the anticapitalist origins of the united states

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The Anticapitalist Origins of the United StatesAuthor(s): Michael MerrillSource: Review (Fernand Braudel Center), Vol. 13, No. 4 (Fall, 1990), pp. 465-497Published by: Research Foundation of SUNY for and on behalf of the Fernand Braudel CenterStable URL: http://www.jstor.org/stable/40241168 .

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The Anticapitalist Origins of the United States*

Michael Merrill

Smith's An Inquiry into the Nature and Causes of the Wealth of Nations first appeared in 1776, the same year that British

colonists in North America made their fateful decision to separate from Great Britain. To some (mostly neoconservative) observers this chronological curiosity has seemed almost providential. The "founding text of modern capitalism" published as "the modern world's capitalist nation par excellence" declared its independence! (Kristol, 1983: 139)1 And it is true that the history of the United States can be read as an emphatic vindication of Smith's views. However, the conventional interpretation of this "nice historical coincidence," which depicts Smith as an apologist for capitalism and the revolutionary United States as a capitalist country without apology, is wrong on both counts. Adam Smith sharply condemned "the mean rapacity, the monopolizing spirit of merchants and manufacturers, who neither are, nor ought to be, the rulers of mankind," and most eighteenth-century American revolutionaries shared his antipathies (1937: 460). If capitalism came to North America "in the first ships," as Carl Degler observed, by the end of the eighteenth century many people felt it had overstayed its

'"The research upon which this essay is based was made possible in part by fellowships from the American Council of Learned Studies and Rutgers- The State University of New Jersey.

This coincidence has struck a similar cord with similar commentators. See Buchanan (1975: 118) and Sowell (1979: 3).

REVIEW, XIII, 4, FALL 1990, 465-97



466 Michael Merrill

welcome. Indeed, the American Revolution did more to retard than to hasten capitalism's triumph in the New World, bringing to power a self-conscious class of small property holders who would resist dispossession and proletarianization for more than a century, all the while insisting that the federal, state, and local governments pursue Smithian policies designed to enrich "producers" rather than "monied men" (cf. Henretta, 1988).

This particular outcome was by no means overdetermined. To begin with, the success of the colonists' war for independence was severely in doubt for most of the struggle. Victory achieved, the new nation faced staggering political and economic problems and in the 1780's seemed on the verge of self-destruction. The first continental government could not pay its debts, defend its borders, regulate its commerce, or even prevent private citizens from making foreign policy in its name. After arguing for years about how to strengthen the central government, an agreement was finally reached in 1787. Only then did the Revolution's leadership focus on the pressing problem of formulating an acceptable economic policy for the nation. The ensuing discussion took place on terrain that was thoroughly familiar to Adam Smith. Indeed, during the 1790's American politics largely turned on whether the new nation ought to copy the "mercantile" policies of Europe, which stressed the close regulation of the economy by the ruling elite, or be guided by the new doctrines developed over the previous half century by critics of the old order in Europe, which had been ably summed up in Smith's Wealth of Nations.

Each of these alternatives had their champions. The principal advocate of the former was Alexander Hamilton, whose overriding concern was the creation of the militarily most formidable government consistent with American conditions (Stourzh, 1970; Earle, 1943). His proposals for a chief executive and upper house serving for life and for sharply restricting the powers of state governments had been rebuffed by the Philadelphia convention of 1787. Nonetheless, Hamilton threw himself into the campaign to ratify the new Constitution, and was rewarded with an appointment as the first Secretary of the Treasury. From this position he sought to accomplish by administrative measures the goals he had failed to achieve by constitution-making, and in a series of classic state papers proposed a commercial and fiscal policy for the nation designed to



ANTICAPITAUST ORIGINS OF U.S. 467

restore public credit, to give the central government control over the money supply, to increase the tax capacity of the nation and the revenue of the government, and to encourage speculative investment in large-scale manufacturing, all of which not only established the supremacy of the central government vis-à-vis the states but also promoted the interests of monied men over those of small property holders.

Arrayed against Hamilton and his Federalist allies was a "democratic republican" opposition led by Thomas Jefferson. This diverse group of "producers"- including southern slaveholders, family farmers, artisans, and even a manufacturer or two- was quite hostile to Hamilton's plan to expand the money economy, which they believed would not only impoverish large numbers of Americans but also prove the ruin of liberty in the United States. Moreover, where Hamilton had to marshall arguments against Adam Smith in order to defend his program for the new nation, the Democratic Republicans could find considerable support for what they had to say in The Wealth of Nations, which Smith himself described as "a very violent attack upon the whole commercial system of Great Britain."2 During the 1790's, thanks to unremitting criticism and inspired political organization, Hamilton's democratic republican opponents forged an electoral coalition that secured the election of Thomas Jefferson to the Presidency in 1800 and would control the federal and state governments for most of the next half century.

There have been many accounts of the struggle between these two poles of the Revolution. For most of the nineteenth century, the Democratic Republican orthodoxy held sway, and an aristocratic Federalist conspiracy against genuine liberty led by the Secretary of the Treasury and the monied interest both inside and outside the government was defeated by honest republicans.3 The first effective challenge to this consensus, ironically, came from the then socialist Charles Beard, who accepted the orthodox view of the Federalists but argued that there was little to choose between them and the

2 Hamilton's "Report on Manufactures," in particular, is a lengthy, though occasionally veiled attack on Smith's doctrines. For Smith's description of The Wealth of Nations, see Adam Smith to Andreas Holt, 26 Oct 1780 (ASC, 251).

3 See Jefferson, "The Anas" (TJWy I: 163-430); and for more discussion, Peterson (1960). The Federalists did have a few nineteentlvcentury champions; see Hildreth (1856).



468 Michael Merrill

Democratic Republicans (Beard, 1913; 1915). In Beard's version, both sides were dominated by a rapacious group of wealthy speculators, lawyers, merchants, and slaveholders. This leveling of distinc- tions left the way clear for a later revaluation of the Federalists, and especially Alexander Hamilton, whose reputation as a nation-builder and statesman began to climb as Jefferson's fell, reaching its apogee in Forrest McDonald's recent spirited biography, which elevated Hamilton to first among equals in the revolutionary generation. The other founders of the American Republic, McDonald argued, "were content merely to effect a political revolution." Alone among them, Hamilton "set out to effect what amounted to a social revolution" (McDonald, 1979: 3).4

Today, historiographical opinion is more divided than ever. Ask any two historians what either side stood for and you are likely to get three different answers. There are those, pace Beard, who see no significant difference between them (for example, Richard Hofstad- ter and William Appleman Williams), and those who, while acknowl- edging the differences, disagree about what the differences meant. Thus, where McDonald described Hamilton as the champion of a new liberal society based on equality of opportunity and Jefferson as a defender of a tradition-bound, hierarchical order, Joyce Ap- pleby reversed his emphases almost exactly. According to her, Jefferson was the liberal and Hamilton the traditionalist (Hofstadter, 1948; Williams, 1958; 1966; Appleby, 1982a; 1982b; 1984). Else- where, the Democratic Republicans have been presented as more worried about power than interested in growth; as interested in growth but opposed to all manufacturing except the "domestic" or "family" sort; or as the true champions of American manufacturing interests and the real architects of the nation's economic success. Meanwhile, Hamilton has been described as a mercantilist to the core, and as scarcely a mercantilist at all.5

Each of these accounts share a common failing: They universally equate "capitalism" with what eighteenth-century political economists called "commercial society," and take for granted that the

4 The course of Hamilton's ascension can be charted in Cooke (1967). 5 For the Jeffersonians on growth, see Banning (1978); McCoy (1980); and Nelson

(1987: Ch. 10). For alternative views on Hamilton's mercantilism, see Nelson (1987: Chs. 2-4) and Williams (1966).



ANTICAPITALIST ORIGINS OF U.S. 469

expansion of the latter automatically entailed the triumph of the former. As a result, they miss the most important element of the story. After the Revolution the U.S. had a choice between two different paths of commercial development: a "capitalist" path favorable to the interests of the monied elite; and an "agrarian" path favorable to the interests of working farmers, artisans, and small manufacturers. By equating "capitalism" and "commerical society," historians have failed to understand the nature of the "agrarian" alternative, and have been at a loss to explain why, after a decade of unprecedented commercial expansion, the agrarian Thomas Jefferson could be elected President of the United States, or why agrarianism continued to play such an important part in American politics until the end of the nineteenth century.

The proper place to begin to disentangle the many threads of this story is with the eighteenth century's most influential political economist, as well as its most pre-eminent agrarian theorist, Adam Smith. Smith opposed neither commerce nor capital accumulation. But he did oppose capitalist development policies, including the growth of government debts, state-sponsored monopolies, and tax policies that favored large farmers and the export sector over small holders and the domestic sector-primarily because such policies encouraged speculative investment and unproductive expenditures. He urged that all these state-supported priveleges for the rich be abolished, and that programs designed to encourage small-holding agriculture and its ancillary trades, together with the expansion of local markets, be put in their place. Such policies, Smith argued, would lead to a more balanced growth process and, especially, to increased real wages for the great mass of the populace- to him, the ultimate measure of successful development- as opposed to higher profits for a small minority of great landholders, merchants, and financiers. These views represented a direct challenge to European "court capitalists," many of whom owed their fortunes to the development policies Smith so sharply attacked, and for the next several decades they inspired much of the radical opposition to the established regimes of Europe. In the United States, however, thanks to the American Revolution, the opposition was able to seize power and Smith's proposals could become the common sense of the new regime, with profound consequences (cf. Merrill, 1985).

In the remainder of this essay, therefore, I want first to describe



470 Michael Merrill

the nature of Smith's anticapitalism more completely; and, secondly, to provide a quick overview of the American Revolution and its really revolutionary character. Only then will we be in a position to understand the quarrel in the 1790's between Federalists and Democratic Republicans over whether the United States should develop along capitalist or agrarian lines, and why, in the end, it was the latter which appealed to most Americans.

I

"Capitalism," which has meant many things to many people, meant nothing to Adam Smith, for it did not come into general use until nearly a century after his death. Nonetheless, to dismiss the claim that Smith was an ardent admirer of "capitalism" simply because the term did not exist in his lifetime would be begging the question. The Wealth of Nations has long provided ideologists of modern capitalism with their most powerful arguments, and for good reason. The first and most famous chapters of Smith's treatise, which linked increased productivity and therefore greater wealth to the extent of the market, can be read as a glorification of the insatiable and thoroughly capitalist insistence on the commodifica- tion of almost everything. Moreover, twentieth-century monetarists and neoconservatives who celebrate a supposedly unique connection between "capitalism and freedom" have easily turned to Smith's eloquent defense of "the system of natural liberty" for support. These associations have become so familar, so automatic, that they seem beyond challenge (cf. Hirschman, 1977; Cropsey, 1957). But Adam Smith was sharply critical of the capitalists of his day. Indeed, The Wealth of Nations can be profitably read as one of the most persuasive anticapitalist tracts ever penned.

To appreciate the dimensions of Smith's anti-capitalism, however, we need first to agree on a definition of "capitalism." The term first gained currency in radical working-class circles in Europe and the United States during the 1880's, when it was used to describe, critically, "the concentration of wealth in the hands of the few; the power or influence of large or concentrated capital; [or] a




system which favors this."6 This usage, of course, derived ultimately from Marx, even though he almost never used the term himself (the object of his concern in Capital, for example, is "the system of capitalist production," not "capitalism"), and the com temporary insistence on "capitalism" as a specifically economic system to be contrasted with other economic systems, which owes much to Marx's analysis of "capitalist production," misses the specific political dimension common to both Marx's occasional uses of the word and to its original popular meaning.7 For example, in one of the few places Marx did refer to "capitalism," he linked it with "landlordism" to denote the domination of English society by monied and landed wealth (MEW, XXI: 86). The point of the reference was not simply to stress, as more the more recent emphases would lead us to expect, that England had a labor market; the point was to insist that it was ruled by a monied as well as a landed interest. Similarly, the popular emphasis on "capitalism" as the dominance of the monied few over the waged many, which comes through in the several dictionary definitions of the term for the first fifty years or so after its appearance, has as much to do with politics as it does with economics.

This shift in emphasis is not inconsequential. Until recently, "capitalism" was widely agreed to be, by definition, incompatible with poopular rule. Even those who neither accepted Marx's analysis of capitalist production as the last word on the subject nor shared his follower's enthusiasm for socialism- like, for example, Max Weber- even they have generally treated the relationship between capitalism and democracy- indeed, capitalism and civilization- as, at best, problematic.8 After the Bolshevik triumph in 1917, however,

6 See A Dictionary of American English on Historical Principals (1939), from which the definition in the text is drawn; The Century Dictionary (1911); and the Oxford English Dictionary. Augustus Levey reported in the North American Review in 1886 that New York City workingmen considerd the new mass circulation newspapers as "hopelessly subservient to what they call 'capitalism'." 7 See, for example, the discussion of "capitalism" in Williams (1983).

8 Indeed, as Norman Birnbaum and Arthur Mitzman, among others, have shown, The Protestant Ethic and the Spirit of Capitalism was animated by no small degree of anticapitalist sentiment. See Birnbaum (1953) and Mitzman (1970). Moreover, Weber's friend and colleague, Werner Sombart, whose great study of Der Moderne Kapitalismus (1902) popularized the term beyond the working-class circles to which it had been confined, was in his early years a Christian socialist quite critical of capitalist society,



472 Michael Merrill

when even socialism was thought to have little or nothing to do with popular rule, this negative identification began to recede. Over the course of the next generation, Marxists came increasingly to emphasize the economic sense of both "capitalism" and "socialism" at the expense of the more political (and moral) meanings, while a small group of emigre Austrian economists who used "capitalism" in a more positive sense to refer to a system in which private enterprise, freedom, and individual initiative could flourish became increasingly popular (cf. von Mises, 1937; 1956; Schumpeter, 1942; von Hayek, 1944; 1954). From the 1940's onwards, under ideological pressure from the Cold War and the political, economic, and moral bankruptcy of Stalinism, the critical edge to the term, which had once been so much a part of its mystique, was blunted; in popular speech and and most scholarly discourse, "capitalism" was no longer incompatible with, and instead became indistinguishable from, freedom and democracy.9

If we are to recover the anti-capitalist dimensions of Smith's thought, we need first to return to the more political connotations of "capitalism" common to the international working-class circles of the late nineteenth century. Capitalism's distinguishing features, as I understand them, are not simply economic- that is, it refers to something more, depending upon one's frame of reference, than simply a commercial economy of private enterpises (the liberal frame) or a "mode of production" in which labor power is a commodity, bought and sold in the market (the Marxist frame).10 Rather, capitalism's distinguishing features, as I shall use the term, are also, and crucially, political. "Capitalism" is an economy run by or in the interests of capitalists. Where the economy is run by or in the interests of others- be they landed aristocrats, small property holders, or wage workers- then they we are not dealing with "capitalism," in my sense of the term, even if there are capitalists on

however much he might celebrate its economic achievements. See Mitzman (1973). Of course, in this regard Sombart differed not at all from Marx, who also had celebrated capitalism's economic achievements.

9 See, for example, the American College Dictionary (1947); the American Heritage Dictionary (1973); and the Random House Dictionary (1987). 10 The various modalities of the former are illustrated by the two entries under "capitalism" in the Encyclopedia of the Social Sciences and the International Encyclopedia of the Social Sciences. See Sombart (1930) and Hoover (1967).




the scene and even if some of them play an indispensible part in society. To call all economic systems characterized by private ownership of the means of production "capitalist," whether the owners are "monied men" or farmers and artisans, overlooks the very important differences between these two alternatives, differences which, as I hope to show, lay at the the heart of the struggle between "capitalists" and their opponents in the United States. On the other hand, to hold "capitalism" in reserve only for those systems in which the work force is waged, leaves unregarded all the semiproletarianized capitalisms outside the world-economy's core states, whose staying power has, in many instances, proved the equal of the more classical Marxist model of capitalism found in Great Britain (cf. Wallerstein, 1983).

Among the other advantages of this definition, it permits a relatively empirical description of an otherwise very abstract object, without introducing any anachronistic excesses. For while "capitalism" is of relatively recent vintage, "capitalist" has been used since at least the mid-seventeenth century to describe existing people.11 For example, self-styled "capitalists" can be found in practically every sector of eighteenth-century life, including merchant capitalists engaged in long-distance trade and private finance; those who George V. Taylor has dubbed "court capitalists," who made (and lost) their fortunes in public finance; capitalists engaged in mining and manufacturing enterprises; and, finally, agricultural capitalists (Taylor, 1964: 312). The activities of these individuals encompassed "capitalism" as Adam Smith knew it. However, as Fernand Braudel has noted, while capitalists had a presence in each of these sectors, they did not dominate them all, as they would later come to do. An eighteenth-century capitalist might own land or some other productive resource; he might even organize putting-out systems to ensure a supply of goods. But such activity was "always a corollary of what he really was: a man of the market, the Stock Exchange, of the networks and long chains of commerce. Above all a man in distribution, marketing- the sector in which real profits were made" (Braudel, 1982: 372).

We can therefore distinguish a hierarchy of "capitalists" in the

11 For a brief history of the terms "capitalism" and "capitalists," see Braudel (1982: 234).



474 Michael Merrill

eighteenth century, the most important of which dominated commerce, including both large-scale trade over long distances and the private financial mechanisms that enabled it to occur. Next in importance were the court capitalists who facilitated "the exploita- tion by individuals and syndicates of government farms, state loans, and joint-stock fluctuations and speculation," and, of course, included many of the same individuals included in the first group. These first two categories of "monied men" were the kingpins of eighteenth-century capitalism. Of lesser importance to the economy as a whole (though of great importance to the future) were the remaining capitalists: those engaged in manufacturing and mining, whom the important merchants joined when there was money to be made and just as quickly left when the opportunity vanished, and those engaged in agriculture, who, as Braudel and others have commented, during the eighteenth-century and much of the nineteenth, remained confined to Great Britain, the Low Countries and parts of France.12

Smith did not trust men of this type to run the economy in the public interest.13 In his view, high profits for capitalists detracted from, rather than contributed to, rapid economic growth. To be sure, Smith clearly believed that the only efficacious way for a nation to raise the productivity of its workforce, and hence to increase its real wealth, was to accumulate a larger capital stock. But he also argued that the excess profits of large merchants, speculators, and public creditors- the really-existing capitalists of the eighteenth century- were obstacles, arguably the most important obstacles, to the accumulation of productive capital. Eighteenth- century capitalists, in his view, made their money by restricting the supply of capital and not by expanding it.14 Conversely, restricting

12 See Taylor (1964: passim); Braudel (1982: 249-97); Blum (1978). Also, E. J. Hobsawm (1962: 33): "Only a few areas had pushed agrarian development one stage further towards a purely capitalist agriculture."

13 See, in particular, Viner (1972) and Rosenberg (1960). For the most comprehen- sive, recent scholarly treatment of Smith's work, see the essays in A. Skinner and T. Wilson (1975) and I. Hont and M. Ignatieff (1983). 14 This was so, Smith argued, for the simple reason that "The increase of stock, which raises wages, tends to lower profits. When the stocks of many rich merchants are turned into the same trade, their mutual competition naturally tends to lower its profit; and when there is a like increase of stock in all the different trades carried on in the same society, the same competition must produce the same effect in them all" (Smith,




the supply of capital, "as it lowers the wages of labour, so it raises the profits of stock, and consequently the interest of money" (Smith, 1937: 94). In this regard, he noted, the interest of monied men was "directly opposite to that of the great body of the people" (Smith, 1937: 461).

Indeed, if The Wealth of Nations had a single theme, it was that the monied interest was not the same as the public interest. In the first section of the work, to be sure, Smith masked his "violent attack upon the whole commercial system" with a seemingly neutral, even apologetic, account of "the causes of improvement in the productive powers of labour." But the argument was not really advanced before the "violent attack" has begun. The more a nation produced, Smith noted, the wealthier it was; the more skilful, industrious, and judicious its workforce, the more it produced; the more developed the division of labor, the more skilful the workforce; the wider the extent of the market, the more developed the division of labor; the higher the wages (and a fortiori the lower the profits), the wider the extent of the market; the larger the accumulation of productive capital, the higher the wages (and the lower the profits).

The anticapitalist implications of the last couple of steps in Smith's argument have not been sufficiently emphasized. The most important ideological prop of the capitalist system- that is, an economy run by capitalists- has been the idea that what was best for profits was best for growth, and therefore for the whole society. Smith believed exactly the opposite: Policies designed to ensure high wages were much more likely to lead to growth in his opinion than those meant to ensure high profits. This was so not only because, generally speaking, the more restricted the supply of capital the higher the rate of profit, but also because high profits encouraged unproductive expenditures, further diminishing the potential wealth of the nation.

Smith developed this last proposition at length in the second book of The Wealth of Nations, and, in the third, went on to show how policies designed to encourage high profits, which the nations of Europe had followed for centuries, had done more to impoverish

1937: 87).



476 Michael Merrill

than to enrich them. In the fourth book, he refuted the mistaken notions of the "mercantile or commercial system" which underlay these policies and were applauded by "the interested sophistry of merchants and manufacturers [who] confounded the common sense of mankind" (Smith, 1937: 627, 42 1).15 Finally, in the fifth and last book, Smith lowered both barrels at "court capitalists," arguing that Europe's sovereigns ought to devote themselves to projects that improved the general welfare, including encouraging schools, internal improvements and public works of all kinds, rather than to devising new ways to restrict trade or increase the public debt, which only benefitted monopolists and speculators.

Obviously, one would not expect a book on such themes to win many adherents among the ruling circles of the world's most powerful capitalist nation, and apart from a few admittedly well- placed but largely opportunistic admirers, including William Pitt and Edmund Burke, it did not. Hume accurately predicted that the book was too difficult to prove very popular, and sales, while steady, were slow. Adam Ferguson congratulated Smith for having pro- voked "the church, the universities and the merchants," but Smith declared himself "upon the whole much less abused than I had reason to expect."16 However, Smith purchased this kindness at the cost of having his principal arguments ignored. By 1790 Smith had become known as the author of a learned treatise on economic subjects, and his authority was occasionally cited in Parliament to buttress an argument. But his reputation rested wholly on his support for free trade, and he was used mostly as a talisman by both sides of the aisle, with no attention at all being paid to the details of his case (cf. Willis, 1979; Rashid, 1982; Teichgraeber, 1987).

Actually, the Parliamentary Adam Smith bore a greater resem- blance to Edmund Burke, who helped to popularize Smith's support for free trade, than it did to the Adam Smith of The Wealth of

15 Smith also devoted a chapter of his book to challenging various arguments of the Physiocrats, who were likewise sharply critical of the commercial system and shared his preference for agriculture, because, in his opinion, their doctrines were, "perhaps more inconsistent than even the mercantile system," and ended up encouraging that which they sought to discourage (Smith, 1937: 650).

16 David Hume to Adam Smith, 1 April 1776 (ASC, 186); Adam Ferguson to Adam Smith, 18 April 1776 (ASC, 193); and Adam Smith to Andreas Holt, 26 October, 1780 (ASC, 251).




Nations}^ Burke's Smith, like Burke himself and very much unlike Smith, favored freedom as long as it benefited the rich and found many excuses not to favor it where it threatened to benefit the poor (cf. Winch, 1978). This fear of the contagion of freedom actually held most merchants and monied men back from wholesale conversion to free trade doctrine for many years, and its opponents did not hesitate to exploit this fear by associating the cause with the excesses of the French Revolution. Frank declarations by Smith's admirers, such as the Marquis of Landsdowne, that the principles of the French Revoltion and the principles of Adam Smith were one and the same, only aided this effort (cf. Teichgraeber, 1987).

Free trade, for these men opportunistic of the doctrine, meant the ability to make as much money as possible; it did not mean, as it did for Smith, the abolition of all those restrictions on property and trade that advantaged the rich at the expense of the poor. Not surprisingly, Smith's own views found a more congenial home among the coalition of small farmers, artisans, merchants, and lawyers in North America, where the widespread distribution of property gave rise to an economic order that most clearly resembled Smith's ideal type, and whose democratic revolution had swept an aristocratic ruling class from power.

II

The long, bitter and costly war between Great Britain and its North American colonists (1774-1783) began as a narrow defense of traditional rights under a limited or constitutional monarch. But after two years of bloodshed it had taken on revolutionary dimensions, and in the end the victorious colonists completely altered the class structure of American society, abolishing an increasingly powerful Anglo-American aristocracy. Two hundred years later, their achievement has been mostly forgotten. Today, even scholars can be surprised to learn that there was an aristocracy to abolish.18

17 Burke himself was somewhat rankled by the notion that he was a follower of Smith's, insisting that he had been an advocate of free trade long before he had made the Scottish moralist's acquaintance, and any similarity of viewpoint was superficial. Smith was not an apologist for either the English aristocracy or for profiteering; Burke was. See Winch (1985).

18 Louis Hartz codified this shallow but influential view, which is still widely used



478 Michael Merrill

Seventy-five years ago, however, Charles M. Andrews could observe as a matter of common knowledge that from the first explorations of North America until the eve of the Revolution "lords and gentlemen of rank" plied the Grown for grants of land in the New World, and tried "to introduce there the feudal rights and privileges which they exercised at home" (1919: 19). King Charles II was very responsive to these requests, bestowing lavish gifts on his favorites. Indeed, one of the few lasting effects of the brief Restoration that followed the defeat of the English Revolution of 1640-1660 was the parcelling out of a sizeable chunk of North American real estate. As a result of King Charles's grateful generosity, most of what is now Pennsylvania, Maryland, Delaware, West Virginia, North Carolina, and other parts of Virginia besides, were controlled by just four families. By the 1730's, as Rowland Berthoff and John Murrin have noted, the increased population of the colonies had raised the rate of return from these claims enormously; indeed, on the eve of the Revolution the Penn family holding was on the verge of becoming the most profitable proprietary in the entire empire. A host of lesser gentleman also owned comparatively large tracts in New Jersey and New York; and, to complicate matters even further, uncertainty hovered over land titles in much of New England, causing frequent expressions of concern that "lordships" might one day even be erected there.19

The influence of this would-be Anglo-American aristocracy was evident everywhere. The colonies were governed by an infestation of retainers on two continents: local land officers, sheriffs, and judges, who sought to carry out instructions for the governor and his council; governors and councilors, who sought to interpret and enforce instructions of the colonial bureaucracies; the various subadministrators of the Board of Trade, the office of the Secretary of State for the Southern Department (which was concerned with American affairs), and the Treasury, who sought to carry out the policies of the king and his ministers; the aristocratic ministers who served the king as heads of these departments, and in Parliament;

in undergraduate education in the United States. Appealing more to prejudice than to evidence, Hartz argued that Americans never had an ancien regime to oppress them, and therefore never developed a really revolutionary tradition (1955: 5-6, 93).

19 Berthoff and Murrin (1973: 265). On New York, see Kim (1978); on New Jersey, see Pomfret (1964); on Massachusetts, see Bushman (1976: 77-124); and Bushman (1985).




and finally the king himself. In addition, somewhere between 5,000 and 7,500 British regulars were stationed in the colonies after 1763, together with their officers and command structures, and were available to enforce the edicts of the Crown, as required (Shy, 1965: 269).

The government of North America in the British Empire itself proceeded on royalist assumptions that had, by the mid-eighteenth century, long since been abandoned in Great Britain. For example, governors had the right to veto legislation in local assemblies that did not meet their approval. They had the authority to dissolve the legislature, and could refuse to call new elections for years on end, if they so desired. Also, judges served at the pleasure of the Crown, and in most colonies new courts could be created by executive order without statutory approval (the exceptions were Massachu- setts, Rhode Island, Connecticut, and also, arguably, Pennsylva- nia).20

The European settlers in British North America were thus colonials as well as colonists. From the first settlement down to the Revolution, they inhabited a region of the British Empire viewed, like Ireland, as wholly subordinate to the control of the British government (Blackstone, 1979: 105). As such, they were legally subject to a network of unevenly enforced obligations and traditional prerogatives that their overlords, in the wake of the defeat of France in the Seven Years' War, resolved to revivify, by means of a great reform of the imperial system, the primary object of which was to strengthen the authority of the king and his aristocratic ministers in the colonies. The first step was to increase the military establishment in North America, not simply "to awe France and Spain," wrote one former official of the Crown, but also to secure "the Dependence of the Colony" (Knox, 1763: 122). The second was to create a permanent fund to support the civil administration of the colonies without requiring the prior consent of the local assemblies. By these measures, the Privy Council proposed "Clip- ping the Wings of the Assemblies in their Claims of all the Privileg- es of a House of Commons."21

20 On the last three points, see Bailyn (1970: 67-69), who, of course, puts a very different twist on these matters than I do.

21 See Pownall (1768: 263). The Privy Council is quoted in Benjamin Franklin to I. Norris March 19, 1759, in (BFP, VIII: 295).



480 Michael Merrill

The Americans, needless to say, had other notions. As they understood the colonial charters, the assemblies could not make law without the king's assent, but neither could he make law without theirs (Franklin, 1986: 143; see also Greene, 1980: 87). They therefore met each new proposal for reform with an increasing intransigence until the dispute escalated into war. The last straw was the Crown's closing of the port of Boston and the suspension of the traditional rights of town meetings, which, together with acts empowering the governor to requisition uninhabited buildings as required to quarter troops and forbidding prosecution of British officers accused of capital crimes in colonial courts, presaged direct military government in the colony.22 When a detachment of Brit- ish regulars raided Lexington and Concord in search of arms, thousands of country folk hastened to Boston, where they laid seige to the town, surrounded the British Army, and refused to leave until the Continental Congress in Philadelphia recognized them as the Army of the Revolution with George Washington their Commander- in-Chief (French, 1925; 1934).

Victory was by no means assured even then, of course, and the war was to drag on through many a dark moment for nine more years. But when the armed conflict was finally won, many of the former colonists were set to sweep away the monopolies, duties, pro- hibitions, and restraints that both the Declaration of Independence and The Wealth of Nations had complained of so bitterly. "The system of natural liberty" was not, for them, any longer, simply a philosophical abstraction: It seemed an achievable goal, and they were determined to take every chance afforded them to gain it.

The revolutionary generation paid dearly for this unparalleled opportunity, however. Casualties from the war have been conserva- tively estimated at 25,000 dead (including those killed in action, victims of disease while on active service, and prisoners of war who died in captivity), and 25,000 maimed, in a country the size of present day Nicaragua (Peckham, 1974: 130; Shy, 1978: 46). It is harder to get a handle on the cost of the war in material terms.

22 The same "Intolerable Acts" also changed the Council from an elective to an appointive body, and gave the governor the powers to appoint and to dismiss without consultation all judges, justices of the peace, sheriffs, and so on. See Jensen (1962: 781- 83).




Thousands of people had their homes and possessions torched by armies on both sides, and many more suffered a similar fate at the hands of free-lance raiding parties that preyed on noncombatants who were suspected of giving support to the wrong side, whichever it might be. A small proportion of the Loyalists who suffered losses during the war submitted claims to the British government totalling more than approximately $45 million, of which more than $9 million were actually paid, and some states (for example, New Jersey) tabulated the losses suffered by patriots (Eardly-Wilmont, 1815: 196-97).23 But no one systematically tried to estimate the total cost of the war in material terms (cf. Shy, 1978). Even putting aside property losses, however, which were generally made up by the relatives, friends, and neighbors of the afflicted and never the subject of an official inquiry, the outstanding public debt left unfiinded at the war's end (and therefore, as far as many of the nation's creditors were concerned, effectively repudiated) was large enough to cause considerable concern.24 The bulk of the debt had been issued between 1778 and 1780 by the several states and the Continental Congress in order both to purchase supplies for their armed forces and to pay the soldiers and sailors who served in them. Similar measures had been used by previous colonial governments, but never had so much paper been issued so quickly with so little guarantee of redemption. As a result, nearly all the notes soon ceased to circulate, except among speculators, and the country was wracked with controversies over how and even whether to repay the debt. The more conservative members of the Revolu-

23 The actual amounts requested and granted were £10 million and £2 million, respectively. I converted the totals to dollars using data from Bjork (1985: Appendix II- 1). For an estimate of the number of Loyalists, see Brown (1965: 249) and Smith (1968: 259-77).

24 In 1786, Thomas Jefferson (TJP, XII: 43) put the cost of prosecuting the war at $140 million, including the specie value of all the paper money issued by both the Continental Congress and the states, and all the loans, both foreign and domestic. A generation later Richard Hildreth (1856: 446-48) guessed the cost to the public of Continental currency issues to have been more than twice, and the cost of state issues a little more than half, Jefferson's estimate, to arrive at an overall figure of $170 million.

Private property losses, too, were quite considerable. In Massachusetts, uncollected private debts were the root cause of the great Regulation of 1786, during which a large part of the population was in open rebellion against the state government. See Szatsmary (1980) and Hall (1972).



482 Michael Merrill

tionary coalition favored repaying the debt at par, and were prepared to raise taxes as high as possible to make this feasible. Radicals, on the other hand, favored officially repudiating at least a portion of the domestic debt, arguing that the war-time inflation had fallen most heavily on those who would pay the greatest part of the steep taxes necessary to redeem the whole debt at par. Mostly in response to these concerns, the state legislatures adopted various schemes during the 1780's to provide some debt relief, including tax amnesties and moratoria, tender laws, and new issues of paper money, all of which the conservatives bitterly opposed.25

These quarrels provided the backdrop to the drafting and ratification of the second federal constitution of the United States in 1786-1787, and to the debates over the powers and duties of the new government during the 1790's, especially with regard to the new nation's economic policy, both foreign and domestic. But the postrevolutionary generation did not approach these problems simply as a matter of economic policy. The Revolution raised the expectations of the poor as well as those of the rich, those of slaves as well as slaveowners, those of women as well as men. The entire country was gripped with a millennial fervor in the midst of which nearly anything seemed possible. (Hamilton in Federalist no. 6 referred to "visionary, or designing men, who stand ready to advocate the paradox of perpetual peace between the States.") Not only was government to be put on a new foundation, but so too, as ministers, editorialists, politicans, and assorted other characters constantly reminded the people at large, were the churches, schools, penal institutions, domestic relations, the English language itself, indeed nearly anything and everything (Neving, 1924: 420-69; Jensen 1950: 129-53). When the cost of the war was measured against such hopes, it seemed inconsequential. The principal concern of the postrevolutionary generation was not how to redeem the debt, but how to redeem the expectations thus created.

25 The best accounts of these struggles are still Nevins ( 1924) and Jensen ( 1950). For an excellent recent study of events in a single, crucial state, see Hall (1972).




III

In this heady atmosphere, Americans debated how best to ensure the security and prosperity of the nation. The Federalists, led by Alexander Hamilton, generally looked to the world's pre-eminent capitalist power for inspiration.

"See what a wonderful spectacle Great Britain exhibits," Hamil- ton once exulted:

Observe the mature state of her agricultural improvements under the auspices of large Capitals employed to that end. Consider the extent of her navigation and external Com- merce. Note the huge & varied pile of her manufactures. See her factors and agents spread over the four quarters of the Globe doing a great part of the business of other nations by force of Capital. View the great extent of her marine insur- ances attracting to her a considerable portion of the profits of the Commerce of most other nations. View her in fine the Creditor of the world (AHP, XIX: 69).

The Democratic Republicans, on the other hand, recoiled at the thought that the United States might follow "the dreadful example of Great Britain."

Had Britain never experienced the curse of a navigation act- had the industrious part of the nation been permitted to enjoy the full and just values of the produce of their labor, by a free commerce, had she not entered into wars to support the unbounded avarice of her merchants- had she not borrowed money, and funded her debt, to enable her to carry on such wars- and had she avoided excise laws, and every species of indirect taxation; contenting herself with the just portion of the net produce of the land, the great body of the people would enjoy a degree of ease and happiness to which they are now strangers, and the nation itself would experience real prosperity and power (Logan, 1791: 44-45).

They hoped rather that the postrevolutionary United States would provide the world with an alternative model of development, one which secured for it the benefits of equality as well as liberty.26

26 The equality thus desired was, of course, a relative equality. The radicals no more



484 Michael Merrill

In short, to use a more contemporary frame of reference, Federalists and Democratic Republicans disagreed sharply over whether or not the United States should develop along capitalist lines. Of course, as noted above, the notion of "capitalism" was unknown to them. But it is perfectly clear that "capitalism" was the bone in the soup.

The Revolution had left a trail of destruction and death through nearly every state, and for years afterward the nation as a whole was burdened by an immense debt. What should be done to hasten the country's recovery and to repay its creditors? The Federalists believed that if the United States was to survive and prosper, it needed to win the support of its wealthiest citizens and mobilize their resources on its behalf, as England had done. In order to do so they favored federal, state, and local policies that would encourage private capital accumulation and the expansion of the money economy. The Democratic Republicans, on the other hand, believed that the mass of small property holders, the "middling sort," was a more important prop to the new republic than the rich Few. They rested their hopes on proposals designed both to strengthen local economies, which were based largely on barter, and to encourage the devolution or widespread distribution of property. They preferred a country in which many people had enough to live on and were free of the "casualties and caprices of customers" to one in which livelihoods depended upon whether a relatively small number of monied men had sufficient incentive to provide jobs for a large class of propertyless wage earners (Jefferson, 1955: 165).

Adam Smith could be enlisted on either side of this debate. He believed that prosperity would exacerbate inequalities not moderate them; and he favored capital accumulation. But the Democratic Republicans were not opposed to inequality as long as it was "natural"- the result of a person's own talents and work- and not "artificial"- the result of government favoritism; and they were not

imagined society could be organized on the basis of absolute equality than the conservatives imagined it could be organized on the basis of absolute liberty. Having inherited such a relatively equal society, especially when compared to Europe, the radicals proposed simply to protect what they had by distributing power as widely as possible at least among themselves. Household dependents of one sort or another (women, children, servants, slaves) were, of course, excluded from this calculation, as were propertyless wage earners.




opposed to the accumulation as long as it left "producers," and not the "salary and fee men," holding the balance of social power. Similarly, Smith opposed most government attempts to regulate the economy because, in his view, such interference invariably favored the interests of rich merchants and other monied men. However, where such interference could be reasonably certain to benefit the poor, Smith supported it.27 In Great Britain, such a rule of thumb left little room for positive legislation, since the government was firmly in the hands of the monied interests. But in the newly independent United States, the situation was more favorable to the radicals, as the many efforts made by the states after the war to provide relief to the citizenry, despite the opposition of conservatives, testified.

Largely because of divisions within the radicals' ranks over the necessity and desirability of the new Constitution, the Democratic Republicans were very much a minority in George Washington's first federal administration, which was dominated by those who wished to implement exactly those policies Smith had criticized. Alexander Hamilton, the Secretary of the Treasury, assumed office with a plan of action already clearly in mind. First, he proposed that the new federal government should assume responsibility for repaying the full value of all the outstanding war debt issued by both the Continental Congress and the states, principal as well as unpaid interest, which he estimated to be approximately $54 million. Secondly, he suggested paying for the obligations thus incurred with customs duties on imports and tonnage, as well as new taxes on distilled spirits, coffees and teas, both foreign and domestic. Thirdly, he sought to establish a commission consisting of high government officers who were empowered to retire the debt "as shall appear to them most adviseable" and also to borrow up to $12 million more, as required, to support the value of the debt and cover any shortfalls in revenue. Fourthly, he wanted to charter a national bank and other joint-stock companies in order both to increase the supply of money and to provide attractive investment outlets for holders of public securities. And, finally, he sought to re-establish friendly trading relations with Great Britain, both to

27 See especially Book V of The Wealth of Nations, "Of the Revenue of the Sovereign or Commonwealth," and Winch (1978).



486 Michael Merrill

help U.S. import merchants recover business lost as a result of the Revolution, and to prevent any disruption in the British export trade to the United States.28

Hamilton's primary objective in all this, it must be stressed, was political and military, not economic. He was much less concerned with making the United States a capitalist country than he was with making it a front-rank military power (cf. Stourzh, 1970; Kohn, 1975). "Let Americans disdain to be the instruments of European greatness!" he had exhorted his fellow citizens in the Federalist Papers. "Let the thirteen States, bound together in a strict and indissoluble Union, concur in erecting one great American system, superior to the control of all transatlantic force or influence, and able to dictate the terms of connection between the old and the new world" (Hamilton, 1937: 69). But the road to military power passed through economic and fiscal reform. The centerpiece of Hamilton's system was a properly funded debt, modeled on Great Britain's, which would enable the United States to support a military establishment equal to the tasks he envisioned for it. Everything he proposed, including the funding system, the banks, the new taxes, the joint-stock companies, and so on, were all means to this end. He thought the U.S. ought to follow the example of Great Britain not so much because he admired its economic and political institutions but because he feared its military might. The United States would never be free of European domination until it was able to match its forces regiment by regiment and warship by warship. And, as the example of Great Britain had shown, the only way a country could afford such a military establishment was by creating a modern fiscal system that maximized the government's ability to raise revenue, both from the population at large and from monied men.29 To accomplish this goal required nothing less than a complete transformation of the country's dominant mode of production. According to Hamilton, the United States had for too long labored under the disadvantages of an outdated barter economy. He had complained

28 Alexander Hamilton's famous reports can be conveniently consulted in AHR. My view of Hamilton and his funding plan has been most heavily influenced by McDonald (1979) and Nelson (1987). Ferguson (1961) is also indispensable. 29 On the British war machine in the eighteenth century, see Brewer (1989) and McNeill (1982: 117, 178-84).




as early as the winter of 1779-1780 that "a great part of our internal commerce is carried on by barter," which he thought "inconvenient, partial, confined, [and] destructive both of commerce and industry."30 Most awkwardly, it also interfered with the ability of the government to raise an adequate revenue. To some extent, Hamilton viewed this reliance on barter as simply a consequence of a shortage of money. Remedy the shortage and the system would disappear. But there was another part of him that appreciated how it conferred advantages on those who participated in it. uThe farmers have the game in their hands," he had complained in 1779. "If they do not like the price [offered by the government, they] are not obliged to sell because they have almost every necessary within themselves, salt and one or two more excepted, which bear a small proportion to what is wanted from them and which they can obtain by barter for other articles equally indispensable."31 His solution to the revenue crisis of 1779-1780 was an impractical suggestion to replace deficit financing with a tax-in-kind. A year or so later he would draw different lessons from the same experiences. "The great influx of money [from deficit financing] at first operated upon the avarice of the people and for a long time served also as a stimulus to industry." But in a barter economy, he concluded, avarice was not enough to sustain the demand for money; eventually it had to be supplemented by other compulsions, for which purposes money taxes were particularly well-suited.32

Hamilton never forgot this lesson, and he turned it to direct account in his funding system. One of the principal benefits of the plan, he believed, was that citizens had to pay a continual tax, which acted as "a Motive to greater exertion in any occupation." "This idea," he then stressed, "is not without importance in the general view of the subject" (AHR, 152). It was one of the many reasons why "the proper funding of the present debt, will render it a nation-

30 Hamilton to , Dec, 1779(?) (AHP, II: 244). See also AHR, 62; Hamilton to Robert Morris, April 30, 1781, in AHP, II: 619. For more on the barter economy, see Merrill (1985).

31 When Hamilton wrote that the farmers "have almost every necessary within themselves," he can be understood to refer either to every farm family or every farm community. The latter is more consistent both with the text and modern scholarship. See, among other things, Pruitt (1984: 333-64).

32 Hamilton to Robert Morris, April 31, 1781 (AHP, II: 611).



488 Michael Merrill

al blessing," and explains why he proposed no strict schedule for its retirement. To be sure, he did propose "as a fundamental maxim, in the system of public credit of the United States, that the creation of debt should always be accompanied by the means of extinguishment"; and he even asked for a commission empowered to purchase securities as it thought advisable (AHR, 41). But the only revenues Hamilton suggested be set aside for a sinking fund were the profits earned by the government from the operation of the post office. (The man did have a sense of humor.)33 The real point of this commission was to maintain the par value of the debt through the eighteenth-century equivalent of current-day open market operations by the Federal Reserve. Unlike the Democratic Republicans, Hamilton had no desire to retire the debt. Indeed, during his tenure he worked rather to enlarge it by additional borrowings, the power to engage in which he had also consciously proposed to bestow on his commission.34

Still Hamilton intended the funding system to do more than simply extend the domestic money economy; he intended it as well to create what can only be called a capitalist society. "The force of Money Capital which has been displayed in Great Britain, and the height to which every species of industry has grown up under it," Hamilton observed, "has been Coeval with its funding system" (AHR, 153). A similar program in the United States would have similar effects. "Money is the very hinge on which commerce turns" (AHR, 106). "By multiplying the means of gratification, by promot- ing the introduction and circulation of the precious metals, those darling objects of human avarice and enterprise"- or, we can add in this context, any other kind of money- the new central government helped "to vivify and invigorate the channels of industry, and to make them flow with greater activity and copiousness" (Hamilton, 137: 70). By undertaking to repay all the outstanding revolutionary debt, it not only bestowed a $50 to $60 million windfall on the holders of public securities, but also greatly enlarged the money

33 I just want to thank John Murrin for pointing this out to me. 34 Albert Gallatin (1796) documented the increase of the debt under Hamilton. For

more on Gallatin, see Burrows (1986) and Nelson (1987). Janet Reisman (1987) sees Hamilton's support for "means of extinguishment" as evidence that he intended to retire the debt, but his subsequent actions proved that reducing the debt was not nearly so important to him as maintaining its value in the marketplace.



ANnCAPITAUST ORIGINS OF U.S. 489

supply, which promised to extend trade, promote agriculture and manufactures, lower the rate of interest, and "from the combination of these effects" furnish additional aids to "labour, to industry, and to arts of every kind" (AHR, 5). In short, the funded debt served "as an engine of business, or as an instrument of industry and Com- merce" and to "increase the real wealth of a Community," primarily because it gave "Monied men" access to financial capital that they could invest, Hamilton crowed, in "any scheme of business which offers" (AHR, 153-54; 150).

The businesses which Hamilton had particularly in mind were banks and "manufacturing establishments." The former increased the money supply, and thus conferred the same advantages on the community, in Hamilton's opinion, as did the funding system; while manufacturing establishments, for their part, increased the "Pro- duce and Revenue of the Society" to levels otherwise unattainable (AHR, 127-28). They had this happy result, Hamilton argued, because they promoted the furthest possible specialization of tasks, forced a greater "economy of time," and increased the use of machinery (AHR, 128-29). In addition, factories provided employ- ment to those Hamilton thought were not fully employed otherwise, especially women and children, who, in his constricted view, were "rendered more useful, and the latter more early useful, by manufacturing establishments than they would otherwise be" (AHR, 128-30; 131). Banks also had additional, directly political advantages. First, they provided governments with a ready source of cash which could be very useful in national emergencies, as the United States had learned the hard way during the Revolution (AHR, 48- 51). But, secondly, and more importantly in Hamilton's opinion, a bank "will interweave itself into the monied interest of every State, which will by its notes insinuate itself into every branch of industry and will affect the interests of all classes of the community" (AHP, VIII: 223).

The Democratic Republicans sharply condemned this whole program. The people had ratified the second federal Constitution, they argued, believing that the government needed additional power to repay its debts, which every responsible observer agreed should be done as quickly as possible. Hamilton had betrayed this hope. His program was not designed to reduce the government's obligations so much as to increase them, as evidenced by his



490 Michael Merrill

eagerness to have the federal government promise to repay the outstanding state debts as well as those for which the Continental Congress had been responsible. In addition, he so managed the affairs of the department as actually to require additional borrow- ing! Then, the Democratic Republicans charged, in order to pay the charges on this swollen debt, he had imposed high, inequitable, and ultimately unenforceable taxes on the population. Because the holders of the debt were mostly speculators, the system resulted in a redistribution of wealth, from the poorer, more productive part of the population to the richer, less productive part. Because many of these speculators were foreign, they claimed, the system also exacerbated an already acute balance of payments problem, sending ever more species overseas and further dimininshing the supply of sound money at home. And, finally, his critics argued, Hamilton's funding system created an artificial interest- a class of monied men whose wealth and income was due to public largess and not to their own industry- which would ever more work to secure legislation that benefited themselves at the expense of the public.35

The Democratic Republicans sought to stem this rush to power by the monied men of the Revolution with counterproposals of their own. First, where Hamilton favored funding the entire debt at its face value, they proposed to discriminate between its original and its present holders of the debt, where they were different. Only original and foreign creditors were to receive the full amount of principal and interest due them. Later domestic purchasers were to receive much less, depending upon the formula adopted. Secondly, where Hamilton sought to make the debt perpetual, the Democratic Republicans wanted to retire it quickly, using receipts from custom duties and from western land sales to accomplish redemption relatively painlessly. Thirdly, where Hamilton wanted to increase taxes until they reached the highest possible level consistent with good order, the Democratic Republicans wanted to reduce taxes to the lowest possible level consistent with good government. Fourthly, where Hamilton favored chartering both a federal bank and

95 This is a very telescoped summary of an immense literature. The most important documents in the Democratic Republic critique are Thomas Jefferson to George Washington, May 23, 1792 (TJW, VI: 487-95); Logan (1791; 1792; 1793); and Gallatin (1796).




joint-stock corporations, the Democratic Republicans generally opposed them both. And, finally, where the Federalists thought good relations with Great Britain should be preserved at all costs, the Democratic Republicans favored restricting British access to U.S. markets until and unless American merchants were allowed to trade freely both in Great Britain and in the British West Indies.36

Clearly the debate between the Federalists and the Democratic Republicans was more than simply a tactical disagreement over how to handle the debt. Alexander Hamilton and his friends dreamed of founding a rich and powerful nation-state "able to dictate the terms of connection between the old and the new world." They also understood that in order for their dream to be realized, the money economy of the coastal entrepots had to spread to the small towns and settlements in the countryside where most people lived. Only if farmers and artisans abandoned the barter system with which they conducted the largest part of their trade could governments raise their tax revenues enough to support the military establishment of a front-rank world power. As we have seen, Hamilton proposed to accomplish this transformation by a combination of positive and negative incentives. The funding system was intended both to concentrate a large quantity of capital in private hands so that it could be invested in extensive commercial enterprises and to require a permanent increase in the rate of taxation. The natural compulsions of avarice could be relied upon to raise the demand for money in the former instance just as the artificial compulsions of the taxing power would do so in the latter.

The Democratic Republicans had other dreams. They envisioned an "empire of liberty" in the New World, where the blessings of free government could be enjoyed by independent farmers and artisans down to "the thousandth generation." They viewed the fiscal system as a direct challenge to this possibility, for all the reasons sketched above. Moreover, they understood that the barter economy operated largely to assist rather to hinder their hopes. The Democratic Republicans wanted farmers to have the game in their

36 The best accounts of the economic ideas of the Democratic Republicans are McCoy (1980) and Nelson (1987). However, neither of these works, in my opinion, successfully conveyed the full range of opposition thinking on these matters, and especially its radicalism.



492 Michael Merrill

hands. "The class of citizens who provide at once their own food and their own raiment," James Madison observed, "may be viewed as the most truely independent and happy." But they were more even than that: They were also "the best basis of public liberty and the strongest bulwark of public safety" (JM W, VI: 96-99).37 The spread of the money economy threatened this "republican distribution of citizens," especially when it was spread by Hamilton's methods. The fiscal system, by enriching a few speculators at the expense of the nation, "nourishes in our citizens habits of vice and idleness instead of industry & morality" (TJW, VI: 490). The people were better served by policies that reduced and eventually eliminat- ed the debt, lowered rather than raised taxes, encouraged domestic production rather than reliance on imports, and fostered fiscal prudence rather than fiscal extravagence.

In short, where the Federalists wanted to see the United States become a capitalist country, the Democratic Republicans were content to let it remain an agrarian one. This difference lay at the heart of their debate over economic policy in the first years after the Revolution. Federalists generally supported policies that put the interests of monied men and others dependent on the commercial economy before those of most farmers and artisans, whose livelihoods were much more clearly linked to local barter networks. They sought to use the debt as a means to monetize these networks in order both to raise the tax capacity of the nation and, not inciden- tally, the rate of return on monied capital. In return, they claimed, the country would enjoy unparalleled prosperity. The Democratic Republicans, on the other hand, charged that such policies would produce as much poverty as prosperity, and that growth ought to be- and could be- achieved more equitably. In support of their views they could cite no less an authority than Adam Smith, who argued exactly that in The Wealth of Nations. They could also point to contemporary conditions in Great Britain, where the ill effects of policies like those the Federalists proposed were, so they charged, evident to all.

Hindsight is not always perfect. Looking back on the period from our vantage, more than 200 years later, it is easy to overlook

37 See also Jefferson (1955) and James Madison to Thomas Jefferson, June 19, 1786 (JMP, IX: 76).




the fact that the anticapitalist Democratic Republicans won the argument. And yet they did. In 1800, Thomas Jefferson was elected President of the United States and he immediately set out to dismantle as much of the Federalist's program as he could. An array of direct taxes passed at the end of the previous decade, as well as laws restricting both immigration, naturalization, and freedom of speech were allowed to lapse. Government spending was cut, and the resulting surplus revenue was used to retire a sizable chunk of the outstanding debt. Moreover, the Democratic Republicans did not hesitate to use the powers of the government to further agrarian- as opposed to capitalist- development whenever possible. In 1803, for example, Jefferson leaped at the opportunity to purchase the Louisiana Territory from Spain, even though it would temporarily stall his efforts to reduce the federal debt, because he saw western lands as crucial to the preservation of an agrarian republic in North America. And, in the last years of his administration, he struck at the very heart of the link between the U.S. and the capitalist world-economy, prohibiting the importation of all British goods into the country in 1806, and declaring an embargo on all U.S. exports to Great Britain two years later (cf. Spivak, 1979).

Of course, the Democratic Republicans were bucking the tide of history. They could delay the development of capitalism in the United States, but they could not prevent it altogether. First, they had no real power over the course of events in other areas of the world, especially in Europe, where capitalists ultimately succeeded in reorganizing the agricultural sector, creating a vast pool of propertyless laborers who were eager to work in U.S. factories. Secondly, Adam Smith was simply wrong about the superior productive potential of yeoman agriculture. Even before The Wealth of Nations was published, manufacturers had begun to harness mechanical energy to the process of production, thereby increasing the output of their workforce many-fold. These new-fangled enterprises were well-suited for capitalist financing, and over the next several decades monied men and manufacturers forged a new understanding, the intellectual basis for which had been provided by the wealthy bond-trader and stock-jobber, David Ricardo, who re-packaged Smith's political economy in his Principles of Political Economy and Taxation as a defense of, rather than an attack on, the interests of capitalists.



494 Michael Merrill

Moreover, the same Democratic Republicans who were extolling the virtues of an "empire of liberty" were reluctant to see it inhabited by anyone else. The "system of natural liberty" was fine for white, male, property holders; but when it came to extending its provenance to women, African slaves, and wage earners- not to mention the many indigenous peoples whose liberty directly conflicted with that of the European settlers- most radicals balked. Nevertheless, we should not allow either the eventual triumph of capitalism in the United States or the limitations of the Democratic Republican political imagination to obscure the historical achievements of the radicals. They championed a vision of development in the United States that placed as much emphasis on equality as it did on accumulation, and that looked to higher wages instead of higher profits as both the best guarantor and the best indicator of growth. In so doing they did not seek to abolish the money economy, or even the capitalist class, so much as to limit its power. The best way to oppose capitalism, in their view, was not to nationalize property and centralize power but to democratize property and de-centralize power. If there is to be a viable anticapitalism in our future, its past will be found among these eighteenth-century American revolutionaries who helped to create the social and political conditions to enable a larger share of their new nation's working people to enjoy a greater measure of real power than was true anywhere else in the world. Two hundred years and many revolutions later, their success, partial though it was, is still unrivaled.

REFERENCES

Abbreviations:

AHPi The Papers of Alexander Hamilton. Harold Syrctt, ed. New York: Columbia Univ. Press, 1961- 1987.

AHRi The Reports of Alexander Hamilton. Jacob E. Cooke, ed. New York: Harper 8c Row, 1964. ASC: The Correspondence of Adam Smith. E. C. Mossner and I. S. Ross, eds. Oxford: Oxford Univ.

Press, 1987. BFPi Papers of Benjamin Franklin. Leonard Labaree, ed. New Haven: Yale Univ. Press, 1959-. JMW: The Writings of James Madison. Galliard Hunt, ed. New York: Putnam, 1900-1910. JMPi Papers of James Madison. Robert Rutland, ed. Chicago: Univ. of Chicago Press, 1962-.




MEW: Karl Marx and Fredrick Engels: Collected Works. London: Lawrence & Wiseheart, 1975-. TIP: Papers of Thomas Jefferson. Julian Boyd, ed. Princeton: Princeton Univ. Press, 1950-. TJWi The Works of Thomas Jefferson. P. L. Ford, ed. New York: Putnam, 1892-1899. WMQ. William and Mary Quarterly. Third Series. 1944-.

Other Sources:

Andrews, Charles (1919). "Introduction," in Beverly Bond, The Quit-Rent System in the American Colonies, 11-23. New Haven: Yale Univ. Press.

Appleby, Joyce (1982a). "Commercial Farming and the 'Agrarian Myth* in the Early Republic," Journal of American History, LXVIII, 4, Mar., 833-49.

Appleby, Joyce (1982b). "What is Still American in the Political Philosophy of Thomas Jefferson," WMQ, XXXIX, 2, Apr., 287-302.

Appleby, Joyce (1984). Capitalism and the New Social Order The Republican Visions of the 1790s. New York: New York Univ. Press.

Bailyn, Bernard (1970). The Origins of American Politics. New York: Vintage. Banning, Lance (1978). The Jeffersonian Persuasion. Ithaca: Cornell Univ. Press. Beard, Charles (1913). An Economic Interpretation of the Constitution of the United States. New York:

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