has gone the unity of
Germany and Italy; the partition of Africa among
land-hungry nations; the defeat of Russia in Its
attempt to Interfere with Japanese ambition In
the Orient; and the reawakening of a long sleep
ing race-consciousness In China, India, Persia, and
Turkey. The idea that state or nation Is something more
than the sum of the individuals who compose It,
has been denied. Cooper refers* to the nation as
a "grammatical contrivance," and Sumner in his
brilliant, individualistic book on social classes says
that "as an abstraction, the State is to me only
a Cooper, Th., Lectures on Political Economy (1826), p. 19.
[10]

NATIONALISM

AU-of-us,"* and that It owes Its citizens nothing
but peace, order, and the guarantee of rights.
The All-of-us theory of the state Is a part of the
Inheritance from Adam Smith; It is the extreme
reaction from mercantilism. It has done valuable
work in discouraging excessive and meddlesome
legislation, and the schemes of sentimental re
formers, but It has entirely missed the significance
of psychological forces which lead men to unite in
nations. Both past and present conditions show
that mankind does regard the State as more than
All-of-us, and Its functions as more than peace,
order, and the guarantee of rights. The nation,
with Its origin In the traditions of the past and with
Its ambitions for the future, represents to most of
Its citizens a cause more fundamental than their
selfish Interests or the welfare of their particular
class. It embodies the racial ideals of the group,
and is, at once, the protected and the protector of
its members.
The nationalist accepts the teaching of Malthus
that population in the end must be checked by the
ability of man to get food from the soil. The
logic of this law drove some classical writers into
pessimism, but the nationalist, hopeful that the im
provement In the arts will keep pace with the
increase in numbers, says that, if It does not, It Is
the right and duty of the stronger and more cul-
a Sumner, W. G., What Social Classes Owe Each Other, p. 9.
[11]

ALEXANDER HAMILTON

tured civilizations to supplant, by force of num
bers, those civilizations unable to maintain their
prestige. In countries where the population Is
stationary, the people are usually inert, parsi
monious, and indifferent to progress. The compe
tition of numbers does not stimulate them to new
enterprise and one generation passes on to the next
little more than It received. In countries, on the
contrary, where population Increases rapidly there
is always the danger that, outrunning the progress
of the arts, It will lead to over-population, and that
suffering then will ensue, first in the form of a
lower standard of living, and then in the form of
famine, disease, and death. With these two risks
before him, the nationalist does not despair but
chooses the latter, believing It to be a remoter
possibility than the former and that In the
struggle, which progress toward it stimulates,
those social systems, national beliefs, economic
systems, scientific theories, forms of government
and religion, which are most adapted to the needs
of mankind will survive and flourish.
Conflicts of civilization have very often led to
conflicts of arms. War In its broadest sense has
been a tribunal to which society submits questions
which are beyond the power of human reason to
decide — questions of what ideas shall dominate,
what race shall be supreme, what nation shall con
trol the markets and colonies of the world. As the
[12]

NATIONALISM

law of nations develops, the questions submitted to
arbitration will Increase ; In truth, we may expect
that ultimately all questions of law and fact will be
decided by an international tribunal. But many
men have honest doubts whether nations will ever
submit vital differences to a human tribunal. It Is
not for us here to justify war or advocate peace;
we can simply recognize the fact tHat men In the
past have chosen to die In battle for the cause they
believe to be right rather than to see their nation
submit to another or their civilization give place
to another,
"Competition and combination," Sumner says,
"are two forms of life association which alternate
through the whole organic and superorganic do
mains. The neglect of this fact leads to many
socialistic fallacies,"* and he might have added,
for the same reason, to many free-trade fallacies.
In the origins of society, people, not naturally
sociable, are drawn together In order to assist each
other in their struggle with other groups. Lesser
antagonism — those between Individuals, families,
and sub-groups — are suppressed and the group
becomes a cooperating unit. It is this desire for
protection which at first leads men of like race and
interests to cooperate. In time, the tribe or nation,
as the case may be, develops common interests,
desires, and racial ambitions; and the force of
» Sumner, W. G., Folkways, p. 17.
[13]

ALEXANDER HAMILTON

social desires, emotions, and aims unites individ
uals in the interest of their civilization. Racial
culture becomes an object to work for and defend.
Nations are gradually formed by the combination
of smaller political units. To the nationalist, na
tional interests take precedence over every other
interest within the state. He believes that men
are devoted above all else to their ideals, laws, re
ligion, and institutions, the sum total of which
make up their civilization; he believes that the
individual Is strong because of the power of the
nation and that the nation Is strong because of the
devotion of the Individual,
"Now this is the Law of the Jungle — as old and as true
as the sky:
And the Wolf that shall keep it may prosper, but the
Wolf that shall break it must die.
As creeper that girdles the tree-trunk the Law runneth
forward and back;
For the strength of the Pack is the Wolf, and the strength
of the Wolf is the Pack."*
To one who regards the nation as the most
Important unit of society, the position and duty of
the statesman seem very Important. The states
man to him Is not that foolish, presumptuous, and
Impertinent being which Adam Smith called "an
a Kipling, R., The Second Jungle Book.
[14]

NATIONALISM

Insidious and crafty animal."* The "Divine
Hand," which in Smith's system of natural liberty,
was supposed to direct, in some mysterious way,
private Interest for the good of society, becomes,
from his point of view, the will of the statesman.
He does not trust self-interest to work out social
harmony; he regards it as a force to be restrained
or encouraged In the interests of the nation.
"Men will pursue," Hamilton says, "their Inter
ests. It Is as easy to change human nature as to
oppose the strong current of selfish passions. A
wise legislator will gently divert the channel, and
direct it, if possible, to the public good.'"' "Our
prevailing passions," he observes In another place,
"are ambition and Interest; and it will ever be the
duty of a wise government to avail itself of the
passions, in order to make them subservient to the
public good : for these ever induce us to action.""
"Hamilton's Idea of statesmanship," Oliver says,
"was the faithful stewardship of the estate. His
duty was to guard the estate, and, at the same time,
develop Its resources. He viewed mankind and
natural riches as material to be used, with the
greatest possible energy and with the least possible
waste, for the attainment of national indepen-
* Smith, Adam, Wealth of Nations, Book 4, ch. 2, vol. 1,
p. 432.
^ Works, vol. 2, p. 58, Convention of New York, June 25, 1788.
"Works, vol. 1, p. 408, Federal Convention, June 22, 1787.
[15]

ALEXANDER HAMILTON

dence, power, and permanency. A means to this
end was certainly the prosperity of the people, but
the end itself was the existence of a nation 
Human society was something nobler than a mere
convenience, a nation greater than the sum of its
subjects. One of the duties of the state was the
well-being of Its citizens, but the duty of every
citizen was the well-being of the state."*
* Oliver, F. S., Alexander Hamilton : An essay on American
Union, pp. 450-52.

[16]

CHAPTER THIRD
The Problem
No delusions of spurious patriotism clouded the
mind of Hamilton in that moment of rejoicing
when our national independence was finally recog
nized by England. While our independence had
been won, he feared that It would not be wisely
guarded and used. Back of the enthusiasm of the
people, he discerned Innumerable foes, both for
eign and domestic, which threatened the very exist
ence of the young nation. As an officer under
Washington he had had ample opportunity to
observe the essential weaknesses of the American
state and he knew that the establishment of our
nationality was a far more difficult problem than
the winning of it on the field of battle. "Peace
made, my dear friend," he wrote to Laurens,
August 15, 1782, "a new scene opens. The object
then will be to make our Independence a blessing.
To do this we must secure our Union on solid
foundations — a herculean task, — and to effect
which, mountains of prejudice must be leveled!
, , , , We have fought side by side to make America
free; let us hand in hand struggle to make her
happy,"* * Works, vol. 9, pp. 280, 281. Laurens was killed in a skirmish
August 27, and probably never received this letter.
[17]

ALEXANDER HAMILTON

Before the surrender of Lord Cornwallis at
Yorktown, Hamilton had begun the fight for union
and efficient government by publishing the early
numbers of "The Contlnentalist,"* These papers
began the movement which resulted in the Phila
delphia Convention, "There Is something noble
and magnificent," he remarked In his last paper,
"in the perspective of a great Federal Republic,
closely linked In the pursuit of a common interest,
tranquil and prosperous at home, respectable
abroad; but there Is something proportionably
diminutive and contemptible in the prospect of a
number of petty states, with the appearance only
of union, jarring, jealous, and perverse, without
any determined direction, fluctuating and unhappy
at home, weak and insignificant by their dissen
sions in the eyes of other nations."* His advice,
however, was not heeded. Five years passed
before men undertook the task of creating a
strong central government.
The youthful enthusiasm of Hamilton made him
impatient with those less vislonful men who could
not see that which seemed so clear to him, namely,
the need of a strong and efficient union to conserve
and protect the wealth and reputation of the
American nation. Being entirely free from local
» Works, vol. 1, pp. 243-287. Published at different times be
tween July 12, 1781, and July 4, 1782.
*> Works, vol. 1, pp. 286, 287. [18]

THE PROBLEM

prejudice, because of his foreign birth, he never
could understand It, but it Impressed Its melan
choly meaning upon him. To Washington In 1 7 83
he wrote : "The centrifugal Is much stronger than
the centripetal force in these States, — the seeds of
disunion much more numerous than those of
union."* He saw on all sides the evidence of a
nation without a national government. He saw in
the impotence and indecision of Congress, the
opportunity for the party of disunion and anarchy;
he saw in local prejudice and jealousy for State
sovereignty, the enemy of the continental or
national view ; he saw In every State boundary an
opportunity for the entering wedge of foreign
influence, by which we would become "a ball in the
hands of European powers, bandied against each
other at their pleasure";* he saw In the spirit of
violence and repudiation, set loose by the Revolu
tion, the threatening hand of social disintegration.
Honesty was dethroned; debts were repudiated;
taxes refused; treaties broken; commerce and
industry disorganized. To Hamilton In 1787, as
he recalled the events of the last six years, we
seemed "to have reached almost the last stage of
national humiliation." Under the Confederation
we had turned our Independence into a curse and
made our name a byword of scorn In the councils
a Works, vol. 9, p. 327.
b Works, vol. 9, p. 327. [19]

ALEXANDER HAMILTON

of Europe. "What indication is there," he asks,
"of national disorder, poverty, and Insignificance
that could befall a community so peculiarly blessed
with natural advantages as we are, which does not
form a part of the dark catalogue of our public
misfortunes?"* The problem confronting Hamilton had a very
Important economic aspect. Forces were converg
ing to force upon the people a complete reorgani
zation of their economic life. The colonial
economy had been local and territorial. Each
colony with Its foreign trade was self-sufficient, and
down to the Revolution the only forces which had
drawn them together, were the dangers of Indians,
and of the French In Canada. A parallel exists, as
has been shown, between the economic organiza
tion of Colonial America and Medieval Europe.
"The important unit In the economic organization
of the United States at this period," Day says,
"was the rural group of perhaps a few hundred In
habitants.'"' The town and the surrounding terri
tory was a self-sufficient unit. As the mediaeval
peasant had brought his goods to the town market
to exchange them for mechandlse, the colonial
farmer brought his butter, eggs, and other farm
produce to the country store and received those
few articles of necessity which he could afford.
a Works, vol. 11, p. 112, The Federalist, No. 15.
'' Day, Clive, History of Commerce, Sec. 561.
[30]

THE PROBLEM

Poor transportation facilities reduced travel and
commerce between the different sections of the
country to a minimum. The colonial roads were
"thick with dust In summer, and absolute sloughs,
with mud a foot or more deep, during the thaws of
winter and spring."* When possible the water
ways were used; and they, as they had been In
Mediaeval Europe, were relatively of great Im
portance, But communication was at best sluggish.
Men lived and died In the community where they
were born. Their horizon was limited and their
wants few. The people were poor, not because
the country was unresourceful, but because the
economic organization was too simple to develop
the resources and because the enterprise of the
people was not stimulated. Colonial life was
simple, local, and uneventful. The people were
unenergetic and easy-going.
This local and territorial economy had served
the colonists well enough in its day. The self-
sufficiency of each colony made a close relation
with Its neighbors economically unnecessary. But
with the agitation that culminated in the Revo
lution, this state of affairs began to show Its limi
tations; and during the Revolutionary period,
when practically all foreign commerce was de
stroyed, the need of economic, as well as political
unity, began to be felt. When the foreign supply
'Day, Clive, History of Commerce, Sec. 565.
[31]

ALEXANDER HAMILTON

of goods was shut off, home manufactures, espe
cially in iron and woolens, sprang up. Commerce
began to break over State boundaries; and, after
the close of the War, Its encroachment continued.
This rise of national economy was fettered by the
colonial organization which, with the tenacity of
outworn institutions, tried to maintain itself by
restrictions on intercolonial trade. The States, In
their effort to strengthen themselves, resorted to
tariffs, retaliations, and discriminations. New
Jersey was likened to a cask tapped at both ends,
the contents being drawn off by her neighbors.
"Each State," Rabbeno says, "acted on its own
account, and was Inspired solely by Its own Inter
ests which often differed from those of other
States. The measures taken In one State were
paralyzed by those of another, or clashed with
them, so that instead of forming an obstacle to
foreign Importation, they hindered the develop
ment of the Interior commerce of the whole
nation."* These contentions over commerce, Hamilton
believed, would be fatal to the peace of the country
unless adequate power was given to the central
government to deal with our commercial relations.
"The spirit of enterprise," he says, "which char
acterizes the commercial part of America, has left
no occasion of displaying Itself unimproved. It Is
* Rabbeno, U., Protezionismo Americano, E. 2, ch. 1, sec. 9.
[32]

THE PROBLEM

not at all probable that this unbridled spirit would
pay much respect to those regulations of trade by
which particular States might endeavor to secure
exclusive benefits to their own citizens. The in
fractions of these regulations, on the one side, the
effort to prevent and repel them, on the other,
would naturally lead to outrages, and these to re
prisals and wars."* To the mind of Hamilton
then, union was as necessary from the economic,
as from the political, standpoint. The state
economy, having no longer its utility to claim for
its defence and, becoming, therefore, selfish and
grasping, was anti-national and, for that reason,
stood in the way of Hamilton's plan for establish
ing a cooperating, independent nation.
The need for national control of commerce was
even more seriously felt In our foreign relations.
Prior to our independence colonial shipping had
been unified and protected by the English Naviga
tion Laws. In fact, foreign commerce had been
the most dominant and characteristic feature of
colonial economy." Trade with the West Indies,
at least before the Molasses Act, was very lucra
tive, and by It the northern colonies satisfied their
adverse trade balance with England." Under
protection of the Empire the colonies were fast
a Works, vol. 11, p. 47, The Federalist, No. 7.
^ Callender, G., Economic History of the United States, p. 6.
c Day, C, History of Commerce, Sec. 578.
[33]

ALEXANDER HAMILTON

becoming leaders In the arts of navigation and in
shipbuilding. But after the break with England
the power to regulate commerce, instead of being
given to the Congress of the Confederation, was
reserved to the separate States. Similar evils to
those, produced by lack of national regulation of
Internal commerce, arose. When the Confedera
tion made a commercial treaty, It was powerless to
enforce It as the supreme law of the land; it could
only recommend, and any State that chose to dis
regard the recommendation could do so with Im
punity. Each State, pursuing its selfish interest,
tried to regulate its own foreign commerce. As a
result, the States presented to the outside world no
united front ; foreign States found that they could
not depend on the promises of the Confederation
and the United States became an object of scorn
In European circles. It was Hamilton's Idea that
until the States would yield their local Interests to
the Interests of the nation; until they, as a united
nation, would take common measures of regula
tion and retaliation, they would not be able to ob
tain any concessions from foreign States. Here
was another set of economic conditions forcing
upon the colonist the establishment of a national
economy. Hamilton held up to the American people, as a
solemn warning, the weakness of the German
Federation. "The fundamental principle," he
[34]

THE PROBLEM

said, "on which it rests, that the empire Is a com
munity of sovereigns, that the diet Is a representa
tion of sovereigns, and that the laws are addressed
to sovereigns, renders the empire a nerveless body,
Incapable of regulating its own members, Insecure
against external dangers, and agitated with un
ceasing fermentations in its own bowels. The his
tory of Germany is a history of wars between the
emperor and the princes and states; of wars
among the princes and states themselves; of the
licentiousness of the strong, and the oppression of
the weak; of foreign intrusions, and foreign in
trigues; of requisitions of men and money disre
garded, or partially complied with ; of attempts to
enforce them, altogether abortive, or attended
with slaughter and desolation, involving the inno
cent with the guilty ; of general imbecility, confu
sion, and misery."* It was Into such condition as
this that Hamilton believed the American States to
be drifting. The same ills which haunted Ger
many were appearing in America under the gov
ernment of the Confederation. The German
States, having no statesman to weld them into a
united nation, had continued In the territorial
economy long after the;aations of Western Europe
had become united. The problem which Germany
should have solved in the seventeenth century
waited for Its solution at the hands of List and
a Works, vol. 11, pp. 146, 147, The Federalist, No. 19.
[35]

ALEXANDER HAMILTON

Bismarck In the nineteenth century and, In the
meantime, she suffered all the evils of a political
and economic organization which was worn out
and fitted to the needs of another age. This prob
lem of transition from territorial to national
economy was the same problem that the American
States were facing In the eighties of the eighteenth
century. The words of Schmoller, spoken of
those nations which had their rise in the seven
teenth century, sound strangely apt when applied
to the situation confronting Hamilton. "The
question now was ....," he says, "to bring
about, as far as possible, on the basis of common
national and religious feelings, a union for ex
ternal defence and for Internal justice and ad
ministration, for currency and credit, for trade
Interests and the whole economic life, which should
be comparable with the achievements In Its time,
of the municipal government in relation to the
town and Its environs."* The struggle which
Colbert waged in France during the last half of
the seventeenth century against municipal and
provincial Influence, and which List waged in
Germany during the first half of the nineteenth
century against local and narrowing authority,
was the same struggle to which Hamilton applied
his constructive genius during the last part of the
eighteenth century. With the growing spirit of
* Schmoller, G., The Mercantile System, p. 49.
[36]

THE PROBLEM

nationality, with the necessity for commercial
treaties with other nations, with the Increase of
communication and Internal commerce, the old
colonial economy, with its local and narrow preju
dices, with its self-pride and love of power, be
came an obstacle to progress.*
Hamilton's problem, then, as he saw it, was to
establish a strong, efficient government which
would conserve the fruits of independence, which
would prevent the colonial economy from per
petuating Itself, and under which men, in security,
might develop the dormant resources of the
country. The nation needed the fostering care of
human genius. Human energy which wasted it
self, spreading over a wide territory, needed to be
concentrated; the simple to be supplanted by a
more complex life; new wants awakened; manu
factures for which the country furnished abun
dant raw material, encouraged; agriculture Im
proved; and the nation made one interdependent,
efficient, economic unit, strengthened by division of
labor within and united effectively against compet
ing nations without.
The problem confronting Hamilton had not
only a political and economic, but also a philo
sophic aspect. The ideas of Natural Rights were
the popular ideas of his time. They were a pro
duct of that great movement away from mediaeval
a Cf . Schmoller, G., The Mercantile System, p. 49.
[37]

ALEXANDER HAMILTON

authority — the movement which in religion broke
the grip of the clergy; which In philosophy swept
away the quibbles of the schoolmen; which in
politics proclaimed that all men are created equal
and that they are endowed with certain inalien
able rights which rulers disregard at their peril;
and which, in economics, held up, as futile, the
regulations and restrictions of the past, and urged
upon men the "obvious and simple system of
natural liberty." Both the Ideas put by Jefferson
in the preamble of the Declaration of Independ
ence and the principles of natural liberty in the
writings of Adam Smith, are expressions of this
great movement. It demands the largest possible
amount of Individual freedom, which meant In
politics a weak, decentralized government and in
economics freedom In Industry and trade. As a
young patriot, enthusiastic over the American op
position to George the Third, Hamilton used some
of the catch phrases of this philosophy,* but when
he became a statesman. Interested In the security
and development of the American nation, he re
garded them as Inapplicable to the conditions of
America and therefore opposed them. He op
posed them In particular because they became the
philosophic support for the partisans of France,
the party of disunion, and the advocates of com
plete freedom in economic affairs.

a Cf . Works, vol. 1, pp. 1-177. [28]

THE PROBLEM

In view of the problem which confronted Ham
ilton it may be well In this connection to consider
the effect which the founding of the new govern
ment had on the prosperity of America. So emi
nent an authority as Callender seems to think that
government had nothing to do with hard times In
1785-86, or with good times in 1789-90. "Just
as hard times," he says, "had brought failure to
the old confederation, so prosperity, If It did not
actually cause the success of the new government,
greatly simplified the problem of its establishment.
One may well wonder what would have been the
fate of Hamilton's brilliant projects, the refund
ing of the debt, and the establishment of a revenue
system, if they had been tried on the country
during the economic gloom of 1785-86."* In sup
port of his position he cites some interesting letters
of Washington. "The people," Washington
writes to Jefferson In 1788, "have been ripened
by misfortune for th? reception of a good govern
ment. They are emerging from the gulf of dissi
pation and debt, into which they had precipitated
themselves at the close of the war. Economy and
industry are evidently gaining ground."" "Many
blessings," he writes to Lafayette in the same
a Callender, G. S., Economic History of the United States,
p. 182.
b Washington, Writings (Sparks edition), vol. 9, p. 427. To
Jefferson, August 31, 1788. [29]

ALEXANDER HAMILTON

year, "will be attributed to our new government
which are now taking their rise from that industry
and frugality, Into the practice of which the people
have been forced from necessity."* It is inter
esting, however, to note that three years later,
Washington, in letters not quoted by Callender,
was more willing to emphasize the beneficial
effects of the new government, "The United
States," he writes in 1791, "enjoy a scene of pros
perity and tranquillity under the new government,
that could hardly have been hoped for under the
old."" "In a tour," he writes again in the same
year, "which I made last spring through the
southern states, I confirmed by observation the
accounts which we had all along received of the
happy effects of the general government upon our
agriculture, commerce, and industry,"" Washing
ton seems to have regarded the prosperous condi
tion of the country during his first administration
due, not merely to "the goodness of Providence"
which brought good crops, but also to security
"under an energetic government" and to the har
mony, industry, and confidence of the people.
It is not unreasonable to believe that changes
in, or the policies of, government may affect the
a Ibid., vol. 9, p. 382. To Lafayette, June 18, 1788.
b Ibid., vol. 10, p. 169. To Mrs Graham, July 19, 1791.
<^ Washington, Writings, vol. 10, p. 189. To Luzerne, Septem
ber 10, 1791. [30]

THE PROBLEM

motive of a whole nation. Some men believe, as
has been pointed out, that the Franco-German
War and the union brought about by Bismarck
revolutionized the spirit of the German people.
Before 1871, the land was just as fertile, the
resources just as rich, and the opportunities poten
tially as numerous as after the war. But after the
war the people, ambitious for the dominance of
the German race and Institutions, entered the
international struggle for military prowess, for
colonies, and for commercial and industrial su
premacy. Here Is a condition which seems partly
ascribable to the revival of the spirit of enterprise
and national ambition among the people.
Now apply this to the American nation In 1789.
"Ripened by misfortune" under the Confedera
tion, the people were coming out of the "blues."
The establishment of the new government and the
policies inaugurated by Hamilton were political
events which set in motion thousands of stimuli.
The mere idea of being a great nation, able to de
fend our rights against others, added to the con
fidence of the people. "Has not your Industry,"
Hamilton asked In 1801, "found aliment and In
citement In the salutary operation of your govern
ment — In the preservation of order at home — In
the cultivation of peace abroad — in the invigora-
tion of confidence in pecuniary dealings — In the
[31]

ALEXANDER HAMILTON

increased energies of credit and commerce — In the
extension of enterprise, ever Incident to a good
government well administered?"* Without deny
ing any of the many causes which brought pros
perity under the new government, one of the most
Important, undoubtedly, was the "vivifying Influ
ence of an efficient and well-constructed govern
ment." The American nation was just as rich
materially before 1789 as it was after. It had
the same unlimited resources and numerically the
same population. The element In the equation
which made the striking difference was psycho
logical. This new revival of feeling was as much
a cause as a result of economic conditions. It was
also as much a result as a cause of the success of
the new government. When credit was created,
the finances reorganized, prosperity secured, com
merce protected, and industry encouraged, there
was a reawakening of the national consciousness
that was a powerful cause of both our political
and economic success. At this time the temper of
the American people began to change from the
easy-going temper which characterized the colonial
times to the strenuous, nervous, and enterprising
spirit which Is now the proverbial feature of
American life. "Laws," asserts Say, "are not able
to create wealth." "Certainly they are not," List
a Works, vol. 8, pp. 241, 242. [82]

THE PROBLEM

answers, "but they create productive power which
is more important than wealth."*
When in the evolution of society the time comes
for a change from the narrower and less efficient to
the broad and more efficient organization, if no
statesman appears to brush aside the rubbish of
the past, the old institutions will petrify and de
terioration will set in. Germany In the seven
teenth century, when the nations of the west under
the direction of great mercantilist statesmen were
rising to power, hung with tenacity to her old po
litical and economic forms. "It was not simply
the external loss In men and capital," Schmoller
with confidence asserts, "which brought about this
retrogression of Germany, during a period of
more than one century, in comparison with the
Powers of the West ; it was not even the transfer
ence of the world's trading routes from the Medi
terranean to the ocean that was of most con
sequence ; it was the lack of politico-economic or
ganization, the lack of consolidation In its
forces."" The task of Hamilton was to save the United
States from a like fate with Germany. Here the
same struggle which was Germany's In the seven
teenth century, and which Bismarck had to face in
a List, F., Das Nationale System der Politischen Oekonomie,
ch. 12.
1' Schmoller, G., The Mercantile System, p. 48.
[33]

ALEXANDER HAMILTON

the nineteenth century — the struggle between par
ticularism and nationalism — was present. Local
prejudices were deeply imbedded In the minds of
the people. Traditions, once useful, were an
obstacle to progress. State loyalties in America,
as local dynasties In Germany, clung to the altars
of the past. Both countries were a collection of
jealous states, opposed to any central government
that might encroach on their sovereignty. Both
were suffering from "the aristocracy of State pre
tensions." Both had a common basis for nation
ality — race. Institutions, and commercial interests.
But these sentimental bonds were not strong
enough to overcome local prejudice. The jealousy
of local units in both countries opposed the delega
tion of power to a general government. The
German Diet had no more authority than had the
Congress of the Confederation. Both bodies
proved the truth of Washington's saying: "In
fluence is not government."* Local dynasties in
Germany and State sovereignty in America stood
in the way of national greatness. Both Hamilton
and Bismarck solved the problem along the lines
of national tradition. Bismarck built his Union on
the dynastic traditions of his people; Hamilton on
the republican traditions of his. Each realized the
need of clothing his nation with a government
a Washington, Writings, vol. 9, p. 204. To Henry Lee, October
31, 1786.

[34]

THE PROBLEM

which would fit. In Germany, when power was
taken from the local dynasties, the people were
given a central prince on whom they could con
centrate their attachment;* in America when the
States were circumscribed within bounds, their
citizens were given a strong Republic which they
might be loyal to. Each statesman fitted the
government to the needs and temperaments of his
people and both governments have endured be
cause their foundations are laid In racial ten
dencies which are psychologically sound.
Genius, it has been said, is in league with history.
History shows that the units of society with each
succeeding age become larger and larger. The
town supplants the manorial economy; the terri
torial the town; and the national the territorial.
But this natural tendency Is only potential, and
requires the directing genius of a statesman to
make It effective. The United States in 1789 was
ready to change from the territorial to the na
tional stage, but without the work of the great
men of that period, among whom the constructive
mind of Hamilton exerted such a strong influence,
we might have drifted listlessly — a group of
quarreling states.
a Cf. Bismarck, Gedanken und Erinnerungen, ch. 13.

[35]

CHAPTER FOURTH
National Defence and Neutrality
A sovereign nation outside of Europe, with its
own interests and policies, was to the European
statesman of the eighteenth century an unthinkable
fact. When the American nation became the first
exception, they, while nominally recognizing our
independence, actually treated us as colonies. It
was only by wise statesmanship that our political
Independence, once won, was reaffirmed. Europe
was reluctant to give us more than the crumbs of
justice. It was easy enough for her to acknowl
edge our international rights on paper; It meant,
however, a complete change In her politics to
acknowledge them in fact.
Hamilton was far more interested in domestic
than in foreign affairs. But his position In Wash
ington's cabinet, which was practically that of
Prime Minister, forced him to concern himself
with foreign relations. In 1794, war was threat
ened with Great Britain. At the crisis of the
situation, he wrote to Washington that he favored
the following course of conduct: "to take effectual
measures of military preparation, creating, in
earnest, force and revenue; to vest the President
with Important powers respecting navigation and
[36]

DEFENCE AND NEUTRALITY
commerce for ulterior contingencies — to endeavor
by another effort of negotiation, confided to hands
able to manage It, and friendly to the object, to
obtain reparation for the wrongs we suffer, and
a demarcation of a line of conduct to govern In
future ; to avoid, till the Issue of that experiment,
all measures of a nature to occasion a conflict be
tween the motives which might dispose the British
government to do us the justice to which we are
entitled, and the sense of its own dignity. If that
experiment fails, then, and not till then, to resort
to reprisals and war."*
John Jay was appointed, two days after the
above passage was written, to negotiate a treaty
with Great Britain. On November 19, 1794, the
Jay Treaty was concluded at London. l^Iamilton^
defended It against a storm of opposition In a
series" of papers, "signed "CamlUus." He de
fended it from every angle of International law
and expediency; and especially because it would
bring peace. "If we can avoid a war for ten or
twelve years more," he says, "we shall then have
acquired a maturity which will make It no more
than a common calamity  This Is the most
effectual way to disappoint the enemies of our wel
fare  If there be a foreign power which sees
with envy or ill-will our growing prosperity, that
power must discern that our Infancy Is the time for
a Works, vol. 5, p. 98. To Washington, April 14, 1794.
[37]

ALEXANDER HAMILTON

clipping our wings. We ought to be wise enough
to see that this Is not a time for trying our
strength,"* He furthermore favored the treaty,
because It strengthened the party of law and order
at home ; because, by turning over to us the west
ern posts, It bound the east and west more securely
together; and because It gave us control of the
Mississippi and of the fur trade of the north. To
him the Jay Treaty did little less than save the
Union, Our relations with France were more compli
cated and more hostile to our nationality than our
relations with England. There was much senti
mental talk about our debt of gratitude to France.
Hamilton, while recognizing the service she had
rendered us during the Revolution, saw that It was
not until after that decisive event, the capture of
Burgoyne, that she sent assistance," and that it was
not love for us but hatred of England which in
duced her to act. "The primary motive of France
for the assistance she gave us," Hamilton remarks,
"was obviously to enfeeble a hated and powerful
rival by breaking In pieces the British Empire. A
secondary motive was to extend her relations of
commerce in the New World, and to acquire addi
tional security for her possessions there, by form
ing a connection with this country when detached
a Works, vol. 5, pp. 206, 207. Camillus, No. 2.
b Works, vol. 6, p. 206. France, 1796.
[38]

DEFENCE AND NEUTRALITY
from Great Britain."* France did not favor the
growth of a strong American nation ; she wished
to transfer our colonial relation from England to
herself. "She patronized," Hamilton says, "our
negotiation with Great Britain without the pre
vious acknowledgment of our independence; — a
conduct which .... can only be rationally explained
Into the desire of leaving us in such a state of half
peace, half hostility with Great Britain as would
necessarily render us dependent upon France.""
France was trying to use the United States to gain
back that which she had lost In the Seven Years
War; but Hamilton understood the struggle be
tween England and France for empire, and the
keystone of his foreign policy became protection
from them both. It was the keen insight Into the
affairs of the world, by a man who had never been
In Europe, which led Talleyrand to say of him,
"// a divine I'Europe."
In January, 1797, Hamilton wrote to Wash
ington: "My anxiety to preserve peace with
France is known to you  Yet there are bounds
to all things  We seem to be where we were
with Great Britain when Mr. Jay was sent there,
and I cannot discern but that the spirit of the
policy, then pursued with regard to England, will
be the proper one now In respect to France — viz.,
a Works, vol. 6, p. 207. France, 1796.
''Works, vol. 6, p. 209. France, 1796.
[39]

ALEXANDER HAMILTON

a solemn and final appeal to the justice and Interest
of France, and If this will not do, measures of
self-defence. Anything Is better than absolute
humiliation. France had already gone much
further than Great Britain ever did."* John
Adams became President in March, and appointed
three envoys to try to adjust our difficulties with
France. The Directory refused to recognize the
commission without bribery. French privateers
were committing depredations on our commerce,
and intercepting our trade with her enemies."
We were on the verge of war. Hamilton, In 1798,
published "The Stand,"" In which, in the most
vigorous language, he denounced the action of
France, and attempted to rouse public opinion in
defence of our national honor.
National dishonor was bad enough, but, con
sidering our weakness as a nation, a certain
amount of It could be endured. Hamilton, how
ever, was discerning enough to grasp the real
meaning of the aggressive policy of France. "The
prominent original feature of her Revolution," he
said, "Is the spirit of proselytism, or the desire of
new-modeling the political institutions of the rest
of the world according to her standard."* He
a Works, vol. 10, p. 230. To Washington, January 19, 1797.
''Works, vol. 10, p. 238. To King, February 15, 1797.
c Works, vol. 6, pp. 259-318.
d Works, vol. 6, p. 274. The Stand, April 4, 1798.
[40]

DEFENCE AND NEUTRALITY
saw that in her effort to carry the Ideas of the
Revolution to the rest of the world, she was
destroying nationalities. Might not the fate of
America be that of Italy? No wonder Hamilton,
whose chief dream was the greatness of the Ameri
can state, hated a nation that tried to make Its
institutions the law of every other. "Like the
prophet of Mecca," he writes, "the tyrants of
France press forward with the alcoran of their
faith In one hand and the sword in the other ....
France, swelled to a gigantic size, and aping
ancient Rome except In her virtues, plainly med
itates the control of mankind, and is actually
giving the law to nations."* If successful France's
ambition would destroy his most cherished hope
— the American nation."
Was Hamilton deceived in thinking that the
ambition of France extended to America? For
centuries she had been struggling to gain or defend
her colonial empire. In England she had found
her severest competitor, and the Napoleonic wars
were, in truth, the culmination of the struggle.
This national hope and the proselytism of the
Revolution embodied themselves In Napoleon.
Napoleon's conquests in Europe were merely a
means to an end. His ambition was world-
empire. "Napoleon," Seeley says, "did not care
a Works, vol. 6, pp. 280, 281. The Stand, April 7, 1798.
''Cf. Works, vol. 6, pp. 332, 333.
[41]

ALEXANDER HAMILTON

about Europe, 'Cette vieille Europe m'ennuie,'
he said frankly. His ambition was all directed
towards the new world. He Is the Titan whose
dream it Is to restore that Greater France which
had fallen in the struggles of the eighteenth cen
tury, and to overthrow that Greater Britain which
has been established on Its ruins."* When we
realize the real Intent of France, and when we see
the proof of world-ambition In Napoleon's expedi
tion against Egypt and In his acquisition of Louis
iana, we perceive how truly Hamilton divined
Europe. Just before we acquired Louisiana,
Hamilton said that the cession of that territory to
France threatened "the early dismemberment of
a large portion of the country; more immediately,
the safety of all the Southern States ; and remote
ly, the Independence of the whole Union."" He
wishes also to thwart France's ambition for uni
versal empire by detaching South America from
Spain, because the gold of those countries was
flowing Into the coffers of France."
It was Hamilton's belief that the true family
compact hoped for by Genet was a Pandora box ;
it would Inevitably makfi-^us a mere satellite .of
France;"^ it would destroy oiir national existence.
a Seeley, J. R., The Expansion of England, p. 105.
IJ Works, vol. 6, p. 334. Pericles, 1803.
"Works, vol. 10, p. 339. To Otis, January 26, 1799.
^ Works, vol. 5, p. 184. Horatius, May, 1795.
[42]

DEFENCE AND NEUTRALITY
The French party, by trying to force the govern
ment to assist France, were putting In jeopardy our
nationality. Our treaty with France was defen
sive only; her war against the First Coalition was
offensive; we therefore had no treaty obligation.
"Why then should we," Hamilton asks, "by a close
political connection with any power of Europe,
expose our peace and interest, as a matter of
course, to all the shocks with which their mad
rivalship and wicked ambition so frequently con
vulse the earth?"* Our true policy, he held, was:
"Peace and trade with all nations; beyond our
present engagements, political connection with
none."" The foreign policy of the Federalists was vigor
ously national ; it saved the young and weak nation
from being wrecked on the rock of foreign wars.
Had we gone to war with England In 1 794, or had
we joined France later against the First Coalition,
our independence, If not actually lost, would have
been endangered. "The Federalists," Sumner
says, "met a demand for sentimental politics in for
eign policy, and for a connection between this
country and a foreign nation, In which relation this
country would be a very inferior and dependent
party, by doctrines of complete national Independ
ence and impartial neutrality  Both In and out
a Works, vol. 5, p. 185. Horatius, May, 1795.
l" Works, vol. 5, p. 184. Horatius, May, 1795.
[43]

ALEXANDER HAMILTON

of office Hamilton's mind was the one which
guided and prevailed in that policy."* Hamilton
wished the United States to be let alone to work
out her own greatness, and all the work which he
did, trying to keep Europe out of our affairs and
Americans out of European affairs, was in the
direct line of his deepest Interests. He wished to
establish a great, self-sufficient nation, indepen
dent of all outside influence. (This national plan
was early In Hamilton's mind. /"Let the thirteen
States," he said in the Federalist;^ "hound together
in a strict and indissoluble Union, concur In erect
ing one great American system, superior to the
control of all transatlantic force or Influence, and
able to dictate the terms of the connection be
tween the old and the new world I'^N.
The policy of neutrality of WaSnlngton's ad
ministration was a wise effort to keep the Ameri
can nation at peace when the rest of the world was
at war. War, at that time, would have subjected
our commerce to the privateers of the enemy when
we had no adequate navy to protect It. It would
have destroyed our mercantile and shipping capi
tal. It would have disorganized the life of the
new nation which was just recovering from the dis
sipation of the period of the Confederation; and
would have set loose the latent, turbulent and de-
a Sumner, W. G., Alexander Hamilton, p. 223.
b Works, vol. 11, p. 88. The Federalist, No. 11.
[44]

DEFENCE AND NEUTRALITY
structlve passion in the people; wrecked our
strength and resources ; and checked irretrievably
our progress. It would have threatened our west
ern territory, which was so necessary, in Hamil
ton's mind, to the expansion of the Union, It
would have increased the public debt and sub
jected a people, always opposed to taxation, to
added burdens. There are times when war might
be necessary and useful to a nation; but Hamilton
was sure that our situation was not one of them.
In 1794, seeing the country in an "unexampled
state of prosperity," he said: "If while Europe Is
exhausting herself In a destructive war, this
country can maintain Its peace, the issue will open
to us a wide field of advantages, which even imagi
nation can with difficulty compass."*
In 1793, at the height of the Genet affair,
Washington set forth the policy of the administra
tion in the Proclamation of Neutrality. Hamil
ton defended It against the attacks of the French
party in his papers signed "Paclficus."" The pur
pose of the proclamation, he says, is to inform all
that we are at peace, and not associated with either
belligerent, and that we will perform the duties of
neutrals." He considered self-preservation the
a Works, vol. 5, p. 86. Americanus, February 8, 1794.
b Works, vol. 4, pp. 432-489.
<= Works, vol. 4, p. 432. [45]

ALEXANDER HAMILTON

first duty of the nation.* "The rule of morality
....," he says, "Is not precisely the same between
nations as between individuals. The duty of mak
ing its own welfare the guide of its actions Is much
stronger upon the former than upon the latter, In
proportion to the greater magnitude and Import
ance of national compared with individual happi
ness and to the greater permanency of the effects
of national than of individual conduct. Existing
millions, and for the most part future generations,
are concerned in the present measures of a govern
ment."" The great contribution of the United States to
International Law Is the doctrine of neutrality.
Well grounded as it Is today. It was not recog
nized prior to the nineteenth century by the great
nations. This principle was the corner stone of
the foreign policy of the Federalists. Hamilton
was not only its chief author, but its chief advo
cate and defender. In defining it, he said: "It Is
to make known to the Powers at war, and to the
citizens of the country whose government does the
act, that such country Is in the condition of a na
tion at peace with the belligerent parties, and
under no obligations of treaty to become an asso
ciate In the war with either, and that this being Its
situation, its intention is to observe a correspond-
a Works, vol. 4, p. 457. Pacificus, July 6, 1793.
b Works, vol. 4, p. 464. Pacificus, July 10, 1793.
[46]

DEFENCE AND NEUTRALITY
ing conduct by performing towards each the duties
of neutrality; to warn all persons within the juris
diction of that country to abstain from acts that
shall contravene those duties, under the penalties
which the laws of the land, of which the jus gen
tium Is part, will Inflict."* So devoted was Hamil
ton to the Idea that he said that "If we must have
a war, I hope It will be for refusing to depart from
that principle."" When the welfare of the Ameri
can nation was in question, he was a friend no
more of Great Britain than of France. "I would
mete," he writes, "the same measure to both of
them, though it should ever furnish the extraor
dinary spectacle of a nation at war with two na
tions at war with each other,"" To King he wrote :
"We are laboring hard to establish In this country
principles more and more national and free from
all foreign ingredients so that we may be neither
'Greeks nor Trojans' (EngHsh nor French) but
truly Americans.'"*
While Hamilton counseled peace at almost any
cost short of national humiliation, he saw clearly
the possibilities of war and the innumerable causes
which have a "general and almost constant opera
tion upon the collective bodies of society."" A
a Works, vol. 4, p. 434. Pacificus, June 29, 1793.
''Works, vol. 6, p. 228. The Answer, December 6, 1796.
0 Works, vol. 10, p. 294. To Pickering, June 8, 1798.
a Works, vol. 10, p. 217. To King, December 16, 1796.
e Works, vol. 11, p. 34. The Federalist, No. 6.
[47]

ALEXANDER HAMILTON

proclamation of neutrality, he believed was worth
little unless backed up by an army and navy.*
Quick to grasp a situation, he saw that In the
remorseless struggle of nations, so well exempli
fied In his day, a nation, to be really sovereign,
must be able to fight for Its rights; and that If It
refused to be one of the millstones, It would be
ground without mercy between them.
The common charge of the socialist against the
foreign policy of modern nations Is that It allows
the use of armaments and diplomacy to further the
Interests of capitalists In foreign parts. But no
such charge is valid against Hamilton. His policy
of defence and neutrality was to secure respect for
the nation abroad and an opportunity to develop,
under the shelter of peace, our vast national re
sources at home.
a Works, vol. 11, p. 83. The Federalist, No. 11.

[48]

CHAPTER FIFTH
Authority
The American people In the last part of the
eighteenth century were by their environment pre
disposed to Irresponsible democracy. Their rever
ence for institutions and authority was scant.
They thought that they had had too much govern
ment at the hands of the English statesmen, and
they proposed to have as little as possible at the
hands of their own. They regarded government
as a necessary evil ; but, since it had to be endured,
they made It weak and powerless. Under the
Confederation they reaped very different results
from those anticipated. The tendency which was
theirs "by nature," bade fair to destroy them and
bring them to national nothingness. Weakness of
central control gave opportunities to local factions
and sectional Interests who sacrificed the general
for their particular welfare. The channels of
commerce were choked; currency disorganized;
authority and law disregarded. Too little central
control drove the nation to the verge of ruin. The
excesses of democracy turned out to be license,
lawlessness, and unwise factional legislation.
Now, Hamilton believed that there were some
natural tendencies In human nature which for the
good of society should be restrained. Democracy
[49]

ALEXANDER HAMILTON

might be the natural bent and inevitable goal of a
new country, but because of this very fact, he
thought that a strong government was necessary
to restrain men from excess and to support the
general interest. "I am much mistaken," he said,
with the evils of the weak Confederation in mind,
"if experience has not wrought a deep and solemn
conviction in the public mind, that greater energy
of government is essential to the welfare and pros
perity of the community."* To him In the "alter
nate sunshine and storm of liberty," some force
not yielding to every momentary whim of opinion
was necessary to conserve the resources of the
nation and make the Union a blessing. For this
reason he wished the central government to be
energetic and strong, with powers equal to Its
responsibility. Before considering Hamilton's Ideas on govern
ment we may find in the treatment of the Loyal
ists after the treaty of 1783, an example both of
the entire disregard for authority and law which,
at that time, was popular, and of Hamilton's cour
age in the defence of justice and order. By the
treaty England had made liberal concessions to us,
In return for which we stipulated "that there
should be no future Injury to her adherents among
us."" The Confederation, however, was power-
a Works, vol. 11, p. 203. The Federalist, No. 26.
b Works, vol. 4, p. 240. Letters from Phocion, 1784.

[50]

AUTHORITY

less to make this provision the law of the land, and
the States disregarded It. In New York especially
the Loyalists were persecuted. Attempts were
made to disfranchise them and to confiscate their
property. Their debtors refused their claims with
Impunity. Popular feeling ran high. The perse
cuted received no sympathy. Against this appar
ently Irresistible tide of popular animosity Hamil
ton dared to set himself. He accepted and won a
test case for a Tory defendant under the "Tres
pass Act." He also wrote two pubhc letters* In
defence of the treaty rights of the Loyalists. His
tory records no more magnificent example of
courage than this: Hamilton, practically alone,
defending in the face of popular sentiment and
Impulse the rights of a despised few, and the
authority of government.
Hamilton defended the Loyalists for these rea
sons: first, he opposed making "the great prin
ciples of social right, justice, and honor, the vic
tims of personal animosity or party intrigue" ;"
secondly, he thought that passion, prejudice and
arbitrary rule were bad habits for the young nation
to cultivate, and that since first Impressions and
early habits give a lasting bias to the temper and
character of a nation, it behooved the Americans to
have scrupulous regard for the principles of
a Works, vol. 4, pp. 230-294.
''Works, vol. 4, p. 251. Phocion, 1784.
[51]

ALEXANDER HAMILTON

justice, moderation, and liberty;* thirdly, he be
lieved It was bad policy to drive into Canada a
moneyed and industrious class of people.
"There is a bigotry," he observed, "In politics as
well as In religions  While some kingdoms,"
he continued, with such cases as the expulsion of
the Huguenots from France In mind, "were im
poverishing and depopulating themselves by their
severities to the non-conformists, their wiser
neighbors were reaping the fruits of their folly;
and augmenting their own numbers, Industry and
wealth, by receiving with open arms the perse
cuted fugitives."" Instead of driving out a stable
element of our population, as other nations had
done, Hamilton wished to make It the interests of
the Loyalists to become friends of the new govern
ment." They were a contented class, with nothing
to gain by change, and he felt that such a class,
especially In an age of revolution, was indispen
sable to the founding of a strong government.
On June i8, 1787, Hamilton presented to the
Philadelphia Convention his plan for a Constitu
tion.* His Constitution Is an adaptation of the
theory of the English government of the eigh
teenth century to American conditions. It seems
a Works, vol. 4, p. 288. Phocion, 1784.
''Works, vol. 4, p. 284. Phocion, 1784.
" Works, vol. 4, p. 246. Phocion, 1784.
a Works, vol. 1, pp. 347-369. [52]

AUTHORITY

very natural that his nationalistic leanings should
have led him to favor the institutions of the
nation from which the colonists had received their
traditions and law. He believed that the prin
ciples of government, evolved through centuries
of experience by the Anglo-Saxon race, would
work well among the same race living over the sea.
He advocated a strong executive restrained by a
popular will, and a popular assembly checked by a
conservative senate. If government, he says, is In
the hands of the few, they will tyrannize over the
many; If it Is in the hands of the many, they will
tyrannize over the few. It ought to be in the
hands of both, and they should be separate.*
King, Lords, and Commons of the English
government became In Hamilton's plan, a strong
Executive, a conservative Senate, and a popular
Assembly. The Executive was to be elected by a
double set of electors, chosen by voters with prop
erty qualifications. He was to hold office during
good behavior, to have an absolute veto, and to
appoint the Governors of the States who. In turn,
were to have an absolute veto on State legislation.
Senators were to be elected by electors, chosen by
voters with property qualifications. They must
have property, and were to hold office during good
behavior. They were to be elected, not from
States, but from Districts. The Senate was to
a Works, vol. 1, p. 375. [53]

ALEXANDER HAMILTON

have the sole power of ratifying treaties and de
claring war. The Assembly was to be elected by
universal manhood suffrage. It was to have the
power of originating money bills. Its members
were to hold office for three years. It could not
impeach the President. "In my private opinion,"
he says, "I have no scruple In declaring . . , ,
that the British government is the best in the
world: and that I doubt much whether anything
short of it will do In America."* In the midst of
so many tendencies toward disunion and anarchy
he thought that a conservative body, like the
House of Lords, with nothing to gain by revolu
tion, was necessary to national security. It would
be, he said, a permanent barrier, on the one
hand, against a despotic executive, and on the
other, against an Impulsive assembly, and would be
"faithful to the national Interest." "The British
Constitution," he observed, quoting Neckar, "Is
the only government In the world which unites
public strength with individual security.""
It seems clear that Hamilton never expected the
Convention to accept his plan In toto. His pur
pose was to make men disposed to a strong central
government. Just before discussing the British
Constitution In his speech on June i8, he says:
a Works, vol. 1, pp. 388, 389. Federal Convention, June 18,
1787. ''Works, vol. 1, p. 389. Federal Convention.
[54]

AUTHORITY

"Here I shall give my sentiments of the best form
of government — not as a thing attainable by us,
but as a model which we ought to approach as
near as possible."*
From the moment the Constitution was adopted
he became Its defender and champion. In the
struggle for Its ratification in New York we see
him pitted against a large hostile majority, fight
ing with reason and oratory until by sheer force
of conviction he triumphed. We' see him day after
day writing, with the assistance of Madison and
Jay, the papers of the Federalist — papers which,
although written in hours of fatigue and times of
stress, have become political oracles not only to
our judges and statesmen, but to political thinkers
beyond the seas." Washington seldom erred In
judgment and his opinion of the Federalist may
serve to sum up an all too brief appreciation of
this great work. "As the perusal of the political
papers under the signature of Publlus," he writes
to Hamilton, August 28, 1788, "has afforded me
great satisfaction, I shall certainly consider them
as claiming a most distinguished place In my
library, I have read every performance which has
been printed on one side and the other of the great
question lately agitated, so far as I have been able
to obtain them; and without an unmeaning com-
a Works, vol. 1, p. 374.
'' Hamilton, A. M., Alexander Hamilton, p. 454.
[55]

ALEXANDER HAMILTON

pliment I will say that I have seen no other so
well calculated. In my judgment, to produce convic
tion on an unbiased mind, as the production of
your triumvirate. When the transient circum
stances and fugitive performances, which attended
this crisis, shall have disappeared, that work will
merit the notice of posterity, because In it are
candidly and ably discussed the principles of free
dom and the topics of government, which will be
always Interesting to mankind, so long as they shall
be connected In civil society."*
The ratification of the Philadelphia document
by the people was by no means a guarantee of the
success of the Union. The nation was united on
paper, but not In fact. The whole machinery of
government had to be put In motion. It was the
task of the first administration to put life and
meaning into the paper Constitution and to apply
the constitutional principles which lay, as latent
possibilities, back of the document. "If we have
an Idea ....," Sumner says, "that people who
read the document would obtain any conception of
the modern state which goes under the name of
the United States, we shall make a great mis
take."" Realizing that first Impressions and early
habits count, Hamilton, supported by moral influ
ence of Washington, set out to mold our Instltu-
a Washington, Writings, vol. 9, pp. 419, 420.
*> Sumner, W. G., Alexander Hamilton, p. 141.
[56]

AUTHORITY

tions, while they were plastic, along nationalistic
lines. The Constitution on its face was ambigu
ous. Had the friends of weak government and
State Rights been first in office, the powers since
exercised by the Federal Government would have
been abridged. But the Ideal of Hamilton was a
strong Union ; and the powers In the central gov
ernment which had been denied him in the Con
vention, he proposed to get from the document by
implication. His doctrine of Implied powers, then, had for
its object the building of a powerful national
government.* This principle of Interpretation,
developed and perpetuated far into the Jeffer-
sonlan era by the great Marshall, Is: "That every
power vested in a government Is in Its nature
sovereign and Includes, by force of the term, a
right to employ all the means requisite and fairly
applicable to the attainment of the ends of such
power, and which are not precluded by restric
tions and exceptions specified In the constitution,
or not immoral, or not contrary to the essential
ends of political society.""
Hamilton regarded a strong central govern
ment as the surest protection against monarchy.
The tendency towards disunion, encouraged by
a Lodge, H. C, Alexander Hamilton, p. 106.
''Works, vol. 3, p. 446. On the Constitutionality of the Bank,
February 23, 1791. [57]

ALEXANDER HAMILTON

the French revolutionary ideas, was a greater
danger than the establishment of a royal house.
And If the excesses and abuses of liberty were not
checked, by strong authority, the people rnlght be
forced to seek shelter from their own violence In
arbitrary rule. "If we incline too much to democ
racy," he said, "we shall soon shoot Into a mon
archy."* "Transition from demagogues to
despots," he writes In another place, "is neither
difficult nor uncommon.""
Because of the prevalence of anarchy and dis
union In America In his day, Hamilton had doubts
whether the republican form of government was
"consistent with that stability and order in gov
ernment which are essential to public strength and
private security and happiness,"" but he believed
In the theory and hoped for Its success. "I am,"
he writes, "affectionately attached to the republi
can theory. I desire above all things to see the
equality of political rights, exclusive of all heredi
tary distinction, firmly established by a practical
demonstration of Its being consistent with the
order and happiness of society."'* "The fabric of
American Empire," he says In another place,
"ought to rest on the solid basis of the consent of
a Works, vol. 1, p. 411. Federal Convention, 1787.
'' Works, vol. 2, p. 141. Letter of H. G., February 24, 1789.
<= Works, vol. 9, p. 534. To Carrington, May 26, 1792.
¦J Works, vol. 9, p. 533. To Carrington, May 26, 1792.
[58]

AUTHORITY

the people. The streams of national power ought
to flow Immediately from that pure, original
fountain of all legitimate authority."* Since, how
ever, in a republican government the legislative
power predominates, he wished it to be so divided
that It would give expression to the desires of both
the contented and progressive classes in the com
munity." By playing the forces of stability and
unrest against each other, he expected to steer the
union safely between the two dangerous rocks of
government: despotism on the one hand, and
anarchy on the other.
The first serious attack on the authority of the
Union was the Whiskey Rebellion In Western
Pennsylvania In 1794. Hamilton had a great deal
to say on the rebellion." He reahzed that if a
section of the country had a right to nullify a
federal tax on whiskey or any other law, the new
Constitution was as much a sham as the Articles
of Confederation. The militia was called out and
the rebellion melted away. The vindication of the
authority of the central government quieted for
the moment the faction of anarchy and disunion,
but the principle of nullification appeared again In
a few years later in the Kentucky Resolutions,
drafted by Jefferson. In them it was declared that
a Works, vol. 11, p. 180. The Federalist, No. 22.
''Works, vol. 12, p. 45. The Federalist, No. 51.
<= Works, vol. 6, pp. 339-460. [59]

ALEXANDER HAMILTON

the state had a right to judge for Itself to what
extent Federal laws should be supreme within its
borders, Virginia followed Kentucky in issuing
similar resolutions. The tendency of the doctrines
advanced by Virginia and Kentucky, Hamilton
believed to be "to destroy the Constitution of the
United States."* These resolutions, like the
Whiskey Rebellion, were symptoms of the opposi
tion to central power and national Interests.
Government had been so long a makeshift for
popular whims that institutions and authority had
lost all their sacredness.
The French Revolution began in the same year
that our new government was put in operation.
French Ideas, expressing a hatred for all existing
forms of society, spread to America, and formed
an alliance with the tendency toward disunion.
"Since the peace," Hamilton said In 1796, "every
careful observer has been convinced that the policy
of the French Government has been adverse to
our acquiring Internally the consistency of which
we were capable — in other words, a well-consti
tuted and efficient government."" Intrigue of
French agents and ministers had undermined the
faith of the people In their government. Hamil
ton hated French influence and the revolutionary
a Works, vol. 10, p. 340. To Sedgwick, February 2, 1799.
''Works, vol. 6, p. 209. France, 1796.
[60]

AUTHORITY

ideas of Natural Rights because they were anti-
national. It was the excesses of revolution which Hamil
ton opposed, "A struggle for liberty," he says,
"Is in Itself respectable and glorious; when con
ducted with magnanimity, justice, and humanity.
It ought to command the admiration of every
friend to human nature; but if sullied by crimes
and extravagances. It loses its respectability,"*
While being deeply concerned with the security of
property, he did not regard it as sacred. "When
ever a right of property," he declared, "is In
fringed for the general good If the nature of the
case admits of compensation. It ought to be made ;
but If compensation be impracticable, that imprac
ticability ought not to be an obstacle to a clearly
essential reform."" To Hamilton, as to Burke,
however, revolution was generally anathema.
These contemporaries were both unsparing in their
denunciation of the French upheaval of '89. They
could not understand how conditions might become
so bad that a root and branch revolution was the
only way out. "A disposition to preserve, and an
ability to Improve, taken together," Burke writes,
"would be my standard of a statesman."" They
confounded democracy and the rule of the people
a Works, vol. 4, p. 386. To Washington, April, 1793.
''Works, vol. 3, p. 16. Funding System, 1791 (?).
" Burke, E., Reflections on the Revolution in France, part 1.

[61]

ALEXANDER HAMILTON

with the violence and anarchy of the French Revo
lution. In the words of Burke they believed that
"an absolute democracy no more than absolute
monarchy Is to be reckoned among the legitimate
forms of government."* They had faith neither
in the theory, "The people can do no wrong," nor
the theory, "The king can do no wrong." To them
neither kings nor people were Infallible, Hamil
ton never fawned before the multitude nor tried to
ride their prejudices to success. His Idea of states
manship was leadership. "When occasions present
themselves," he says, "In which the Interests of the
people are at variance with their Inclinations, it is
the duty of the persons whom they have appointed
to be the guardian of those interests, to withstand
the temporary delusion in order to give them time
and opportunity for more cool and sedate reflec
tion. Instances might be cited In which a conduct
of this kind has saved the people from very fatal
consequences of their own mistakes, and has pro
cured lasting monuments of their gratitude to the
men who had courage and magnanimity enough to
serve them at the peril of their displeasure.""
Hamilton's respect for authority Is in accord
with his nationalistic creed. Government he re
garded as something apart from the nation; its
clothing, as it were. "I hold with Montesquieu,"
a Burke, E., Reflections on the Revolution in France, part 1.
''Works, vol. 12, p. 207. The Federalist, No. 71.
[62]

AUTHORITY

he writes, "that a government must be fitted to a
nation as much as a coat to the Individual; and,
consequently, that what may be good at Philadel
phia may be bad at Paris, and ridiculous at Peters-
burgh."* To him government was the means,
never the end, — the means by which the will of the
nation was made effective. If the national Inter
ests demanded measures of defence or diplomacy;
the revival of credit or the founding of a bank; the
encouragement of one class or the restraint of
another, he believed that the government should
be strong enough to enforce these measures.
In an age when traditions were scoffed at and
Institutions were crumbling, Hamilton opposed
the tide of Irresponsible democracy and laid secure
the foundations of our political faith; he gathered
up the achievements of the past and embodied
them in a strong political structure which became
the secure soil In which American democracy cast
Its roots.
a Works, vol. 10, p. 337. To Lafayette, January 6, 1799.

[63]

CHAPTER SIXTH
Finance and Unity
The financial measures of Alexander Hamil
ton had three great purposes: first, to establish
national credit both at home and In Europe;
secondly, to provide financial machinery adequate
to the business needs of the nation; thirdly, to
cement more closely the union of the States. His
aims were not merely financial ; they were national.
The financial problems did not appeal to him as
so many difficult problems In themselves to find
answers for; but as opportunities by which he
might achieve his most cherished dream — the
building of a great American nation.
Hamilton became Secretary of the Treasury
under Washington on the eleventh day of Sep
tember, 1789. The finances of the country were
a total wreck; and, what was far more serious, the
spirit of repudiation and dishonesty, which had
characterized our former history, was abroad
among the people. After the paper money de
bauches of the colonial and Revolutionary
periods; after the sequestration and confiscation
of foreign debts; after the stop and legal
tender laws and wholesale repudiation ; after the
attacks on the courts of law for the enforcement
of lawful contracts; after the dishonesty, specula-
[64]

1 y'^^ae^/^.^^S../7ar

>U, s:.,. 2«.
e^ ' - ,
Sa.A^^£:^^n^e^/-'P-ey^^^^ d^.4L& _ jZ.<7^_<:^ ^^Xa.^^^ a.^.<^^ r
/^^W^ . 
I Sj'^"='Ti:^:>u'2^^-^^';^i-^-^*-^_ <?t<a^5 O'**'-?*- ??^wt-^ ^t^^^-n.^
Part of Washington's Letfer to Hamilton when He Retired
FROM the Office of Secretary of the Treasury

finance AND UNITY

tion, and depreciation of our early history, the
wonder is that Hamilton ever overcame public
prejudice against honest and business-like methods
In finance. The fathers had eaten sour grapes and
the children's teeth were set on edge.
The office of Secretary of the Treasury was,
from the nature of the financial problems con
fronting the government, the most difficult in
Washington's cabinet. Hamilton entered it with
practically no experience as a financier. He had
been a clerk for a merchant in St. Croix, Wash
ington's private secretary, a writer of pamphlets,
and a champion of the new Constitution; but he
had never faced the complicated problems of
finance. It Is true, that in 1780 and 178 1 he had
written remarkable letters to Robert Morris con
cerning a national bank. In these letters he had
shown, not only a wide knowledge of finance, but
also a grasp of the nation's needs. It is by Intro
ducing order into our finances — by restoring
public credit, — he said, not by gaining battles, that
we are finally to gain our Independence.* He
urges the establishment of a National Bank and
proper provisions for the debt of the country.
But while these letters to Morris show that Ham
ilton, even when he was In the army, was thinking
on matters of financial organization, they hardly
lead us to expect the brilliant measures which he
a Works, vol. 3, p. 343. To R. Morris, April 30, 1781.
[65]

ALEXANDER HAMILTON

launched ten years later. His work seems to be
that of a constructive genius to whom the book of
financial mysteries was open, and, as he ran, he
read. We must beware of exaggerating, however,
Hamilton's originality in public finance. His
dreaming was not of the sort that works out
untried schemes In the closet and then experi
ments with them on the people. When suddenly
called upon to create a financial organization for
the new government, he looked over the world to
see whether some system was not already working
which would lend some suggestions for solving the
American problems. "It Is a strong proof of the
sobriety of Hamilton's judgment," Dunbar says,
"that in determining his course under these cir
cumstances, he sought for the most part to adapt
to his purpose methods and agencies which had
been tested by experience; for that Is the great
characteristic of his Reports on Public Credit and
on a National Bank."* Naturally, England
offered Hamilton the most fertile field for pre
cedents. He believed, no doubt, that financial
measures that were successfully put in operation
by one branch of the Anglo-Saxon race would work
successfully when applied to another. In funding
the debt he followed the principles of the English
a Dunbar, C. F., Some Precedents followed by Hamilton.
Qu. Jo. of Econ. (1888-1889), vol. 3, p. 35.
[66]

FINANCE AND UNITY

system. He thought that the proper funding of
the debt in England had stimulated the growth of
industry, and he desired the same results for
the American nation.* At the close of his pro
posals for funding In his first Report on Public
Credit he remarks: "The chief outlines of the
plan are not original; but it is no ill recommenda
tion of it, that it has been tried with success."" In
his plan for a bank Hamilton followed the main
ideas of the charter of the Bank of England. His
bank, like its English counterpart, was a syndicate
of holders of pubhc debt who were incorporated
and granted a monopoly of Issuing notes." In the
"Wealth of Nations" he also found practical sug
gestions for his plans for a bank.'* If these ex
amples of precedents followed by Hamilton lessen
his claim to originality in finance, they show, all
the more, his greatness as a constructive states
man. Hamilton had no choice as to which of the
financial problems he should grapple with first.
Before there could be any public credit, adequate
provision had to be made for funding the unde
fined mass of government securities. During the
struggle for independence both the central and
a Works, vol. 4, pp. 123, 124. Report on Manufactures, 1791.
''Works, vol. 2, p. 276. Public Credit, 1790.
<= Sumner, W. G, Alexander Hamilton, p. 164. Works, vol. 3,
p. 439.
3 Works, vol. 2, pp. 449, 450. Objections and Answers, 1792.
[67]

ALEXANDER HAMILTON

state governments had contracted debts. These
debts were the price of liberty.* When possible,
money had been borrowed in foreign markets.
Foreign debts In 1790 amounted to $10,070,307,
on which the arrears of Interest were $1,640,-
071.62." The unbusiness-like way in which we
had managed this debt had made us ridiculous In
the eyes of European financiers. There was also a
domestic debt of $27,383,917.74, with an arrears
of Interest amounting to $13,030,168.20." This
debt was a disorganized mass of securities. Issued
at different times in the name of the Continental
Congress, to pay for supplies and services. It
had depreciated In value and many of the original
holders had sold their contract rights to specu
lators for sums much less than the face of the
securities. In addition to the foreign and domes
tic debts there were the State debts. These were
of uncertain amount. Hamilton estimated that
the principal and Interest would amount to about
twenty-five millions of dollars.* The whole debt,
then, amounted to a little over seventy-five mil
lions of dollars." To the people of that time this
seemed like an enormous debt. When Hamilton
a Works, vol. 2, p. 231. Public Credit, 1790.
"Works, vol. 2, p. 254. Public Credit, 1790.
" Works, vol. 2, p. 254. Public Credit, 1790.
a Works, vol. 2, p. 255.
8 In 1795 Hamilton reported the whole funded debt to be
$76,096,468.67. Works, vol. 3, p. 231.
[68]

 r/—
FINANCE AND UNITY
came to office, the creditors were clamoring for
payment and the treasury of the government was
empty. He proposed to fund the whole debt — to
exchange all securities by whomsoever held, for
new government bonds.
During the recess of the First Congress, Ham
ilton applied himself "to the consideration of a
proper plan for the support of public credit," and
on the 14th of January, 1790, communicated
to the House his First Report on Public Credit.*
"It is agreed, on all hands," he says, "that that
part of the debt which has been contracted abroad,
and is denominated the foreign debt, ought to be
provided for according to the precise terms of the
contracts relating to it."" But there was not, he
noted, the same unanimity of opinion in regard to
the provision for the domestic debt. The most
popular scheme for providing for it was to dis
criminate In funding between the original holders
of public securities and present possessors by pur
chase, i.e., to fund the securities held by original
creditors at face value but those held by purchase
at what the possessors paid for them. This sugar-
coated plan of repudiation was, at first sight, very
plausible. Hamilton, however, having considered
It, rejected It. He argued that when the govern
ment had borrowed the money, it had entered
a Works, vol. 2, pp. 227-289.
''Works, vol. 2, p. 236. [69]

ALEXANDER HAMILTON

into a contract with the creditors to pay them or
their assignees the face value of the securities with
interest and that by making the securities assign
able, the government had enabled the holder to
sell them. If he chose, in the market; and if, be
cause of his lack of faith and confidence In the
government, he had sold them, he had nothing to
blame but his distrust and lack of foresight. The
government had the same contract with the buyer
that it had with the original holder. To disregard
It was a manifest injustice and prejudicial to the
public credit, "The buyer paid," Hamilton said,
"what the commodity was worth In the market,
and took the risks of reimbursement upon himself.
He, of course, gave a fair equivalent, and ought to
reap the benefit of his hazard — a hazard which
was far from inconsiderable, and which, perhaps,
turned on little less than a revolution In govern
ment."* Hamilton's unprecedented advocacy of the
assumption of the State debts shows clearly the
national purpose which underlay all his measures.
In this, he went out of his way to get a policy, the
chief result of which would be, not to create credit,
but to cement the Union together. He saw in the
assumption of the State debts an opportunity to
strengthen the nation at the expense of local
prejudice. a Works, vol. 2, p. 238. Public Credit, 1790.
[70]

FINANCE AND UNITY

Some of Hamilton's reasons for assumption of
the State debts are stated In the First Report on
Public Credit. It would, he said, contribute to
the stability of national finance, prevent compe
tition among the States for resources, and insure
to the revenue laws a more ready and satisfactory
execution.* In a later unfinished paper he made
an able and elaborate defence of the funding sys
tem." He defended the assumption of the State
debts for the following reasons: because superior
justice was done in relieving the overburdened
states and in equalizing the contributions of all the
citizens; because It avoided "collisions, heart
burnings, and bickerings" among the different
systems of the state finance ; because it secured the
Union a full and complete command of the
resources of the nation; because it consolidated
and secured public credit; because It made a more
adequate provision for the entire debt of the
country; because it rescued the national character
from stain abroad, since foreigners would not dis
tinguish between Infractions of credit by the State
and by the general government; because It pre
vented instability In funds by placing them on the
same foundation; because it facilitated a speedy
and honorable extinguishment of the debt; be
cause it prevented the depopulation of the over-
a Works, vol. 3, pp. 244-248.
''Works, vol. 8, p. 429 to vol. 9, p. 34 (1795?).
[71]

ALEXANDER HAMILTON

burdened states and the too rapid transfer of
population to the unsettled parts of the country;
and finally because it strengthened the central
government.* Even for the sake of popularity
alone Hamilton thought a failure to assume the
State debts would have reacted fatally on the
government. "A weak and embarrassed govern
ment," he observes, "never falls to be unpopular.
It attaches to itself the disrespect Incident to weak
ness, and, unable to promote the public happiness,
its impotencles are Its crimes. Without the as
sumption, the government would have been for a
long time at least under all the entanglements and
imbecilities of a complicated, clashing, and dis
ordered system of finance.""
We have seen that throughout Hamilton's
measures for funding the foreign, domestic, and
State debts there runs the constant purpose not
merely of establishing the credit of the new gov
ernment, but also of cementing the union of States
and invigorating the business of the nation. This
purpose appears also In the report on a National
Bank, submitted to Congress the 14th day of
December, 1790."
Hamilton understood the manner In which
banks hypothecate or pledge for security the
a Works, vol. 9, pp. 14-28. Funding System, 1795 (?).
''Works, vol. 9, p. 31. Funding System, 1795 (?).
"Works, vol. 3, pp. 388-443. [72]

FINANCE AND UNITY

wealth of the community; and make available for
business, through notes and deposit rights, this
wealth. He said they augmented "the active and
productive capital of a country." "Gold and
silver," he continues, "when they are employed
merely as the instruments of exchange and aliena
tion, have not been improperly denominated dead
stock; but, when deposited In banks, to become the
basis of a paper circulation, which takes their
character and place, as the signs or representa
tives of value, they then acquire life, or, in other
words, an active and productive quality."* He
saw clearly the value of an asset currency in con
trast with the dangers of a government issue of
paper money." The business of the country, he
argued, which had been discouraged because the
circulating medium was deficient, would be stimu
lated by banks, which would not only make vast
amounts of hoarded money available but also
transform the "passive" wealth of the nation Into
active credit. By banks he would keep the money
of the country Incessantly active so that men of
business ability would be able to borrow on credit,
and by this juncture of ability and capital, the
resources of the country would be more quickly
developed, land would become more valuable,
agriculture more prosperous, commerce more
a Works, vol. 3, p. 390. National Bank, 1790.
"Works, vol. 3, p. 414. [73]

ALEXANDER HAMILTON

active, and men more enterprising. "By con
tributing to enlarge," Hamilton says, "the mass of
industrious and commercial enterprise, banks be
come nurseries of national wealth."*
By means of a central bank Hamilton hoped to
develop the national aspect of business. The
notes of the bank, when established, would be
good all over the country. Drafts would liquidate
commercial claims between men of different sec
tions and prevent the delay, expense, and risk
incident to remittance of coin." Not the least use
of banks would be to teach the people business
methods. It would teach punctuality, and en
courage frugality and honesty. It would Increase
confidence, and the people, supported by a reliable
institution, would be more willing to venture. The
enterprise of men would be stimulated and the
wealth of the nation made socially effective.
The First National Bank was also intended to
be useful in the public service. Hamilton's con
ception of the relation of the bank to the govern
ment was the same relation which the Bank of
England held to the British government. It was
to be a private institution run for the public good.
"Public utility," Hamilton says, "is more truly the
object of public banks than private profit. And
it is the business of government to constitute
a Works, vol. 3, p. 393. National Bank, 1790.
" Works, vol. 3, p. 395. National Bank, 1790.

[74]

FINANCE AND UNITY

them on such principles that, while the latter will
result in a sufficient degree to afford competent
motives to engage In them, the former be not
made subservient to It."* There was an Intimate
connection of interest, he thought, between
government and the bank of the nation. In
sudden emergencies It would assist the govern
ment In getting pecuniary aid and the mass of Its
capital and credit could readily be converted to
the national use.
Hamilton's recommendations concerning money,
which he embodied in his Report on the Mint,"
had two purposes. In the first place, he sought to
establish a sound monetary system which would
form an adequate support for the country's credit
system, for, If the money were debased and de
preciating, the very floor on which the busi
ness of the nation stood would be uncertain. In
the second place, uniform coinage was as neces
sary for the unity of the nation as a national credit
organization. In order that the national aspect
of business might develop. It was Imperative that
the money unit should be the same In every state.
In Hamilton's day we were sorely in need of
foreign capital. We needed it to improve com
merce, agriculture, and manufactures ; to construct
canals and roads and to work up our "Im-
a Works, vol. 3, p. 419. National Bank, 1790.
"Works, vol. 4, pp. 3-63. January 28, 1791.
[75]

ALEXANDER HAMILTON

provable matter in a crude state." We could
well afford to pay foreigners Interest for capital
which, when applied to the productive resources
of the nation, would yield large profits. "If the
United States," Hamilton remarks in his second
Report on Public Credit,* "observe, with delicate
caution, the maxims of credit, as well toward
foreigners as their own citizens, in connection with
the general principles of an upright, stable, and
systematic administration, the strong attractions
which they present to foreign capital will be likely
to Insure them the command of as much as they
may want. In addition to their own, for every
species of Internal amelioration,"" He sought
also to Improve our credit abroad in order to
strengthen the nation In time of war. "There can
be no time, no state of things," he says, "In which
credit Is not essential to a nation, especially as
long as nations in general continue to use It as a
resource in war.""
As important as foreign credit was, Hamilton
regarded domestic credit as of more importance.
"The opinion," he wrote to Wolcott, "which some
entertain is altogether a false one — that it Is more
important to maintain our credit abroad than at
home. The latter Is far the most important
a Works, vol. 3, pp. 199-301. January 16, 1795.
b Works, vol. 3, p. 298. Public Credit, 1795.
<= Works, vol. 3, p. 295. Public Credit, 1795.
[76]

FINANCE AND UNITY

nursery of resources, and, consequently, far the
most important to be Inviolably maintained."*
Credit is the Invigorating principle of the nation;
it brings Into action Its capacities for improve
ment and accelerates growth." Its protection
Hamilton regarded as of Interest, not to any one
class or section, but to the whole people. "The
cause of credit and property," he says, "is one and
the same throughout the States. A blow to It, In
whatever State or in whatever form, is a blow
to it in every State and in every form  There
cannot be a violation of public principle In any
State without spreading more or less an evil con
tagion In all.""
It was Hamilton's Idea that his financial meas
ures acted directly on the prosperity of the nation
by reviving credit, facilitating the exchanges, im
proving the machinery of business, and en
couraging Industrious and ambitious undertakers.
While an obvious object of his measures was
strengthening the borrowing power of the govern
ment, his broad purpose was the improving of
commerce, agriculture, and manufactures; the ex
tension of trade and navigation; the encourage
ment of the building of towns and of means of
transportation. He believed that his measures
a Works, vol. 10, p. 93. To Wolcott, April 10, 1795.
" Works, vol. 3, p. 294. Public Credit, 1795.
"Works, vol. 9, pp. 16, 17. Funding System, 1795 (?).
[77]

ALEXANDER HAMILTON

had resulted in a "universal vivification of the
energies of Industry."*
Hamilton thought that the revival of pros
perity which came with the founding of the new
government, was partly due to the fact that fund
ing increased the "active capital" of the country.
Writers have read into this statement the modern
definition of capital, and concluded that Hamilton
was confused in regard to money, capital, and
debt." Hamilton was very enthusiastic over the
idea that a well-funded debt Increased, as he said,
the active capital, and his zeal led him in several
cases to make statements suspiciously near
fallacies." But he meant by "active capital" cir
culating medium, and In general, he saw the limi
tations as well as the value of funded debt.
"The true definition of public debt," Hamilton
observes, "is a property subsisting in the faith of
the government. Its essence is promise,"'* Prop
erty rights, which were In abeyance, because a
faithless government had not kept Its promises,
were, by proper funding, revived. Confidence in
the stability and solvency of the new government
gave the securities value. No real wealth was
created, but Individuals received promlses-to-pay
a Works, vol. 8, p. 458. Funding System, 1795 (?).
''Sumner, W. G., Alexander Hamilton, p. 150.
" Cf. Works, vol. 2, p. 452 ; vol. 4, p. 118 et seq. ; vol. 8, p. 460.
<! Works, vol. 3, p. 284. Public Credit, 1795.
[78]

FINANCE AND UNITY

from the government which had exchangeable
value. These exchangeable securities, which are
claims on the wealth of the community in the same
sense that a bank note is a claim on the assets of
a bank, served, Hamilton thought, in a community
where specie was scarce, as a circulating medium.
To be certain that the funded debt operates as
"active capital," he says it Is only necessary to con
sider that it is "property which can almost at any
moment be turned Into money  " "Who
doubts," he asks, "that a man who has In his desk
$10,000 In good bank notes, has that sum of
active capital ? . . . . Who can doubt any more that
the possessor of $10,000 of funded stock ....
is equally possessor of so much active capital?"*
By "active capital," then, Hamilton meant not
material goods only, but anything, be it bank
credit or notes, gold or silver, or funded debt,
which would serve as an "engine of business."
The readily convertible character of good public
securities he thought gave them In exchange the
value of bank paper, redeemable on demand. He
probably overestimated the utility of exchange
able securities as circulating medium. There was,
however, no fallacy in his assumption. The gov
ernment, let us suppose, receives $100 In gold
coin, for which It Issues a bond bearing the market
rate of Interest. The coin, on the one hand, is put
a Works, vol. 8, pp. 459, 460. Funding System, 1795 (?).
[79]

ALEXANDER HAMILTON

back into circulation through the payment of gov
ernment expense; the bond, on the other hand,
may pass from hand to hand In business transac
tions, doing the same work in the community as
might be done by a $ioo bank note. There is no
more absolute wealth in the community after this
process than before, but the wealth is in a more
usable form. The exchangeable property has been
doubled. "In the question under discussion,"
Hamilton observes, "it is important to distinguish
between an absolute Increase of capital, or an
accession of real wealth, and an artificial increase
of capital, as an engine of business, or as an
instrument of industry and commerce. In the first
sense, a funded debt has no pretensions to being
deemed as Increase of capital; in the last, it has
pretensions which are not easy to be controverted.
Of a similar nature is bank credit; and, In an
inferior degree, every species of private credit."*
Another motive back of all Hamilton's financial
measures was "to cement more closely the union
of the States."" He aimed to break down the
local and territorial loyalties, and to center the
Interests of the people In the nation. We see this
motive in his uniform monetary system, in his
central bank, and especially In his plan for the
assumption of the State debts. It was his purpose

a Works, vol. 4, p. 124. Manufactures, 1791.
•> Works, vol. 2, p. 232. Public Credit, 1790.
[80]

FINANCE AND UNITY

by assumption to remove one great possible cause
of quarrels between the States. The States with
the largest debts would chafe under their burden;
and if any one failed to make provision for the
payment of its debt, its poor credit would react on
the whole nation. The national government, by
taking over all the debts, consolidated the national
finances. Assumption also bound the interests of
the richer and more Influential citizens of the
States, who held the securities, to the central
government. It tended, Hamilton said, "to
strengthen our infant government by increasing
the number of ligaments between the government
and the interests of Individuals."*
In this use of the moneyed men in particular,
and In Hamilton's financial measures generally,
Rabbeno thinks that he has evidence in favor of
the socialistic Interpretation of history. The
Federal party was, he says, composed chiefly of
business men who desired a strong government In
view of their commercial Interests. To these were
added the creditors of the government and some
local landowners." These made up the rising capi
talistic class. The opposite party, on the contrary,
Rabbeno says, consisted of the "mass of the
people, agricultural, democratic, and Individual-
a Works, vol. 9, p. 28. Funding System, 1795 (?).
''Rabbeno, U., Protezionismo Americano, Essay 3, ch. 1, sec. 3.
[81]

ALEXANDER HAMILTON

Istic In tendency."* Hamilton was, he concludes,
the representative of the former class, and laid
the foundation of his schemes on it and at the
expense of the farmers and non-commercial class.
Hamilton, therefore, Is to Rabbeno the "prophet
of American capitalism" ; a man who took his
ideals of statesmanship from his class; a leader,
whose intentions were good, but who was actually
using the nation to strengthen his class. While it
is true that Hamilton used the contented and
moneyed classes of the nation to strengthen the
new government In a time when revolution and
local prejudice threatened it. It Is not true that
Hamilton found his Impelling motives in the ideals
of any particular class. He was not concerned
with a class, but with a nation. If he thought it
necessary to use a class — be It commercial or non
commercial — in order to accomplish a national
purpose, he would do it ; but his goal was not the
supremacy of a class at the expense of the nation;
it was the supremacy of the nation at the expense
of classes or Individuals within the nation.
The principle which divided the parties in
Hamilton's day was not socialistic but national
istic. There was no struggle between classes In the
socialistic meaning of the word; there was a
struggle between two political ideals. The funda
mental antagonism between Hamilton and Jeffer-
a Rabbeno, U., Protezionismo Americano, Essay 3, ch. 1, sec. 3.
[82]

FINANCE AND UNITY

son was not the antagonism of capital and labor,
but of nation and State. Rabbeno speaks of the
"social law which makes economic phenomena
the substratum and the foundation of political
events."* But Hamilton's measures are political
events which revolutionized the economics of the
whole society. They transferred the loyalties of
the people from the States to the central govern
ment. They are not effects, but causes. His
measures were intended to strengthen the Union
by giving the contented and propertied individuals
an opportunity to serve It. They were devices for
making use of the upper classes." "My opinion
has been and Is," Hamilton says In defending the
attachment of propertied individuals to the gov
ernment, "that the true danger to our prosperity
Is not the overbearing strength of the Federal
head but Its weakness and imbecility for preserv
ing the Union of the States and controlling the
eccentricities of State ambition and the explosion
of factious passions. And a measure which con
sistently with the Constitution was likely to have
the effect of strengthening the fabric would have
recommended Itself to me on that account."" As
to Bismarck, "the use of a dynasty as the indis
pensable cement to hold together a definite por-
a Rabbeno, U., Protezionismo Americano, Essay 3, ch. 1, sec. 3.
" Cf. Oliver, F. S., Alexander Hamilton, p. 164.
"Works, vol. 9, p. 28. Funding System, 1795 (?).
[83]

ALEXANDER HAMILTON

tion of the nation,"* was essential to the final
unity of the German Empire, so to Hamilton the
funding of the State debts and the Bank were
devices for weakening local loyalties and for weld
ing the States Into a harmonious nation.
A debt, Hamilton believed, had a valuable psy
chological effect on a nation. "A national debt,
if It Is not excessive," he said In 178 1, "will be to
us a national blessing. It will be a powerful
cement of our Union. It will also create a neces
sity for keeping up taxation to a degree which,
without being oppressive, will be a spur to In
dustry, remote as we are from Europe, and shall
be from danger. It were otherwise to be feared
our popular maxims would Incline us to too great
parsimony and Indulgence. We labor less now
than any civilized nation of Europe ; and a habit
of labor In the people is as essential to the health
and vigor of their minds and bodies, as it is con
ducive to the welfare of the State."" In this
passage we have Hamilton's psychology of the
debt. The American people, he thought, would
work together with the same enthusiasm to pay
off their debt as they had fought together to oust
European danger. The common effort to pay the
debt would tend both to overshadow local and
a Bismarck, Gedanken und Erinnerungen, ch. 13.
''Works, vol. 3, p. 387. On National Bank to Morris.

[84]

FINANCE AND UNITY

factional differences, to stimulate the spirit of
enterprise, and to weld the States into a Nation.
Alexander Hamilton was great as a financier,
but he was still greater as a nation-builder. His
financial measures were Intended not merely to
establish the credit of the government; but to
transform the whole national life ; to weaken local
and strengthen central authority; to nationalize
business; to cement the Union of States; and to
stimulate the ambition and enterprise of the
people. These measures were a part of his plan
for making a great cooperating nation ; they were
the financial side of his nationalism.

[85]

CHAPTER SEVENTH
Dangers of Homogeneous Expansion
It has become quite trite to discuss the political
antagonism which existed between Hamilton and
Jefferson; but it Is not so common to hear their
economic creeds compared. Jefferson, as an
Individualist, found all his sympathies with agri
culture. It appealed to him both because he was
temperamentally in favor of country life and be
cause It was popular with the masses of the people,
"We have an Immensity of land," he wrote in
1 78 1, "courting the Industry of the husbandman.
Is it best then that all our citizens should be em
ployed In Its Improvement, or that one half should
be called off from that to exercise manufactures
and handicraft arts for the other? Those who
labor In the earth are the chosen people of God.
.... Corruption of morals in the mass of culti
vators Is a phenomenon of which no age nor
nation has furnished an example  While we
have land to labor then, let us never wish to see
our citizens occupied at the workbench or twirling
a distaff  Let our workshops remain in
Europe  The mobs of great cities add just
so much to the support of pure government, as
sores do to the strength of the human body."*
a Jefferson, Th., Writings, vol. 2, pp. 229, 230. Notes on Vir
ginia. Written 1781. Published 1784.
[86]

DANGERS OF EXPANSION

Jefferson's natural inclination toward agriculture
led him to take a sympathetic interest In the French
and English economists who elevated the agri
cultural systems of economics above all others.
He was familiar with the writings of the Physio
crats, Turgot and Smith.* He corresponded
with Dupont de Nemours and J. B, Say. He, of
course, did not fall into the extreme fallacies of
the Individualistic school but his prejudices were
all that way,
Hamilton, who was as familiar with the French
theories of agriculture and the writings of Adam
Smith as Jefferson was, did not find them adapted
to his purpose of diversifying national industry;
and this alone was to him a sufficient reason for
rejecting them. They might be true relative to
certain anti-national desires and tendencies but
they were not true for the nationalist. Hamilton
was seeking a philosophy which would strengthen
the economic life of the American nation.
That the propensities of the people were toward
agriculture was no argument to Hamilton In favor
of drifting with them. He stood squarely against
any let-alone doctrine. He was not so sure that
the agriculturists were any more God's chosen
people than the business men and manufacturers,
and, any way, his Interest was not in the par
ticular people, but In their civilization. A nation,
a Jefferson, Th., Writings, vol. 14, p. 459.
[87]

ALEXANDER HAMILTON

he believed, was richer in material goods and
Ideals which had a diversified life ; which had the
intellectual and social life found only in cities; and
which had busy marts and factories as well as
farms. The economic creeds of Hamilton and Jefferson
were fundamentally different and each, looking at
society from his own point of view, failed to sym
pathize with the other. Their opposition was
deeper than their reason; it was grounded In their
emotions, beliefs, and temperaments.
As he looked over the country, Hamilton saw a
homogeneous economic organization. "At pres
ent some of the States," he writes In the Federal
ist, "are little more than a society of husbandmen.
Few of them have made much progress in those
branches of Industry which give a variety and com
plexity to the affairs of a nation."* At this time
about nine tenths of our population were farmers.
This condition which had been our strength as an
interdependent part of the British Empire," was
our weakness, Hamilton believed, as an Inde
pendent nation. We were weak because without
diversification of our life we could never become
an Interdependent unit. National division of
labor was unknown. Each farmer endeavored, as
far as possible, to become self-sufficient. Under
a Works, vol. 12, pp. 84, 85. The Federalist, No. 56.
'' Smith, A., Wealth of Nations. Book 2, ch. 5, vol. 1, p. 346.
[88]

DANGERS OF EXPANSION

such conditions, as List has pointed out, agricul
ture Is imperfect and a great part of the resources
of nature remain undeveloped.* With the same
conditions In mind Callender observed that "towns
and cities do not grow, for these are the creation
of trade and Industry; no wealthy class with new
wants to satisfy develops; the whole population
becomes accustomed to the simple, easy conditions
of life, and there is small Incentive to strive to
change them.""
As a step toward overcoming this condition —
toward breaking down the Isolated economic
organization — Hamilton advocates a vigorous
policy of Improvement in communication and
transportation. "The good condition of post
roads," he says In an unpublished draft of his
Report on Manufactures, "especially where they
happen to connect places of landing on the rivers
and bays, and those which run into the western
country will Induce exceedingly to the cheapness of
transporting and the facility of obtaining raw ma
terials, fuel and provisions. But the most useful
assistance perhaps which It Is in the power of the
legislature to give to manufactures and which at
the same time will equally benefit the landed inter
ests and commercial Interests Is the Improvement
a List, F., Das Nationale System der Politischen Oekonomie,
ch. 20.
'' Callender, G. S., Economic History of the United States, p. 7.
[89]

ALEXANDER HAMILTON

of Inland navigation. Three of the easiest and
most Important operations of this kind which
occur at this time are the improvement of the com
munication between New York, Connecticut,
Rhode Island and Boston, by cutting a passage
through the peninsula of Cape Cod, the union of
Delaware and Chesapeake Bays by a canal from
the waters of the former to those of the latter and
the junction of the Chesapeake Bay and Albe
marle Sound by uniting the Elizabeth and the
Pasquotank Rivers."* He did not wish the con
struction of roads and canals left to the local
authorities; but he wished the national govern
ment "to lend Its direct aid on a comprehensive
plan."" Having observed the success of good
roads and canals in England, and knowing
America's need and uncommon facilities for them,
he quotes a paragraph from Adam Smith, for
which the reference "Smith, W. of Nations, vol.
I, p. 219"" Is given on an early manuscript.
"Good roads, canals, and navigable rivers," this
passage runs in part, "by diminishing the expense
of carriage, put the remote parts of a country
more nearly upon a level with those in the neigh
borhood of the town  They are advantageous
a Hamilton, MS. Manufactures, 3, L. C. Cf. Works, vol. 4, p.
159. Manufactures, 1791.
''Works, vol. 4, p. 159. Manufactures, 1791.
" See photograph opposite page 127.
[90]

DANGERS OF EXPANSION

to the town, by breaking down the monopoly of
the country In its neighborhood. They are ad
vantageous, even to that part of the country.
Though they Introduce some rival commodities
into the old market, they open many new markets
to its produce."*
In 1799 Hamilton wrote to Jonathan Dayton,
the Speaker of the House, urging the adoption
of a plan for the Improvement of roads "coexten
sive with the Union."" In the same letter he pro
poses to amend the Constitution, empowering
Congress to open canals. "The power is very
desirable," he says, "for the purpose of improving
the prodigious facilities for Inland navigation with
which nature has favored this country."" In his
answer to Jefferson's message of December 7,
1 80 1, he again suggests a policy of Internal im
provement for the national government. "To
suggestions of the last kind," he says, "the adepts
of the new school have a ready answer: '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
a Works, vol. 4, p. 160. Manufactures, 1791. Wealth of
Nations, Book 1, ch. 11, pt. 1, vol. 1, pp. 148, 149.
''Works, vol. 10, p. 332. To Dayton, 1799.
"Works, vol. 10, p. 334. To Dayton, 1799.
* Hamilton evidently regards Jefferson as a follower of Adam
Smith. [91]

ALEXANDER HAMILTON

true ; but as an exclusive one, it Is false, and leads
to error in the administration of public affairs."*
The Interest which Hamilton took in the Im
provement of the means of communication and
transportation Is in full accord with his desire for
a complex national life. If the nation developed
manufactures in one section, and agriculture In
another, the roads, canals, and navigable rivers
would become Indispensable Instruments of co
operation. Unless the nation had the machinery
by which it could reap the benefits, national divi
sion of labor would be futile ; unless the manufac
turer could reach his market In the agricultural
sections, and unless the farmer could market his
goods quickly In Industrial centers, the whole plan
of national cooperation would be at a standstill.
Obstructions to internal commerce would force
people near the seaboard to resort to foreign
trade, while those In the Interior, finding their
produce unmarketable, would be checked In their
economic development. On the contrary, roads
and canals would facilitate the transfer of goods
and news. Contact of one section with another
would weaken provincialism and the means would
be at hand to make national division of labor
effective. "Questions about public lands," FIske writes,
"are often regarded as the driest of historical
a Works, vol. 8, p. 262. December 24, 1801.
[92]

DANGERS OF EXPANSION

deadwood  Yet there is a great deal of the
philosophy of history wrapped up in this subject
. . . . ; for without studying this creation of a na
tional domain between the Alleghenles and the
Mississippi, we cannot understand how our Fed
eral Union came to be formed."* The policy of
expansion advocated by Hamilton had for its pur
pose the completion of the territorial unity of the
United States, and the control of the unsettled
lands by the nation in the Interest of the nation.
At the close of the Revolution, seven of the origi
nal States claimed, as a part of their colonial
grants, land In the West. Disputes were threat
ening the peace of the nation. "In the wide field
of western territory," Hamilton said, "we per
ceive an ample theater for hostile pretensions,
without any umpire or common judge to interpose
between the contending parties."" It was fortu
nate, therefore, that the States were prevailed
upon, between 1784 and 1802, to turn over their
disputed claims to the Federal government.
These grants made up part of the vast national
domain which was to be Increased by treaty and
purchase. Hamilton believed that we were "the embryo of
a great empire," and that our situation prompted
us "to aim at an ascendant In American affairs."
a Fiske, John, The Critical Period of American History, ch. 5.
l" Works, vol. 11, p. 45. The Federalist, No. 7.
[93]

ALEXANDER HAMILTON

The specter of foreign Influence in western
affairs haunted him. He thought that the very
existence of the Union would be threatened If we
were pent up on the Atlantic coast by Spanish,
French, and the English possessions in the West,
In 1795 he advocated the adoption of the Jay
Treaty because it would give us control of the
western posts, "The possession of those posts by
us," he says, "has an Intimate connection with the
preservation of union between our western and
Atlantic territories; and whoever can appreciate
the immense mischiefs of a disunion will feel the
prodigious value of the acquisition,"* Louisiana,
In the South, was, down to 1801, In the possession
of Spain." The control over the Mississippi which
this gave her, seemed to Hamilton a serious
menace to our nationality. "The navigation of
the Mississippi," he writes to Jay In 1794, "is to us
an object of Immense consequence  If the
government of the United States can procure and
secure the enjoyment of It to our western country.
It will be an Infinitely strong link of union between
that country and the Atlantic States."" This right
was secured the next year by treaty; but Hamilton
wished all the western territory to be under
American control. "If Spain," he wrote a few
a Works, vol. 5, p. 255. Camillus, 1795.
" Louisiana was receded to France at the Peace of Luneville.
"Works, vol. 5, pp. 127, 128. To Jay, May 6, 1794.
[94]

DANGERS OF EXPANSION

years later, "would cede Louisiana to the United
States, I would accept it absolutely If obtainable
absolutely, or with an engagement to restore, if It
cannot be obtained absolutely."* He wished the
nation to look to the possessions of the Florldas
as well as Louisiana, and even "to squint at South
America."" The acquisition of these western
territories, he said, he had long considered as
"essential to the permanency of the Union."" He
was of the opinion that the cession of Louisiana to
France was the most deeply Interesting question
since Independence; that It threatened the dis
memberment and Insecurity of the Union, and that
it was a justifiable cause for declaring war.'^
Fortunately Jefferson and Hamilton agreed on the
value of Louisiana, and the former, as President,
In 1803, negotiated the purchase from Napoleon.
"It was Napoleon," Seeley says, "who, by selling
Louisiana to the United States, made it possible
for the Union to develop into the gigantic Power
we see.""
Mere ownership of the western lands, however,
was not enough. Hamilton proposed to use them
for national purposes. Although he was anxious
a Works, vol. 10, p. 280. To Pickering, March 27, 1798.
t Works, vol. 7, p. 97. To McHenry, June 27, 1799.
" Works, vol. 10, p. 339. To Otis, January 26, 1799.
d Works, vol. 6, pp. 333, 334. Pericles, 1803.
« Seeley, J. R., The Expansion of England, p. 157.
[95]

ALEXANDER HAMILTON

to improve the territorial Imperfections of the
nation, It was no part of his plan to encourage
rapid settlement from the old States. He, In fact,
desired the central government to control the lands
in order to prevent migrations. If the nation con
trolled the western lands, three purposes would
be accomplished: the Union would be protected
from foreign Influences and encroachment; the
sale of the lands would help liquidate the national
debt; and the lands could be reserved or put
In the hands of companies In order to prevent the
shifting of population until redundancy required
It. Hamilton was opposed, at that time, to any
thing like the "Homestead Act" of '62. Any
policy, he thought, that would encourage individ
uals to leave the old States and to take small
holdings in the West, was anti-national; It would
perpetuate indefinitely the agricultural society.
Since the population of the nation was small at
best, any policy that would encourage rapid settle
ment would be prejudicial to the growth of a
diversified national life. Hamilton's pohcy was
to reserve the free lands for future national
growth, and to encourage the people of his time to
develop the resources of the old States. He con
sidered homogeneous expansion to be a national
weakness and danger.
How, then, was the "natural" flow of popula
tion westward to be checked? Had the govern-
[96]

DANGERS OF EXPANSION

ment any duty ? Was it impertinent for the states
man to meddle here ? It seemed to be a clear case
of conflict between individualism and nationalism,
and Hamilton did not hesitate in his choice. He
proposed at different times four lines of policy by
which the dislocation of population was to be dis
couraged: first, by teaching the people of the old
States Improved methods of agriculture ; secondly,
by laying indirect and excise taxes rather than
direct taxes on land; thirdly, by assuming the
State debts ; fourthly, by his land policy.
American agriculture was In a very primitive
state, and there was a constant temptation to leave
the lands, impoverished by unscientific methods,
for those of frontier. Such a moving frontier as
western settlement would produce, would, Hamil
ton thought, keep the people restless and unstable.
He, therefore, proposed to teach the people Im
proved methods in the cultivation of land, and for
the furthering of this purpose he recommended,
in a speech drafted for Washington, the establish
ment of a Board of Agriculture. "Agriculture
among us," he says, "Is certainly in a very im
perfect state. In much of those parts where there
have been early settlements, the soil, impoverished
by an unskillful tillage, yields but a scanty reward
for the labor bestowed upon It, and leaves Its
possessors under strong temptation to abandon
it and emigrate to distant regions, more fertile,
[97]

ALEXANDER HAMILTON

because they are newer, and have not yet been
exhausted by an unskillful use. This is every way
an evil. The undue dislocation of our popula
tion from this cause promotes neither the strength,
the opulence, nor the happiness of our country. It
strongly admonishes our national councils to apply,
as far as may be practical, by natural and salu
tary means, an adequate remedy. Nothing
appears to be more unexceptionable and likely to
be more efficacious, than the Institution of a
Board of Agriculture."* He also recommended,
at another time, the founding of a society whose
function it should be to encourage, by premiums,
"new Inventions, discoveries, and Improvements In
agriculture,"" Hamilton never advocated direct taxes on land.
He favored Import duties and excise duties, such
as the whiskey and carriage tax, but he feared that
direct taxes on land would Incite rapid settlement
to new lands. "Particular caution," he says, as
early as 1782, "ought at present to be observed In
this country not to burthen the soil Itself and its
productions with heavy impositions, because the
quantity of unimproved land will Invite the hus
bandman to abandon old settlements for new, and
the disproportion of our population for some time
to come will necessarily make labor dear, to reduce
a Works, vol. 8, pp. 215, 216. December 7, 1796.
"Works, vol. 10, p. 331. To Dayton, 1799.
[98]

DANGERS OF EXPANSION

which, and not to increase it, ought to be a capital
object of our policy."*
This motive was also back of Hamilton's policy
for assuming the State debts. If the national
government had not assumed the debts, he said. In
defence of the funding system, a particular incon
venience might have been the transfer of the popu
lation from "more to less beneficial situations in
a national sense."" Some of the States, before
assumption, had much heavier debts than others.
To pay these debts, of course, these States would
have had to lay heavy taxes on the citizens. This
would cause migrations in order to escape taxa
tion either to the lightly taxed States or to the un
settled parts of the country.
"It could not but disturb In some degree," as
Hamilton expressed it, "the general order, the
due course of Industry, the due circulation of public
benefits."" A result of the transfer of the popu
lation from the settled to the unsettled sections of
the country would be "to retard the progress in
general improvement, and to Impair for a greater
length of time the vigor of the nation, by scatter
ing too widely and sparsely the elements of re
source and strength.'"^ It was no ill recommenda-
a Works, vol. 1, p. 279. The Contlnentalist, July 4, 1782.
"Works, vol. 9, p. 26. The Funding System, 1795 (?).
"Works, vol. 9, p. 26. The Funding System, 1795 (?).
•3 Works, vol. 9, p. 27. The Funding System, 1795 (?).
[99]

ALEXANDER HAMILTON

tion of assumption, then, that it made the popula
tion more stable and, by equalizing the burden of
the debt In all parts of the nation, made the people
contented to develop a more complex life. "The
true politician," Hamilton says, "will content him
self by seeing new settlements formed by the cur
rent of a redundant population: .... he will seek
to tie the emigrants to the friends and brethren
they leave  But he will not accelerate this
transfer by accumulating artificial disadvantages
on the already settled parts of the country; he will
even endeavor to avoid this by removing such dis
advantages If casual causes have produced them."
"I deem It," he adds, "no small recommendation
of the assumption that It was a mild and equitable
expedient for preventing a violent dislocation of
the population of particular States."*
Hamilton sent to the House of Representatives,
on the 22d of July, 1790, a report on the dis
position of public lands." The noticeable omis
sion is that he says nothing about giving the lands
away to settlers. He, on the contrary, recom
mends that the land be sold for thirty cents per
acre, to be paid for either in gold or silver or In
public security." The usual reason assigned for
this charge Is Hamilton's desire to extinguish the
a Works, vol. 9, pp. 27, 28. Funding System, 1795 (?).
"Works, vol. 8, pp. 87-94. July 22, 1790.
"Works, vol. 8, p. 90. [100]

DANGERS OF EXPANSION

public debt. While this Is obviously true. It is a
very superficial explanation. His land policy was
fundamentally a part of his plan for building a
heterogeneous, interdependent nation. It was a
policy to discourage rapid settlement.
Purchases of land, Hamilton thought, might be
contemplated from three classes: moneyed indi
viduals and companies who will buy to sell again ;
associations of persons who Intend to make settle
ments themselves; single persons or families resi
dent in the western country, or who might emi
grate thither.* The first two classes would wish
considerable tracts; the last, small farms.
"Hence," Hamilton adds, "a plan for the sale of
the western lands, while it may haVe due regard
for the last, should be calculated to obtain all the
advantages which may be derived from the two
first classes."" He therefore recommended that
the chief land office be established at the seat of
government so that both citizens and foreigners
might have the first opportunity for large pur
chases. He further suggests that no Indian land
be sold; that land be set aside to satisfy subscribers
to the public debt; that sales of land be made,
when desired. In townships ten miles square; and
that no credit be given for any quantities less than
a township. By his land policy he hoped to tie up

a Works, vol. 8, p. 88.
" Works, vol. 8, p. 88. [101]

ALEXANDER HAMILTON

large tracts of land on which emigrants could not
settle, and to encourage speculators, both foreign
and domestic, to hold the land for future use. He
hoped that the land purchased under these condi
tions, and the land reserved for public creditors
and Indians, would leave only a limited amount
for the small farmer. His plan was to restrict
the land available for Immediate settlement, and
to put It In the hands of moneyed men, so that the
natural current of population westward would be
discouraged and the people would be forced to
diversify their life.
The Socialists have a very Ingenious explana
tion for Hamilton's opposition to the rapid settle
ment of the free lands. The capitalistic system of
society, Loria says, is based on the violent suppres
sion of free lands.* As long as free lands exist,
the laborer can get a living for himself, and the
capitalist has no opportunity to exploit him.
Since the laborer will not work for wages as long
as he can be a small proprietor, it becomes a policy
of the capitalistic class to deprive him of his Inde
pendence and power by suppressing free lands.
If they are not suppressed in colonial countries, no
capitalistic organization can develop, because
wages are high and the laborer always has the
alternate of becoming a landowner. If, on the
a Loria, A., Le Basi Economiche della Costituzione Sociale.
Conclusion, sec. 3. [102]

DANGERS OF EXPANSION

contrary, the capitalist can get control of either
the laborer by slavery or the lands by purchase or
legislation, the establishment of his system is
assured. "Thus the basis of capitalistic prop
erty," Loria says, "Is always the same, it rests
upon the suppression of the free lands and the ex
clusion of the laborer from access to the produc
tive powers of the soil."*
Ugo Rabbeno accepts Lorla's theory of society
and, having reviewed the land policy of Hamilton,
thinks that he finds In it proof for the socialistic
interpretation of history." Hamilton, who, ac
cording to Rabbeno, Is the prophet of American
capitalism, endeavored, he claims, by his land
policy to advance the Interests of the rising capi
talistic class. He sought to keep the poor laborer
off the free lands, so that wages could be forced
down and the capitalistic form of production
would develop. By the law of 1796 the recom
mendations of Hamilton, in a slightly modified
form, were enacted Into law, "Laborers," Rab
beno says, "were absolutely prevented from ac
quiring public lands ; whilst hundreds of thousands
of acres in separate lots became the property of
capitalists or corporations, who either kept them
for themselves, constituting enormous estates, or
a Loria, A., Le Basi Economiche della Constituzione Sociale,
ch. 1.
"Rabbeno, U., Protezionismo Americano, Essay 2, ch. 4, sec.
29. [103]

ALEXANDER HAMILTON

else resold them with great profits to the colon
ists."* Rabbeno, therefore, concludes that the
central government, run for the benefit of moneyed
men, had a land policy which tallied with the
Interests of the capitalists ; that It was an abortive
effort to establish the capitalistic system before Its
day, and that, in so far as it kept the proletariat
off the free lands, it made Its exploitation possible.
Loria and Rabbeno have interpreted history
from the materialistic point of view. Their
theory Is that religions, morals, laws, ideas, and
motives of great men depend on and are deter
mined by the existing economic organization of
society. They, however, have disregarded the
complexity of social causes. Their purpose Is to
prove that all history Is class struggle and they
therefore need the materialistic interpretation of
history ; but they should remember that this theory
is true only In relation to Its premise. There are
other causes In society. They are religious, legal,
and personal. Ideas are creator as well as created.
Man is not only a product of conditions; he is also
a molder of his environment. His will is a factor
in the equation. However much the socialist tries
to laugh the great-man theory of history out of
court, the fact remains that what men have felt
and thought has determined the course of human
a Rabbeno, U., Protezionismo Americano, Essay 2, ch. 4, sec.
29.

[104]

DANGERS OF EXPANSION

progress. Their wills have directed, restrained,
or encouraged the incoherent tendencies or pas
sions of the people. They have shown that human
society Is not merely a mechanism, fated inevitably
to certain ends, but that It Is an organism for
which we are responsible and whose destiny Is
largely within the power of man.
Rabbeno, In his search for evidence of Lorla's
theory in America, does not strengthen his chosen
faith by citing Hamilton. Hamilton was In no
way the prophet and champion of the capitalistic
class ; he was the prophet and champion of Ameri
can Union. If there was any one thing which he
hated and fought, it was the rule of a faction or
a class. He did not care which particular class
was supreme so long as that supremacy was in line
with national greatness. Classes as well as indi
viduals were his means for nation-building. They
were, we might say, chessmen on the national chess
board, and It was his duty and the duty of every
statesman, he believed, to move and control them
so as to win the game. There were, in fact, no
classes in the socialistic sense in Hamilton's day.
There were two parties ; the national and the anti-
national. The former was made up of conserva
tive and, to some extent, wealthy men who be
lieved In the traditions of the Anglo-Saxon race,
Hamilton In his statesmanship used this class to
strengthen nationality. The latter party was made
[105]

ALEXANDER HAMILTON

up of men imbued with French Ideas and preju
dices of States Rights. They were restless and un
stable. To Hamilton's mind they were a faction
which should be restrained for the national wel
fare. His policy concerning free lands directed
against this latter class was, therefore, a national
policy. It was to prevent homogeneous expan
sion and to require the people to build up an inter
dependent, diversified life. It was to strengthen
the nation by using one part of the population and
restraining another.
The national propensity of the American people
for agriculture led them to favor a philosophy that
made agriculture the most, if not the only, produc
tive industry. The doctrines of the Physiocrats
came to this country along with the rest of the
French invasion. They were widely enough
known to lead Hamilton to answer them, with
arguments taken substantially from Adam Smith,
In his Report on Manufactures.
The Physiocrats maintained the exclusive pro-
tectlveness of agriculture. "Labor," Hamilton
says In stating their argument, "bestowed upon the
cultivation of land produces enough not only to
replace all the necessary expenses incurred In the
business, and to maintain the persons who are em
ployed In It, but to afford, together with the ordi
nary profit on the stock or capital of the farmer, a
net surplus or rent for the landlord or proprietor
[106]

DANGERS OF EXPANSION

of the soil. But the labor of artificers does
nothing more than to replace the stock which em
ploys them . . . . , and yields the ordinary profits
upon that stock. It yields nothing equivalent to
the rent of land; neither does It add anything to the
total value of the whole annual produce of the land
and labor of the country  It can only be by
saving or parsimony, not by the positive produc
tiveness of their labor, that the classes of artificers
can, In any degree, augment the revenue of the
society."* To this Hamilton answers : First, If the manu
facturer adds to the raw material value equal to
the agricultural products consumed, It can not be
said that his labor Is unproductive; second, the
wealth of the community cannot be Increased either
by the cultivator or artificer, except by saving;
thirdly, since production can be increased only by
an Increase In the quantity or in the productive
powers of labor, the labor of the artificer is at
least as productive as the cultivator, since It Is
more susceptible to subdivision and the applica
tion of machinery."
Hamilton proceeds now to criticise Adam
Smith's conclusion that agriculture Is more pro
ductive than any other employment. It will be
a Works, vol. 4, pp. 74, 75. Cf. Wealth of Nations, Book 4,
ch. 9, vol. 2, pp. 162-172.
" Works, vol. 4, pp. 75-77. Manufactures, 1791.
[107]

ALEXANDER HAMILTON

interesting to compare an early unpublished draft
with the final draft of his opening paragraph :
"But while it has been thus con- "But while the exclusive produc-
tended that the labour of artificers tiveness of agricultural labor has
and manufacturers ought not to be been denied and refuted, the supe-
considered as wholly barren and riority of its productiveness has
unproductive it has been at the been conceded without hesitation.
same time conceded that it is not As this concession involves a point
equally productive with that of of considerable magnitude, in rela-
husbandmen or cultivators; a tosi- tion to maxims of public adminis-
iion which has obtained no inconsid- tration, the grounds on which it
erable currency in this country, and rests are worthy of a distinct and
which being of great importance in particular examination," t>
its relation to maxims of public ad
ministration is not unworthy of an
examination on the grounds on
which it rests." a
"No equal capital," Adam Smith says, "puts
into motion a greater quantity of productive labor
than that of the farmer  In agriculture, too,
nature labors along with man and though her
labor costs no expense, its produce has its value, as
well as that of the most expensive workmen.""
This argument Hamilton refers to as "both quaint
and superficial."'^ The skill of man, he argues,
laid out on manufactured products may be more
productive of value than the labor of nature and
man combined. He says further that mechanical
powers are more applicable to manufactures than
to agriculture; that manufacturing labor Is more
a Hamilton, MS. Manufactures, 2, L. C.
" Works, vol. 4, p. 77. Manufactures, 1791.
" Smith, A., Wealth of Nations, Book 2, ch. 5, vol. 1, p. 343.
^ Works, vol. 4, p. 77. Manufactures, 1791.
[108]

DANGERS OF EXPANSION

constant since it is not dependent on seasons ; and
that the agriculturist, because of his easy condi
tion of life. Is often remiss in cultivation; while
manufacturing labor, on the contrary, has open to
it a wider field for the exertion of ingenuity and
more stimuli impelling It to productiveness.*
Hamilton, like Adam Smith, had no conception
of renf as an unearned Increment." But while he
did not understand this phenomenon of distribu
tion — a phenomenon which had not yet appeared
in America — he saw, from the point of view of
production, the fallacy of the Physiocrats and of
Smith, who assumed that, because land yielded
rent, it had a superior productiveness.
Rent, we may mention parenthetically, has two
aspects. If we consider It as a factor In distri
bution, there arises, by virtue of the institution of
private property, an unearned Increment; rent
here is Income, going to the landlord because
he has a pecuhar social advantage. His land,
having a superior productiveness or position over
the price-determining land on the margin of cul
tivation, yields a rent which, as far as he is per
sonally concerned, is unearned. On the other
hand, rent from the point of view of the entre
preneur is a sum of money paid for a peculiar
a Works, vol. 4, p. 78. Manufactures, 1791.
"Rabbeno, U., Protezionismo Americano, Essay 3, ch. 1, sec.
12. [109]

ALEXANDER HAMILTON

form of capital goods, i.e., it is interest paid for
capital In land. From the standpoint of produc
tion, rent and Interest are Identical.
The difficulty with Smith and the Physiocrats
was that they confused these two ways of looking
at rent. They saw that the landlord received an
Income apparently for no other reason than that
he owned the land; but Instead of ascribing this to
the Institutional cause of distribution, they ex
plained It as a phenomenon of production. This
was the fallacy. The distinction which they drew
between capital In manufacturing goods and capi
tal In land, Hamilton said, was "rather verbal
than substantial."* "The rent of the landlord and
the profit of the farmer," he says, "are nothing
more than the ordinary profits of two capitals
belonging to two different persons, and united In
the cultivation of a farm."" "The question must
still be," he concludes, "whether the surplus, after
defraying expenses, of a given capital, employed
In the purchase and Improvement of a piece of
land, Is greater or less than that of a like capital,
employed in the prosecution of a manufactory
.... or rather perhaps whether the business of
agriculture or that of manufactures will yield the
greater product, according to a compound ratio
of the quantity of the capital and the quantity of

a Works, vol. 4, p. 79. Manufactures, 1791.
"Works, vol. 4, p. 80. Manufactures, 1791.
[110]

DANGERS OF EXPANSION

labor which are employed In the one or In the
other."* Mankind In Its social evolution develops, ac
cording to Herbert Spencer, from an Incoherent,
homogeneous to a coherent, heterogeneous so
ciety." Cooperation and differentiation are the
very essence of progress. In the time of Hamil
ton, the United States was In the first stage of
social evolution — It was Incoherent and homo
geneous. The purpose of Hamilton's economic
policies was to develop, by legislation, social co
herence and heterogeneity. His goal was the
national diversification of industry. Within the
nation he wished to see great cities as well as
great plantations, busy factories as well as fertile
farms, and vigorous, enterprising merchants as
well as husbandmen. His Idea was that the more
complex the national life was, the more the parts
would be dependent on each other and that, united
with the bonds of mutual needs, we would become
a strong coherent nation. Free lands, he thought,
would perpetuate the Incoherent, colonial life,
which, however desirable it was for us as colonies
of Great Britain, was undesirable for us as a
nation. His policy, opposing western emigration,
was intended to erect barriers, behind which an
Interdependent, complex civilization might grow.
a Works, vol. 4, pp. 80, 81. Manufactures, 1791.
" Spencer, H., Principles of Sociology, pt. 2, ch. 12, sec. 271.
[Ill]

CHAPTER EIGHTH
Manufactures
Hamilton was not wont to lay down principles
or draw conclusions without the facts before him.
He therefore conducted, as preparation for the
writing of his famous Report on Manufactures
submitted to Congress, December 5, 1791, an in
vestigation Into the actual condition of manufac
tures In the United States at that time.
Some writers have noticed that Hamilton
seemed in his report to be familiar with the state
of industry in this country but they give no expla
nation of how he obtained his Information.
Among the Hamilton papers In the Library of
Congress there are a large number of unpublished
letters, written to him or his agents, from all parts
of the country, which discuss the extent, organi
zation and needs of manufactures. It will be
possible here only to indicate briefly the nature of
this material.
Hamilton sent a request to a leading citizen,
usually an official, in each of the large states, for
Information on manufactures; these persons, in
turn, requested the Information from leading citi
zens and manufacturers in the towns. The system
of gathering the facts was not the same in every
state, John Chester writes to Hamilton from the
[112]

MANUFACTURES

office of Supervisor in Connecticut, October ii,
1791 : "After having revolved in my mind several
plans for obtaining the necessary Information,
none was thought of which afforded so flattering
prospects as that which was adopted, of writing
to each member of the upper branch of our legis
lature as well as to many of the principal manu
facturers."* "Agreeable to your request," runs
another letter dated at Charleston, S. C, Sep
tember 3, 1 79 1, "have wrote a circular letter to
the most leading characters throughout the state,
relative to manufactures that may be carried on
In the several counties."" A letter received in
reply to a letter similar to the above, sent out by
John Dexter, Supervisor In Rhode Island, Is in
part as follows : "I duly rec** thy L'" of the 7'" ins*
with a copy of a L' from the Seer'' of the Treasury
of the 22*^ ul° Inclosed, and .... I shall cheerfully
give every Information In my power which may
contribute to further the views of the National
Legislature or assist the Seer'' in forming a plan
for promoting Manufactures in the United
States."" In his investigation Hamilton gave particular
a Hamilton, MSS., vol. 11, p. 181, L. C.
"Hamilton, MSS., vol. 11, p. Ill, L. C. Stevens to Hamil
ton. " Hamilton, MSS., vol. 11, p. 75, L. C. Moses Brown to
John Dexter, July 22, 1791. [113]

ALEXANDER HAMILTON

attention to domestic manufactures. "There Is,"
he observed, "a vast scene of household manu
facturing which contributes more largely to the
supply of the community than could be imagined
without having made it an object of particular
Inquiry."* Several small but careful house to
house censuses of domestic production were
taken, the most valuable being that of Drury
Ragsdale In Virginia. In at least one case the
facts were gathered by young women. Very often
samples of domestic products accompanied the
reports submitted to the Secretary of the Treas
ury. P. Colt In reviewing manufactures in Con
necticut states very clearly the organization of
industry in that state. "The manufactures of this
state," he writes, "naturally present themselves
to our view under the following heads: Those
carried on in families merely for the consumption
of those families; those carried on in like manner
for the purpose of barter or sale; and those
carried on by tradesmen, single persons, or com
panies for supplying the wants of others, or for
the general purpose of merchandise or com
merce."" We may obtain from the unpublished letters
and reports gathered by Hamilton and from his
a Works, vol. 4, p. 128. Manufactures, 1791.
"Hamilton, MSS,, vol. 11, p. 69. To John Chester, July 21,
1791.

[114]

MANUFACTURES

summaries In his report some Idea of the nature
and extent of manufactures in 1790 in this
country. Fragmentary as the material Is, it
throws much light on the economic question which
Hamilton was facing. "The inquiries to which
the subject of this report has led," he writes In his
report, "have been answered with proofs that
manufacturles of iron, though generally under
stood to be extensive, are far more so than Is
commonly supposed."* A report, probably from
Providence, R. I., says that nails are extensively
manufactured and that In 1790 4,500 scythes, axes,
and drawing knives were made." Among others
Hamilton said that there were manufactures of
Implements and tools, stoves and household uten
sils, steel and iron work for carriages and ship
building, and firearms." Coppersmiths and brass
founders were said to be numerous, their chief
products being: copper and brass wires, utensils,
andirons and philosophical apparatus.*
The most Important articles made from wood
were: ships, cabinet wares, cotton and woolen
cards, and coopers' wares. "Ships," Hamilton
says, "are nowhere built In greater perfection.""
a Works, vol. 4, p. 164. Manufactures, 1791.
"Hamilton, MSS., vol. 11, p. 63.
"Works, vol. 4, p. 127. Manufactures, 1791.
d Works, vol. 4, pp. 127, 169. Manufactures, 1791.
"Works, vol. 4, p. 172. Manufactures, 1791.
[115]

ALEXANDER HAMILTON

While It is not desired to press the point, the
following remark concerning our timber is inter
esting, especially in the light of the modern policy
of conservation. "The Increasing scarcity and
growing Importance of that article (timber) in
the European countries," Hamilton observes,
"admonish the United States to commence, and
systematically to pursue, measures for the pres
ervation of their stock."*
Hamilton also speaks of there being manu
factures of gunpowder, sugar, flour, liquors,
printed books and paper. "Manufactories of
paper," he says, "are among those which are
arrived at the greatest maturity In the United
States."" Manufactures of leather had in 1790 reached
such a stage that they could defy foreign competi
tion." Hides were tanned and curried, and saddles
and harness made,'^ A committee in Charleston,
S. C, sent In an extensive report on leather manu
factures in that town." Both glass and sailcloth
manufactures were reported. Sam Breek of Bos
ton begins a letter to Hamilton as follows: "In
conformity with your wish it would afford me
a Works, vol. 4, p. 172. Manufactures, 1791.
" Works, vol. 4, p. 190. Manufactures, 1791.
"Works, vol. 4, p. 173. Manufactures, 1791.
a Hamilton, MSS., vol. 11, p. 63. L. C.
" Hamilton, MSS., vol. 11, p. 165, L. C.
[116]

MANUFACTURES

great pleasure to make you acquainted with the
exact state of the duck and glass manufactures In
this town."*
Some attempts had been made in growing the
mulberry tree for the purpose of raising the silk
worm." From Morrlstown, N. J., however, came
the report that silk manufactures were "yet only
In embryo."" The manufacturing of lace was
carried on, upon a limited scale, In Ipswich, Mass.'^
The most careful census of cloth production In
families was carried out by Drury Ragsdale, In
spector for Survey No. 3, King William Co., Va.
The actual returns from twenty families "compre
hending all classes from the richest to the poorest"
were:Total number of persons in families (including slaves) 301
Total number of yards of cloth made .... 2914
Stockings made (both fine and coarse), pairs • • 260
Total value of products  ;^501 2 0
"It may not be amiss to inform you," Ragsdale
writes, "that it Is my opinion that the manufac
tures in my survey carried on In private families
consist principally If not altogether of cotton and
wool, most of the fine cloth Is of cotton alone.
a Hamilton, MSS., vol. 11, p. 113, L. C. September 3, 1791.
"Hamilton, MSS., vol. 11, p. 109, L. C.
<= Hamilton, MSS., vol. 11, p. 97, L. C. Conduit to Dunham.
August 25, 1791.
d Works, vol. 4, p. 189. Also MSS., vol. 11, p. 51.
[117]

ALEXANDER HAMILTON

. . . , There being a scarcity of wool It is generally
mixed with cotton,"*
While cloth was made generally in the homes
of the people, promising beginnings were being
made In factory production. Hamilton speaks of
Sir Richard Arkwrlght's Invention of the spinning
frame," and says that the manufactory at Provi
dence had the merit of being the first to Introduce
It into the United States." A factory established
at Beverly, Mass., for the purpose of making
"cotton goods of the kind usually Imported from
Manchester for men's wear," reported the fol
lowing equipment: one carding engine; nine spin
ning jennies of sixty to eighty-four spindles each;
one doubling and twisting machine; one slubblng
machine; one warping mill; sixteen looms with
flying shuttles ; two cutting frames ; one burrer and
furnace with apparatus to singe the goods; ap
paratus for coloring, etc.*
Hamilton was interested In the founding, by the
Society for the Establishment of Manufactures,
of a factory for the "making and printing of
cotton goods.'" A resolution was sent to him
a Hamilton, MSS., vol. 11, pp. 159, 161, L. C. September
29, 1791.
"Works, vol. 4, p. 90. Manufactures, 1791.
"Works, vol. 4, p. 186. Manufactures, 1791.
¦J Hamilton, MSS., vol. 11, p. 119, L. C. Cabot to Hamilton,
September 6, 1791.
« Works, vol. 4, p. 182. Manufactures, 1791.
[118]

MANUFACTURES

signed by members of the society, requesting him
"to procure and engage for the service of the so
ciety such artists and workmen as you shall deem
necessary, and upon such terms as shall appear to
you reasonable, for the purpose of carrying on a
manufactory of cotton In Its various branches and
printing the same."*
Woolen goods also were produced extensively
"In a domestic way," and essays were being made
In factory production. The making of hats,
Hamilton observed, had acquired maturity,"
J. P, Cooke writes John Chester concerning the
hat Industry In Danbury, Connecticut. "The
manufacturing of hats of all kinds," he said on
September 12, 1791, "Is prosecuted upon a large
scale In this town; from the factory of O. Burr
and Company, which is probably the largest of
the kind In the state, large quantities of hats are
sent abroad, as also from several others, although
to a much less amount."" In 1790 O. Burr &
Company produced 443 felt hats at 5/; 9 girls'
hats at 7/6; 19 plain castors at 24/; 1862 napt
korums at 15/; 85 beavers at 39/; 99 napt castors
at 24/.'^
There was a beginning of the fabrication of
a Hamilton, MSS., vol. 11, p. 83, L. C.
"Works, vol. 4, p. 187. Manufactures, 1791.
<: Hamilton, MSS., vol. 11, p. 128, L. C.
a Hamilton, MSS., vol. 11, p. 130, L. C.
[119]

ALEXANDER HAMILTON

cloths, casslmeres, and other woolens In Hartford,
Connecticut.* Speaking of this young industry, P,
Colt, on July 21, 1791, writes: "This manu
facture commenced about three years agone with
a capital of £1,200  This stock being found
too small to effect the views of the company
which was to determine the question If American
wool would make cloth equal to British cloths out
of British wool and at reasonable prices, was ex
tended by new subscriptions to £2,800  The
legislature, being sensible of the Importance of
encouraging this infant establishment, granted
them a lottery to raise £1,000."" In a town, prob
ably Providence, the woolen manufactures were
reported to be limited because of the scarcity of
wool. "Was the raising of sheep duly en
couraged," the report says, "a sufficient quantity
must be manufactured for the whole of the inhabi
tants."" Hamilton's solution of the difficult prob
lem of encouraging wool-growing and woolen
manufactures was to grant premiums for the in
crease and improvement of wool production and
to pay these premiums from a fund raised by levy
ing a protective duty on woolen goods Imported.''
a Works, vol. 4, p. 187. Manufactures, 1791.
" Hamilton, MSS., vol. 11, p. 71, L. C. Colt to Chester, July
21, 1791.
"Hamilton, MSS., vol. 11, p. 63, L. C. Richmond to
Wheeler, October 10, 1791.
a Works, vol. 4, p. 188. Manufactures, 1791.
[120]

MANUFACTURES

A few Interesting sidelights were brought out
by Hamilton's investigation. Anselm Bailey of
Surry, Virginia, writes to T. Newton as follows:
"Thine of the 26th of last mo. I received and set
about with much cheerfulness to comply with thy
request but thou'l be perhaps surprised at hearing
that most of the people In these parts have got in
such a spirit of jealousy that they suspect some
design unfavorable to them In every thing that is
attempted of a public nature. 'What are they
going to tax our Cloath too' — ^was the reply of
several."* Those acquainted with the appeals of
manufacturers to Congress In recent years will find
in one John Mix of New Haven, Connecticut, an
ancestral likeness whose face Is strangely famil
iar. "I was not bread up," John writes on Sep
tember 30, 1 79 1, "to any Mechanical Business,
but had part of an Education at Yale College.
.... Being ever a friend and Supporter of the
Rights of my country and finding agriculture and
manufactures must be the main Supporters of the
country, I applied my attention to find out some
kind of Manufactures that had not met with the
particular attention of the Publick.
"In September, 1789, I accldently cast my eyes
on a particular hard metal button ; after examina
tion of It I was fully persuaded in my own mind
a Hamilton, MSS., vol. 11, p. 93, L. C. August 23, 1791.
[121]

ALEXANDER HAMILTON

that I could find out the composition and that they
might be made to advantage."
After describing his button factory he continues :
"We, therefore. Earnestly wish and hope that
Congress would Early In their approaching Ses
sion take up the Matter with Spirit and resolu
tion and lay such heavy Duties on Articles of But
tons that It will amount to a Prohibition of Im
porting Buttons Into this country. We shall then
be able to Enlarge our Button factory In a very
advantageous and Extensive manner boath for the
Publick Benefit and our own Advantage."* It Is
refreshing after this to rea'd that Jonathan HIU
of Providence, a manufacturer of fringe, lace, and
webbing, can make his goods at a lower rate than
they can be imported so that he "wishes for
nothing but to be known.""
Many arguments were current In Hamilton's
day maintaining that manufactures could not be
successfully established In a country with vast
tracts of unoccupied lands. "To all the argu
ments which are brought to evince the impractica
bility of success in manufacturing establishments
in the United States," Hamilton answered with
the facts of his Investigation In mind, "it might
have been a sufficient answer to have referred to
a Hamilton, MSS,, vol. 11, p. 163, L. C. To John Chester.
"Hamilton, MSS., vol. 11, p. 63, L. C.

[122]

MANUFACTURES

the experience of what has been already done."*
Other objections advanced against manufactures
were : first, scarcity and dearness of labor ; second
ly, want of capital; thirdly, the retarding effect
which they would have on the settlement of new
lands. Hamilton, while admitting that the scarcity and
dearness of labor were real difficulties, did not
think that they were Insuperable. "There are
large districts," he observed, "which may be con
sidered as pretty fully peopled; and which, not
withstanding a continual drain for distant settle
ment, are thickly interspersed with flourishing and
increasing towns."" In such districts, he thought,
the complaint of scarcity of hands was on the point
of ceasing. The stock of manufacturing labor
would also be augmented, he said, by the use which
could be made of women and children ; by the vast
extension in the Improvement of machinery; by
the employment of persons engaged in other occu
pations during their hours of leisure; and by
attracting foreign Immigrants." But he adds that
even If labor Is higher here than In Europe "there
are grounds to conclude that undertakers of manu
factures In this country can, at this time, afford to
pay higher wages to the workmen they may em-
a Works, vol. 4, p. 126. Manufactures, 1791.
" Works, vol. 4, p. 108. Manufactures, 1791.
<= Works, vol. 4, pp. 108, 109. Manufactures, 1791.
[123]

ALEXANDER HAMILTON

ploy, than are paid to similar workmen in
Europe,"* As for capital Hamilton thought that there
would be no more difficulty in finding It for im
proving manufactures than for developing agricul
ture and trade. It Is an obvious truth he said that
the "opening affairs of this rising country afford
profitable objects for more capital than It has yet
acquired." But the want of capital will be
remedied, he argued, by the Installation of banks
and by the use of the funded debt which we have
already noticed,"" and by the Introduction of for
eign capital. It was his belief that foreign capital,
which had already helped to Improve our means
of public communication, might be expected to
assist in manufactures.
While Hamilton thought that the conversion of
waste Into cultivated lands was of great moment In
the political calculations of the country, he did not
regard it as of primary importance. "It is mani
festly an error," he remarks, "to consider the pros
perity of agriculture as in proportion to the quan
tity of land occupied or even to the number of
persons who occupy It or to both. It Is rather to
be considered as In a compound ratio to the
a Works, vol. 4, p. 111. Manufactures, 1791.
" Hamilton, MS. Manufactures, 3, L. C.
"Chapter Sixth, pp. 73 and 78.
^ In an early draft "political" reads "oeconoraical."
[124]

MANUFACTURES

quantity of land occupied and the degree of im
provement."* Any retarding of settlement caused
by manufactures would be compensated for by
Increase In vigor of cultivation and even the num
ber engaged in agriculture might be increased,
since foreigners attracted to this country by manu
factures might later yield to the temptation to take
up free land."
The actual state of manufactures and the
answers to the objections to the further encourage
ment of them which we have just reviewed, indi
cate that by 1790 both substantial beginnings had
been made In domestic and factory production and
that the prospects were good for their develop
ment. This condition had been largely forced
upon the United States, first, by the exclusion of
foreign goods during the Revolution, and then, by
the policy of foreign nations which prevented
America from settling her trade balance with the
products of her soil. Her foodstuffs and raw
materials were barred from foreign markets and
she could not pay for her imports with exports.
Her only alternate was to manufacture for her
self. When Hamilton wrote his report he saw
this condition. "If Europe," he says, "will not
take from us the products of our soil, upon terms
consistent with our Interest, the natural remedy
a Hamilton, MS. Manufactures, 1, L. C.
"Works, vol. 4, p 103. Manufactures, 1791.
[125]

ALEXANDER HAMILTON

Is to contract, as fast as possible, our wants of
her."* Writers have observed that Hamilton's sug
gestions on manufactures were not, as they were In
the case of his other reports. Immediately fol
lowed, and that they were not even urged by him
again. The explanation is not far to seek.
During the year following the publication of the
Report on Manufactures war broke out between
France and the First Coalition, and from that time
until Waterloo Europe was in an almost continu
ous state of hostility. The markets which before
America had been refused were now thrown open
to her, and under her cherished policy of neu
trality she reaped a rich harvest in trade. The
Immediate need for diversifying industry was re
moved. Hamilton himself turned his energies,
from necessity, to questions of foreign policy and
International law. He probably, however, felt
that the conditions forced upon us were unfortu
nate since they perpetuated the colonial economy,
and were, therefore, anti-national. He believed
that It was "most wise for us to depend as little
as possible upon European caprice, and to exert
ourselves to the utmost to unfold and improve
every domestic resource,""
a Works, vol. 4, p. 102. Manufactures, 1791.
"Works, vol. 9, p. 484. To Goodhue, June 30, 1791.

[126]

-<./fA

r

").

jv^ VI
\J-f^^fe!i:'S'H^p
-asi
'i:'
fl^
t'y»
/
II:
^,' Anj.Jt. <!*.;. ift 4 / ' /^'?
A Pace from an Early Draft of Hamilton's Report on
Manufactures, Showing Reference to "\\'ealth
of Nations," in His Handwriting
(Page 219 prob.ibly intended to refer to page 229)
CHAPTER NINTH
Protection
In the Library of Congress there are three
more or less complete preliminary drafts and the
final draft of Hamilton's Report on Manufactures
which he submitted to Congress December 5,
1 79 1, Drafts one, two, and final are In his own
handwriting; the third was copied by a clerk.
Hamilton wrote this report during very busy
times, and for this reason even the final draft Is
somewhat disconnected and rambling; but the
manuscripts show many revisions and additions.
It is clear from the text itself that he had before
him at the time of writing a copy of Adam Smith's
Wealth of Nations. Conclusive evidence of the
fact, however, is found In the reference, "Smith,
W. of Nations, vol. i, p. 219,"* which appears on
an early draft of the report but which was subse
quently scratched out.
Prior to the writing of the Report on Manu
factures five editions of the Wealth of Nations had
appeared In England." They were published in
1776, 1778, 1784, 1786, and 1789, respectively.
a See photograph of manuscript on opposite page. "P. 219" is
probably a slip of the pen and intended for p. 229 of the third
English edition (1784).
" The sixth edition is dated 1791, the year in which the Report
on Manufactures was published. [127]

ALEXANDER HAMILTON

It was enough In demand in this country by 1789
that an American edition was put out by a Phila
delphia publisher. When Hamilton came to con
sider the question of manufactures, he found that
public men were generally acquainted with Its
principles of freedom in trade and Industry, and
he, therefore, thought It advisable to state and
answer them fully In his report.
"To endeavor," Hamilton says In stating the
position of the school of Smith, "To endeavor, by
the extraordinary patronage of government, to
accelerate the growth of manufactures, is, in fact,
to endeavor, by force and art, to transfer the
natural current of Industry from the more to a
less beneficial channel  It can hardly ever be
wise in a government to attempt to give a direc
tion to the industry of Its citizens. This, under the
quick-sighted guidance of private interest, will, if
left to itself, infallibly find Its own way to the most
profitable employment; and it Is by such employ
ment, that the public prosperity will be most effec
tually promoted 
"This policy is not only recommended to the
United States, by considerations which affect all
nations; It is, in a manner, dictated to them by the
imperious force of a very peculiar situation. The
smallness of their population compared with their
territory; the constant allurements to emigration
from the settled to the unsettled parts of the
[128]

PROTECTION

country ; the facility with which the less Independ
ent condition of an artisan can be exchanged for
the more Independent condition of a farmer: —
these, and similar causes, conspire to produce, and
for a length of time must continue to occasion, a
scarcity of hands for manufacturing occupation,
and dearness of labor generally."*
Hamilton saw very clearly the value of Smith's
philosophy of freedom and that, as a protest
against too much regulation, it had every right to
be respected. The following appreciations of It
are taken from different drafts of his report:
a Works, vol. 4, pp. 71, 72. Cf. Works, vol. 4, p. 104. Also
Smith, A., Wealth of Nations, Book 3, ch. 1, and Book 4, ch. 9.

[129]

ALEXANDER HAMILTON

"This theory has so
much of truth in it
that its principles
ought never to be out
of the view of the
legislators of this
country. And while
its extremes ought to
be quaUfied in practice
by the exceptions to
which every general
theory is subject, its
maxims ought to serve
as cautions against all
extremes of any other
kind. If they do not
persuade that all legis
lative countenance
ought to be withheld
from particular
branches of industry
which appear to stand
in need of it, they
ought at least to incul
cate that it should be
afforded with modera
tion and measure, that
the real aptitudes in
the state of things for
particular improve
ments and ameliora
tions should be care
fully consulted, and
that they should be
developed by gradual,
systematic and pro
gressive efforts rather
than forced into ma
turity by violent and
disproportion ed exer
tions." a

"There is so much
of truth in these posi
tions that an attentive
eye ought to be had to
them in every step of
our progress toward
the attainment of
manufactures. But
though they are very
proper considerations
to moderate, they are
not such as ought to
extinguish a zeal for
manufactures. All
political theories, how
ever true in the main,
become pernicious
when pushed to an ex
treme. They all admit
of numerous excep
tions and qualifica
tions; in discerning
which the wisdom of
government is mani
fest, "b

"This mode of rea
soning is founded up
on facts and principles
which have certainly
respectable preten
sions. If it had gov
erned the conduct of
nations more gener
ally than it has done,
there is room to sup
pose that it might
have carried them
faster to prosperity
and greatness than
they have attained by
the pursuit of maxims
too widely opposite.
Most general theories,
however, admit of
numerous exceptions,
and there are few, if
any, of the political
kind, which do not
blend a considerable
portion of error with
the truths they incul
cate." c

a Hamilton, MS. Manufactures, 1, L. C.
^Hamilton, MS. Manufactures, 3, L. C.
c Works, vol. 4, p. 73. Manufactures, 1791.
[130]

PROTECTION

Hamilton now advances several positive argu
ments against the tenets of Smith. It was neces
sary, in order to make his system of liberty work,
for Smith to assume perfect mobility of labor and
capital; but Hamilton was quick to see that this
assumption was not warranted by the facts of
human nature. It disregarded entirely the psy
chological factors in the equation; such as habit,
the spirit of imitation, and the fear of want of
success in untried enterprises. "Experience," he
says, "teaches that men are often so much gov
erned by what they are accustomed to see and
practice, that the simplest and most obvious im
provements, In the most ordinary occupations, are
adopted with hesitation, reluctance, and by slow
gradations."* Men will, in fact, often adhere to
ancient courses as long as they may obtain from
them bare subsistence. "The apprehension of
falHng In new attempts," he continues, "Is, per
haps, a more serious impediment."" Cautious
capitalists are not likely to undertake new and
precarious undertakings unless government Inter
vene to remove some of the obstacles.
The doctrine of Adam Smith, furthermore, dis
regards the existence of nations; his theory might
have worked In a world without national bound
aries, national traditions, and national desires, but
a Works, vol. 4, p. 104. Manufactures, 1791.
"Works, vol. 4, p, 105. Manufactures, 1791.
[131]

ALEXANDER HAMILTON

these to the mind of Hamilton Involved, not only
facts to be recognized, but also principles to be
cherished. His chief concern was the collective
interest of the American nation. "To maintain,"
he said, "between the recent establishments of one
country, and the long-matured establishments of
another country, a competition upon equal terms,
both as to quality and price, is. In most cases, im
practicable."* A society, therefore, which might
be ready for manufactures according to the sys
tem of perfect liberty would be hindered, by un
equal competition, from diversifying Its industry.
Another Impediment to the establishment of new
industries Is the policy of foreign nations of grant
ing bounties, premiums, and other aids "to enable
their own workmen to undersell and supplant all
competitors In the countries to which those com
modities are sent."" Combinations of foreign
manufacturers, Hamilton also thought, existed
whose purpose It was to frustrate, by temporary
sacrifices, the Introduction of new Industries In
countries which were their markets." "Whatever
room there may be for an expectation that the
industry of a people, under the direction of private
Interest, will, upon equal terms, find out the most
beneficial employment for itself," he remarks In
a Works, vol. 4, pp. 105, 106. Manufactures, 1791.
" Works, vol. 4, p. 106. Manufactures, 1791.
"Works, vol. 4, pp. 106, 107. Manufactures, 1791.
[132]

PROTECTION

conclusion, "there is none for a reliance that It will
struggle against the force of unequal terms, or
will, of itself, surmount all the adventitious bar
riers to a successful competition which may have
been erected either by the advantages naturally
acquired from practice and previous possession of
the ground, or by those which may have sprung
from positive regulations and an artificial policy."*
Hamilton looked at the advice of Adam Smith
to the statesman in two ways: he thought, In the
first place, that because of the reluctance of
human nature and national aspirations, it would
not work; that It would not achieve the results
promised; he thought, secondly, that, even if It
did work, the form of society it would produce
was undesirable because it overlooked the interests
and power of particular nations. Hamilton was,
in fact, not an Individualist. No book has thrown
so much light on the motives and beliefs of Hamil
ton as did the recent work of F. S. Oliver. This
book, begun as an essay on Joseph Chamberlain's
policy of preference, expanded Into a political and
economic study of Hamilton. Its most extraor
dinary popularity shows not only Its literary
power, but also the renewal of Interest in Hamil
ton and the principles of nationalism. It Is valu
able not so much for Its facts as for Its study of
forces back of facts. Whatever its defects as

a Works, vol. 4, p. 107. Manufactures, 1791.
[138]

ALEXANDER HAMILTON

history may be, its position Is secure as a sympa
thetic interpretation of a political philosophy
which has held the allegiance of at least some of
the most powerful of the world's thinkers and
statesmen. Hamilton's argument for protection might be
stated in brief as follows : National diversification
of Industry Increases the power and wealth of the
nation; such measures, therefore, as will effect
this object should be adopted and pursued. We
may consider his arguments at more length under
these heads: home-market; self-sufficiency; and
productivity. The home-market argument for protection was
addressed by Hamilton to the agriculturists who
constituted by far the most numerous class in
America, Manufactures, he says, by creating. In
some instances, a new, and securing, In all, a more
certain and steady demand for the surplus produce
of the soil, contribute to an augmentation of the
produce or revenue of a country, and have an
immediate and direct relation to the prosperity of
agriculture.* "It Is evident," he continues, "that
the exertions of the husbandman will be steady or
fluctuating, vigorous or feeble, in proportion to
the steadiness or fluctuation, adequateness or In-
adequateness, of the markets on which he must
depend for the vent of the surplus which may be
a Works, vol. 4, p. 95. Manufactures, 1791.
[134]

PROTECTION

produced by his labor."* When Hamilton con
sidered the policy of self-sufficiency and exclusion
pursued by foreign nations; the casual and occa
sional demand for the produce of our soil; the
danger of a glut of produce In our markets; the
probable progressive settlement of the West; and
the need of developing the vast, unexploited re
sources of the nation: — when he considered these,
he was convinced that an extensive domestic
market was necessary to our prosperity. "To
secure such a market," he concludes, "there is no
other expedient than to promote manufacturing
establishments."" That every class and every sectional interest
within the nation was unequivocally bound up with
the national interest was a fundamental maxim of
Hamilton's creed. Antagonisms within the nation
he regarded as superficial and due to the inability
of people to comprehend their welfare as a whole.
"The aggregate prosperity of manufactures and
the aggregate prosperity of agriculture," he says,
"are Intimately connected."" Manufactures pro
mote a vigorous and more steady cultivation of
the soil, and, even if they do abridge the rapid
settlement of lands, the land-owning class is relm-

a Works, vol. 4, p. 95. Manufactures, 1791.
"Works, vol. 4, p. 97. Manufactures, 1791.
"Works, vol. 4, p. 139. Manufactures, 1791.
[135]

ALEXANDER HAMILTON

bursed by an increase both In the capital value and
the Income of its land.*
Hamilton found the most Insistent opposition
to manufactures coming from the South. Since
that section could not develop them under the
regime of slavery, it regarded their encourage
ment In the North as sectional legislation opposed
to their interests. This opinion Hamilton de
plored. "Ideas of a contrariety of interests be
tween the Northern and Southern regions of the
Union," he said, "are. In the main, as unfounded
as they are mischievous. The diversity of circum
stances, on which such contrariety Is usually pred
icated, authorizes a directly contrary conclusion.
Mutual wants constitute one of the strongest links
of political connection; and the extent of these
bears a natural proportion to the diversity in the
means of mutual supply."" The Socialist believes
that there is a "gigantic struggle between capital
ism and landed property, between profits and land
rent,"" but from the nationalist's point of view
these Interests are complementary. Hamilton re
garded the cooperation of the agricultural and
manufacturing interests as not only necessary to
the power and opulence of the nation, but as bene-
a Works, vol. 4, p. 103. Manufactures, 1791.
"Works, vol. 4, p. 139. Manufactures, 1791.
"Rabbeno, U., Protezionismo Americano, Essay 2, ch. 7, sec.
63.

[136]

PROTECTION

ficlal to the cooperating classes and individuals.
It was his belief that there was an "Intimate con
nection of Interest which subsists between all the
parts of a society united under the same govern
ment."* In the comprehensiveness of his appeal Hamil
ton did not forget the fishing interests. "As far
as the prosperity of the fisheries of the United
States," he said, "Is Impeded by the want of an
adequate market, there arises another special
reason for desiring the extension of manufac
tures."" While Hamilton desired economic independ
ence for the American nation, he was hopeful that
this country by producing a great variety of goods
would become an extensive, diversified market in
which foreigners would supply their needs.
"Another circumstance," he observed, "which
gives a superiority of commercial advantages to
states that manufacture as well as cultivate, con
sists in the more numerous attractions which a
more diversified market offers to foreign cus
tomers, and In the greater scope which it affords
to mercantile enterprise.""
Hamilton's home-market argument, then, falls
naturally into three parts: manufactures, in the
a Works, vol. 4, p. 140. Manufactures, 1791.
"Works, vol. 4, p. 138. Manufactures, 1791.
"Works, vol. 4, p. 132. Manufactures, 1791.
[137]

ALEXANDER HAMILTON

first place, by furnishing a steady and near market
for raw materials and foodstuffs, would encourage
both the intensive and extensive cultivation of the
soil ; they, secondly, by making the sections of the
country mutually dependent, would cement more
closely the Union of States; and they, thirdly, by
diversifying the articles of national production,
would prevent stagnation In our markets and
attract foreigners to our shores to buy.
In selecting the Industries which he believed
worthy of protection, Hamilton took Into con
sideration, among other Interests, "particularly
the great one of national defence."* For the sake
of national strength and Independence, he desired
that the United States should abridge Its wants of
other nations, and that because of the uncertain
ties of International trade and the possibilities of
war. It should aim at self-sufficiency. "Not only
the wealth," he says, "but the Independence and
security of a country appear to be materially con
nected with the prosperity of manufactures.
Every nation, with a view to those great objects,
ought to endeavor to possess within Itself all the
essentials of national supply. These comprise the
means of subsistence, habitation, clothing, and
defence."" In Hamilton's day the safety. If not
the existence, of a political society depended on Its

a Works, vol. 4, p. 163. Manufactures, 1791.
"Works, vol. 4, p. 135. Manufactures, 1791.
[138]

PROTECTION

ability to obtain adequate supplies. The embar
rassment of the United States during the Revo
lutionary War, from an incapacity of supplying
Its needs, was remembered, as a warning, by Ham
ilton; and he urged that timely and vigorous
measures be taken to prevent its recurrence in case
of future war.* He thought that we ought not to
depend on foreign supply because it was precarious
and liable to be interrupted." "The want of a
navy," he observed, "to protect our external com
merce as long as it shall continue, must render it a
peculiarly precarious reliance for the supply of
essential articles, and must serve to strengthen
prodigiously the arguments in favor of manufac
tures."" National self-sufficiency was to him a
policy demanded by expediency and practical poli
tics. In an age when nations were neither asking
nor giving quarter ; when the weak were the prey
of the strong; when retaliation, navigation laws,
and war were chessmen in the international game
of national greatness; the strength. If not the
safety, of the American nation, Hamilton main
tained, depended on abridging our needs of other
powers. Economists have generally conceded that under
certain conditions a nation might be justified, for

a Works, vol. 4, p. 136. Manufactures, 1791.
"Works, vol. 8, p. 222. Speech, 1796.
"Works, vol. 4, p. 136. Manufactures, 1791.
[189]

ALEXANDER HAMILTON

the sake of self-sufficiency, in diversifying its in
dustry. But they usually add that the nation
which does it, sacrifices wealth to defence. Ham
ilton did not think so. Self-sufficiency was to him,
In fact, incidental, or perhaps, self-evident; he
believed that protection was primarily a means of
Increasing the power of the nation to produce
wealth. The theory of "productive powers" Is
generally ascribed to Friedrich List, List was
born at Reutlingen, Wiirtemberg, August 6,
1789. Because of political persecution, he came
to America in 1825, and remained five years. He
Immediately Interested himself In the "Pennsyl
vania Society for the Promotion of Manufactures
and the Mechanical Arts" — a society founded by
Hamilton. This society republished in 1824, with
a preface by its president, Matthew Carey, Ham
ilton's Report on Manufactures. A second edi
tion appeared In 1827.* In this same year List
wrote a series of letters to C. J. IngersoU, Vice
President of the Philadelphia Society, which were
published under the title, "Outlines of American
Political Economy."
Rabbeno has pointed out that before landing in
America List had not formulated his theory of
protection and also that all the essential ideas
which appear In his work of 1841 are to be found

a Hirst, M. E., Life of Friedrich List, p. 115.
[140]

PROTECTION

in the "Outlines" of 1827.* Although List gives
no credit In any of his writings to Hamilton's
famous report. It seems impossible to escape the
conclusion that he found in It the general prin
ciples which he developed into his theory of nation
ality and productive powers."
"National economy," List says, "teaches by
what means a certain nation, in her particular
situation, may direct and regulate the economy of
individuals, and restrict the economy of mankind,
either to prevent foreign restrictions and foreign
power, or to increase the productive powers
within herself."" The object of political economy,
he thought, was not to gain matter In exchanging
matter for matter, but to gain productive and
political power. "There are," he says, "a capital
of nature, a capital of mind, and a capital of pro
ductive matter, and the productive powers of a
nation depend not only upon the latter, but also
and principally upon the two former."'^
America was in Hamilton's day a vast unde
veloped estate; rich In latent resources but poor
in productive powers. The economic organiza
tion was weak because simple. The most direct
a Rabbeno, U., Protezionismo Americano, Essay 3, ch. 2, sec.
23. " Callender, G. S., Economic History of the United States, p.
552n. "List, P., Outlines. Letter 1.
d List, F., Outlines. Letter 4.
[141]

ALEXANDER HAMILTON

and obvious way In which manufactures would
increase production in an agricultural society,
Hamilton pointed out, were: first, by the extension
of the use of machinery; machinery which Is an
"artificial force brought In aid of the natural
force of man" would Increase the mass of national
industry. In the second place, manufactures
would afford "occasional and extra employment to
Industrious Individuals and families, who are will
ing to devote the leisure resulting from the inter
missions of their ordinary pursuits to collateral
labors";* and give employment to persons dis
qualified by bias of temper or Infirmity of body
from work In agriculture. In the third place,
manufactures would increase the quantity of labor
in the nation by attracting foreign Immigrants.
"Men," Hamilton says, "reluctantly quit one
course of occupation and livelihood for another,
unless Invited to it by very apparent and proximate
advantages."" But those, unwilling to migrate In
order to become farmers, would come to America
if they had prospects of continuing in their chosen
calling. "The disturbed state of Europe," Ham
ilton writes in 1791, "Inclining Its citizens to emi
gration, the requisite workmen will be more easily
acquired than at another time; and the effect of
multiplying the opportunities of employment to

a Works, vol. 4, p. 91. Manufactures, 1791.
"Works, vol. 4, p. 92. Manufactures, 1791.
[142]

PROTECTION

those who emigrate, may be an Increase of the
number and extent of valuable acquisitions to the
population, arts, and industry of the country. To
find pleasure in the calamities of other nations
would be criminal; but to benefit ourselves, by
opening an asylum to those who suffer in conse
quence of them, is as justifiable as It Is politic."*
In a nation, as In a factory, there is a maximum
of productiveness. Hamilton believed that it is
the statesman's, as It is the entrepreneur's, duty
to regulate the division of labor so that the maxi
mum product will be produced. His arguments
for national division of labor are taken sub
stantially from the "Wealth of Nations" — the
difference being that, while Smith lays emphasis
on division of labor within a manufactory, such as
his pin factory, or on International division of
labor, Hamilton emphasizes division of labor
within the nation. "There Is scarcely any thing
of greater moment In the economy of a nation,"
he says, "than the proper division of labor. The
separation of occupations causes each to be carried
to a much greater perfection than It could possibly
acquire If they were blended."" Hamilton then
gives Adam Smith's three famous arguments for
division of labor. Greater skill and dexterity, In
the first place, naturally results from a constant
a Works, vol. 4, p. 143. Manufactures, 1791.
b Works, vol. 4, pp. 87, 88. Manufactures, 1791.
[143]

ALEXANDER HAMILTON

and undivided application to a single object.* The
cultivator, in a country which has manufactures,
since he does not have to make his own Implements
and manufactured goods, can give his undivided
attention to the tillage of the soil. By furnishing
food and raw materials, on the contrary, to the
manufacturer, the farmer allows him to perfect
his processes and develop his skill. Division of
labor, secondly, economizes time by avoiding the
loss of It "incident to a frequent transition from
one operation to another."" Time Is lost in the
transition Itself, In the orderly disposition of im
plements, machinery, and materials, in the "Inter
ruption of the Impulse which the mind of the work
man acquires from being engaged in a particular
operation," and in the "distractions, hesitations,
and reluctances which attend the passage from one
kind of business to another." National division
of labor, finally, leads to the Improvement of
machinery." A man employed on a single object
will be led to exert his Imagination "In devising
methods to facilitate and abridge labor."
Another result will be that the fabrication of
machines will become a distinct trade and the in-
a Works, vol. 4, p. 88. Cf. Wealth of Nations, Book 1, ch. 1,
vol. 1, p. 9.
" Ibid.
"Works, vol. 4, pp. 88, 89. Cf. Wealth of Nations, Book 1,
ch. 1, vol. 1, pp. 10, 11. [144]

PROTECTION

vention and application of machinery will be ex
tended. "The mere separation of the occupation
of the cultivator from that of the artificer," Hamil
ton concludes, "has the effect of augmenting the
productive powers of labor, and with them, the
total mass of the produce and revenue of a
country."* Adam Smith and his school seem to disregard
entirely the Immaterial and mental factors in the
equation of production, and to maintain that the
industry of a country Is always In proportion to
the quantity of its labor and capital." If It be true
that the confidence and enterprise of the people
does not effect production. It is, then, obvious that
any regulation which diverts labor and capital
from a more to a less productive Industry destroys
national wealth; If, on the contrary, the psycho
logical factors have a bearing on production, the
question becomes: In what form of society are
the largest number of human talents brought Into
play and the greatest quantity of activity stimu
lated? Hamilton's answer to this question was:
In a society where the objects of Industry are most
diversified. "It Is a just observation," Hamilton remarks,
"that minds of the strongest and most active
powers for their proper objects, fall below me-
a Works, vol, 4, p. 89.
" Cf. Wealth of Nations, Book 4, ch. 2, vol. 1, pp. 422, 423.

[145]

ALEXANDER HAMILTON

diocrlty, and labor without effect, if confined to un
congenial pursuits."* It was his idea that in a
homogeneous society, such as America was in his
day, a large amount of talent goes to waste
because It has no object to which to apply itself.
Since men have diversity of talents and disposi
tions, he desired that opportunities in Industry be
coextensive with them. "When it Is considered
....," he wrote In one of the manuscript drafts
of his report, "that the results of human enter
prise and exertion are Immensely augmented by
the diversification of their objects; that there is a
reciprocal reaction of the various species of In
dustry upon each other mutually beneficial, and
conducive to general prosperity, It must appear
probable that the interests of a community will be
most effectually promoted by diversifying the In
dustrious pursuits of Its members and by regulat
ing the political economy so that those who have
been particularly qualified by nature for arts and
manufactures may find the encouragement neces
sary to call forth and reward their peculiar
talents."" The effect of enlarging the field of enterprise
had the same effect on the industry of a people,
Hamilton believed, as the "discovery of some new

a Works, vol. 4, p. 93. Manufactures, 1791.
" Hamilton, MS. Manufactures, 3, L. C.
[146]

PROTECTION

power In mechanics";* It harnessed and made
available powers which formerly were latent. He
wished by encouraging manufactures to stimulate
men with new ambitions to produce wealth. "To
cherish and stimulate the activity of the human
mind," he says, "by multiplying the objects of
enterprise, is not among the least considerable of
the expedients by which the wealth of a nation
may be promoted. Even things in themselves not
positively advantageous sometimes become so, by
their tendency to provoke exertion. Every new
scene which is open to the busy nature of man to
rouse and exert Itself, Is the addition of a new
energy to the general stock of effort.
"The spirit of enterprise, useful and proHfic as
it is, must necessarily be contracted or expanded, In
proportion to the simplicity or variety of the
occupations and productions which are to be found
in a society. It must be less In a nation of mere
cultivators, than in a nation of cultivators and
merchants ; less in a nation of cultivators and mer
chants than in a nation of cultivators, artificers,
and merchants.""
Hamilton marks the dividing line between mer
cantilism and modern protection. The old mer
cantile fallacies of money and the balance of trade
were like bubbles which need but a pin-prick to
a Hamilton, MS. Manufactures, 2, L. C.
"Works, vol. 4, pp. 94, 95. Manufactures, 1791.
[147]

ALEXANDER HAMILTON

burst them, but out of the ruins of the old Hamil
ton reconstructed the new, and thereby became the
founder and prophet of modern protection.
Through List his ideas have affected the policies
of Germany, through the Careys and others they
have been perpetuated In America, and In more
recent times they have crept past the shades of
Smith and Cobden into free-trade England. Ham
ilton's theory of protection was more than a
political expedient; It was the economic side of his
nationalistic creed. The encouragement of manu
factures, he knew, would strengthen the nation In
the rivalries of the world and, by creating mutual
wants, unite the sections together ; but the keystone
of his doctrine was the belief that the diversifica
tion of industrial pursuits would Increase the na
tion's power to produce wealth. It Is In contribut
ing this theory that he has claim to a respectable
place among the economists of the world.
If it be admitted that it Is desirable for an
agricultural country to encourage manufactures
the question presents itself: How shall this be
accomplished? Hamilton's list of means is ex
haustive. It includes: protecting duties; prohibi
tion of rival articles; prohibition of the exporta
tion of the materials of manufactures ; the exemp
tion of materials of manufactures from duty;
drawbacks of duties which are Imposed on the
materials of manufactures. Hamilton did not
[148]

PROTECTION

recommend unqualifiedly all these means. Of
prohibition of rival articles he said that "it is only
fit to be employed when a manufacture has made
such progress, and Is In so many hands, as to Insure
a due competition, and an adequate supply on
reasonable terms."* Of prohibition of the export
of raw material he said that it Is a regulation
which "ought to be adopted with great circum
spection and only in very plain cases.""
Hamilton further suggested that manufactures
might be encouraged by improving transportation
and banking facilities; by encouraging the dis
covery at home and the introduction from abroad
of new Inventions; and by the judicious regulation
for the inspection of manufactured commodities.
He placed special emphasis on regulation, "Con
tributing," he says, "to prevent frauds upon con
sumers at home and exporters to foreign countries,
to Improve the quality and preserve the character
of the national manufactures, it cannot fail to aid
the expeditious and advantageous sale of them,
and to serve as a guard against successful compe
tition from other quarters.""
Hamilton had a particular bias for bounties.
a Works, vol. 4, p. 144. Manufactures, 1791.
"Works, vol. 4, p. 145. Manufactures, 1791. It seems strange
that Hamilton does not mention in this connection that under the
Constitution neither State nor Nation can lay duties on exports.
Art. 1, sec. 9, cl. 5 ; Art. 1, sec. 10, cl. 2.
"Works, vol. 4, p. 158. Manufactures, 1791.
[149]

ALEXANDER HAMILTON

"This," he says, "has been found one of the most
efficacious means of encouraging manufactures,
and is, in some views, the best."* He favored
them because their effect was direct and positive;
because they avoided a temporary augmentation
in price ; because they had not, like high protective
duties, a tendency to produce scarcity; and because
by them new objects In agriculture and manu
factures may be encouraged together. He also
favored premiums since their effect Is to stimulate
general effort, "They are," he says, "a very
economical means of exciting the enterprise of a
whole community.""
To those who like Sumner" believe that In his
philosophy of trade Hamilton never rose above
the mercantilist's balance of trade theory it must
suffice here to answer with one quotation. "It
seems not always to be recollected," Hamilton
says, "that nations who have neither mines nor
manufactures can only obtain the manufactured
articles of which they stand In need by an exchange
of the products of their soils; and that if those
who can best furnish them with such articles are
unwilling to give a due course to this exchange,
they must, of necessity, make every possible effort
to manufacture for themselves; the effect of
a Works, vol. 4, p. 146. Manufactures, 1791.
"Works, vol. 4, p. 153. Manufactures, 1791.
" Sumner, W. G., Alexander Hamilton, p. 175.
[150]

PROTECTION

which is, that the manufacturing nations abridge
the natural advantages of their situation, through
an unwillingness to permit the agricultural
countries to enjoy the advantages of theirs, and
sacrifice the Interests of a mutually beneficial inter
course to the vain project of selling everything
and buying nothing."* The assumption of some
free-traders that, if one Industry declines, under
competition from without, the existing capital and
labor Inevitably finds employment In other in
dustries, would seem to imply that the economic
decay of a nation Is not possible, — an implication
scarcely supported by the facts of history. Ham
ilton, while understanding the laws which operate
on the wealth existing in a society in a point of
time, was more interested in the causes which
stimulate the production of wealth and the forces
which cause nations to rise and decline.
It may be best from the point of view of hu
manity to have weak and declining nations elim
inated; but to the nationalist the collective
interests of a group of people, with common life
and civlhzatlon, Is worth preserving. Hamilton
was little concerned with how we might exchange
our existing wealth for goods in Europe; he was
deeply concerned, however, with how every force,
physical and mental, within the nation might be
turned to Increasing our productiveness. "The
a Works, vol. 4, p. 96. Manufactures, 1791.
[151]

ALEXANDER HAMILTON

support of industry," he says, "is, probably in
every case, of more consequence towards correct
ing a wrong balance of trade than any practicable
retrenchments In the expenses of families or indi
viduals."* To him the course of the exchanges
was merely a barometer of national prosperity.
We might for a time satisfy an adverse trade
balance by exporting our securities but. If we were
to remain a solvent nation, these sooner or later
had to be met by the exportation of actual wealth.
A nation which imported more goods and services
than It exported must sooner or later, Hamilton
maintained, either abridge its imports, Increase Its
exports, or diversify its Industry. And it was
in seeking to strengthen the American nation by
giving it a more complex life that he found justifi
cation for meddling with the sacred and natural
laws of exchange.
We will do well to remember that protection,
as Hamilton understood it, was an expression of
natlonahsm. The charge of the Socialist that
protection Is grounded on capitalism and that It Is
a device by which the capitalist exploits the
worker," may be valid against some modern legis
lative policies which seek to justify themselves by
Invoking the name of Hamilton. But the mls-
appHcation of protection cannot be laid at the door
a Works, vol. 3, p. 407. National Bank, 1790.
" Rabbeno, U., Protezionismo Americano, Essay 2, ch. 2, sec. 17.
[152]

PROTECTION

of Hamilton. Protection which now allows capi
talists to use the strength of the nation to main
tain their system of exploitation is not even akin to
Hamiltonlan protection. To him protection was
a means of strengthening a weak class, not for
the benefit of that class, but for the power and
wealth of the nation. Class interests in which the
Socialist believes and self-interest in which the
free-trader has such implicit faith were to him
forces to be either encouraged or restrained as
the interests of the whole people demanded.

[153]

YALE UNIVERSITY

i

.-KiRin""

i

m

^