This article is the tenth in our new campaign, "The Decisive Battle in the War for the Republic, Put the Fed Into Bankruptcy; Create the Third National Bank."
In any successful revolution, part is new, and part is returning to truthful principles of the past. In finding solutions to our current crisis, let Hamilton and Lincoln guide us!
Today, the world’s financial and monetary system is run by an oligarchical troika of central banks, the super-rich financiers and speculators, and the “big tech” giants of Silicon Valley. Increasingly, they have seized control over our economic—and cultural—destiny. These are the elites we see gathered every year at Davos. They believe that their privileged positions give them the right to run the world. The decisions they have made and the policies they have implemented over the recent decades have all produced greater wealth and power—for them. It has produced devolution and misery for us.
We have witnessed the elimination of family farms, the destruction of small businesses, machine shops and other productive enterprises, the disappearance of most of our major manufacturing, and the escalating collapse of our national infrastructure, as seen most vividly in the now chronic shortages within our water and electricity delivery systems and the failures of our national transportation system.
If we wish to survive, we, as a people, must rediscover what economics really is. Is it about the accumulation of money, or is it about the advancement of the condition of life of the people? We should look to Alexander Hamilton and Abraham Lincoln for the answer to that question.
In this report we will look at Alexander Hamilton’s mission. A similar case study could be made for Abraham Lincoln, but due to the need for brevity, for Lincoln’s initiatives I direct the reader to the LPAC June 21, 2021 podcast “Lincoln Series #5: Greenbacks and National Banking.”
National Banking—in Brief
Over the span of 23 months, Alexander Hamilton created the Constitutional American economic and banking system. He authored four reports: the Report on the Public Credit (January, 1790), the Report on a National Bank (December, 1790), the Report on the Establishment of a Mint (January, 1791), and the Report on the Subject of Manufactures (December, 1791)—all of which should be required reading to qualify for a high school diploma today.
All of the ideas and proposals to be found in those reports flow from a two-fold commitment of 1) absolute national sovereignty over monetary and financial policy, and 2) the priority of advancing the physical wealth of the nation, upward productivity in the economy, and the well-being of the people.
From its inception, Hamilton’s National Bank (The Bank of the United States) functioned as part of a national credit system. Unlike the oligarchical Bank of England, the primary function of Hamilton’s Bank was to issue credit for internal improvements and the economic development of the nation. The U.S. government owned outright 20 percent of the shares in the Bank, and the Bank operated under the tight supervision of the U.S. Treasury, with the Treasury having the right to inspect the Bank’s books on a weekly basis. Foreign stockholders in the Bank were denied voting rights, and they were prohibited from serving as officers and directors of the Bank.
Under Treasury oversight, the Bank provided vital aid to the national government. It became the depository for collected taxes, served as a holding site for both incoming and outgoing monies, and made short-term loans to the government to cover real or potential temporary income gaps. The Bank also became the repository for sovereign U.S. government debt, which then served as an asset from which new credit could be created. However, the Bank—unlike the relationship between today’s Federal Reserve and the U.S. government—was absolutely prohibited from buying U.S. government debt (bonds, etc.).
The Bank of the United States also operated as a commercial bank, accepting deposits from the public and making loans to private citizens and businesses. Its banknotes (paper currency) primarily entered circulation through this loan process. It extended more loans and issued more currency than any other bank in the nation. The Bank established branches in nine cities, including almost all of the manufacturing and commercial centers. Hamilton stated that through the work of the Bank, the “dead stock” of gold and silver had been transformed into “active and productive capital that rippled through the economy, creating wealth and increasing welfare.” As deposits accumulated in the Bank, investments were made in needed infrastructure and new manufacturing, and farmers were given the ability to make improvements of their land.
The Bank was a bulwark against financial speculation, and it did not act as a lender of last resort for unsound private banks. Hamilton stated that it would be the policy of the Bank “to succor the wary and industrious; to discredit the rash and unthrifty; to discountenance both usurious lenders and usurious borrowers.” He also stated that, “The intrinsic wealth of a nation is to be measured, not by the abundance of the precious metals, contained in it, but by the quantity of the productions of its labor and industry,” and, “The tendency of the national bank is to increase public and private credit. Industry is increased, commodities are multiplied, agriculture and manufactures flourish, and herein consist the true wealth and prosperity of the state.”
In January 1791, Hamilton issued his Report on Manufactures, and it is in this report that the intention of his entire system is fully revealed. The Report on Manufactures is an extended argument in favor of scientific, technological, and industrial progress as the foundation of the sovereign nation-state and the basis for the advancement of the people.
A careful reading of this Report reveals that the primary purpose of the National Bank—together with Hamilton’s other initiatives in tariff, taxation, and internal improvements—is to foster rapid advances in upward human development. Everything is designed to serve the interests of the people, to create more opportunity, and to support the inventiveness and creativity of the citizenry. As Hamilton says in the Report, “To cherish and stimulate the activity of the human mind, 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.”
The Report itself is a tour de force. Hamilton examines almost every facet of American industry and agriculture, including the production of skins, iron, wood products, ships, cloth and clothing, paper and printed books, bricks, wool, copper, tin and brass, glass, carriages, gunpowder, farm equipment, steel, and coal. He discusses the state of these and other industries in depth.
Hamilton then proceeds to define a series of measures to actively promote the manufacturing and technological development of the nation including 1) Protective Tariffs, 2) the Prohibition of Rival Articles, 3) Pecuniary Bounties, 4) Premiums, 5) the Encouragement of New Inventions and Discoveries, and 6) The Facilitating of the Transportation of Commodities.
For Hamilton, the purpose of tariffs is to protect and promote the development of new industries. The revenue from tariffs is secondary, and Hamilton insists that most tariffs be removed once an industry is established on firm ground. As to transportation, Hamilton proposes an active role by the government in developing the nation’s transportation systems, including ports, canals, and roads.
The most crucial of the proposals are the three on Bounties, Premiums and Encouragement of New Inventions and Discoveries. All of these are aimed at creating new industries, new inventions, new discoveries, as the primary path for the economic betterment of the nation. This is an active, not passive, use of the institutions of government to support what Lincoln later called “the Right to Advance.” As to Bounties, Hamilton states, “This has been found one of the most efficacious means of encouraging manufactures, and is, in some views, the best.” Bounties are direct payments (gifts) to individuals involved in developing new enterprises deemed to be in the public interest. Hamilton identifies several means by which this could be financed, but the most ingenious is to impose a small (not prohibitive) tariff on a similar foreign import, and then to pay half of that tariff directly to the entrepreneurs developing the new domestic industry. Thus, foreign exporters would pay for the creation of new American manufacturing.
Similar to Bounties, but different in an important aspect, are Premiums. Again, this would involve direct government payments, but here the focus would be on rewarding and aiding exceptional individuals. As Hamilton puts it, “Premiums serve to reward some particular excellence or superiority, some extraordinary exertion of skill, and are dispensed only in a small number of cases. But their effect is to stimulate general effort; contrived so as to be both honorary and lucrative.”
As to the “Encouragement of New Inventions and Discoveries,” Hamilton proposes to mobilize the full power of the government to aid in the introduction of new technologies and machines, which he declares “is among the most useful and unexceptionable of the aids which can be given to manufactures.” These include patent rights and temporary “exclusive privileges” to protect “authors and inventors,” but he also singles out the need for internal improvements to connect the work of the inventor with a growing inter-linked productive economy, and he states that all tax law must be designed to facilitate the rapid introduction of new industries and scientific breakthroughs.
Grounding the Nation in Scientific Advancement
Hamilton then goes even further. He proposes that a portion of the bounties be used to create and finance a national “Development Board,” which shall be instituted to “promote the arts, agriculture, manufactures, and commerce.”
He proposes a Board, composed of three Commissioners, whose responsibility will be to promote “the emigration of artists and manufacturers in particular branches of extraordinary importance; to induce the prosecution and introduction of useful discoveries, inventions, and improvements, by proportionate rewards, judiciously held out and applied; to encourage by premiums, both honorable and lucrative, the exertions of individuals and of classes, in relation to the several objects they are charged with promoting; and to afford such other aids to those objects as may be generally designated by law.”
In other words, every effort will be made to promote discoveries, inventions and new scientific breakthroughs.
The question arises: Is this the proper role of government? Does the government have the Constitutional right to promote and finance policy in this way?
Hamilton answers this directly:
“A question has been made concerning the constitutional right of the Government of the United States to apply this species of encouragement, but there is certainly no good foundation for such a question. The National Legislature has express authority ‘to lay and collect taxes, duties, imposts, and excises, to pay the debts, and [to] provide for the common defence and general welfare. . . .’ The term ‘general welfare’ was doubtless intended to signify more than was expressed or imported in those which preceded; otherwise, numerous exigencies incident to the affairs of a nation would have been left without a provision. The phrase is as comprehensive as any that could have been used, because it was not fit that the constitutional authority of the Union to appropriate its revenues should have been restricted within narrower limits than the ‘general welfare,’ and because this necessarily embraces a vast variety of particulars, which are susceptible neither of specification nor of definition.
“It is, therefore, of necessity, left to the discretion of the National Legislature to pronounce upon the objects which concern the general welfare, and for which, under that description, an appropriation of money is requisite and proper. And there seems to be no room for a doubt that whatever concerns the general interests of learning, of agriculture, of manufactures, and of commerce, are within the sphere of the national councils, as far as regards an application of money.”
Banking’s Legitimate Role
Among the promoters of Hamilton today, many make the mistake of trying to fit a round peg into a square hole, i.e., they attempt to study and interpret Hamilton’s writings through the lens of the axioms of British finance. They seem to have a hard time grasping that what Hamilton is proposing is incompatible with private central banking. Hamilton prescribes absolute national sovereignty over banking, monetary, and financial policy for the purpose of consciously and deliberately fostering human advancement. The primary mission for a National Bank is to effect an increase in the rate of development of the physical economy and national productivity. Any other definition of a National Bank is erroneous.
In 1795, now out of office, Hamilton authored one final Report on Public Credit. He says:
“Public Credit . . . is among the principal engines of useful enterprise and internal improvement. As a substitute for capital, it is little less useful than gold or silver, in agriculture, in commerce, in the manufacturing and mechanic arts. . . . One man wishes to take up and cultivate a piece of land; he purchases upon credit, and, in time, pays the purchase money out of the produce of the soil improved by his labor. Another sets up in trade; in the credit founded upon a fair character, he seeks, and often finds, the means of becoming, at length, a wealthy merchant. A third commences business as manufacturer or mechanic, with skill, but without money. It is by credit that he is enabled to procure the tools, the materials, and even the subsistence of which he stands in need, until his industry has supplied him with capital; and, even then, he derives, from an established and increased credit, the means of extending his undertakings.”
That is American economics. That is the way to prosperity.