In 1791 there was a debate as to whether Congress should establish a central bank. As Treasury Secretary, Alexander Hamilton conceived of it, wrote a report on the bank supporting it, and proposed the legislation. The bank was approved by Congress, but the vote was entirely regional. The Southern delegation opposed it while the larger Northern delegation supported it. Governor Henry Lee of Virginia proposed that Virginia start a competing bank. Referring to the US Congress as a "foreign legislature" Secretary of State Jefferson wrote the following to Governor Lee, quoted on page 352 of Ron Chernow's biography of Alexander Hamilton:
The power of erecting banks and corporations was not given to the general government; it remains then with the state itself. For any person to recognize a foreign legislature in a case belonging to the state itself is an act of treason against the state. And whosoever shall do any act under color of authority of a foreign legislature--whether by signing notes, issuing or passing them, acting as director, cashier or in any other office relating to it, shall be adjudged guilty of high treason and suffer death accordingly by the judgment of the state courts. This is the only opposition worthy or our state and the only kind which can be effectual...I really wish that this or nothing should be done.
In other words, Jefferson would have had the governor of Virginia execute Ben Bernanke. Am I missing something, or wasn't Jefferson the greatest of the Founding Fathers?
Showing posts with label Alexadner Hamilton. Show all posts
Showing posts with label Alexadner Hamilton. Show all posts
Friday, July 15, 2011
Wednesday, February 18, 2009
Federalist's Argument for Union
John Jay, Federalist No. 5:
"Should the people of America divide themselves into three or four nations, would not...jealousies arise? Instead of their being 'joined in affection and free from all apprehension of different interests," envy and jealousy would soon extinguish confidence and affection, and the partial interests of each confederacy, instead of the general interests of all America, would be the only objects of their policy and pursuits. Hence, like most other bordering nations, they would always be involved in dispute and war, or live in the constant apprehension of them...
"The most sanguine advocates of three or four confederacies cannot reasonably suppose that they would long remain exactly on an equal footing in point of strength...Independent of those local circumstances which tend to beget and increase power in one part and to impede its progress in another, we must advert to the effects of that superior policy and good management which would probably distinguish the government of one above the rest, and by which their relative equality in strength and consideration would be destroyed. For it cannot be presumed that the same degree of sound policy, prudence and foresight would uniformly be observed by each of these confederacies for a long succession of years..."
But might this not argue indeed for separate confederacies? Jay assumes that management is the product of good fortune. But Sir Arnold Toynbee, a century and a half later, argued that mimesis or imitation is the hallmark of a rising civilization. Might not independent confederacies permit experimentation and learning which would potentially be imitated by the other confederacies? Management is a process of learning, and learning is possible through experimentation. The decentralization of decision processes permits learning. So the decentralization of federal power permits innovation that would not exist in a centralized federal structure.
Jay feared that less successful confederacies would fear more successful ones. Might not they decide to imitate the more successful ones instead?
In the Federalist Number Six, Hamilton argued that separate federations would likely lead to conflict and war:
"Has it not...invariably been found that momentary passions, and immediate interests, have a more active and imperious control over human conduct than general or remote considerations of policy, utility or justice? Has republics in practice been less addicted to war than monarchies?...Are there not aversions, predilections, rivalships and desires of unjust acquisitions that affect nations as well as kings?...There have been almost as many popular as royal wars...it has from long observation of progress of society become a sort of axiom in politics that vicinity, or nearness of situation, constitutes nations natural enemies..."
But decentralization need not mean de-federalization. The states can remain in unity, as a single nation, but choose separate policies voluntary. The enmity of proximity can be induced by forced collaboration and participation in programs whose values many members of society do not share. The forcible extraction of assent to programs that only a portion of the population favors can give rise to the same resentment as that which neighboring states feel toward each other. The unity of a federal republic need not mean the unity of choice of consumption or or ideal.
Hamilton makes a similar claim in Federalist number 7:
"Competitions of commerce would be another fruitful source of contention. The States less favourably circumstanced would be desirous of escaping from the disadvantages of local situation and of sharing in the advantages of of their more fortunate neighbors. Each State, or separate confederacy, would pursue a system of commercial policy peculiar to itself. This would occasion distinctions, preferences and exclusions, which would beget discontent. The habits of intercourse, on the basis of equal privileges to which we have been accustomed since the earliest settlement of the country would give a keener edge to those causes of discontent than they would naturally have independent of this circumstance. The spirit of enterprise, which characterizes the commercial part of America, has left no occasion of displaying itself unimproved. It is not at all probable that this unbridled spirit would pay much respect to those regulations of trade by which particular States might endeavor to secure exclusive benefits to their own citizens."
Hamilton's concerns need not materialize in a hyper-federalized America. In Hamilton's time, geographic differences were of great importance. Modern management methods and technological advances had not yet made the importance of process and strategy so evident as they are today. Better economic success can be imitated, especially by flexible firms that are young. It is the centralization of American buisness, its scale, that has engendered the inability to imitate Japanese processes. The misallocation of credit toward failed, large firms has prevented the formation of smaller, more nimble automobile firms.
Hamilton also argues that "the public debt of the Union would be a further cause of collision between the separate states." But hyper-federalization need not involve repudiation of debt or individually-based federal taxation. This system has been instituted and need not be repudiated until the debts have been satisfied on the basis on which they have been incurred.
"Should the people of America divide themselves into three or four nations, would not...jealousies arise? Instead of their being 'joined in affection and free from all apprehension of different interests," envy and jealousy would soon extinguish confidence and affection, and the partial interests of each confederacy, instead of the general interests of all America, would be the only objects of their policy and pursuits. Hence, like most other bordering nations, they would always be involved in dispute and war, or live in the constant apprehension of them...
"The most sanguine advocates of three or four confederacies cannot reasonably suppose that they would long remain exactly on an equal footing in point of strength...Independent of those local circumstances which tend to beget and increase power in one part and to impede its progress in another, we must advert to the effects of that superior policy and good management which would probably distinguish the government of one above the rest, and by which their relative equality in strength and consideration would be destroyed. For it cannot be presumed that the same degree of sound policy, prudence and foresight would uniformly be observed by each of these confederacies for a long succession of years..."
But might this not argue indeed for separate confederacies? Jay assumes that management is the product of good fortune. But Sir Arnold Toynbee, a century and a half later, argued that mimesis or imitation is the hallmark of a rising civilization. Might not independent confederacies permit experimentation and learning which would potentially be imitated by the other confederacies? Management is a process of learning, and learning is possible through experimentation. The decentralization of decision processes permits learning. So the decentralization of federal power permits innovation that would not exist in a centralized federal structure.
Jay feared that less successful confederacies would fear more successful ones. Might not they decide to imitate the more successful ones instead?
In the Federalist Number Six, Hamilton argued that separate federations would likely lead to conflict and war:
"Has it not...invariably been found that momentary passions, and immediate interests, have a more active and imperious control over human conduct than general or remote considerations of policy, utility or justice? Has republics in practice been less addicted to war than monarchies?...Are there not aversions, predilections, rivalships and desires of unjust acquisitions that affect nations as well as kings?...There have been almost as many popular as royal wars...it has from long observation of progress of society become a sort of axiom in politics that vicinity, or nearness of situation, constitutes nations natural enemies..."
But decentralization need not mean de-federalization. The states can remain in unity, as a single nation, but choose separate policies voluntary. The enmity of proximity can be induced by forced collaboration and participation in programs whose values many members of society do not share. The forcible extraction of assent to programs that only a portion of the population favors can give rise to the same resentment as that which neighboring states feel toward each other. The unity of a federal republic need not mean the unity of choice of consumption or or ideal.
Hamilton makes a similar claim in Federalist number 7:
"Competitions of commerce would be another fruitful source of contention. The States less favourably circumstanced would be desirous of escaping from the disadvantages of local situation and of sharing in the advantages of of their more fortunate neighbors. Each State, or separate confederacy, would pursue a system of commercial policy peculiar to itself. This would occasion distinctions, preferences and exclusions, which would beget discontent. The habits of intercourse, on the basis of equal privileges to which we have been accustomed since the earliest settlement of the country would give a keener edge to those causes of discontent than they would naturally have independent of this circumstance. The spirit of enterprise, which characterizes the commercial part of America, has left no occasion of displaying itself unimproved. It is not at all probable that this unbridled spirit would pay much respect to those regulations of trade by which particular States might endeavor to secure exclusive benefits to their own citizens."
Hamilton's concerns need not materialize in a hyper-federalized America. In Hamilton's time, geographic differences were of great importance. Modern management methods and technological advances had not yet made the importance of process and strategy so evident as they are today. Better economic success can be imitated, especially by flexible firms that are young. It is the centralization of American buisness, its scale, that has engendered the inability to imitate Japanese processes. The misallocation of credit toward failed, large firms has prevented the formation of smaller, more nimble automobile firms.
Hamilton also argues that "the public debt of the Union would be a further cause of collision between the separate states." But hyper-federalization need not involve repudiation of debt or individually-based federal taxation. This system has been instituted and need not be repudiated until the debts have been satisfied on the basis on which they have been incurred.
Sunday, June 29, 2008
The Federalist No. 13 and Economies of Scale in Government
In the Federalist Number 13 Hamilton argues that an advantage to adoption of the Constitution and establishment of a unified nation as opposed to 13 separate states or three regional confederacies is efficiency that results from economies of scale. Hamilton argues:
"No well-informed man will suppose that the affairs of such a confederacy can be properly regulated by a government less comprehensive in its origins or institutions than that which has been proposed by the convention. When the dimensions of a State attain to a certain magnitude, it requires the same energy of government and the same forms of administration which are requisite in one of much greater extent."
Hamilton was right about the costs of government. The cost of governing 3 million people is much less than twice the cost of governing 1.5 million people. But Hamilton could not have foreseen the increasingly strategic role that government plays in economic development. That is, a range of federal policies restrict and influence business decision making in ways that Hamilton could not have foreseen. These include the creation of money, the social security system, funding of urban renewal, health plans for the elderly. Hamilton did advocate central banking and federal involvement in the economy, such as the creation of a state manufacturing incubator, but he could not have imagined the degree to which government influences economic behavior in our world.
The choice between centralization and decentralization involves two considerations: the economies of scale that Hamilton identified, and the creativity and experimentation that decentralization permits. Thirteen states permit thirteen approaches to regulation. Two or three confederacies would permit two or three approaches. Diversity of strategies permit comparisons and learning. Hamilton was right with respect to the Constitution, but he overstates the value of economies of scale as they might apply to our world.
"No well-informed man will suppose that the affairs of such a confederacy can be properly regulated by a government less comprehensive in its origins or institutions than that which has been proposed by the convention. When the dimensions of a State attain to a certain magnitude, it requires the same energy of government and the same forms of administration which are requisite in one of much greater extent."
Hamilton was right about the costs of government. The cost of governing 3 million people is much less than twice the cost of governing 1.5 million people. But Hamilton could not have foreseen the increasingly strategic role that government plays in economic development. That is, a range of federal policies restrict and influence business decision making in ways that Hamilton could not have foreseen. These include the creation of money, the social security system, funding of urban renewal, health plans for the elderly. Hamilton did advocate central banking and federal involvement in the economy, such as the creation of a state manufacturing incubator, but he could not have imagined the degree to which government influences economic behavior in our world.
The choice between centralization and decentralization involves two considerations: the economies of scale that Hamilton identified, and the creativity and experimentation that decentralization permits. Thirteen states permit thirteen approaches to regulation. Two or three confederacies would permit two or three approaches. Diversity of strategies permit comparisons and learning. Hamilton was right with respect to the Constitution, but he overstates the value of economies of scale as they might apply to our world.
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