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Jefferson Contra Hamilton: Too Tame, Too Late

Mises Daily: Thursday, April 22, 2010 by


[This article is excerpted from chapter 5 of Albert Jay Nock's Jefferson.]

The debate over funding and assumption [of the states' Revolutionary War debt] was at its height when Mr. Jefferson took his place in the cabinet. There was relatively little trouble about funding, but assumption was dragging its keel; it failed in the House, but was restored by the Senate and sent back to the House for reconsideration.

"Going to the President's one day," Mr. Jefferson wrote in a private letter two years later,

I met Hamilton, as I approached the door. His look was sombre, haggard, and dejected beyond description; even his dress uncouth and neglected. He asked to speak with me.[1]

He walked Mr. Jefferson back and forth before the president's house for half an hour, urging him to use his influence with the Virginian members in behalf of assumption. He put it as a matter of preserving the Union, and quite sincerely; there was a great deal in what he said. New England, which comprised the principal creditor states, was in a position to hold the threat of secession over the rest of the country, as in fact it did at intervals for many years.

Mr. Jefferson, aware, as he wrote Dr. [George] Gilmer, that "the question had created greater animosities than I ever yet saw take place on any occasion," was properly impressed by Hamilton's representations.[2] If assumption failed outright, he could see that the failure might amount to "something very like a dissolution of the government."

He had no sentimentalist's repugnance to the idea of secession. At the end of his first term in the presidency, he wrote frankly to Dr. Joseph Priestley that "Whether we remain in one confederacy, or break into Atlantic and Mississippi confederacies, I believe not very important to the happiness of either part." If now he "could scarcely contemplate a more incalculable evil than the breaking of the Union into two or more parts,"[3] or if he condemned with indignation the machinations of parricides who have endeavoured to bring into danger the Union of these States,"[4] it was because of his ever-present fear that the country would be picked up piecemeal by "the plundering combinations of the old world."[5]

Assumption in some form then should be admitted; but as he told President Washington, he hoped it would be "put into a just form, by assuming to the creditors of each State in proportion to the census of each State, so that the State will be exonerated towards its creditors just as much as it will have to contribute towards the assumption."[6] More than this he could not say. The formulation of the thing was in Hamilton's department, not his, and while he had an instinctive dislike of Hamilton's terms, he knew himself to be "really a stranger to the whole subject."[7] Moreover, he felt himself quite incompetent in financial matters at large; he had naively written the Treasury Board from Paris in 1785 that they were "very foreign to my talents."[8]

With regard to the practical matter of effecting assumption, however, he saw that it must be one of political trade-and-deal; it could not be anything else. The quid pro quo was the location of the national capital. The members from the middle states wanted the capital at Philadelphia or Baltimore and were indifferent about assumption, save as a trading point with "the Eastern members, who have had it so much at heart."[9]

After hearing Madison and Hamilton discuss the matter at his own dinner table the day after Hamilton had accosted him on the street, Mr. Jefferson decided that "the least bad of all the turns the thing can take"[10] was to let Hamilton have his way on condition that the capital should be established at Georgetown on the Potomac. If there must be a bargain, it might as well be one from which the producer as well as the speculator — especially the Virginian and midwestern producer — would stand to get something. He had written Washington the year before that he considered the union of the Ohio and Potomac rivers by the proposed Potomac canal, as

among the strongest links of communication between the eastern and western sides of our confederacy. It will moreover add to the commerce of Virginia, in particular, all the upper parts of the Ohio and its waters.[11]

In view of this, he now thought that placing the capital at the foot of the canal would tend to "vivify our agriculture and commerce."[12]

Thus Mr. Jefferson made what he afterwards called, with some exaggeration, the greatest political error of his life. Really, what he did or did not do in the premises was of little practical consequence to the ultimate issue: namely, what economic interests should control the government of the United States. He simply did not see the end of Hamilton's plan; nor, it must be said, did Hamilton himself clearly see it, except with the eye of instinct.

"The science of economics was then in its cradle. By an odd coincidence, Mr. Jefferson had stood by the bedside of its birth in Paris; he knew its parents and godparents, both personally and by their writings, and yet seems never quite to have known what manner of child had been brought forth."

When one examines this collision of statesmanship, one is most struck, perhaps, by the rapidity with which one's instincts invariably outrun one's own interpretation of them. Both men represented an economic class interest in government; in any proper use of the term, Mr. Jefferson seems to have been but little more a theoretical democrat than Hamilton. To view him as a theoretical or doctrinaire democrat is to disregard the most inadmissible inconsistencies, both in his public acts and in his expressions of governmental theory — inconsistencies which resolve themselves immediately when one views him as the representative of an economic class interest.

He was for control of government by the producing class; that is to say, by the immense majority which in every society actually applies labor and capital to natural resources for the production of wealth. His instincts reacted like the reflex action of an eyelid against anything that menaced that interest. Hamilton's instinct reacted as promptly against anything that threatened to disturb the preponderance of the exploiting class — the minority, that is, which in every society appropriates without compensation the labor products of the majority.

The intellectual account which both gave themselves of the operation of this instinct, however, was as inadequate and sprawling as such accounts invariably are. Mr. Jefferson's infatuation with Hamilton's monarchism and Anglomania, for instance, his habitual view of him as "chained by native partialities to everything English,"[13] and his public character "bewitched and perverted by the British example"[14] — all this, however sincere, is no more competent than Hamilton's own loose talk about "a womanish attachment to France and a womanish resentment against Great Britain."[15]

Others were more quick than Mr. Jefferson to assess the economic implications of Hamilton's fiscal system. The science of economics was then in its cradle. By an odd coincidence, Mr. Jefferson had stood by the bedside of its birth in Paris; he knew its parents and godparents, both personally and by their writings, and yet seems never quite to have known what manner of child had been brought forth. As late as ten years before his death, he remarked that economics assumed the form of a science

first in the hands of the political sect in France, called the Economists.… Quesnay first, Gournay, Le Frosne, Turgot and Dupont de Nemours … led the way in these developments.[16]

But the tone of his discussion is purely academic, never showing a sense of the vital relation which the work of these men bore to the fiscal system which he instinctively opposed. He had occasional brilliant flashes of insight into fundamental economics and its relation to government, but they were too brief and unsteady to be illuminating; they but deepened the darkness that followed them.

Others, however, almost immediately applied to Hamilton's system a kind of homespun economic analysis that reached to its bottom. In dealing with funding and assumption, Rep. John Francis Mercer of Maryland, Rep. James Jackson of Georgia, and Sen. John Taylor of Virginia at once penetrated to the fundamental truth that all largesse to the speculator must ultimately be paid out of production, and that Hamilton's proposal therefore was actually to put a gratuitous first lien on future labor. They also took the same ground of public policy in opposing the bank bill.

The bank project was simply a continuous monopoly of public funds, raised by taxation, by investors in a semiprivate corporation — or rather, nominally semipublic but really private, since so large a proportion of the Senate and House were themselves investors who had already profited egregiously by funding and assumption, and who would certainly become shareholders in the new bank. All this, they insisted, was to be brought about at the uncompensated expense of production.

A levy of taxes for this purpose was, according to Taylor, an outright conversion of labor-made values into law-made property, vested in hands which had done nothing to produce them. "An annuity to a great amount is suddenly conjured up by law," said Taylor.

It is paid out of labour, and labour in all countries falls on the poor.… But the aristocracy, as cunning as rapacious, have contrived to inflict upon labour a tax, constantly working for their emolument.[17]

Mercer also had laid down the same principle a little earlier. "All public revenue or private income," he declared, "is a contribution, mediate or immediate, of the labour of the industrious farmer or mechanic."[18]

It does not appear that Mr. Jefferson's mind ever quite struck through to this fundamental ground of economic objection to Hamilton's fiscal system, or that it ever effectively followed those which did. He sometimes speaks somewhat in the language of Taylor and Mercer, but his precision of terms seems rather casual than studied as when, for instance, he wrote to John Adams in 1819, protesting against the sacrifice of "our citizens, their property and their labour, passive victims to the swindling tricks of bankers and mountebankers."[19]

He had a clear view of Hamilton's system, considered by its aspect of pure financiering. "The bank has just notified its proprietors," he wrote in 1792,

that they may call for a dividend of ten per cent on their capital for the last six months. This makes a profit of twenty-six per cent per annum. Agriculture, commerce, and everything useful must be neglected, when the useless employment of money is so much more lucrative.[20]

He had already written Edmund Pendleton in 1791, concerning Hamilton's general scheme, that,

As yet the delirium of speculation is too strong to admit sober reflection. It remains to be seen whether in a country whose capital is too small to carry on its own commerce, to establish manufactures, erect buildings, etc., such sums should have been withdrawn from these useful pursuits to be employed in gambling.[21]

In relation to the total wealth of the country, these sums were indeed so huge that one can quite understand a proximate and partial view of their employment, to the exclusion of economic theory. While an earthquake is going on, one does not generalize about the persistence of force. Mercer estimated the entire public debt, after its egregious inflation by Hamilton, at "one-fourth of the whole value of the property" of the United States. This is probably an exaggeration; but even cutting it down by one-half, one can imagine the menacing predominance of a single vested interest equal to one-eighth of a country's total wealth. No wonder Mr. Jefferson complained bitterly that "the more debt Hamilton could rake up, the more plunder for his mercenaries."[22]

Clearest of all, Mr. Jefferson saw the political effect of Hamilton's efforts in rearing up "that speculating phalanx, in and out of Congress, which has since been able to give laws to change the political complexion of the government of the United States."[23] He wrote to President Washington in 1792 that,

Alexander Hamilton's system flowed from principles adverse to liberty, and was calculated to undermine and demolish the Republic by creating an influence of his Department over members of the Legislature. I saw this influence actually produced, and its first fruits to be the establishment of the great outlines of his project by the votes of the very persons who, having swallowed his bait, were laying themselves out to profit by his plans.[24]

He gives a most vivid picture of the state of things ensuing upon the first trial of Hamilton's strength in Congress, with reference to the funding and assumption bill. When it became known what form the bill would take,

this being known within doors sooner than without, and especially than to those in distant parts of the Union, the base scramble began. Couriers and relay horses by land, and swift-sailing pilot boats by sea, were flying in all directions. Active partners and agents were associated and employed in every State, town and country neighborhood, and this paper was bought up at five shillings, and often as low as two shillings in the pound, before the holder knew that Congress had already provided for its redemption at par. Immense sums were thus filched from the poor and ignorant. … Men thus enriched by the dexterity of a leader, would follow of course the chief who was leading them to fortune, and become the zealous instruments of all his enterprises.[25]

In great measure, no doubt, his concern with the immediate political bearings of Hamilton's system diverted his attention from its theoretical economics. In this he was far from exceptional. On the one side, Oliver Wolcott, Jr., one of Hamilton's most interested supporters, wrote explicitly that he attached no importance to the funding measure save as "an engine of government," and that "without the assumption the political purposes which I have enumerated can not be attained."[26]

On the other side, Jackson brought out the historical parallel, taken from Blackstone, of the political reasons for creating the British national debt: "because it was deemed expedient to create a new interest, called the moneyed interest, in favor of the Prince of Orange, in opposition to the landed interest, which was supposed to be generally in favor of the King."[27] Mr. Jefferson wrote Washington to the same effect, that "[t]his exactly marks the difference between Colonel Hamilton's views and mine, that I would wish the debt paid tomorrow; he wishes it never to be paid, but always to be a thing wherewith to corrupt and manage the Legislature."[28] Of the bank project also, he wrote in retrospect, nearly 20 years after the event,

[t]he effect of the Funding system and of the Assumption would be temporary. It would be lost with the loss of the individual members whom it had enriched, and some engine of influence more permanent must be contrived while these myrmidons were yet in place to carry it through all opposition. This engine was the Bank of the United States.[29]

Perhaps naturally, then, Mr. Jefferson's official memorandum on the constitutionality of the bank bill does not lead into the large question of public policy exhibited by the economics of the measure. When the bill came up for the president's signature, Washington asked the four members of his cabinet to prepare him each a written opinion for his guidance. Hamilton wrote an affirmative opinion, of great ability; General Knox, secretary of war, a good soldier, quite out of his depth in any matter of this kind, agreed with him. Mr. Jefferson and Edmund Randolph, the attorney general, wrote negative opinions.

Mr. Jefferson took strictly legalistic ground, not passing from this to the ground of public policy, though it was well open to him. He enumerated the legal principles contravened by the bill, demolished the doctrine of the federal government's "implied powers," and laid down as fundamental to the Constitution the formula of the Tenth Amendment, that "all powers not delegated to the United States by the Constitution nor prohibited by it to the States, are reserved to the States or to the people." Beyond this he did not go; it was a lawyer-like pronouncement, but in the premises hardly, perhaps, to be called statesmanlike.

It was not, at all events, the production of a man desirous of making himself the focus of a great popular movement of insurgency. It had a curious effect upon his reputation as a public man — curious, that is, until one remembers the tendency of terms originally fresh, vivid, and special in their significance, to divest themselves of their original meaning, and either degenerate into mere petrifactions, or else to take on a new and different content. Mr. Jefferson's legalistic attitude towards Hamilton's fiscal system placed him before the country as a doctrinaire advocate of state rights and of strict constitutional construction; whereas he was really neither.

"The bank project was simply a continuous monopoly of public funds, raised by taxation, by investors in a semiprivate corporation — or rather, nominally semipublic but really private, since so large a proportion of the Senate and House were themselves investors who had already profited egregiously by funding and assumption, and who would certainly become shareholders in the new bank."

His advocacy of both was occasional. Class interest led him almost always to the side of the smaller political unit against encroachment by the larger, because the greater the power of local self-government, as a rule, the better for the producer and the worse for the exploiter. Thus he was quite regularly for state rights against the Union, for county rights against the state, for township rights or village rights against the county, and for private rights against all. But in this he was far from doctrinaire; when the producer's interest lay in the other direction, he promptly changed sides.

He showed himself as little doctrinaire, also, towards construction of the Constitution. He was always well aware that law, even fundamental law expressed in a Constitution, is merely something that succeeds in getting itself measurably well obeyed, and that a Constitution must therefore be, in the last analysis, a device by which anything can be made to mean anything. "Some men look at constitutions with sanctimonious reverence," he wrote in his old age, "and deem them like the arc of the covenant, too sacred to be touched."[30]

He had seen too much lawmaking and law-mongering to entertain any such illusions; his view was always practical:

I am certainly not an advocate for frequent and untried changes in laws and constitutions. I think moderate imperfections had better be borne with; because when once known, we accommodate ourselves to them, and find practical means of correcting their ill effects.[31]

As secretary of state in 1792, he says in an official opinion that where a phrase in the Constitution is susceptible of two meanings, "we ought certainly to adopt that which will bring upon us the fewest inconveniences."[32] Yet when the interest of the producer leaned that way, he could, and invariably did, stand out as stiffly as anyone for the letter of the law, and for the "safe and honest meaning contemplated by the people of the United States at the time of its adoption."[33]

Mr. Jefferson had always a sound and clear view of the function of capital as a factor in production, always drawing a sharp distinction between capitalism and monopoly. He would not have understood a condemnation of Hamilton's system because it was capitalistic, any more than he would have sympathized with idle conjurations of a "menace of capitalism" in general:

To the existence of banks of discount for cash, as on the continent of Europe, there can be no objection … I think they should even be encouraged, by allowing them a larger than legal rate on short discounts, and tapering thence in proportion as the term of discount is lengthened.[34]

He did not object, even, to a national establishment of merchant banking, but rather advocated it. "The States should be urged," he wrote in 1813, "to concede to the General Government, with a saving of chartered rights, the exclusive power of establishing banks of discount for paper."[35] It was the monopoly feature, the element of law-created economic privilege, to which he objected. He perceived, in short, the difference in economic status held by the industrial or merchant banker, furnishing capital for productive enterprise, and the banker who underwrites and hawks a lien which a government imposes, through an exercise of the taxing power, upon the products of future labor.

The last of Hamilton's fiscal measures was a protective tariff, and here again Mr. Jefferson showed a sound instinct outstripping a rather hamstrung economic interpretation. He was a natural free trader. During the Revolution he had urged upon Franklin, then at the French court, the advisability of supporting public credit by securing "free trade by alliance with some naval power able to protect it,"[36] and in his official report on foreign commerce, in 1793, he recurs to the same step-by-step policy. "Would even a single nation begin with the United States this system of free commerce, it would be advisable to begin it with that nation; since it is one by one only that it can be extended to all."[37]

He saw international commerce in the large general terms of "an exchange of surpluses for wants between neighbor nations." If this exchange could be made free, it would be a great natural stimulus to production all round — "the greatest mass possible would then be produced of those things which contribute to human life and human happiness; the numbers of mankind would be increased, and their condition bettered."[38]

"Class interest led him almost always to the side of the smaller political unit against encroachment by the larger, because the greater the power of local self-government, as a rule, the better for the producer and the worse for the exploiter."

On the other hand, he accepted the doctrine of retaliatory tariffs, apparently without perceiving that as an economic weapon, any form of tariff, boycott, or embargo kicks farther than it carries, and that the best reason for a tariff is invariably a better reason against one. He never anticipated, for example, the appalling economic consequences brought indirectly upon the producer by the great embargo, which he imposed upon the country in 1807.

Although he correctly calls tariff-taxes "duties on consumption," he assumes that they are paid at first hand instead of being passed along. He also assumes that taxation should be based on ability to pay, rather than on a rental basis determined by the value of economic privilege received from government. "Taxes," he says, "should be proportioned to what may be annually spared by the individual."[39]

The theory of taxation set forth by the Economists seems not to have stirred his usually sensitive curiosity. He regarded it as an academic matter of little interest:

Whatever may be the merit of their principles of taxation, it is not wonderful they have not prevailed; not on the questioned score of correctness, but because not acceptable to the people, whose will must be the supreme law.[40]

Hence it is not surprising to find him accepting a revenue tariff as a device for making the rich pay all the taxes. As the tariff-taxes "fall principally on the rich," he writes the Comte de Moustier in 1790, "it is a general desire to make them contribute the whole money we want, if possible."[41] This failure to trace the actual incidence of taxation may be said to have made his own fiscal measures almost as bad for the producer, in the long run, as Hamilton's.

In their economic judgment on the protective system, Mr. Jefferson's contemporaries again outran him. His Virginian neighbor, Taylor, seems to have caught sight of the fundamental principle that in international trade as well as in domestic trade, goods can be paid for only in goods or services, and that money, or any form of credit which apparently pays for them, does not really pay for them, but is merely a device for facilitating their exchange. "Currency is the medium for exchanging necessaries" — it must have goods behind it, and whatever medium has the guarantee of goods behind it is valid currency.[42]

Trade, then, should follow the natural lines set by purchase in the cheapest market and sale in the dearest; and any mechanism of interference, like a tariff, is disabling. He also saw that a tariff, by artificially raising prices to the domestic consumer, is a "distribution of property by law" — by political means, in other words, rather than by economic means. Moreover, by successive shiftings, the final incidence of this tax falls inevitably on production, for any governmental "bounties to capital are taxes upon industry."[43] Tightening his terms a little, the values absorbed by the "chartered monopoly" created by a tariff law, must come from somewhere, and there is nowhere for them to come from, finally, but out of production. By the last analysis somebody, in Mr. Jefferson's phrase, must "labor the earth" to produce them.

Mr. Jefferson stood out against Hamilton in every cabinet meeting, but he always lost. He was a poor disputant; contention of any kind was distasteful to him, as having at best a touch of vulgarity about it. Unable even formally to concur with Hamilton, as the president hoped he might, he at last told Washington that

my concurrence was of much less importance than he seemed to imagine; that I kept myself aloof from all cabal and correspondence on the subject of the government, and saw and spoke with as few as I could. That as to a coalition with Mr. Hamilton, if by that was meant that either was to sacrifice his general system to the other, it was impossible. We had both, no doubt, formed our conclusions after the most mature consideration; and principles conscientiously adopted, could not be given up on either side.[44]

At Washington's request he continued to hold office in an ad interim fashion for a time, but a series of stirring events in the following year, 1793, determined him; he resigned on the last day of that year and shortly afterwards went home. Washington's administration was headed straight for the rocks; and Mr. Jefferson, quite indisposed to martyrdom for a cause he did not believe in, went overboard and struck out for Monticello and safety.


[1] Thomas Jefferson, The Jeffersonian Cyclopedia: A Comprehensive Collection of the Views of Thomas Jefferson, ed. John P. Foley (New York: Funk & Wagnalls Co., 1900): p. 60.

[2] Ibid., p. 58.

[3] Ibid., p. 891 (Jefferson to George Washington, 1792).

[4] Ibid., p. 890 (Jefferson to the General Assembly of North Carolina, Jan. 10, 1808).

[5] Ibid., p. 455 (Jefferson to Dr. George Logan, 1816).

[6] Ibid., p. 59. [Note: This source cites a letter to Francis Eppes, not George Washington.]

[7] Thomas Jefferson, The Anas / From the Writings of Thomas Jefferson: Volume 1, ed. Albert Ellery Bergh (Washington, DC: Thomas Jefferson Memorial Association, 1903): p. 275.

[8] Foley, Jeffersonian Cyclopedia, p. 5 (Letter to Samuel Osgood).

[9] Ibid., p. 58 (Jefferson to Dr. George Gilmer, June 1790).

[10] Ibid.

[11] Ibid., p. 126 (Jefferson to George Washington, 1789).

[12] Ibid., p. 59 (Jefferson to Dr. George Gilmer, June 1790).

[13] Ibid., p. 396 (Jefferson to William H. Crawford, 1816).

[14] Jefferson, The Anas, p. 279.

[15] Letter from Alexander Hamilton to Col. Edward Carrington (May 26, 1792).

[16] Jefferson, Cyclopedia, p. 272 (introduction to A Treatise on Political Economy, by Destutt de Tracy, p. vi [1816]).

[17] See Charles A. Beard, Economic Origins of Jeffersonian Democracy (New York: The MacMillan Company, 1905): p. 207.

[18] Ibid., p. 208n.

[19] Jefferson, Cyclopedia, p. 576 (Thomas Jefferson to John Adams, 1819).

[20] Ibid., p. 71 (Jefferson to Plumard de Rieux, 1792).

[21] Ibid., p. 71.

[22] Jefferson, The Anas, p. 273.

[23] Jefferson, Cyclopedia, p. 61.

[24] Ibid., p. 397.

[25] Ibid., p. 396.

[26] George Gibbs, ed., Memoirs of the Administrations of Washington and John Adams, Edited from the Papers of Oliver Wolcott, Secretary of the Treasury (New York: William Van Norden, 1846): p. 43 (Oliver Wolcott, Jr., to Oliver Wolcott, Sr., New York, March 27, 1790). [Editor's note: Wolcott, Jr., was auditor of the Treasury in 1790 — Hamilton's deputy — and he succeeded Hamilton as treasury secretary in 1795.]

[27] Annals of Congress 1790, p. 1214. [Editor's note: Jackson is speaking here of the Glorious Revolution of 1688, where the Prince of Orange, later King William III, deposed King James II.]

[28] See Henry S. Randall, The Life of Thomas Jefferson, vol. 2 (New York: Derby & Jackson, 1857): p. 80.

[29] Jefferson, Cyclopedia, p. 68.

[30] See R.B. Bernstein, Jefferson (Oxford: Oxford University Press, Inc., 2003): p. 184 (Jefferson to Samuel Kercheval, July 1816).

[31] Ibid.

[32] Jefferson, Cyclopedia, p. 40 (opinion on Apportionment Bill).

[33] Ibid., p. 193 (Reply to Address, March 1801).

[34] Ibid., p. 80 (Jefferson to J.W. Eppes, Nov. 1813).

[35] Ibid., p. 78 (Jefferson to J.W. Eppes, Nov. 1813).

[36] Ibid., p. 361.

[37] Ibid., p. 359.

[38] Ibid., p. 362 (Foreign Commerce Report, Dec. 1793).

[39] Ibid., p. 858 (Jefferson to James Madison, Dec. 1784).

[40] Ibid., p. 272 (Introduction to Tracy's Political Economy).

[41] Ibid., p. 851.

[42] John Taylor, An Inquiry Into the Principles and Policies of the Government of the United States (Fredericksburg, Va.: Green and Cady, 1814; Union, N.J.: The Lawbook Exchange, Ltd., 1998): p. 273. Citation to the Lawbook edition.

[43] Ibid.

[44] Jefferson, Cyclopedia, p. 396.