THE REPUBLICAN PARADOX

The American Founders presumed overwhelmingly that prosperity required liberty. And no wonder, as most works in eighteenth-century political economy repeated the same mantra. “It has become an established opinion,” Hume noted in 1742, “that commerce can never flourish but in a free government.” Britons, he continued, possess “much more property than any subject has every enjoyed,” owing, primarily, to that “magnificent idea of the British spirit and love of liberty.”^{Footnote 7}

Political slavery imperiled economic prosperity. “There is something hurtful to commerce inherent in the very nature of absolute government,” Hume contended; commerce is “apt to decay in absolute governments.” Under despotic government, the specter of an arbitrary seizure of property continually haunts the minds of tradesmen and merchants, for the lack of “fix’d Laws”—according to Gordon and Trenchard in Cato’s Letters (1720)—discourages entrepreneurship. “The hopes of gain, and the secure possession of property,” Adam Ferguson argued, “must perish under the precarious tenure of political slavery, and the apprehension of danger arising from the reputation of wealth.” “Grand enterprises of merchants . . . are not for monarchical, but for republican governments,” Montesquieu stipulated; “I do not pretend to say that any monarchy is entirely excluded from an economical commerce, but of its own nature it has less tendency towards it.”^{Footnote 8}

Colonial Americans profitably utilized this rhetoric in the early stages of the American Revolution. Tyranny was terribly objectionable for a number of reasons, not the least of which was that it jeopardized their own economic good. “They who are taxed at Pleasure by others cannot possibly have any property,” remarked Rhode Island shortly after Parliament’s passing of the Stamp Act. If Parliament insisted upon taxing the colonists, Americans will soon be “deprived of our properties,” predicted James Wilson, future delegate to the Constitutional Convention. “The great obstacle to the peace and prosperity of the Americans,” wrote another in 1774, “appears to me to be an ill grounded jealousy of the colonies being FREE.”^{Footnote 9}

Having secured independence after 1783, many Americans believed economic prosperity to be practically unavoidable. Representative government advanced the interests of the people, and according to Jefferson in 1782, “our interest will be to throw open the doors of commerce, and to knock off all its shackles, giving perfect freedom to all persons for the vent of whatever they may choose to bring into our ports.” No longer would Americans suffer under the weight of such laws as the Navigation Acts, which one author called “such an absurdity as I think eclipses all that I ever heard of.” All the reason to remain extraordinarily vigilant, for threats to liberty abounded. Hence President Washington, in his Farewell Address, urged Americans to always remember that liberty maintains “all in the secure and tranquil enjoyment of the rights of person and property.” Political freedom, he continued, will duly “give trade a stable course,” “define the rights of our merchants,” and establish “conventional rules of intercourse.”^{Footnote 10}

Liberty, for now, was finally in place; a long economic boom was certain to follow. But with it arrived a disturbingly new question. Liberty fathered prosperity, yes. But unbridled prosperity jeopardized virtue, and virtue was requisite for political liberty. Equally troubling was the lack of consensus on this all-important question. If the Founders were mostly united in the belief that liberty was necessary for economic prosperity, they were—like their British counterparts—far more divided on questions surrounding luxury, virtue, and vice.

Eighteenth-century philosophers assumed generally uniform definitions for virtue and vice. Vices, according to Ferguson, included the “habits of sensuality, debauchery, prodigality, vanity, and arrogance.” Virtue, on the other hand, included sympathy, prudence, charity, sincerity, sensibility, affability, industry, frugality, justice, fortitude, temperance, modesty, and magnanimity: all “qualities and actions,” according to Smith, “which deserve to be admired and celebrated.” To this list, Henry Home, Lord Kames emphatically included patriotism, the highest of the “social affections.” Perhaps most broadly of all, Francis Hutcheson, Scottish moral philosopher, defined virtue as “any habit or disposition which perfects the powers of the soul.” “Virtue is a very fashionable Word,” scorned Mandeville, “and some of the most luxurious are extremely fond of the amiable sound.”^{Footnote 11}

Definitions for luxury were far less concrete. “Luxury is a word of an uncertain signification,” Hume noted. “We are far from being agreed on the application of the term luxury,” wrote Ferguson, “It is admired, and it is blamed.” And yet, notwithstanding, there still proliferated a “generally uniform” understanding of luxury: that which is “rather intended to please the fancy, than to obviate real wants, and which is rather ornamental than useful.” Nevertheless, the term was immensely subjective. One man’s luxury might be another man’s poverty, and yesterday’s luxury might be commonplace tomorrow. As Kames remarked in 1774, “every new object of sensual gratification and every indulgence beyond what is usual, are commonly termed luxury, and cease to be luxury when they turn habitual.”^{Footnote 12}

Not all luxury, moreover, was one and the same. Indeed, it was clear to many moral philosophers that at least some, if not most, luxury was good. Civic humanists in Europe were long skeptical of all forms of luxury: classical Greek and Roman polemicists raged against its ruinous effects—public and private—influencing, in turn, many early modern thinkers. The Commercial Revolution, however, effectively, albeit gradually, punched severe holes through the older paradigm on luxury. A number of seventeenth-century authors unabashedly associated commercial activity with virtuous behavior, and by the turn of the eighteenth century a still smaller number explicitly defended practically all luxurious spending, divorcing the issue from moral philosophy by championing its purported benefit to commercial society, “The main spur to Trade, or rather to Industry and Ingenuity, is the exorbitant Appetites of Men,” remarked Sir Dudley North in 1691. Fourteen years later, Mandeville went a step further in Fable of the Bees by praising even the vices that accompanied voluptuous spending. A severe backlash ensued, initiating the famed luxury debate among eighteenth-century philosophers, with many still loudly denouncing the moral degeneracy they associated with “gross Luxury” and “exorbitant Wealth,” “where the Love of Money rules.”^{Footnote 13}

Hume sought a middle ground in the luxury debates. There was a key difference, he argued, between “innocent luxury” and “vicious luxury.” “Men of libertine principles bestow praises even on vicious luxury,” he commented—thinking, perhaps, of Mandeville—“and on the other hand, men of severe morals blame even the most innocent luxury, and represent it as the source of all the corruptions. . . . We shall here endeavor to correct both these extremes.”^{Footnote 14}

Innocent luxury, for Hume and many others, was extraordinarily positive, if not absolutely necessary, for both a prosperous economy and a virtuous society, encouraging personal initiative and amiable relations. “Commerce is a cure for the most destructive prejudices,” said Montesquieu, “wherever there is commerce, there we meet with agreeable manners.” When extravagant consumers “entrench upon no virtue,” Hume stipulated, “they are entirely innocent”; indeed, “the ages of refinement are both the happiest and most virtuous.” “Private interest in trade operates with the least erring direction for the public benefit,” Ferguson argued; Smith, in particular, was decidedly adamant on the virtues of commercial society: values that simply do not exist in a “rude and barbarous country.”^{Footnote 15}

Vicious luxury, in contrast, was exceedingly dangerous, though philosophers clashed on the precise degree of this supposed danger. According to Hume, “a gratification is only vicious when it engrosses all a man’s expence” or “pursued at the expence of some virtue,” namely, “acts of duty and generosity.” “Wherever luxury ceases to be innocent,” he continued, “it also ceases to be beneficial; and when carried a degree too far, is a quality pernicious,” bearing a “natural tendency to beget venality and corruption.” Smith likewise condemned “fashionable profligacy,” listing the “disposition to admire, and almost to worship, the rich and powerful” as the “great and most universal cause of the corruption of our moral sentiments.” Kames associated unbridled luxury with “beastly selfishness,” causing men to become “feeble in mind as well as in body”; Ferguson similarly argued that “high fortune is sometimes attended” with “habits of sensuality, debaucher, prodigality, vanity, and arrogance.” “The dissolution of morals,” Rousseau insisted, is a “necessary consequence of luxury.”^{Footnote 16}

Not incidentally, the American Founders also anxiously mulled over the issue, and like so many of their contemporaries assumed a nuanced position. The Founders, to be sure, were not reactionary moralists; many concluded that a little luxury might indeed be good for the young republic. “Is not the Hope of one day being able to purchase and enjoy Luxuries a great Spur to Labour and Industry?” Franklin asked in 1784. Nevertheless, a great many of the Founders were very much concerned about the pernicious effects of luxury’s more vicious manifestations. The same Franklin believed a profusion of wealth to America might be “productive of the same Sloth, and the same feverish Extravagance” found elsewhere around the globe; John Witherspoon, in like manner, warned of the “laziness and luxury” that accompanies sudden wealth creation. “I tremble when I think of that rage for trade which is likely to prevail among them,” Richard Price, radical Welsh philosopher, remarked in Observations on the Importance of the American Revolution (1785). “It may do them infinite mischief,” he continued, “and should this happen, that simplicity of character, that manliness of spirit . . . in which true dignity consists, will disappear. Effeminacy, servility and venality will enter; and liberty and virtue be swallowed up in the gulph of corruption.”^{Footnote 17}

History was more than sufficient to buttress their concerns about luxury. “History is philosophy teaching by examples,” said Bolingbroke in 1752, “the study of history seems to me, of all other, the most proper to train us up to private and public virtue.” A vast literature proliferated in England and Scotland on the precise causes of state degradation, often pointing to luxury as the primary culprit. Rome, during its “primitive innocence,” was very “sensible of Liberty . . . but in process of Time” they suffered a “general Corruption and Depravation of manners, by luxurious Coursess . . . wallowed up with Riot and Luxury” and “soone bowed under the yoak of Imperiall Tyranny.” Algernon Sidney—the famous English political martyr in the 1680s—traced, very carefully, the fall of each ancient empire to the point “when Luxury was brought into fashion.” Hence Trenchard, later contributor to Cato’s Letters, called luxury, the “Bane and Destruction of most Countries where it has been predominant.” “The Happiness and Duration of States depends much less on mere Law and external Institution,” another stipulated in 1758, “and much more on the internal Force of Manners and Principles.”^{Footnote 18}

James Burgh, English moralist, was most insistent of all. “No Degree of Wealth, of Trade, of Naval or Military Force, have ever been sufficient to support any Nation where Luxury and Vice have prevailed,” he argued in 1746, “but on the contrary the greatest Empires in all Ages have sunk before them.” Once imperial conquest “debauched the Romans with the Luxury of Asia, they did not preserve their Liberties for half a Century”; “the Citizens employed themselves in nothing but Banquests, Games, Shows, Parties of Pleasure and Carousals,” so that “the ancient simple Roman Virtue gradually sunk more and more, till the Empire at last was torn to pieces.” Indeed, “its Ruin was owing to its Vices, and to its Vices only”; that “infernal Monster LUXURY and its attendant Vices.”^{Footnote 19}

Was Britain next? Many a philosopher believed so, and colonial Americans were constantly bombarded with British tracts lambasting “our degenerate Times” and “Scenes of Wantonness, Pleasure, and Extravagance”: a country “where Luxury and Effeminacy form the ruling Character of a People.” It is “obvious to every Eye,” Burgh wrote in 1746, “that Luxury and Irreligion, which are inseparable Companions, are the characteristic Vices of the Age.” Kames believed Britain to be “on the brink of a precipice”; Price believed Britain to be “hanging by a thread,” so “enervated by luxury” and “encumbered with debts.” Even Hume admonished the “encreasing luxury of the nation” and “our proneness to corruption,” believing it might shortly endanger “our free government.” “The English are probably the most luxurious people now in the world,” Burgh reiterated in 1775, “a people enslaving themselves to luxury.”^{Footnote 20}

Colonial Americans, after 1763, gladly capitalized upon this rhetoric of moral bankruptcy in Britain. Shortly after the Stamp Act debacle, George Mason assured a group of London merchants that “we are still the same people with them in every respect; only not yet debauched by wealth, luxury, venality and corruption.” Franklin, in 1775, dubbed Britain that “old rotten State,” with “wide-wasting Prodigality” and “extream Corruption prevalent.” Contrast this, he added, to the “glorious publick Virtue so predominant in our rising Country.” Burgh agreed, praising the colonists’ “sobriety and temperate way of living”; Burke, in like manner, acknowledged that in the “character of the Americans, a love of freedom is the predominating feature . . . this fierce spirit of liberty is stronger in the English colonies probably than in any other people of the earth.”^{Footnote 21}

After American independence, then, it was critically important, to many of the Founders, to avoid what Jefferson called “the English career of debt, corruption and rottenness.” A preservation of American virtue was absolutely imperative, for liberty was categorically contingent upon virtue. “No State can long preserve its Liberty where Virtue is not supremely honored,” Samuel Adams wrote a mere three weeks after signing the Declaration of Independence; “the Soul or Spirit of Democracy is Virtue,” he added. “Virtue and Simplicity of Manners are indispensably necessary in a Republic,” John Adams contended in 1776; Jefferson similarly urged that “it is the manners and spirit of a people which preserve a republic in vigour.” Ordinary Americans, insisted Madison, must have the requisite “virtue and intelligence to select men of virtue and wisdom” for political office; otherwise, “no theoretical checks, no form of government, can render us secure.” “To suppose,” he argued, “that any form of government will secure liberty or happiness without any virtue in the people, is a chimerical idea.” President Washington devoted considerable attention to public morality in his Farewell Address, calling it “substantially true that virtue or morality is a necessary spring of popular government”—indeed, “to every species of free government”—for “of all the dispositions and habits, which lead to political prosperity, Religion and Morality are indispensable supports.”^{Footnote 22}

Here again, Americans drew heavily upon a vast literature affixing liberty with virtue. Milton earlier called liberty the “fruit of piety, of justice, of temperance, and unadulterated virtue . . . fit only to be handled by just and virtuous men.” “As you love your Liberties, exercise your Virtue; they depend upon it,” read Cato’s Letters; “virtue is necessary in a republic,” remarked Montesquieu. “A wise and brave people will neither be cozen’d, nor bully’d out of their liberty,” said Bolingbroke; yet those, on the contrary, who “degenerate” and “sink into sloth and luxury,” lack “the sense to discern their danger in time,” wanting, thereafter, “the courage to resist” tyrannical government “when it stares them in the face,” thus losing “what they deserve no longer to enjoy.”^{Footnote 23}

A viciously immoral, luxurious people were psychologically incapable of liberty. “Liberty cannot be preserved, if the manners of the People are corrupted,” remarked Sidney. “When the belly is full, the mind is at ease,” Kames cautioned; Burgh similarly spoke of the “impossibility of a nation’s continuing free after its virtue is gone,” rendering them “uncapable of liberty.” “Among such persons,” Milton asked, “who would be willing either to fight for liberty, or to encounter the least peril in its defence? It is not agreeable to the nature of things, that such persons ever should be free.” Indeed, wrote another, once people become “accustomed to luxury and ease,” they will find themselves “dreading more the dangers of poverty than of subjection.” “The less luxury there is in a republic, the more it is perfect,” contended Montesquieu; a viciously opulent people, Rousseau explained, “fling garlands of flowers over the chains which weigh them down” and “stifle in men’s breasts that sense of original liberty,” making them “happy slaves.”^{Footnote 24}

A virtuous people were utterly incapable of tolerating despotic government. “If Vice and Corruption prevail, Liberty cannot subsist,” Sidney maintained, “but if Virtue have the advantage, arbitrary Power cannot be established.” “Only a virtuous people are capable of freedom,” Franklin remarked in 1787: “As nations become corrupt and vicious, they have more need of masters.” “Can it be denied,” Rousseau asked, “that rectitude of morals is essential to the duration of empires, and that luxury is diametrically opposed to such rectitude? . . . The politicians of the ancient world were always talking of morals and virtue; ours speak of nothing but commerce and money,” and “money, though it buys everything else, cannot buy morals and citizens.”^{Footnote 25}

But was vice a necessary by-product of economic prosperity? Strict moralists, libertines, and everyone in between appeared to acknowledge so. To “live in ease, without great vices,” argued Mandeville, “is a vain Eutopia seated in the brain.” Indeed, it was utterly impossible to enjoy “all the most elegant comforts of life . . . and at the same time, be blessed with all the virtue and innocence that can be wished for in a golden age.” Mandeville, of course, believed vice was not incompatible with liberty—indeed, “vice nurs’d ingenuity”—but though Hume and others moderately sympathized with this view—believing innocent luxury “has a natural tendency to preserve, if not produce a free government”—most eighteenth-century thinkers strictly insisted that vicious luxury and political liberty were perfectly incompatible.^{Footnote 26}

Prosperity, the necessary by-product of liberty—itself the necessary by-product of virtue—necessarily produced the societal vices that necessarily destroy liberty. As a commencement speaker at the College of William and Mary explained in 1775—in a lecture entitled “On the Fall of Empires”—republics “proceed, in fatal round, from virtuous industry and valour, to wealth and conquest; next to luxury, then to foul corruption and bloated morals; and, last of all, to sloth, anarchy, slavery and political death.”^{Footnote 27}

The Founders, then, had good reason to worry. “A free people are the most addicted to luxury of any,” John Adams remarked in 1787, and “in a country like America, where the means and opportunities for luxury are so easy and so plenty, it would be madness not to expect it.” “While this is the Case,” he continued, “there is great Danger that a Republican Government would be very factious and turbulent,” for “public Virtue cannot exist in a Nation without private, and public Virtue in the only Foundation of Republics.” “Prosperity,” warned another American in 1795, “is apt to bring political evils in its train, such as luxury and idleness, dissipation and extravagant expenses; which tend to, and end in, wretchedness and ruin.” “I am infinitely more apprehensive of the Contagion of Vice than the Power of all other Enemies,” wrote Samuel Adams.^{Footnote 28}

The Jeffersonian branch of American thought, however, believed it had a solution, and if properly pursued, it would allow the United States to actualize what no other nation or empire had hitherto achieved. The task was daunting, to say the least. Like Hume’s treatment of luxury—and unlike Lycurgus of Sparta—American republicans could not simply dismiss all prosperity as objectionable. They had to distinguish between the vicious and the innocent. The United States required economic planning; it demanded the encouragement of virtuous commerce and the discouragement of its most vicious manifestations, namely, industrial manufacturing and the unscrupulous world of high finance.

THE LANDED AND MONEYED INTERESTS

English republicans, in the seventeenth century, bestowed remarkable praise upon landed society. James Harrington was the foremost philosophical proponent of agrarian culture, publishing, in 1656, his magnum opus, The Common-Wealth of Oceana: a hypothetical republic where “Farms and houses of Husbandry” constituted the standard of all economic, social, and political organization; a society of independent freeholders, allowing the ordinary “Subject to live in convenient plenty, and no servile condition.” Such a people, Harrington argued, are “the most obstinate assertive of liberty,” and “the least subject unto shakings and turbulency of any.” Freehold land granted the owner an extraordinary sense of duty, citizenship, and responsibility: requisite qualities for any free and virtuous people.^{Footnote 29}

Harrington’s influence extended well into the eighteenth century, adopted, primarily, by oppositional Tory and Country Whig thinkers in England. “Every ploughman knows a good government from a bad,” wrote Trenchard and Gordon. “Honesty and plainness go always together.” “I am firmly persuaded that there is not in their way a better Sett of Men, generally speaking, than the Freeholders of England,” wrote Francis Atterbury, a prominent Tory, in 1714. “They are a brave, open, plain and direct People.”^{Footnote 30}

Nevertheless, in the century after the Glorious Revolution, England witnessed a noticeable reduction in the number of small, independent freeholders, from about 30 percent of landholdings in 1690 to a mere 15 percent by the final quarter of the eighteenth century. By the latter date, landed property had decidedly consolidated into a smaller number of larger estates, and many lesser yeomen had either moved to the city or descended into mere tenancy.^{Footnote 31} The number of nonaristocratic, gentleman landowners, moreover—after rising substantially in the sixteenth and early seventeenth centuries—remained static after the mid-seventeenth century.^{Footnote 32} The trend was exactly opposite from what Harrington envisioned.

In its stead arose, first, the drudgery of large-scale, industrial manufacturing. Even Smith was highly critical of its societal impact, observing how the “lower ranks of people in the country are really superior to those of the town.” Indeed, one of the great “inconveniences” of the “division of labour,” Smith noted, was that “every man has only a simple operation to perform; to this his whole attention is confined, and few ideas pass in his mind but what have an immediate connexion with it.” To illustrate, Smith instanced a factory worker whose “whole attention is bestowed on the seventeenth part of a pin, or the eightieth part of a button.” “Another inconvenience,” he continued, was that “education is greatly neglected. . . . [T]he minds of men are contracted, and rendered incapable of elevation,” and if that was not enough, the “heroic spirit is almost utterly extinguished.” “It is remarkable that in every commercial nation the low people are exceedingly stupid,” Smith stated. “The rule is general; in towns they are not so intelligent as in the country.” “To remedy these defects,” he concluded, “would be an object worthy of serious attention.”^{Footnote 33}

Even more pernicious was the rise of speculative finance, a product of the post-1688 Financial Revolution. Buyers and sellers of paper securities—private equities in joint-stock enterprises, or, more especially, public shares in the national debt—were rapidly supplanting, in power, wealth, and influence, the purely landed sector.^{Footnote 34} These so-called stockjobbers suffered an unseemly reputation for crass, disreputable, unscrupulous moneymaking—wealth founded not upon tangible assets, but upon the trading of paper—a “Species of Gaming,” according to Atterbury.^{Footnote 35} Exasperating matters, the British Parliament awarded exclusive privileges and monopolies to the most profitable enterprises, namely, the Bank of England, the East India Company, and the South Sea Company, the latter of which notoriously unveiled, in 1720, the unsettling fact of cyclical crises and bankruptcy.^{Footnote 36}

The context of Cato’s Letters, in fact, was the 1720 bursting of the South Sea Bubble, a crisis precipitated by “a Conspiracy of Stock-Jobbers . . . the Cannibals of Credit . . . a sort of Vermin that are bred and nourish’d in the Corruption of the State.” As Jonathan Swift bemoaned in 1710, “The Wealth of the Nation, that used to be reckoned by the Value of Land, is now computed by the Rise and Fall of Stocks.” It was Christ, remember, who drove out the money changers, quite violently no less. “A sort of property which was not known twenty years ago is now increased to be almost equal to the terra firma of our island,” remarked Bolingbroke in 1709. Ferguson warned that the City of London would soon be overtaken by “crowds of adventurers,” pursuing a “ruinous branch of traffic” that “resembles rather the vicissitudes of a gaming table . . . unlike the employment of stock in manufacture or commerce.” “The old prudent maxims of frugality, by which our fathers acquired wealth,” wrote another, “are exploded, and we must all attain to riches by means of project and adventure.” “Wealth, accumulated by industry, has a wonderful influence upon manners,” Kames stipulated, but the wealth accrued by bankers and speculators, according to many, was not at all accumulated by industry, but rather deceit and manipulation—“Chimerical Treasure,” to quote Davenant—diametrically opposed to republican principles.^{Footnote 37}

British virtue, and consequently liberty, was gravely endangered. This was not an anti-capitalist critique: the same British writers enthusiastically endorsed tangible commercial activity, such as the merchant’s buying and selling of goods: “the heart-blood of the body politick,” to quote The Craftsman, an anti-stockjobbing journal. But a great distinction was drawn between shopkeepers, merchants, entrepreneurs, and even manufacturers on the one hand, and financiers, bondholders, and stockjobbers on the other. The critique juxtaposed real property with fictitious property. “Nothing can be so absurd,” wrote Alexander Montgomerie in 1753, “as to confound the trading interest and that of the stockholders together.” Rather, “the landed and trading interests, like those of the different members of the same body, are inseparable,” uniformly antagonized by that “spirit of gaming” and “iniquitous traffic of stockjobbing.”^{Footnote 38}

Out of all the moneyed corporations, the Bank of England attracted the fiercest opposition. As early as 1694, the year of its charter, critics accused the Bank’s founders of “Avaricious, Narrow, and Sinister Designs”: a “most detrimental” scheme with “Extraordinary Advantages given to monied Men”—namely, immediate access to taxes for perpetual interest payments—threatening to “Ingross the Money, and consequently the Trade of the Nation, into one City.” In “making Merchandise of the Government,” wrote another detractor in 1694, they have committed “little better than Treason against it.”^{Footnote 39}

Most critics assailed the deep political connections between the moneyed interest and the ruling Whig oligarchy in England.^{Footnote 40} Davenant, in 1701, called bankers and stockjobbers “a Set of Busy, Undertaking, Ambitious, Light, and Projecting Persons,” who of “late Years have crept into the Administration of our Affairs”; men grown “Rich, Powerful and Great” from having “Plunder’d the Commonwealth.” We must “emancipate government out of their hands,” urged Bolingbroke; Members of Parliament are “immediately or indirectly under their influence,” becoming “the real masters of every administration.” “Blest paper-credit! “Last and best supply! That lends corruption lighter wings to fly!” quipped Alexander Pope. Two separate critics in 1707 even went so far as to accuse the Bank of being “directly levelled at the destruction of our Constitution,” warning that “if this Bank is prolong’d, it will ingross our Trade, and ruin our Constitution.”^{Footnote 41}

Bolingbroke, a leading Tory philosopher, was perhaps the most outspoken critic of the great “paper estates” arising from the “dark, intricate, and wicked mystery of stockjobbing.” Bolingbroke continually railed against the Whigs for the “bitter fruits of the corruption they planted” with the chartering of the Bank of England, “creating a new, that is, a moneyed interest . . . the opportunity of amassing immense estates by the management of funds, by trafficking in paper, and by all the arts of jobbing”; a “scheme of iniquity” and “cancerous humour,” producing a “prodigious inequality between the condition of the moneyed men and of the rest of the nation.”^{Footnote 42}

To be sure, many British writers did not have such a gloomy outlook on things. The political system in the eighteenth century was remarkably stable compared to neighboring governments on the Continent, and especially compared to the English experience in the seventeenth century. British nationalism, by the mid-eighteenth century, had never been higher, united by Protestantism, political freedom, and commercial and maritime dominance.^{Footnote 43} As Hume commented in 1752, “The liberties of England, so far from decaying since the improvements in the arts, have never flourished so much.” Robert Wallace, a Scottish minister, admonished the perpetuation of “so many imaginary evils” by eighteenth-century prophets of doom, so prevalent in moral and political literature. “A Nation may be opulent and flourishing at the same time that public debts are high,” he wrote in 1758. “This will appear to be the condition of Britain at present.”^{Footnote 44}

No doubt, however, the opposition was extremely vocal, and their cries reverberated loudly across the Atlantic, well within the hearing of colonial Americans. British virtue was dangerously imperiled, for these “Wicked Schemes and Projects” had a deleterious effect upon “the spirit of the nation, on our manners, and our morals.”^{Footnote 45} Indeed, British financiers—according to Montgomerie in 1753—were not unlike “leeches, which will suck the blood from the whole body, whatever member they are applied to, and will never quit hold while there is a drop left,” hijacking, according to Montesquieu, “the true revenue of the state from those who have activity and industry, to the indolent.” Even some of those who supported banking and national debt, such as Scottish economist-philosopher James Steuart, conceded that “we may easily conceive, that a monied interest, of a long standing, may have influence enough to operate a change upon the spirit and manner of a people.”^{Footnote 46}

THE JEFFERSONIAN SOLUTION

Britain, then, was doomed, but what about the United States? When time came for the Founders to install a new government in 1787, a good many of them knew precisely what to avoid. The threat appeared a bit distant, yet no less real. America, at the time of independence, was overwhelmingly agricultural; indeed, land was more equally dispersed across the free population than any previous society in history. Manufacturing was still in its infancy, there was no stock exchange to speak of, and no banks yet existed, unless one counted the colonial and state land offices, intrinsically different from banks in England.

Nevertheless, a not insignificant number of Americans forecast a manufacturing future for the young republic, and others foresaw the establishment of banks upon the model of those in England. “It is impossible to keep the Americans without manufactures of their own,” predicted a colonist in 1774. Hamilton, who proudly celebrated the virtues of luxury, endorsed not simply industrial manufacturing—with the aid of bounties and tariffs—but endorsed, enthusiastically, the establishment of banking corporations, calling them “the happiest engines that ever were invented for advancing trade,” with a “powerful tendency to extend the active capital of a country.” Robert Morris—chief financier of the Revolution, Superintendent of Finance under the Articles of Confederation, and key figure at the Constitutional Convention—already established the Bank of North America in 1781, and brazenly called for “combining together the Interests of moneyed Men” into “one general Money Connection.”^{Footnote 47}

The Jeffersonian opposition responded, first, by insisting that America remain an agricultural republic. “I think our governments will remain virtuous for many centuries, as long as they are chiefly agricultural,” Jefferson wrote Madison in 1787, for “when they get piled upon one another in large cities, as in Europe, they will become corrupt as in Europe.” “Those who labour in the earth are the chosen people of God, if ever he had a chosen people,” Jefferson earlier stipulated in 1782; “cultivators of the earth are the most virtuous and independent citizens. . . . Corruption of morals in the mass of cultivators is a phenomenon of which no age nor nation has furnished an example.” From across the Atlantic, Richard Price, in 1785, maintained that “better infinitely will it be for them to consist of bodies of plain and honest farmers,” ensuring that “purest manners prevail,” thus avoiding the “selfish, luxurious, loose, and vicious” tendencies of what Jefferson called the “mobs of great cities.”^{Footnote 48}

Not all manufacturing was to be totally shunned; the Jeffersonians, indeed, endorsed small-scale, household manufactures, produced primarily for local, rural communities, thus avoiding the societal pitfalls of urban manufacturing.^{Footnote 49} Jefferson himself declared, in 1809, that “an equilibrium of agriculture, manufactures, and commerce is certainly become essential to our independence.”^{Footnote 50} But the backbone of the economy—the core of American society—was the moderately affluent, independent freeholder: a republic consisting not merely of subsistence farmers, but commercial farmers producing for export, immune, nevertheless, from the vices that accompany other commercial activity.^{Footnote 51}

Equally, if not more important, to the Jeffersonian solution was the suppression of speculative finance and fractional-reserve banking. Here—more so than the agricultural question—Jeffersonians encountered staunch opposition, for besides Hamilton and Morris, key philosophers of the Scottish Enlightenment also proudly endorsed banking. “Paper-currency makes a little money to do the business of a great deal,” wrote Montgomerie in 1753. “It is easy to show that the erection of banks is of advantage to the commerce of a country,” remarked Smith; “the commerce of every nation in Europe has been prodigiously increased by the erection of banks.” Proponents argued, perhaps not inaccurately, that it was banking—and the accompanying national debt—that permitted Britain to win no fewer than four wars against the French in less than a hundred years. “One would think the advantages of Banks must have been so manifest from experience, that long before this time, no doubt could have been entertained of their usefulness,” wrote Wallace in 1758. “But instead of any universal agreement in their favour, such violent prejudices have been contracted against them,” even from “very inquisitive and ingenious gentlemen.”^{Footnote 52}

Count the Jeffersonians among these men. Just as Hume distinguished between vicious luxury and innocent luxury, Jeffersonian republicans distinguished between vicious commerce and innocent commerce. Hume himself had entertained great “doubt concerning the benefit of banks and paper-credit,” supporting, instead, 100-percent reserve depositories for money, obstructing speculators from gambling with people’s deposits. James Sullivan, future governor of Massachusetts, authored a popular pamphlet in 1792 denouncing fractional-reserve banking, endorsing full-reserve banking, and disparaging stockjobbing and public securities as “engines of cruelty and oppression,” pursued with “cunning, deceit, and fraud” by men “contemptible and dangerous in society.” Madison, in 1791, was already lamenting to Jefferson that “stock-jobbing drowns every other subject. The Coffee-House is in an eternal buzz with the gamblers.” “Speculators have swarmed like locusts in every part of the United States,” read a Philadelphia newspaper in 1792; a form of gaming that “destroys the morals of our citizens—creates extravagance—produces endless disputes and frauds—multiplies law-suits—promotes art and chicanery in business—and thereby prepares us for aristocracy and slavery.”^{Footnote 53}

Nor were Democratic-Republicans alone on this point. Noah Webster, a Federalist, echoed like concerns when he called “manual labor, the only permanent source of wealth.” “Industry which secures subsistence and advances our interest by slow and regular gains, is the best preservative of morals,” he wrote, but “speculation has the contrary effect,” and is rather “pernicious to morals.” Unfortunately, “the country swarms with speculators,” and “when people can get money without labor, they neglect business and become idle, prodigal and vicious.” Sullivan, a Democratic-Republican, agreed, calling it “a natural propensity in mankind to obtain property by art, by accident, and by any thing besides labour and industry.” “The idea of the people who want banks,” he argued, “is to spring a mine of wealth without labour,” to “accumulate fortunes, and live in unequalled splendour . . . to pursue chance as the only goddess worthy of human adoration.” Sadly, he wrote in 1792, “the taste of the public is raised insatiably for a bank.”^{Footnote 54}

Should the federal government charter a bank upon the model of that in England? Questions of virtue, vice, and political corruption permeated this debate over the Bank of the United States. One congressman of Georgia, in 1791, called the Bank “a dangerous system,” intending to “create an all powerful aristocratical influence, and eventually destroy the liberties of the people.” “The Bank of the United States is a most important machine in promoting the objects of this monied interest,” claimed another congressman; “this bank will be the most powerful engine to corrupt this House.” A Philadelphia newspaper editor called the Bank “extremely dangerous in its tendency,” “full of alarming consequences,” setting up “the aristocracy of a few.” The Bank of England long ago demonstrated that banking invariably leads to “corruption in parliaments, and of a general depravity of taste and manners . . . gradually dismembering its empire.”^{Footnote 55}

Public opposition to banking and speculation was extraordinarily vocal throughout the 1790s, sometimes bordering on hysteria. Newspaper editors railed against the “speculating madness” purportedly intoxicating the country, forecasting the “establishment of a monied aristocracy, whose baneful power has greatly influenced all the principal measures of the government.” The Bank was “an attempt to consolidate the whole monied interest of the continent into a few hands,” so that “the industrious part of the community must, in a short time, become a prey to a number of idle speculators, who suddenly grow rich.” Bankers are “most surely anti-republican,” a Boston newspaper warned, for “they strike at the roots of industry and economy—create habits of idleness, and open wide the door to knavery.” If Americans did not choke the Bank of the United States in its infancy, “our boasted free and rising empire will wear the features of slavery and disgrace.” Voters must “sweep the legislative floors of such vermin,” urged another, before they “devour liberty in the bud, and suck the vitals of the honest industrious farmers, merchants, and tradesmen”: “speculators forging the chains of monarchy and aristocracy.”^{Footnote 56}

Jefferson himself was the most vocal among these critics, denouncing “the spirit of gambling in paper,” and deriding the fractional-reserve system as “a species of gambling, destructive of morality,” insidiously pushing “its poison into the government itself.” In a letter to Albert Gallatin, his Treasury Secretary, in 1803, Jefferson called the Bank of the United States the “most deadly hostility existing against the principles and form of our constitution”; indeed, “it is the greatest duty we owe to the safety of our constitution, to bring this powerful enemy to a perfect subordination.” Those who support the Bank of the United States, he argued in 1817, have “nothing in them of the feelings or principles of ‘76,” but are rather setting the foundation for a “single and splendid government of an aristocracy, founded on banking institutions, and moneyed incorporations . . . riding and ruling over the plundered and beggared yeomanry.” Such vicious arts of commercial deceit, he believed, “enrich swindlers at the expense of the honest and industrious part of the nation.”^{Footnote 57}

Anti-banking sentiment proliferated well into the early nineteenth century, with many Americans still decrying that supposed “den of sordid speculation.” One congressman in 1814 lambasted the “monstrous scheme of fraud and corruption” between bankers and state legislatures; another, two years later, called the Second Bank of the United States a “moneyed aristocracy,” daring to “operate injuriously to the liberties of the country.” William Cobbett, a popular and radical British pamphleteer, warned Americans in 1816 not to charter a new Bank of the United States, for the Bank of England, he argued, is “a most powerful instrument. . . . It corrupts public morals, it creates a fallacious appearance of wealth, it induces men to look to trick and speculation rather than industry for the means of rising in the world,” and “above all things, it tends to render a government, in a great measure, independent of the people.” Hezekiah Niles, a popular newspaper editor in Philadelphia, continually lambasted that “despotism of banking . . . grinding the face of the industrious and deserving classes of society . . . a most powerful, an almost irresistible engine, to oppress and tyrannize.” Such “profligate speculation,” wrote another Philadelphia editor, violates “the sober sense and sacred interests of a free and independent people,” opening up “a vast scheme of iniquitous gambling, by which public morals, already deplorably decayed, will receive a new and afflicting aggravation.”^{Footnote 58}

John Adams, in particular, was surprisingly vocal—given his Federalist past—against “the multitude of swindling banks” in the early nineteenth century, deeming them “fraudulent institutions.” “Our whole banking system I ever abhorred, I continue to abhor, and shall die abhorring,” he wrote in 1811; “it was contrived to enrich particular individuals at the public expense,” generating “dependance, idleness & extravagance.” Again, in 1819, he reiterated this point, as if to leave no doubt for the historical record, arguing that “banks have done more injury to the religion, morality, tranquility, prosperity, and even wealth of the nation than they can have done or ever will do good.”^{Footnote 59}

Jefferson was so utterly convinced of the evils of banking, that he assumed a near-fatalist vision of what lay ahead for the United States, especially later in life, as he realized that his vision for an agricultural America was shortly giving way to more vicious forms of commerce. A letter to John Taylor, of Caroline, in 1816, underlined Jefferson’s growing cynicism. “The system of banking we have. . . . I contemplate it as a blot left in all our constitutions, which, if not covered, will end in their destruction, which is already hit by the gamblers in corruption, and is sweeping away in its progress the fortunes and morals of our citizens,” adding, moreover, that “I sincerely believe, with you, that banking establishments are more dangerous than standing armies”—this coming from the same man who listed Britain’s imposition of a standing army in America as a reason to revolt in 1776.^{Footnote 60}

THE REVISED SOLUTION

By Jefferson’s death in 1826, it seemed that his solution to the republican paradox—namely, the spurning of speculative finance—was falling on its face. An “infatuation for banking” swept the nation, and the people, by and large, appeared “indifferent to the ruinous consequences,” according to one critic in 1814.^{Footnote 61} The number of American banks rose from a mere handful in the early 1790s, to 92 in 1809, 202 in 1814, to 338 in 1818, each operating on a fractional-reserve basis.^{Footnote 62} The number of corporations, moreover, had risen from a mere eleven in 1785, to 114 in 1795, to approximately 1,800 charters of incorporation granted between 1800 and 1817.^{Footnote 63} Self-interest, competition, and radical individualism had taken the country by storm; money-making was proudly celebrated as the new American virtue: the greatest safeguard of political and economic liberty.^{Footnote 64}

The Market Revolution did not arrive in America without criticism. Some prophesized that the United States would soon become “a nation holding the name of a republic,” yet “prey of the most rapacious and unprincipled speculators.”^{Footnote 65} “Of all aristocracies,” reported a committee of the New York legislature in 1818, “none more completely enslave a people than that of money,” and “no system was ever better devised so perfectly to enslave a community, as that of the present mode of conducting Banking establishments.”^{Footnote 66} Jackson and Polk, remember, were also hard-money men, opposing the fractional-reserve system into the 1830s and 1840s.^{Footnote 67}

Nevertheless, after the 1820s, a vocal majority within the Democratic Party—heirs to Jeffersonian philosophy—now embraced the radical principle of free banking. Under this monetary regime, anyone meeting standard minimum requirements could legally establish a bank, without “special or exclusive charters of incorporation.” Many Democrats now hailed unincorporated banks “for the cause of republicanism,” with “vast superiority” to the “domineering spirit” of “incorporated banks,” especially “from a consideration of the moral character.” Exclusive charters and incorporated banking, by contrast, generated an “artificial inequality of wealth, and, thereby, of artificial inequality of power.”^{Footnote 68}

Free-banking, then, constituted simply a revision—albeit a major revision—of Jeffersonian philosophy, despite its apparent hostility to it. From denouncing all banking, Americans now celebrated virtually unlimited banking. “Why should not the trade in money, be conducted on the same principles as the trade in flour or the trade in cotton?” asked the Philadelphia Workingmen’s Committee in 1829. “We do not deny that a paper currency is a convenience . . . we only wish to see government refrain from aiding it by granting charters,” wrote George Henry Evans in his newspaper, the Workingman’s Advocate, in 1830: “all we wish to see government do is let banking alone.” “The monopoly of bank charters must be abolished altogether,” insisted Richard Hildreth in 1837: “It is clear as the noon-day sun, that every new bank, every step towards the destruction of the monopoly of bank charters is a gain to the community”; indeed, “let a bank be planted in every village.” William Leggett, the foremost Democratic advocate of free banking in New York, in an 1837 essay, “Separation of Bank and State,” asked, “We have no established religion; why need we have an established bank?”^{Footnote 69}

Hume juxtaposed vicious luxury with innocent luxury; Jefferson juxtaposed vicious commerce with innocent commerce. After 1815, the new republican (and soon democratic) paradigm maintained this juxtaposition between vicious commerce and innocent commerce. But the definitions changed. Commerce was innocent when corporations did not rely upon exclusive, state-granted privileges; commerce was vicious when corporate interests deployed the state apparatus to generate profits outside of voluntary market behavior.

Under this new paradigm, the solution to the republican paradox was neither a conscious clinging to agriculture nor a ban on fractional-reserve banking. The solution was a free and open economic playing field: no bounties or protective tariffs for the manufacturing sector, and no exclusive charters or privileges for state or federal banks. “The grand principle which we aim to establish is the principle of equal rights,” explained Leggett in 1835; “instead of exclusive privileges . . . all kinds of business would be thrown open to free and full competition” without “special charters of incorporation.”^{Footnote 70} Under free competition, the new Democratic Party asserted, Americans may unabashedly pursue their own private interest and personal luxury. In this manner, private interest would prove more than sufficient to safeguard political liberty.