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In the history of American politics there are few stories as enigmatic as that of Hamilton and Madison’s personal feud.

Jay Cost joins us to discuss his new book The Price of Greatness: Alexander Hamilton, James Madison, and the Creation of American Oligarchy. In the history of American politics there are few stories as enigmatic as that of Alexander Hamilton and James Madison’s bitterly personal falling out. Jay Cost is the first to argue that both men were right–and that their quarrel reveals a fundamental paradox at the heart of the American experiment.

Further Readings/​References:



00:07 Trevor Burrus: Welcome to Free Thoughts. I’m Trevor Burrus. Joining me today is Jay Cost, contributing editor at The Weekly Standard. His last book, “A Republic No More: Big Government and the Rise of American Political Corruption,” was the subject of a previous Free Thoughts episode. His new book is “The Price of Greatness: Alexander Hamilton, James Madison and the Creation of American Oligarchy.” Welcome back to Free Thoughts, Jay.

00:29 Jay Cost: Thank you for having me, Trevor. It’s a pleasure to be here.

00:31 Trevor Burrus: So I’d like to start with a quote you have in the conclusion of the book, which is, “For all the ostensible public spiritedness in today’s government, we the people have a stark lack of confidence in the Republican project. Average citizens do not feel as though the government really represents them. Instead, it seems to speak for the special interests. Even though we are all entitled to vote for federal offices on the second Tuesday in November in even numbered years, it seems as though the government does not much belong to us.” That quote describes how you say why the story of Madison and Hamilton remains vital. Can you elaborate on that?

01:07 Jay Cost: Absolutely. I think that people today have this sort of anxiety about, as I said in the book in the conclusion there, that the government doesn’t belong… It’s sort of almost like sand slipping through our fingers, a sense of control. And then while we have a formal authority over the institutions of government through the franchise that for all intents and purposes, power is effectively exercised by a smaller wealthy clique, which in the purposes of the subtitle I called oligarchy. And that is a very old anxiety in the American body politic. You can trace sort of those kinds of fears back through the Progressive Movement, the Populist Movement; Lincoln’s Republican Party in the 1850s sort of felt that way.

02:03 Jay Cost: And it also goes back to this battle in the early government, in the first second and third Congress, between James Madison and Alexander Hamilton. And Madison’s worry that the government had effectively been captured, and while the people retained the formal control over the institutions, that for all intents and purposes, an economic elite based primarily in New York, Philadelphia and Boston were running the show, which I think is interesting, not just in a general sort of anxiety that Americans have about, “Oh well, is this actually government of the people, by the people, for the people?” But also that sort of persistent concern that the rich are actually in control, which is something that is a bipartisan concern nowadays. You hear conservatives talk about the undue influence of the wealthy and they almost kind of, in a lot of respects, sound like Ralph Nader supporters. So I think there’s a persistent anxiety that the early American history really can speak to.

03:11 Trevor Burrus: And as we had discussed before we actually started recording, with Madison and Hamilton that there’s just this kind of mystery, so to speak, about friends and then enemies. And unfortunately, we don’t really have a total third act to that story due to Hamilton’s untimely death in 1804. But at the beginning, they first meet… When do they first meet?

03:31 Jay Cost: They first meet in 1781 or ’82 when they’re both serving in the Congress of the Confederation or what basically was the Continental Congress, the national assembly prior to the Constitution that’s from the enactment of the Articles of Confederation in 1776 to the first Congress meeting in 1789. The national government was, for all intents and purposes, this Congress of the Confederation. Madison is a delegate from Virginia and Hamilton is a delegate from New York, and that is where the two of them first cross paths.

04:09 Trevor Burrus: And would they’ve agreed a lot at that time, at least in terms of what they thought about the government at the time and its inadequacies?

04:19 Jay Cost: Yes, they would. And they had different backgrounds that sort of drove them to that point. Hamilton had experience; he had served as aide‐​de‐​camp for General George Washington during the war. And so had seen from that perspective the inability of the political class to really make due provisions for the military, and had been very frustrated that the Congress seemed impotent and incapable of acting on all manner of things, like it couldn’t regulate commerce, it couldn’t raise… It couldn’t tax, so it couldn’t pay soldiers. It couldn’t provide sufficient provisions for them, munitions and clothing. If you ever look at those old pictures from, at Valley Forge, and why are the soldiers at Valley Forge in such miserable shape? A lot of that got down to the impotence of the federal government, and had really, everything had been left up to the states. And that was sort of Hamilton’s experience.

05:23 Jay Cost: Madison’s experience had come from a different perspective. Madison was not a warrior, at least 5′4″, 100 pounds. The man was not meant to be in military service, but had gone to… Had sort distinguished himself at service in the Virginia House of Delegates, in the Virginia Constitutional Convention, as a very sharp‐​minded, pragmatic, thoughtful legislator who was really good at the details of getting… “How are we gonna forge a coalition to get things done?”

06:00 Jay Cost: And so Madison goes up to the Congress of the Confederation, and so sees the same problems that Hamilton sees, although he’s seeing it from the political end. He’s watching politicians in the Congress just sort of debate, and the government sort of grinds its gears to no ultimate purpose. So they’re both very frustrated by the impotence of the national government.

06:25 Trevor Burrus: And they’re both involved in the calling of the convention, if I remember correctly, in the Annapolis Convention of 1786 that didn’t really happen and then…

06:34 Jay Cost: Right, that’s right and prior to the Annapolis convention, they had both worked… They had both tried to make the Confederation Congress work. One of the strategies they said, “Well, the Congress doesn’t have the power to tax but the states can tax, and if we get the states to enact a tax on our behalf, then that could effectively solve our financial problems.” So the two of them had worked together to put together an impost, and to do that they offered little incentives for states. There was a debt relief for Virginia, which was very indebted. And then there was also for Maryland, there was a land session ’cause Maryland didn’t have any western territory. So they put together this package of… Basically a logroll. It was the first attempted logroll in American political history. And the whole thing falls apart ’cause Rhode Island won’t agree to it, and then New York backs out and the whole thing falls apart by 1783. And the two of them had really sort of come to the conclusion, “Well, hey, this isn’t gonna work. This government isn’t working.”

07:39 Jay Cost: And they had had… Madison had had success with George Washington at the so‐​called Mount Vernon Conference with Maryland. So the idea of being well the federal government can’t regulate commerce, so maybe Maryland and Virginia could work together basically and hammer out what would, to modern eyes look very much like a treaty to handle the waterways on the Potomac. So that they have this conference at George Washington’s Mount Vernon and it’s a success. And Madison and Hamilton and Washington start agitating, “Well, hey, we should have a national convention between the states for an interstate commerce treaty. If the Confederation Congress won’t do it, the thirteen states could do it.” And what ends up happening is that at Annapolis, five states end up sending delegates and they all are the nationalist states. It’s in Annapolis but Maryland doesn’t go. So they can’t actually get anything done ’cause they don’t have a quorum, but they release this report; Madison and Hamilton writes a report basically calling for a convention to revise the Constitution.

08:51 Trevor Burrus: And at the convention, as students of American history know, James Madison is often referred to as the Father of the Constitution. So he came in with a pretty big plan, and Hamilton was there too, but under somewhat different circumstances, both within his state delegation and with the ideas that he had to try and put into effect.

09:13 Jay Cost: Yes, that’s right. So Hamilton comes to the constitutional convention with two other delegates. There’s three delegates to the New York Convention. There’s John Yates, and Robert Lansing and Alexander Hamilton. And Lansing and Yates are both doing the bidding of New York Governor George Clinton. And the parochial interests of New York at this point in time was such that Clinton didn’t want a stronger federal union. New York was basically on the rise economically and politically, and when New York had been in a weaker shape, the federal government hadn’t been there to assist it, so Clinton doesn’t want a stronger federal union. And what this means is, is that since the convention is… Voting at the convention is one state gets one vote, it means Hamilton is consistently outvoted, and New York, for all intents and purposes, acts as an anti‐​federal state. And then in addition to this, Hamilton has what is a very traditional view of Republican government.

10:11 Jay Cost: Historically speaking, the sense of the way… How do you maintain a government that is Republican? It’s not through a pure representative democracy where only the people rule; instead, the more traditional view dating back to Aristotle was you need a mixture of governing institutions. So the landed aristocracy has to have a role through, say, the House of Lords, and there should be a hereditary monarch, and then a popularly elected House of Commons. And the idea being that these three different branches will ameliorate the defects of each style of government. That aristocracy is an inherently defective form of government, but so is monarchy and so is democracy, so if you put them all together, they’ll balance one another out.

10:55 Jay Cost: Hamilton basically takes that view to the Constitutional Convention and says, “We can’t have… There’s not gonna be any hereditary government government in the United States, but we’re gonna create the effect of it by having a Senate that’s elected for life and is elected by an electoral college. So the Senate is gonna be immune from public opinion; and the president is gonna be elected for life, separated from the people by actually two electoral colleges.” So Hamilton wants to basically bring forth the classical model, ditch the hereditary aspects of it, but it’s also compared to the Radicalism in the United States, it’s a very, very conservative form of government. And it really, it goes off like a lead balloon. Hamilton basically takes a whole day in the middle of June to deliver his ideas, and the convention, they don’t even vote on it. They listen to him and then they adjourn for the day, and then they move on to their other business.

11:55 Trevor Burrus: And that speech kind of haunts Hamilton to some degree. It gets brought up a lot in the next 15 years. They’re just like, “Oh, remember Alexander’s monarchy speech that he just wanted to have the British government again,” is essentially what at least the Jeffersons and the Madisons said about it.

12:10 Jay Cost: Right. Well, what happens is, is that the convention has a vow… They take a vow of secrecy, basically, is what they do. It’s a closed door session and they’re not to speak to anybody during the proceedings and they’re not… They didn’t want word… It’s basically like a papal conclave, if you remember when Pope Benedict was elected and then more recently, Pope Francis, it’s similar to that. They just keep going until you see the white smoke and then they’re done. But Madison had taken detailed notes of the convention proceedings. A couple other delegates did as well, Lansing took some notes and I think a couple other delegates took them.

12:48 Trevor Burrus: Well, William Jackson from New Jersey was supposed to take notes, but he failed in that regard.

12:53 Jay Cost: Yeah, there’s a sort of formal convention… There’s a formal proceedings of it and they’re not very helpful. But what happens is that after the new government gets started, Madison actually shares with Jefferson his notes. Jefferson got an advanced copy of them, so to speak, and Madison otherwise kept them hidden and didn’t share them with the public. It was only after his death that they were published, and so we have these notes. Now, he had planned for them to be published after his death. The idea being that Madison was the last of the delegates to the convention to be alive so now that he’s dead, the notes are there, everybody’s dead so now it’s there for all to see. But Madison shares with Jefferson these notes, and Jefferson and Madison connect these dots and decide that, “Oh, Hamilton is actually a monarchist and wants to destroy the Republican experiment.”

13:49 Trevor Burrus: But before that sort of animosity grows, we have Madison and Hamilton being the lead authors of the Federalist Papers in terms of advocating for the Constitution. So even though they didn’t have the exact frame of government in mind when they went into the convention, they both became supporters of it, and you argue that although it seems like they’re buddy‐​buddy in the Federalist Papers, you can start to see the nascent parts of their disagreement in those. Especially with Federalist 10, which is written by Madison, is the one that you read in seventh grade history class.

14:22 Jay Cost: Right.

14:23 Trevor Burrus: And then Federalist 11, which is written by Hamilton. And in those two essays you see the emerging disagreements.

14:32 Jay Cost: Yeah, that’s right. Well, at least that’s what I think. So I think that’s right. And I think that it’s important to appreciate that the two of them agreed in the 1780s because they thought that the government under the Articles of Confederation was too impotent, so the government had to be empowered. But the question then becomes, “Okay, empowered to do what?” And my argument in the book is that the two of them had competing views about what should a strong Republican government do? What is it supposed to look like? And I think the best analogy for listeners is to think of Madison’s view of Republican government as acting sort of like a referee. In a game of football, the referee is the one who has the rulebook and his job is to apply the rules impartially without regard to which team he might root for when he’s at home or which players are on his fantasy football team, that he’s supposed to be a neutral arbiter. And one of Madison’s complaints about the Congress of the Confederation was that it was not a neutral arbiter. Because it was so incapable of getting anything done, power returned to the states, and the state governments treated political minorities with real disregard. And they also acted without regard to the national interest. So the state governments were partial; they were not impartial.

16:03 Jay Cost: And so Madison’s idea was, “We need a stronger federal authority to tax, to regulate interstate commerce, to provide for the military, negotiate treaties, and do all of these things in such a way that they benefit the nation generally speaking without playing favorites.” This was sort of the sine qua non for Madison of Republican government.

16:28 Jay Cost: Hamilton has a different view. Hamilton’s view is, if Madison sort of sees Republican government is acting like a referee or umpire, Hamilton instead sort of sees the government acting like the head coach. The job of the head coach is to really coordinate the individuals on the team toward the shared goal of victory. Now, and so for all intents and purposes, what that means is you’re gonna play your star running back and your star quarterback and your star defensive linemen, and there’s other players who are just gonna ride the bench because that’s what’s good for the whole team. And in Hamilton’s view, the stars of the government were gonna be the wealthy. Because what Hamilton… And also, I guess it lends the question, so what would victory be for Hamilton? Victory would be securing the nation’s economic and national security interests against the various European powers. ‘Cause it’s important to remember that all of the European powers are all still pretty much around. The French are in the West, the British are in the West, the Spanish are in the South. America has secured its independence in, with the Treaty of Paris in 1783, has a level of security, but the history of Europe illustrates that that’s never… Not necessarily durable.

17:55 Trevor Burrus: And there were still British forts out in the West.

17:56 Jay Cost: Exactly. That was… Part of the problem is, is that the British, the terms of the Treaty of 1783 had promised to basically abandon its forts in present day Detroit, and they hadn’t done that. So Hamilton is interested in securing the nation, particularly in the foreign realm and what that means is creating a strong financial foundation for the country’s economic growth and diversification. Because part of the issue too is that the United States had been under the mercantilist system of Great Britain, where the Parliament had basically, for centuries, had basically imposed on America a unimodal form of economy basically in agriculture, and they weren’t even allowed to manufacture goods that British manufacturers made. So Hamilton has a very farsighted notion of economic development in his mind, and he wants to use the federal government to do that.

18:54 Jay Cost: And what that is gonna mean for Hamilton in the short term is playing favorites, that the country was very cash poor at this point, another consequence of British economic policies, that the colonists had never been able to print, not print, but coin hard currency or specie. So the country had never had a good monetary system. And so Hamilton wants to take the handful of people in the country, like your Robert Morris, your Gouverneur Morris, your Philip Schuyler, the sort of the wealthy commercial elite in the big cities of the Northeast, and use their wealth to create a financial foundation for economic growth. But as a consequence of that, these men were gonna become incredibly wealthy. I mean, you think from Madison’s perspective, that kind of favoritism just does not square with his kind of republicanism.

19:51 Trevor Burrus: And you discussed the first big controversy after the new government is created and Alexander Hamilton is Secretary of the Treasury, and James Madison is in the House of Representatives, that Hamilton wants to… But Madison is kind of the liaison with the administration too. He’s a little bit more than just a House member. And Hamilton wants to create a national bank and the controversy that erupts over that has something to do with the Constitution and whether or not it’s constitutional. But also those fears that you articulated that Madison had about privileging this sort of wealthy elite that Hamilton viewed as a tool rather than a harm.

20:30 Jay Cost: Right, and I think this is sort of one of the ways in which I diverge from other scholars and writers about Madison, is that I tend to view his… For a man who is… Although he denied the title, but he has since been sort of granted the title Father of the Constitution, his constitutional hermeneutic, the way that he would interpret and apply the Constitution was not very consistent over the course of his political career. It usually instead tracked with his main policy objectives. In the case of the Bank of the United states, Madison makes the point that, “Look, the Constitutional Convention, considered granting a charter to giving the federal government the power to grant charters, and they voted it down.” So that means it’s not constitutional. And Hamilton sort of makes what is in effect a common law argument saying, “Well, now the necessary and proper clause opens the way to do this.” And we can have that debate ’til the cows come home, but it’s worth noting though that Madison, at the end of his tenure in the House of Representatives, had advocated for chartering a national university in Washington DC.

21:54 Jay Cost: Had presented a petition on behalf of these people who wanted to sort of fund the national university and that it really required the federal government issuing some sort of charter. So there’s an inconsistency there, at least at first blush. And I think that it’s important to appreciate that for Madison, something else was going on with the Bank of the United States, that Madison was worried that the Bank of the United States was basically going… The way it was designed was going to be extremely one‐​sided in its favoritism, particularly to people who owned government debt certificates. And at this point, I think it’s important to remember that government debt had increasingly been concentrated in the hands of just a few speculators on the Eastern seaboard, and it also had become concentrated and would increasingly become concentrated in foreign capitals, like in The Netherlands, particularly.

22:55 Jay Cost: And the way the bank was structured was such that, for… To buy a share in the Bank of the United States, you had to pay $400, but only $100 of that $400 had to be paid in hard currency or specie and government… And basically gold coin. The remaining $300 could be paid in government debt certificates. So what happens is, is that those people who owned a government debt were gonna be basically given a 75% discount on what was a guaranteed money maker. Everybody knew that the Bank of the United States was gonna be a runaway success because it had the backing of the federal government. And prior to this, Hamilton had also imposed what was assumption of the state debt. So basically, Hamilton had said, “If you have a debt certificate that is payable by the State of Connecticut, the federal government will, for all intents and purposes, take on that debt.” So again, this was a way for people who, just a couple of years ago for pennies on the dollar, had purchased state debt, could then transform that state debt into federal debt, and then use that as 75% of the payment for Bank of the United States stock.

24:13 Jay Cost: And the other thing that’s going on here is that there was, prior to the release of Hamilton’s program, an increase in the price of government debt certificates, which is illustrative of the fact that people in the financial community, because they were close to Hamilton, knew what he was planning to do, and so went out and purchased government debt from people who were not in the know. And that included members of Congress, like Jeremiah Wadsworth who was from Connecticut, who sent emissaries down to the Carolinas trolling through the back country to Carolinas, purchasing debt from revolutionary war veterans and their widows. And we’re talking like pennies on the dollar. These wealthy sort of politicians would buy this debt and come back up to Washington, or excuse me, to New York and basically reap a huge windfall profit. And Madison’s objection was like, “Hey, this is not the way Republican government is supposed to function.” Republican government in Lincoln’s sort of telling is supposed to be of government, of the people, by the people and for the people. And in Madison’s view, this was government of the speculators, by the speculators, for the speculators.

25:24 Trevor Burrus: Yeah. And the amount of members of Congress that seemed to be involved, and also some shady characters like William Duer, who was a friend of Hamilton and Assistant Secretary of the Treasury at one point, but that debate that happened between also the national debt and the assumption of the state debts dealt with A, veterans versus speculators. And then also the question that the states were not exactly on the same footing in terms of how much they had paid down their own debt. Just forgiving the debts would seem to punish the states that had done a better job of paying down their own debts. And the weird thing about it, ’cause you do a better job in the book of anyone, of explaining the ins and outs of that, is that some of the people were saying, “It might be a good idea to assume the state debts, but we should do an accounting first to figure out where they sit and how much they’ve paid down.” Whereas the Hamiltonians were saying, “Now, now, now, now, now.” And it seems like speculation might have been behind that.

26:19 Jay Cost: Yeah. I think that speculation was a crucial ingredient, especially in determining the final vote in the House of Representatives. Hamilton was not himself a speculator. Hamilton had a very terrible judgement when it came to people who were around him. You mentioned William Duer. Hamilton names William Duer to be the first Assistant Secretary of the Treasury, and Duer is there through the summer and fall of 1789. While Hamilton’s writing these reports very quietly on the side, William Duer is working basically to sell government debt to the Dutch based upon his foreknowledge of what Hamilton was gonna propose. Duer creates basically the first international banking syndicate based in the United States, is what his ambition was. Duer goes to the Dutch, or he and his clique go to the Dutch and say, “Hey, we know what’s gonna happen with the domestic debt, so you should buy domestic debt from us for pennies on the dollar, and then you can sell it for big bounty,” while Doer is simultaneously helping Hamilton draft this plan.

27:24 Jay Cost: And the part of the problem is, as well, is that this sort of double dealing is illegal now, but remember, this is when the government first got started. And while there was among many statesmen like Madison and Hamilton and Washington, a sort of gentlemanly ethic about never making a private profit off of public service that this is… And we remember the people on the money, so to speak. All the big people that we build monuments to, really tended not to do things like that. That that’s not the case for all of them. A lot of them were simultaneously, while they were legislating on the disposition of Western land, they’d be speculating a Western land, and in the case of the Hamilton’s financial program, you had all sorts of people who were speculating in Western land. There was this real sort of sense that conflicts of interest were undermining the Republican foundation of the government, and that the government and people who were elected to serve the public interest were instead going to the capital and serving, lining their own pocket books.

28:32 Jay Cost: And there was a belief that this was… Jefferson and Madison believed that this made the difference, that if people had taken a vote based upon the honest concerns of their constituents, that the debt assumption would not have happened until after you set a final accounting, because states like Virginia had after… Had been very indebted from the war, but had made efforts to sort of pay down their debts. And the assumption plan really benefited just three states, and was basically 10 states subsidizing three states, Connecticut, Massachusetts, and South Carolina, all of whom had, their economies were really particularly depressed after the war, in part because they had been central cogs in the British mercantile system. And now having been shut out of that mercantilistic empire, their economies took a real hit, so they were deeply in debt. And the view of Madison and the people from Virginia and William Maclay, who was the senator from Pennsylvania was sort of like, “Hey, we’ll pay. We should assume the debts because the revolution was funded by the Thirteen States, but it was really a national endeavor. So everybody should pay their fair share. But we have to figure out what that fair share is.” And Hamilton’s plan did not call for that, it called for an immediate assumption.

29:51 Jay Cost: And that mattered because a lot of what happened was, that a lot of the speculators in Congress didn’t wanna wait. They wanted an immediate assumption, because they had leveraged themselves to go out and buy state debt. So, you imagine yourself, you’re speculating, and you go down and you buy debt from North Carolina and you do it on margin and James Madison is saying, “Well we need to wait two years and figure this out.” Well, I can’t wait two years, I’ll be ruined in two years. I’ll get sent to debtors prison if we wait two years, we gotta do this now, now, now, now, now, now. And you see in Madison’s private correspondence, just as… At first he is just completely gobsmacked by this. He talks again and again that writing to Edmund Pendleton and James Monroe, just the vehemence of the assumption crowd. Why do they want this? Now, what is driving them? The ultimate answer that he comes up with, and I think he was correct, was private gain.

30:49 Trevor Burrus: And it’s interesting, too, that they didn’t seem to transfer some of that animosity toward the stockjobbers, as they would call them, to Hamilton.

31:00 Jay Cost: Yes.

31:00 Trevor Burrus: And I think then they remember the speech from the convention, and maybe that’s when Madison shares his notes and says, “Oh, we knew all the time that Hamilton was a wolf in sheep’s clothing, who even… ”

31:11 Jay Cost: Right. Yeah. Yeah, it’s unfortunate in a lot of respects that… Not just for Hamilton whose reputation was sullied, but Madison and Jefferson were just wrong about Hamilton. So when we look at the full historical record, you see their error, they have been since… Particularly in the last 50, 60 years, have been criticized for being too harsh on Hamilton.

31:33 Trevor Burrus: And he never made any money at all, he actually was mad, mad at that.

31:36 Jay Cost: Never made any money. No, he never made any money. But what they thought… See, these are the pieces that they connected together. Their feeling was that that Hamilton was basically creating a system where he was using federal policy as a patronage, basically as a slush fund. Debt policy is a kind of slush fund to buy members of Congress and put them in his pocket. And to them this looked an awful lot like the way the Crown, the British Crown, operated after the Glorious Revolution. After the Glorious Revolution, the Crown’s ability to raise revenue and operate independent of Parliament was severely curtailed, but in a radical Whig, a criticism of the Hanover Crown under George I and George II…

32:22 Trevor Burrus: Such as Cato’s Letters, which is what we’re named after.

32:25 Jay Cost: Right, they’re Cato’s Letters. The argument of Trenchard and Gordon, who are the authors of Cato’s Letters, was basically that the Crown was using a civil list, which was its… Basically its ability to sort of… Basically to bribe members of Parliament to vote for the Crown’s agenda. So that the crown was effectively undermining the sovereignty of parliament by exploiting conflicts of interest and Madison and Hamilton looked at that example and said, “Well, here’s Hamilton acting like Robert Walpole, the Prime Minister, doing the bidding of the crown. He must have the same end in mind. He must, if he’s using the same methodology, he must have the same goal, which is ultimately to corrupt Congress and corrupt the people’s representatives. And turn… Basically, put them in his pocket so he can control them, which… Doesn’t that look an awful lot like monarchy?” So, by 1791 and 1792, this really becomes the sort of the conclusion of the Jeffersonians and if you look at Madison’s essays for the National Gazette, they were written… They were unsigned essays. But that’s pretty much what Madison was arguing.

33:34 Trevor Burrus: And so, throughout the 1790s, we see this partisanship, which begins in these controversies and then moves over into foreign policy with the Jay Treaty and the XYZ Affair and the Quasi‐​War with France. And at that time, Hamilton, by that later 1790s, he’s out of the government.

33:52 Jay Cost: Right.

33:54 Trevor Burrus: But with the foreign policy disputes, which were just as vehement if not more so, than the domestic policy, do those map well to this kind of view of national greatness that we’re talking about, or was it really just England versus France?

34:10 Jay Cost: No, there really is an overlap, which is interesting, because you’re right, the domestic policy really more or less, it’s just… It continues to sort of resonate through the decade, through the 1790s. But Hamilton’s economic agenda basically is completed by 1792. At the end of 1791, he proposes tariffs on manufactured goods and bounties to protect domestic industries, but that doesn’t go anywhere, and that’s pretty much it. And then this sort of crisis with the Napoleonic wars and the… Well, later on the Napoleonic wars, but the… France and England declare war on each other in 1793 and the United States is basically caught between a rock and a hard place. And the federalists under Hamilton are partial to the British and the Republicans, the Jeffersonians under Madison and Jefferson are partial to the French.

35:02 Jay Cost: And a lot of this ends up getting sort of said, well, this is because the French were Republican revolutionaries, and that was… Madison and Jefferson were partial… And there’s… Some of that is true, but it also sort of gets to this economic disagreement that the two of them had and where the United States stood vis‐​a‐​vis the rest of the world. And remember, one of the reasons that Hamilton wanted to implement this program, ’cause he thought that the United States economically was weak and that it had the capa… Like, if you read Federalist 11, Hamilton’s basic argument is that the United States has the capacity, the potential to be a strong nation, but it is not yet strong. And so, when the war between Britain and France begins, Great Britain is America’s number one trading partner. And so, Hamilton thinks it would be foolhardy to anger America’s number one trading partner, because the British… Remember at this point, tax revenue was primarily through imported goods imposed with tariffs. And so Britain is basically subsidizing the federal government at this point. And remember, because the federal government is the backstock for the Bank of the United States, Britain is by extension subsidizing. Hamilton’s entire financial architecture depends upon a steady stream of imported goods coming from Great Britain.

36:29 Jay Cost: So Hamilton says, “My God, we can’t offend Great Britain. We have to sort of stay on their side.” And Madison has a different view. Madison’s view is that, “Well, you know look, we provide food to Great Britain and Great Britain provides manufactured goods to us and we need them, or I should say, they need us more than we need them. We can go without British glassware and cookware, but if we stop sending them our grain, they will starve.” So Madison’s view was, “No, we should drive a hard bargain with the British.” And Hamilton said, “Oh, that’s insane. They could utterly destroy us.”

37:12 Jay Cost: And so the dispute between the two… And I think it’s important to remember the two of them never had an occasion during this entire period of time to sit down and dispassionately sort of see where the other stood. So they end up becoming enemies, political enemies. And so it’s just sort of hyperbole upon hyperbole and the two misunderstanding each other getting worse and worse. So Madison’s infers from Hamilton’s, what he thinks is sort of his knee‐​jerk defense of Britain as just a further sign that Hamilton wants to initiate a British style of government in the United States. And Hamilton looks at Madison’s defense and says, “You know, he’s just… ” In one letter, he says, “Madison has a womanly attachment to France.” So the two of them are basically talking across each other and had been so by the time Jay’s Treaty is signed in 1795, they had really been talking across each other for five years at this point.

38:11 Trevor Burrus: Skipping forward, we have the election of 1800 when John Adams loses to Jefferson, and then after that, we have 25 years of Virginia rule so to speak where the Jeffersonians, Republicans become one party and Federal has almost disappeared, and of course Hamilton dies in 1804. And the other part you bring out in the book is that when the Jeffersonians, meaning Jefferson himself first, and then Madison, and then Monroe take over the government, they start to try to do some of these things that they thought were gonna be good ideas. So Jefferson tries to embargo his own people from trading with Great Britain because he thought it would hurt them more than our people, and he was pretty wrong about that.

38:57 Jay Cost: Yeah, that’s the second act kicker in the book. I like to think if it’s a story in three acts, the second act kicker is that Hamilton turned out to be right.

39:07 Trevor Burrus: About many things.

39:08 Jay Cost: They try a couple things. They try Madison’s idea of, “Well, let’s drive a hard bargain with the British.” It doesn’t work. They tried embargo and they’re smuggling, and particularly Madison is eyeing the British West Indies saying, “They need our food. If we stop supplying… ” ’cause they couldn’t grow food in the West Indies, they grew sugar but they had to import their food. “If we drive a hard bargain with the British, we can basically starve the West Indies.” But it didn’t happen. And the War of 1812 comes and it turns out Britain’s a lot stronger than Madison had anticipated. And on top of that, the main plank of Hamilton’s financial system was the Bank of the United States. And Jefferson, as president had, at several points, said, “I wanna get rid of this thing.”

40:00 Jay Cost: If Jefferson had a brains trust, it was basically Madison and Albert Gallatin, who was a Swiss‐​born congressman from Pennsylvania, and he was a Republican through and through, but really appreciated the brilliance of Hamilton’s economic system. And Gallatin points out to Jefferson in a letter says, “Look, we can’t get rid of the Bank of the United States. We’re opening all this land out in the west for purchase, and we need a place to collect tax revenue and people to pay their bills and we need the bank. And that if you wanna accomplish this, what Jefferson had once called an Empire of Liberty spreading into the interior of the continent, we need a good stable financial system to make that happen. And before the Federal Reserve, you had the Bank of the United states. So we can’t get rid of it.” And he stays Jefferson’s hand. Now in 1811, the bank is up for recharter, and Gallatin tries to get it rechartered, and Madison doesn’t come out one way or another, which I think is one of his biggest mistakes and maybe his pride got the better of him and he couldn’t actually tell Congress, “You should vote for the recharter.”

41:05 Jay Cost: And so the bank doesn’t get rechartered and they go into the War of 1812. And sure enough, Hamilton’s predictions turn out be true. Without the Bank of the United States, the government can’t raise money. And that was one of the main arguments that Hamilton made for the Bank of the United States is that the bank will be there if the government needs money in a pinch. And the bank’s not there and so how is the government gonna raise funds to supply its troops? Well, they had to go and make these short‐​term loans at very high interest rates. Additionally, the War of 1812 was very unpopular in the northeast, where a lot of capital was located in the northeast. So lenders in the northeast are disinclined to loan to the United States, so there’s a credit crunch. And so ultimately, Madison and the Republicans realized that we have to play favorites a little bit because we can’t have Republican government if we just end up being a tributary of Great Britain again, which is frankly almost what happened in the War of 1812.

42:11 Jay Cost: If the United States had not won the Battle of Plattsburgh, Upstate New York, and frankly Maine and Vermont, any parts of New Hampshire might have ended being part of present day Canada. That was how close matters came. If Jackson hadn’t won in the Battle of New Orleans, even though that was after the Treaty of Ghent, who knows? The present day New Orleans might be not part of the United states.

42:37 Trevor Burrus: And that’s the interesting thing is that after the war, Madison changes his tune, so to speak, on three things you point out. And another thing you point out that I hadn’t really heard before, and I have read a lot of biographies of Madison, is that he had this proto‐​Malthusian theory of how much people could supply food for themselves with agriculture. And of course, he and Jefferson both had this utopian fixation on farming, which always struck me as odd and not really liking manufacturing, which is something that Hamilton liked, he wanted more industry and stuff like that. And by the end of the war, last two years of Madison’s presidency, he reauthorized the bank, even though he didn’t do it originally. He puts internal improvements into, in fact, starts championing canals and infrastructure, and then also protecting American industry via tariffs, which is another thing that Hamilton had advocated for.

43:37 Jay Cost: Yeah, that’s right. And it speaks… So the tariff issue really speaks to another flip flop. Madison flip flops on the Bank of the United States, but the tariff issue is also flip flop because again, and his Malthusianism gets back to this idea of “Britain can’t feed itself. We are stronger than Great Britain because Britain can’t feed itself.” And then Hamilton makes a point, “Look, Britain has a diversified economy, they’re gonna be fine and they’re gonna figure out a way around… Whatever commercial discrimination we impose upon them, Britain is gonna figure out a way around it because they have a diversified economy.” And so the Tariff of 1816 is Madison’s acknowledgement that Hamilton was right, that the government has to, in a way, in some way, intervene to diversify the economy.

44:35 Trevor Burrus: And then you put it together with that… I don’t know if it’s the beginning, the end up through Monroe, and then we get John Quincy Adams and we get Jackson, so that puts everything back a different way. But starting at that point, the idea of tariffs and internal improvements, and the government operating in a fairly Hamiltonian way was broadly held by the Republicans, so to speak. And it took Jackson in going against the tariff and going against the Second Bank of the United States to bring back these Madisonian views that Madison himself had abandoned.

45:11 Jay Cost: Yeah, that’s right and so, a big reason why I don’t like to use the phrase that’s often used to describe the Jeffersonians, they’re often called the Democratic‐​Republicans. That’s a neologism, because the Jeffersonian Republicans basically split into two factions: One became the Whigs, one became the Republicans, or one became the Democrats. But yeah, that’s what I like to call the third act kicker of the book. The second act kicker is, well, gee, Hamilton was right, we need all this national development stuff. It turned out Madison was right too, that this national development stuff lends itself to corruption, which is what Andrew Jackson was complaining about it. And John C. Calhoun as well, that the tariff ends up, the tariff not of 1816. The Tariff of 1816 was a pretty reasonable tariff law, but by 1824, and especially the Tariff of 1828, the tariff becomes just this basically a logroll for the Midwest and the Northeast to basically rob the South, is what it was.

46:14 Trevor Burrus: And the South knew that.

46:15 Jay Cost: And the South knew that. That’s where the Nullification Crisis comes from. The South’s argument is, if the Jeffersonian Republican idea of it is that… Republican government, and it gets back to the Constitution, grants Congress to lay and collect taxes for the general welfare. So the Tariff of 1828, in the southern argument, and I think that they were correct, is that this is manifestly not a law that works for the general welfare. It enriches some regions of the country at the expense of others, and therefore it is null and void.

46:53 Jay Cost: Now putting aside the null and void argument and we can disagree with Calhoun’s solution while also acknowledging that the South had some legitimate beef with the Tariff of 1828. But this is exactly what Madison’s original anxiety was, that kind of nationalism that Hamilton had envisioned can be awfully one‐​sided and oftentimes people can operate under a nationalist guise and say, “Well, I’m really just working for the interest of the country.” And it’s like, “Well, no, actually, you’re just trying to line your own pocket.” This was a major complaint that Madison and Jefferson and Gallatin had leveled at Hamilton, and it really resurfaces in the 1820s because that’s what happens.

47:40 Trevor Burrus: And it resurfaces over and over again. That’s the kind of conclusion that they… They both were right.

47:47 Jay Cost: The other thing too, is that Madison had been a skeptic of federally sanctioned financial institutions like the Bank of the United States. So the way to understand Madison’s apparent divergence on a national university and a national bank is, just think about, in his view, a national university would obviously be for the good of the whole country ’cause it would promote learning and scholarship and education, but the history of nationally or publicly chartered banks in Europe suggested that they could become political powers. Actually, the financial grants that they get money and power are fungible and banks could actually start influencing politics. And this is exactly what happens with the Second Bank of the United States.

48:32 Trevor Burrus: Which is a disaster in many ways.

48:34 Jay Cost: In many ways, it was a disaster. In its early years, the bank lended with gross irresponsibility and had basically become captured by the stockholders who looked to line their own pockets. And it didn’t cause the Panic of 1819, but it made it worse. And the irresponsibility leading up to that economic panic meant that when that panic came, the bank’s financial house was not in order so Langdon Cheves, who was the president of the bank, had to impose this contraction to get the bank in place first, which in an economic contraction you want public institutions to begin to lend money and make credit more easily available to cut against this contraction of private credit. Well, the Second Bank made that worse and a lot of that happened was because of the corruption. And then during, at the end when Jackson was fighting the bank, President Nicholas Biddle actually used the bank’s resources to campaign on behalf of Henry Clay. So here you have the corner piece, the cornerstone of the Hamiltonian financial engine being used in these anti‐​Republican ways just as Madison had feared. So if Madison’s presidency had demonstrated that Hamilton was right, the aftermath of Madison’s presidency demonstrated that Madison’s original critiques were right too, they were both right.

50:00 Trevor Burrus: And I’d say the irony there is that the bank that Madison opposed to the First Bank of the United States was fairly well run in terms of corruption, and the bank that he chartered was not. [chuckle]

50:11 Jay Cost: It was a disaster, yeah. It was a disaster.

50:12 Trevor Burrus: So he was right about the one he created and that puts the whole thing in perspective, and I suggest listeners and readers go listen to the other episode we do with you about a Republican [50:24] ____ because then you do have this corruption that happens throughout American history in ways that Madison predicted, but you also have Hamiltonian national projects that are often worth undertaking for reasons that Madison didn’t understand. We were not gonna be a country of only farmers with the government just doing this basic farm policy, I guess. As we said at the outset, those two men together have a way of explaining not only American history but the debates we’re having today.

51:00 Jay Cost: Right. So that’s where the title of the book comes from. So what is the price of greatness? The greatness in the Hamiltonian sense, in the sense of Federalist 11 where he envisions one great American system, what is the price of one great American system? Well, the price is, we have to suffer a certain kind of oligarchy. We have to… To be great, in a way, requires the government to play favorites in the short run to yield long‐​term benefits. But doing so ends up empowering the wealthy with a level of political power that they would not otherwise possess if it was just left up to their votes. So, the price of Hamiltonian greatness is a denial of Madisonian republicanism and an acceptance of a certain level of oligarchy or rule by the rich.

51:57 Trevor Burrus: So as you said at the outset, if a lot of people feel that they don’t have representation in government and that it is an oligarchy and some of Madison’s conclusions, fears have come true, what can we do about it? Is it time to relearn from these two thinkers and figure out how to fix it? Or they could take a different look at government or passive amendments, is there something we can do about?

52:24 Jay Cost: Yeah. Look, there’s all sorts of ways to tinker with things, and I’m not opposed to tinkering. [chuckle] I think though that the first thing we need to do is we need to recognize the trade‐​off here and we need to be mindful of that. And we need to be mindful especially, even if the purpose said we’re gonna yoke the powers of the federal state for the purposes of an egalitarian project. I think a great example of that would be the Medicare program. When Medicare was initiated in 1965, it was done with the most noblest of purposes for elderly people who were the poorest, most pitiable demographic in the United States, and now what’s ended up happening is, we’ve created this behemoth in the medical services industry that has enormous influence over our politics because ultimately, the federal government depends upon the medical services industry to carry out its agenda on Medicare, Medicaid, and other federal medical projects. And that that’s the downside of our great nationalistic endeavors, is that whenever we… Well, we’re gonna do this great big thing.

53:42 Jay Cost: And we’re gonna employ this particular faction to bring about this great purpose. And it could be a left wing purpose like healthcare for all. It could be a right wing purpose like capital gains tax cuts to stimulate investment in the domestic economy, but when the government does things like that, it has to necessarily play favorites. Capital gains tax cuts, even if we believe that they ultimately serve the general welfare, we have to acknowledge that in the short‐​term they are basically windfall profits for capital owners. And that that partiality, that’s a partiality that is problematic in a really strict Republican sense. Government is supposed to be neutral between people. So, when we play favorites, we have to recognize that that’s not really necessarily consistent with our Republican ideals. And in the long term, we also have to appreciate that when we play favorites today, and we give certain groups benefits and say, “We want you to use these benefits and go out and help the rest of the country.” That the government in turn becomes dependent upon those groups. And again, I think that probably the best example of that would be the medical services industry, and particularly the doctor’s lobby, the AMA. The AMA wanted nothing to do with Medicare in the 1960s, and had fought time and again, since Truman’s administration to stop any kind of universal healthcare program. And then finally LBJ shoves it down their throats in 1965.

55:12 Jay Cost: And now, the AMA is arguably outside of the big banks is probably the most powerful interest group in the country. And that the AMA now has sign off on all manner of federal policies. But the AMA spends an enormous amount of money lobbying the government, and where did they get that money from? Well, ultimately, the money comes, at least indirectly, from federal subsidies like Medicare program and the Medicaid program. And the government is writing the doctor’s cheques, the doctors turn around and give their money to the AMA, which turns around to lobby the government to make sure that policies continue to be beneficial for the AMA, that this is the price of greatness. The price of greatness is creating interest groups that have a power over the government itself. And so we have to appreciate, I think, as a prologue to any kind of actual policy implementations, we have to appreciate that there is a trade‐​off here, and that should not only temper our nationalistic ambitions, I think, and we shouldn’t always look to the government… We shouldn’t always look to the government to be the guarantor of equal egalitarianism, because the government inherently plays favorites in almost everything it does. The government plays favorites, so why are we looking to the government as our egalitarian guarantor?

56:36 Jay Cost: But beyond that we also have to be mindful that these policies that we create, like in the case of Medicare, they have this recursive quality to them, and these policies can grow and mutate over time, and so as we are designing policies, we have to be mindful that they can evolve over time, like the Bank of the United States did, like the tariff did. It’s one thing to initiate a tariff in 1816, but a decade later, the tariff mutated into something completely different, and we have to be mindful of that when we’re building policies and we, in general, need to be mindful that when we have these great nationalistic ambitions, we have to be careful of our Republican institutions and our principles because those are especially fragile. The history has demonstrated that they are specially able, specially susceptible to corruption, and often corruption not in form but in substance. So we can all continue to go to vote, and it looks like we’re actually in charge, but when people get to Washington, they don’t necessarily follow the public instructions because they are effectively captured by these muddied interests. And that the corruption of Republican government is something that can happen subtlely and can happen very easily. And we need to be mindful of that.

57:57 Trevor Burrus: Thanks for listening. Free Thoughts is produced by Tess Terrible. If you enjoyed Free Thoughts, please rate and review us on iTunes. To learn more, visit us on the web at www​.lib​er​tar​i​an​ism​.org.