On Contact: Radical Hamilton with Christian Parenti

CP: Yeah, I mean, those two quotes get at something eternal, right, that the self-destructive quality of human beings and in relationship to Hamilton's situation, right?  I'm trying to kind of get at the risk that was always involved.  The American Revolution, like any political project, was always contingent.  It's hard to remember that now that the United States is this huge bloated empire and, you know, a plutocracy run by this absolutely, you know, filthy rich one percent.  But at the time of the Revolution, it was this tenuous political project, like so many political projects, tenuous.  And the way it actually succeeded, regardless of what it becomes, but the way that it actually succeeded I think has lessons for us today.  One, because we're trying to create an economic transition off of fossil fuels, and part of what Hamilton does in the face of all of these destructive and self-destructive forces, the centrifugal forces that are pulling these 13 former colonies, now states, apart, has to bind all that, this kind of, you know, that's Thanatos at work to bring you back to the Freud quote.  And it has to essentially institutionalize Eros and pull all of these pieces together and get everyone despite their hostility towards each other and their venality to get everyone involved to coalesce around a coherent project.  And he manages to do that.  Not him alone obviously but he plays a very important role in doing that.  And I know for a lot of Left listeners and viewers who are critics of American empire, it's going to be hard to sort of make the leap but what I'm asking readers to do is sort of not import the present into the story of the American Revolution but to see it for what it was at that time.  And it was contingent and the 13 colonies were held together by a very weak constitution.  The Articles of Confederation.  And it was not working.  And so there's the project of creating a new constitution.  We know this story.  But buried within that is also creating a state that has the means to plan economically, creating a state that can be an economic player.  And this is the set of insights in--from Hamilton that gets lost in most of the literature, the vast majority of literature on Hamilton sees him as this adherent of the free market, this fan of Adam Smith, and in fact, the opening passages of the Report On Manufactures begin with an attack on Adam Smith.  And basically Hamilton says, look, the free market is good if you're already dominant.  The free market and free trade are good if you're Britain.  But for us, we can't let the market do its thing.  We have to violate the rules of the market.  We have to plan and we have to use government power and everything from tariffs to public ownership to steer this economy in a desired direction.  And that desired direction was away from dependence on agriculture and towards mixed economy with a large industrial element to it.  They didn't use the word industrial.  They referred to manufacturing but this was a transition that had to happen for the state to have the wealth to defend itself and to develop the economy further.  And this was not going to happen all by itself.  It had to be pursued consciously by the government.  So what appealed to me about that was that this is similar, very different in many ways, but also somewhat similar to what we face now.  We have to get off of fossil fuels and get on to clean energy.  This is essentially a project of re-industrialization.  Green re-industrialization.  Well, how are we going to do this?  We could do worse than looking back at our own history and being honest about how the First Industrial Revolution in the United States took place and it was not by letting the market do its thing.  It was not by allowing entrepreneurs to have their way.  It was by having a government that was capable and strong enough to step in, get prices wrong, you know, use tariffs and subsidies, ban certain imports, ban certain exports, and use all these tools to guide the economy through a transition which happened successfully.  And so we have to do a version of that again.

CH: Well, there were a couple things that were interesting.  One, he didn't trust the power of the states and in the book, you write about how it's a fallacy to somehow believe that local empowerment, local government is a protection against despotism.  You had a series of rebellion, Shays' Rebellion which you write about in the book, but other rebellions that rose up and I think you make a very cogent argument that without strong centralized government, these warring state factions--I mean, New York I think almost went to war against Vermont as you write, would've rent the country apart but also--and I think that's why you focus on that document, which other--like, Chernow and others who've written about Hamilton pass over is he didn't trust capitalists either.

CP: Yes, he--I mean, he wanted to keep these elites close and bring them into the game.  He's pretty--he's amoral, you know.  He's not--he's not an egalitarian, he's not a Leftist, right?  He is a kind of pragmatic, ruthless realist.  And in terms of elites, the classic portrayal of the crisis around this time is that, you know, the constitution amounts to a sort of power grab by elites away from the more Democratic states.  But if you actually look at the state constitutions, many of them were much more reactionary than the American Constitution.  They had gendered restrictions.  They had racial restrictions on voting.  There's none of that in the Federal Constitution, to the extent that states are continued by the Federal Constitution to control elections.  That's why you have racist election laws, et cetera.  So there's a number of ways in which that the new constitution created in 1787 at Philadelphia was actually more progressive than the state constitutions.  And you look at, well, who controlled these state governments?  It's just assumed that because they're smaller, the people had more access to them.  Sometimes that's true, but very often it's not true at all.  These state governments were controlled by local elite gangs, of merchants, and planters, and large landlords and they were just local self-dealing gangs.  And Hamilton saw that and he really disliked and feared the parochial agenda of these local elites.  And so there is an element of a kind of inter-elite rivalry going on in the--in the creation of the constitution and then its passage.  And in terms of the critical period leading up to the constitution, what happens is, I mean, there's almost civil war.  I mean, there is essentially a brief civil war in Massachusetts during Shays' Rebellion but there are also--there's wars up and down the frontier with Native American groups.  There are--there's a war against self-liberated formerly enslaved people living in maroon colonies in--on the border of South Carolina and Georgia.  There are intra-settler wars between rival groups of White settlers in Eastern Tennessee and also in the Wyoming Valley of Pennsylvania.  An on and off shooting war between poor and middle class settlers, rival groups of them each backed by rival elite speculators.  So the whole thing was like, you know, falling apart, spinning out of control.  States were beginning to have trade wars with each other, imposing tariffs on each other.  And the culmination is Shays' Rebellion which is a tax rebellion.  The states have gone heavily into debt to fight the revolution.  And Congress is also in debt.  And so the effort to pay off this debt amounts to shaking down the populace.  And in Massachusetts, the situation was that most of the debt had been consolidated in the hands of about 35 men on the coast.  And they were squeezing the farmers and foreclosing on their farms, and so the farmers organized in the late summer of 1786 which also interestingly, there's a climate angle to this story, the critical period as the 1780's are known also involves major volcanic eruptions in 1783 in Japan and in Iceland.  And in Iceland, it goes on for an entire year.  And this is linked over the following couple of years with a cooling trend in the northeast.  So you've got really wet cold summers and harsh winters and that's also turning up the volume on all these conflicts on the frontier and it's a crucial part of Shays' Rebellion.  So these farmers in Western Massachusetts are being squeezed to pay these exorbitant taxes which are, you know, going to pay off the bonds owned now by these elites.  Their crops are failing because of this climate stuff, and so they organize and they shut down the courts.  The state government mobilizes the militia.  The militia generally either switches sides or just refuses to fight and dissolves away.  So then the state government raises a private fund and creates a private army to go after the Shays' rebels named Shays' for Daniel Shays who was one of their leaders.  They actually called themselves Regulators.  And there are two major battles and lots of, you know, sniping, and ambushes, and assassinations, stuff like that.  And Shays' Rebellion is being wrapped up literally as the constitutional convention in Philadelphia begins in the spring, May of 1787.  And the end result of that government that is created, it's a brokered government.  It's not perfect by any means.  But one thing it does achieve through Hamilton's interventions is that it does lower taxes on the average person.  And it doesn't do that by smashing and liquidating the parasitic elites.  That would've been nice but that was really not, you know, that was not where Hamilton's head was at.  He was not a socialist.  He was a modernizer.  But what was done was he roped them into the project of successfully building a national credit system.  And central to this is a bank which is 20% owned by the government and he ties elites into supporting this government debt.  And he does this by using the federal government's powers to assume all of the debts of the states which then to buy those debts from them.  First, the government--the Federal Government borrows money abroad and then it pays the states at face value for their debts.  And this re-inflates the state economies.  And then instead of trying to pay off the debt, Hamilton creates what he calls a funded debt which is government debt that bears interest, so if you--if you lend your money to the government, you're going to get six percent a year.  And this actually stabilizes prices, stabilizes the system, and elites who might otherwise attack the state financially see it as essentially the bedrock of a financial system that they're going to benefit from.  And so it's not an egalitarian project but it's a project of stabilization.

CH: But it ties the--it gives the elites a self-interest, of course, in the central government.  When we come back, we'll continue our conversation with Christian Parenti, the author of Radical Hamilton.  Welcome back.  We continue our conversation with Christian Parenti, the author of Radical Hamilton.  So, against Hamilton, you have the planner class, Jefferson perhaps being the best-known figure who eventually becomes President.  Hamilton is killed in a duel with Aaron Burr of course.  And you used the Jeffersonian period to really show how he, of course, rolled back much of what Hamilton had done.  And you talk about the War of 1812, but to really show how prescient Hamilton was in terms of holding the country together.  Can you talk about that period and talk a little bit about the War of 1812 as well.

CP: Uh-hmm.  Yeah.  So the Revolution of 1800 is what Jefferson's election is called.  And he represents the planter elite.  And they are opposed to this new Federal Government for a number of reasons, one they're worried from the very beginning that it's going to come after slavery.  And John Rutledge of South Carolina actually says that at the constitution--at the constitutional convention when the question of the slave trade is being debated.  And he says, "Hey, let's not even debate this.  This--you know, the only thing on, you know, that the Northern States should be concerned with is interest.  Don't bring up morality.  If you start going after slavery, the South is out of here."  So they were worried that this strong Federal Government would come after slavery because Vermont, Massachusetts, Pennsylvania, and New York were all on the road to or had--some of them had already abolished slavery.  The other thing was they didn't want their property taxed their land and slaves.  And so when Jefferson comes in in 1800, he eliminates all of these internal taxes.  And this totally transforms government finance.  The federal government is taking in about $300 million a year and it's reduced to about $50 million a year after Jefferson eliminates all these taxes.  This is often cast as a progressive thing that he does because liquor and newspapers are taxed, but what's often left out is that also carriages were taxed, houses were taxed, slaves were taxed, i.e. the elite and their property were getting taxed.  And Southerners did--elite Southerners didn't like that.  And they were--even though they came from the poorest part of the country, the richest people in the country up to the civil war were always Southerners, these very wealthy plantation owners.  So Jefferson gets rid of all these taxes and he starts cutting back the navy, and the military, and the administrative apparatus of the state, doesn't want to get involved in building canals, internal improvements, rejects this whole developmentalist project of, you know, subsidizing economic development.  And there's a contradiction here because I'd love to cut the military budget now.  But at that time it was this, you know, post-colonial experiment.  So lo and behold, you know, the great empires, Spanish, French, and English are pressing in on the US, particularly the British.  And they start boarding American ships, arresting American sailors.  And this gets so bad that Jefferson, after his two terms, his understudy, Madison becomes president.  And Madison declares war against the British.  And lo and behold, having, you know, having achieved their small government revolution, what they get is this total crisis.  So they--the Madison administration declares war, it's unable to fight this war in the way that it imagines it's going to.  The British come in and they burn Washington DC to the ground, they burn the Capitol building and they burn the White House.  And it was, you know, only because the British were exhausted from fighting the French, really pretty much constantly since the 1750s on they had been fighting the French.  And they were just kind of broken exhausted and that's why they didn't recolonize the US.  And it struck me as a perfect example of this pattern that Polanyi writes about.  And I've mentioned Polanyi in the beginning of the book.  And I…

CH: Yeah.

CP: You're a Polanyi fan as I recall.  I mean…

CH: Yes, I am.  Yeah.

CP: …Polanyi makes this point that in, you know, from the very beginning capitalism has this pattern where it produces an elite that resists state control.  They don't want to pay taxes, they don't want to be regulated.  And this elite that are pushing for free market economics inevitably win some victories.  Those victories inevitably produce a crisis, and that crisis inevitably requires a return of planning, a return of government, and that's exactly what happens with the War of 1812.  The War of 1812 is a disaster and it's borne out of this small government laissez-faire ideology, the crisis that it produces requires a return to Hamiltonian interventionist, developmentalist economics.  They reconstitute the Central Bank which is partly owned by the government and they have to, you know, in--again embrace the whole agenda of developing the economy, regardless of what their ideology is.  And we see that again and again, right?  We just saw 2008 and again with the COVID crisis where you have these hardcore free market economists in charge of the--of the Fed and the Treasury.  And then there's this economic crisis, and they throw their ideology out the window because they realize the only thing that's actually going to stabilize this system is government intervention, you know, socializing these--the--socializing the losses and even, you know, in the case of the COVID, stimulus, even doing this dreaded thing of giving people money, right?  Putting money in the hands of the working class.  If they don't do that the whole thing was going to melt down.

CH: Let me ask a question because--so you had--throughout American history, the crisis you mentioned going all the way through to The Great Depression, 2008, the COVID crisis, but in the recent history, one, of course we have a bloated military, and number two, the crisis has not been used to put money into the hands of the working class and the people who are suffering but has been used to further consolidate both the wealth and the power of the reigning one percent.  And I want you to talk about this period and juxtapose it to previous periods of distress.

CP: Well, I mean there wasn't--it wasn't that there was no money, right?  I mean, there was this six--extra six hundred dollars and it's a--it shows how poor Americans are that what little money from the, you know, the huge intervention by the government that did reach the, you know, the working class actually had a tremendous effect, people's personal savings went up, and it's a huge part of why the economy didn't go into a total tailspin.  The economy is a complete mess but unemployment has come down from its high, I mean this has to do with the fact that people have had some money as opposed to none at all.  There's been also, you know, an eviction moratorium, student debt moratorium.  Now, these things are totally inadequate but they're not nothing, right?  And the vast majority of the intervention was just about, you know, buying debts from zombie companies.  I mean, what we've got now is like JCPenney, a company that shouldn't exist, it's essentially a Ponzi Scheme.  It borrows money to pay off its old debts.  And now the Federal Reserve is buying debt, buying corporate bonds from companies like JCOenney, just putting them on life support.  So it's a, kind of, like, you know, there's a--there's a crypto hidden in plain sight, crypto nationalization of the financial sector essentially is what's going on.  So that's unfortunate and it's a waste of money, and it supports firms that should be transformed.  And, you know, if rescued for---and put to better purposes.  So, you asked about, you know--implicit was--sort of what could be done with a crisis like this.  And I mean the--a real response that would get us out of this crisis would have to be one that would write off the value of, you know, fossil fuel assets and pour vast amounts of public money into building out a new clean energy sector and along the way requiring that this be done at union wages, et cetera, et cetera.  And I think that that is going to happen.  I think that this Polanyian cycle of crisis that forces the state back in is underway.  And you see it in California for example, around insurance.  You know, the insurance industry wants to just get out of insuring homes in fire prone areas.  And the state can't allow that to happen, so the state is either going to have to force the insurance industry to stay in there or the state itself is going to have to start insuring people because you can't have a functional economy in California if, you know, homeowners can't protect their homes.

CH: You write that the economic story of the war, you're talking about the revolutionary war, confirms a disturbing truth both capitalism and the modern fiscal military state emerge from the furnace of war.  Explain that idea.

CP: Well, the--there's a--there's an insight in Adam Smith and though Hamilton was critical of Smith.  He lost the point of Smith, you know, any state when war comes needs a line of credit because the vast cost of war can't be met from the regular budget.  So states have to, in the face of war, go into debt.  And that alone means they have to build up a relationship with creditors.  And so this leads to the creation of a fiscal military state, a state that can tax and spend but also borrow and pay its debts.  That is driven by the need of a state to build out a massive military.  And in--that's the theory.  And in fact that is exactly what happens again and again.  So, the reason the United States creates a fiscal military state, a large powerful central state that can tax and spend but also borrow and pay off its debts, is precisely because it is threatened in the international state system by other states.  And so the impetus sadly for developmentalism, again and again, is that one state is threatened.  The weaker state is threatened by a more powerful state.  And generally what happens is that the weaker state successfully builds some sort of fiscal military state that is a developmentalist state, that can drive an economic transformation, that can take an agrarian economy and industrialize it in a hothouse fashion.  It either does that or it fails to do that and if it fails it will be formally or informally colonized and remain underdeveloped.  And so the US successfully does this defensive developmentalism.  That model is then copied by Germany, Friedrich List is over here in the US in the 1820s.  He's very impressed by this developmentalist model in which the state plays a central role in driving the economic transformation.  These are Hamilton's ideas, they're known as the American system.  List takes them to Germany where they become known as the national system.  When Japan is threatened in the 1850s by foreign intervention, there's a revolution in 1868, the Meiji Restoration, and the ideas are brought in from Germany and very influential on the whole Japanese model of developmentalist capitalism and then from there to South Korea, Taiwan, Hong Kong, and today China as well.  So this is the real story of capitalist industrialization is not one of free markets but it's one of interventionist states that protect with tariffs.  They subsidize, they control trade, they nationalize at least in part or in many cases totally nationalized finance, and they plan.  They don't let the market and prices do their thing.  They force the market and the price signal into the channels that will lead towards politically dire--desirable ends.

CH: Great.  We got to stop there.  Thank you.  That was Christian Parenti.

CP: And the reason that's important is because we live in denial of that.

CH: Yes.  Completely.  That was Christian Parenti, author of the Radical Hamilton.