The Dark Side of Alexander Hamilton

The first treasury secretary's plans would have created cartels that mainly benefited the wealthy at the expense of small competitors.

The Hamilton Scheme: An Epic Tale of Money and Power in the American Founding, by William Hogeland, Farrar, Straus and Giroux, 544 pages, $35

Over the last two decades, Alexander Hamilton has become a folk hero. In 2004, Ron Chernow's massive Hamilton biography was a bestseller. A decade later, Lin-Manuel Miranda's spectacularly successful Hamilton: An American Musical further heightened the popularity of America's first treasury secretary, despite—or, more likely, because of—its inaccuracies and simplifications. And this year, The New York Times and Bloomberg have run stories titled "There is a Secret Hamiltonian in the White House" and "Industrial Policy and Alexander Hamilton," celebrating President Joe Biden's economic initiatives.

Hamilton's fondness for industrial policy was also one of the reasons the libertarian economist Murray Rothbard dubbed him the Mephistopheles of early U.S. history. William Hogeland's new book, The Hamilton Scheme, essentially shares Rothbard's view, although not for all the same reasons.

Unaffiliated with any university or think tank, Hogeland nonetheless has written several books about early U.S. history that are deservedly well-respected. His latest is not a full biography of Hamilton. It focuses instead on his political and economic policies and proposals, interlaced with mini-biographies of several of his supporters and opponents. Besides George Washington, these include Robert Morris, who served as the country's superintendent of finance before the Constitution's adoption; William Findley, one of Hamilton's most vehement critics in the House of Representatives; and Albert Gallatin, who became treasury secretary under Thomas Jefferson. Hogeland does stray from his main themes to criticize Miranda's portrayal of young Hamilton as a poor immigrant who had to surmount prejudice, emphasizing Hamilton's "birth in a central economic site of a great empire [the British Caribbean] and his instant embrace by some of the most powerful people in revolutionary America." Hogeland also debunks Chernow's claim that Hamilton was an "uncompromising abolitionist."

Hogeland is an enthusiastic egalitarian often hostile to market outcomes, which somewhat skews his analysis of such tax revolts as Shay's Rebellion and the Whiskey Rebellion. Indeed, rather than treating this period of American history the way most accounts do, as an ongoing conflict between nationalists and defenders of states' rights, he instead sees three separate contending interests: Continentalists, State Sovereigntists, and "the Democracy." To be sure, the State Sovereigntists were dominated by elite leaders, and a fear of too much democracy was a major motivation for the Constitutional Convention. Some of the participants in the Democracy's various revolts did indeed want to level wealth and cancel debts. Among the most extreme was Herman Husband, a peripatetic, popular, but bizarre religious zealot who is one of Hogeland's heroes. But none of this undermines the book's scrupulous scholarship.

Hogeland's discussion of Hamilton's role in what is called the Newburgh Conspiracy is original and convincing. After the victory at Yorktown, the Continental Congress, starved for revenue, had been unable to persuade enough states to pass an amendment granting it the power to directly impose taxes in the form of import duties. Hamilton and other nationalists in Congress, including Morris, therefore tried to employ discontent among the Continental Army's officers over lack of pay and other unfulfilled promises to pressure the states. The conspiracy involved the possibility that the Continental Army would refuse to disband with the coming onset of peace—and even a possible military coup. Historians still debate the seriousness of the threat and how deeply the nationalists were implicated. But what is clear is that Hamilton exploited the danger in his efforts to get the tax amendment ratified.

Ultimately Washington, the army's commander, quelled the officers' discontent, and the amendment never passed. But Congress did replace a promised lifetime pension at half pay for the officers with commutation payments costing $5 million, a significant increase in the unpaid war debt.

Hamilton was one of the prime architects of the Constitutional Convention, held in secret. There he revealed himself as a closet monarchist: Expressing his admiration for the British system of government as the world's best, he declared that he preferred a lifetime president with an absolute veto over all legislation. He was appalled that senators would be chosen by the states; indeed, he wished to see the states and their militias virtually obliterated. Yet some increase in central power was better than none, so Hamilton was willing to disguise his actual views when contributing to the Federalist Papers. Many historians have dismissed Hamilton's convention remarks as a mere aberration, but Hogeland reveals that these extremely oligarchic inclinations informed Hamilton's efforts throughout his career.

No one denies that Hamilton displayed financial genius as treasury secretary. As Hogeland puts it, he always "crossed every t and dotted every i." Anyone who has ever looked at any one of Hamilton's lengthy reports cannot fail to be impressed with the tireless energy and overwhelming comprehensiveness they displayed in an era without even typewriters, when everything was written and computed by hand.

But the very density and intricacy of these reports helped stymie his critics. Few if any in Congress wanted the war debt repudiated entirely, but because the debt securities had fallen in value and speculators had largely gobbled them up, some legislators wished to fund the securities at less than face value so that they could be paid off rapidly. Hamilton himself actually instituted a partial default through a complex reduction in promised interest rates, but that was so he could have the Treasury also assume the states' war debts. Overall, he wished for a large perpetual debt that would tie the loyalty of wealthy investors, as a powerful interest group, to the national government.

The story of Hamilton's fight to create a nationally chartered bank that would facilitate his goals is well-known. Less well-known is his failed attempt at industrial policy, through the creation of what was known as the Society for the Establishment of Useful Manufactures. This was a state-chartered and state-funded corporation that would establish mills and other factories; it was closely tied to both the national bank and the Bank of New York, another Hamilton creation. The plan eventually failed, in part because of the reckless speculation of Hamilton's close associate William Duer.

Why does Hogeland, sympathetic to government intervention, find this and other Hamilton schemes objectionable? Because they would have created cartels that mainly benefited the wealthy and privileged at the expense of small competitors.

This goal is clearest in one of the most chilling sections of Hogeland's book: its detailed account of the Whiskey Rebellion. The tax was highly regressive, designed by Hamilton to squeeze out small distillers and benefit large producers, one of whom was even paid to enforce the tax. In many accounts, the rebellion comes across as almost a bland affair, in which simple refusal to pay the tax was quelled with a mostly bloodless show of force. Hogeland demonstrates that in fact—unlike in other areas, where individuals just ignored the tax—the resistance in Pennsylvania was initially quite violent. Tax collectors and supporters of the tax were beaten, tarred and feathered, or otherwise violently intimidated.

By the time Washington had called out 12,000 militia, which would march under Hamilton's effective command, overt resistance had subsided, mainly due to the calming influence of Gallatin, Findley, and even Husband. To buy time, the government had sent commissioners to negotiate and promise amnesty to any who signed a loyalty oath. Much of the area's population did so—but when the militia arrived, that didn't matter. Hamilton presided over a reign of terror in which the government's men broke into houses and many Americans were arrested without charges and held for long periods under degrading conditions. Hamilton was attempting to gather evidence to drag perpetrators back to Philadelphia for trial, in violation of the Bill of Rights' guarantee that all criminal trials be conducted in the district in which the crime had been committed. Hamilton hoped to find enough evidence to hang Gallatin, Findley, and Husband.

Fortunately, that effort mostly failed—although Husband died as a result of his prolonged imprisonment back east. Gallatin, first serving in the Senate and then the House,* was the one person who could master and critique Hamilton's opaque Treasury reports. Hogeland details how Gallatin, once he became treasury secretary, dismantled much of Hamilton's financial system. Before the subsequent outbreak of the War of 1812, Gallatin had reduced the national debt—which, by Jefferson's first term as president, had risen to $84 million—nearly in half. He also oversaw the repeal of all internal taxes even while he had to finance the Louisiana Purchase. One of this book's contributions is to show Gallatin's often unrecognized financial brilliance.

The Hamilton Scheme casts new light on the character of the country's first treasury secretary. As even Noah Webster, Hamilton's contemporary and fellow Federalist, aptly put it, Hamilton's "ambition, pride, and overbearing temper" destined him "to be the evil genius of this country."

CORRECTION: This article originally misstated the order in which Albert Gallatin held different public offices.