How Madison and Jefferson Occupied Wall Street

          Here is a quick, one-sentence quiz: what was the first major American political crisis after the implementation of the Constitution? Here’s a hint: it destroyed the relationship between Alexander Hamilton and James Madison, who had collaborated on the Federalist Papers and helped to secure the ratification of the Constitution. Here’s another hint: it involved a lot of people who were upset about the way that wealthy financiers—about one percent of the population—pursued huge profits at the expense of the other ninety-nine percent.

Give up? Well, here’s the story:

         In 1789, the new American government had a debt of about $54 million, most of which was contracted to finance the Revolutionary War. Alexander Hamilton, the new Treasury Secretary, spent his first months in office devising a plan to pay this debt off. Everyone agreed that the debt to foreign countries—$12 million dollars, mainly to France and Holland—had to be paid in full. The trickier part of the debt involved the $42 million in government bonds that had been issued to American citizens, largely in payment for military or other service. Hamilton proposed that the holders of these bonds be paid the full value, plus interest, of the bonds that they held.

         The problem was that most of the hardworking soldiers and suppliers who originally accepted the bonds had since sold them to speculators, often for pennies on the dollar. Madison, who was one of the most influential members of the House of Representatives, felt that it was unfair to allow speculators to reap huge profits simply because they had the money to buy up the bonds when they were cheap. He proposed an alternative plan that would require the government to seek out the original holders of the bonds and give them a share of the profits. “Madison sought no total reduction in the payments due from the government,” explains his biographer Ralph Ketchum. “Rather, he proposed a redistribution of the payments, to benefit those who had suffered from the government’s earlier defaults, and to scale down the profits of the speculators who had gathered the depreciated certificates.”^[i]    

         The House of Representatives overwhelmingly agreed with Hamilton, who felt that redistributing the income from the bonds would be injurious to the credit of the United States. Madison’s proposal was defeated on February 22, 1790, by a resounding vote of 36-13. Thomas Jefferson was en route from Monticello when the vote was taken, but when he arrived in New York City a week later, he quickly became incensed at what his Treasury colleague had done. This controversy, as he later wrote in his “Anas,” set him on a course of opposition to Hamilton’s financial programs for the rest of his time in the Cabinet:

It is well known that, during the war, the greatest difficulty we encountered was the want of money or means, to pay our soldiers who fought, or our farmers, manufacturers & merchants who furnished the necessary supplies of food & clothing for them. After the expedient of paper money had exhausted itself, certificates of debt were given to the individual creditors, with assurance of payment, so soon as the U. S. should be able. But the distresses of these people often obliged them to part with these for the half, the fifth, and even a tenth of their value; and Speculators had made a trade of cozening them from the holders, by the most fraudulent practices and persuasions that they would never be paid. In the bill for funding & paying these, Hamilton made no difference between the original holders, & the fraudulent purchasers of this paper. . . . Immense sums were thus filched from the poor & ignorant, and fortunes accumulated by those who had themselves been poor enough before. 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.^[ii]

         The debt-payment debate drew the battle lines that would define the next generation of American politics. Hamilton stood firmly on the side of the investors, and of the undeniable market principle that a thing belongs to whoever purchased it. No good American capitalist today would suggest anything else. 

         Madison and Jefferson, on the other hand, insisted that the government not help the rich get richer at the expense of the poor. And they didn't particularly care what Adam Smith, or Ludwig Von Mises, thought about the matter.

     

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[i] Ralph Louis Ketcham, James Madison: A Biography, 1st pbk. ed. (Charlottesville: University Press of Virginia, 1990). 308.

[ii] Jefferson and Peterson, Writings: 666-67.

If He's Running for President in 2012, Why Does It Sound So Much Like 1954?

If a faction consists of less than a majority, relief is supplied by the republican principle, which enables the majority to defeat its sinister views by regular vote. It may clog the administration, it may convulse the society; but it will be unable to execute and mask its violence under the forms of the Constitution. When a majority is included in a faction, the form of popular government, on the other hand, enables it to sacrifice to its ruling passion or interest both the public good and the rights of other citizens.--James Madison, Federalist #10 

In an increasingly diverse and growing nation of over 300 million citizens of varying religious, ethnic, and cultural backgrounds, this benefit has only grown in significance and impact since the Founders contemplated and implemented federalism. From marriage to prayer, from zoning laws to tax policy, from our school systems to health care, and everything in between, it is essential to our liberty that we be allowed to live as we see fit through the democratic process at the local and state level.—Rick Perry, Fed Up!, p. 27

    If we look closely, we can see that the majoritarian tyranny Madison feared is simply the flip side of the “responsiveness to the people” aspect of state sovereignty that fringe conservatives praise. Rick Perry’s sunny dictum that “states allow us to live with people of like minds” should scare the socks off of people who live in states where their minds (or bodies, or economic values, or religious beliefs) are unlike those of their neighbors, as the Perry doctrine comes perilously close to declaring open season on their basic civil rights. 
     Though Governor Perry clearly has other political issues in mind, his words have an eerie resonance with the stance that most Southern states—including Texas—took against civil rights for African-Americans for most of the 20^th century. On the issue of marriage, for example, the State of Texas had one of the nation’s strictest laws against interracial marriage until the Supreme Court’s Loving v. Virginia decision overturned all such laws in the United States. Schools, health care facilities, public transportation, and most other state-controlled services were similarly segregated throughout the South until the federal judiciary forced states to comply with the Fourteenth Amendment and grant all people within their borders basic civil rights.

    But we need not go back to the Civil Rights Era to see the rights of minorities being invaded “through the democratic process at the local and state level.” A Pew Research Center report released on August 30, 2011 documents 37 challenges to proposed mosques and Islamic Centers in the United States between 2008 and 2011, nearly all of which included some element of community discomfort with the Muslim religion. Most of these construction projects have been allowed to proceed, but often only with some pressure from the federal Department of Justice, which launched 16 investigations of Religious Land Use violations between May 2010 and August 2011. Without some federal check on the power of state majorities to "live as we see fit," I suspect that American Muslims would have a difficult time securing the right to worship freely in a number of state and local jurisdictions.

     Perry’s assertion that states “allow us to live with people of like minds” posits a world that simply does not exist—a world in which every citizen of a particular state has made an affirmative decision to live among people who share his or her values and perceptions. In this world, people are not constrained to live in certain places by economic circumstances, family ties, job opportunities, health-care needs, etc. Those who don’t like a certain political climate can simply move around until they find a more suitable one.

     This is not how life works for most of us. We live where we live for all kinds of reasons, most of which have very little to do with whether or not our governor packs heat on his morning jog. Conservatives live in Massachusetts, liberals live in Texas, Mormons live in Alabama, Catholics live in Utah, and everybody has certain fundamental rights that are not subject to the whims of the people around them. While majorities will generally get their way on most political issues, they cannot get their way all the time, or our society will cease to be free. The Founding Fathers who supported the Constitution, and wrote the Federalist Papers, understood this clearly.
     But Perry, too, is making an argument about what the Founding Fathers supposedly believed. In the fashion of a true proof-text patriot, he closes out his “states allow us to live with people of like mind” argument with a quote from a bona fide member of the Founding Era:

As one pro-states Revolutionary-era politician writing under the pseudonym of Agrippa said, “The idea of an uncompounded republic [with millions of] inhabitants all reduced to the same standards of morals, of habits, and of laws is in itself an absurdity, and contrary to the whole experience of mankind.” Just as each individual is unique, so, too, do we come together to form unique communities with differing needs. (27)

     To spell out what nearly all observant readers will have already guessed, “Agrippa”—also known as James Winthrop, a minor state official in Massachusetts—was one of the Constitution’s most dedicated opponents.

What the Right Gets Wrong about Federalism

Our Founding Fathers understood that every government becomes more susceptible to tyranny as it amasses more wealth and power. Any leader . . . will become a tyrant, and likely will become a tyrant, unless his powers are carefully limited. The Founders also knew that, although local governments are capable of tyranny, the risk is less severe than it is at the national level. That’s because local governments operate closer to the people, making them more responsive to the people’s needs and desires.

               --Senator Mike Lee, The Freedom Agenda, 25

     Tea Party (and Utah) Senator Mike Lee is exactly right about the views of the Founding Fathers who opposed the ratification of the Constitution. But he is exactly wrong about the views of the Founding Fathers who supported the Constitution. Washington, Madison, Hamilton, and most of the other signers of the Constitution—while concerned about the dictatorial potential of national government—perceived a much greater threat to liberty in the actions of individual states and local governments who, in the name of responsiveness to the majorities within their jurisdictions, often deprived their other citizens of even the most basic civil and political rights. This, in fact, is the main point of the most widely read and cited of all of the Federalist Papers: James Madison’s magisterial and prophetic Federalist #10.
    Madison’s primary objective in Federalist #10 is to rebut one of the arguments against the Constitution that had gained a lot of traction in the State of New York: that the territory of the United States was too large to be incorporated into a functional Republic. The original source of this objection was the Baron de Montesquieu, one of the best known political theorists of the 18th century, who argued in The Spirit of Laws, his major work, that

it is natural to a republic to have only a small territory, otherwise it cannot long subsist. In a large republic there are men of large fortunes, and consequently of less moderation; there are trusts too great to be placed in any single subject; he has interest of his own; he soon begins to think that he may be happy, great and glorious, by oppressing his fellow citizens; and that he may raise himself to grandeur on the ruins of his country.

     Montesquieu’s views on large Republics were first introduced into the ratification debate in a 1787 essay by the Anti-Federalist crusader known as “Brutus,” who was almost certainly Judge Robert Yates, who had been a delegate to the Constitutional Convention and had left without signing. In the first of his sixteen Anti-Federalist essays, Brutus quotes Montesquieu and argues that the sheer size of the thirteen colonies, and the distances that must be travelled to any capitol, will prevent any kind of effective representative government. “In a large extended country,” he insists, “it is impossible to have a representation, possessing the sentiments, and of integrity, to declare the minds of the people.” 
     By citing The Spirit of Laws, Brutus was quoting scripture against Madison and the Federalists. Montesquieu’s ideas of the separation of powers had contributed significantly to the foundation of the proposed Constitution. It is largely on the French philosopher’s authority that the delegates divided the government into three separate functions—legislative, executive, and judicial—and gave each branch ways to check the power of the other two. Brutus’s arguments, backed by the same authority as much of the Constitution, raised serious doubts about the Constitution among New York’s educated elites.
     When Madison teamed up with Hamilton and Jay to create “Publius,” he understood that his first task must be to refute Brutus, the most forceful and articulate of the Anti-Federalist writers active in the State of New York. It would not do to argue simply that a large republic would not trample individual rights. Such an argument would turn Brutus’s negative into a neutral, but Madison was not one to play for a tie. He wanted to win, and that meant showing that large republics could protect individual liberty in ways that small republics could not. Using ideas that he had initially worked out on the floor of the Constitutional Convention, Madison crafted his first contribution to the Federalist Papers around the revolutionary proposition that only a strong national government could control what he called “the violence of faction.”
    For Madison, a “faction” was something like what we would call a “special interest group” today—a collection of individuals, either in the majority or the minority, “who are united . . . by some common impulse of passion, or of interest, adverse to the rights of other citizens, or to the permanent and aggregate interests of the community.” Among the potential factions in the United States, Madison mentions religious sects, supporters of paper money, and advocates for the equal division of property. He believed that the tendency to form factions lay deep within human nature and that, “as long as the reason of man continues fallible, and he is at liberty to exercise it, different opinions will be formed.”
     Madison saw factions as a non-negotiable, non-preventable byproduct of freedom. No truly free society can keep factions from forming or to prevent them, once formed, from trying to advances their agendas at the expense of other people’s rights. As long as a faction does not constitute a majority within a nation, then the rule of the majority will ultimately keep them in check. However, when a faction becomes a majority in a democratic society, it gains the ability to impose its will on a minority. And this, Madison believed, was the greatest threat to freedom that a republic faced.
     In Federalist #10, Madison proposes a way to solve this problem and, in the process, offers a brilliant rebuttal to both Brutus’s argument and Montesquieu’s political theory. The way to prevent a permanent majority from forming, he argues, is to make sure that the republic is large enough to contain so many factions that none of them can ever stay in the majority for very long:

The smaller the society, the fewer probably will be the distinct parties and interests composing it; the fewer the distinct parties and interests, the more frequently will a majority be found of the same party. . . . Extend the sphere, and you take in a greater variety of parties and interests; you make it less probable that a majority of the whole will have a common motive to invade the rights of other citizens; or if such a common motive exists, it will be more difficult for all who feel it to discover their own strength, and to act in unison with each other.

     With this single masterstroke, Madison takes one of the Constitution’s greatest perceived weaknesses and turns it into a powerful strength. A large republic such as the United States will contain so many different factions, parties, and interest groups that none of them will ever predominate. Temporary coalitions between different interests will form to pass certain issues, but they will be continually forming and dissipating, making it almost impossible for a single faction to seize power long enough to damage the rights of the minority. 
     For Madison's idea of a republic to work, the primary guarantor of liberty in a free society must be a centralized government with more authority than its constituent units--for only such a government is capable of resisting the majoritarian impulses that have always plagued democratic societies. This places Madison directly at odds with the majority of 21st century conservatives who call themselves “Madisonians.”