Breitbart News is featuring an ongoing series featuring the philosophical and policy outlooks of two great American leaders, Alexander Hamilton (1755-1804) and Andrew Jackson (1767-1845). This conversation is less of a debate between the modern left and right, than one based on competing sets of traditional American values. There are elements of both “Hamiltonianism” and “Jacksonianism” within modern conservatism. This is a debate between honest patriots that wish to preserve American exceptionalism.
Detroit’s bankruptcy filing on July 18, the largest for any city in American history, was the product of decades-long decline, poor governance, and misguided federal policies after the 2007 financial collapse.
Democrats, including Vice President Joe Biden, have suggested a federal bailout of Detroit in order to save the city from a financial mess of their own doing, essentially a repeat of the Obama administration’s bailout of the auto industry.
Although the current administration is unlikely to turn from the policy of bailouts, handouts, and government action to cure society’s ills, the answer to fixing the Detroit disaster lies in heeding the philosophy and policies of the early 19th century Jacksonians.
In a previous article, Breitbart’s Hamilton criticized Jackson’s presidency, calling Old Hickory’s decentralized policies in large part a failure.
Specifically, “Hamilton“criticized President Andrew Jackson for severing the ties between the federal government and the Second Bank of the United States (BUS):
Jackson’s presidency was not, overall, a success; his signature domestic “achievement” was the closure of the Hamilton-inspired Bank of the United States. At that time, Jackson thought he was fighting the money interests, and yet instead, he was collapsing the banking system. The ultimate result of Jackson’s deed was the Panic of 1837.
Andrew Jackson’s presidential record was at least partially defended in the last chapter of this series. His presidential years were mostly boom times for the American economy in what has been what has been called the “golden age of American individualism” by one historian. Jackson defended his war on the bank, not as an assault on private enterprise and free markets, but as a crusade against crony capitalism.
Though Jackson flirted with cutting ties to the public-private BUS and making it a purely public institution, it was none other than Alexander Hamilton’s son, James Alexander Hamilton, a member of Jackson’s inner circle, who reminded him, “The untiring watchfulness of individual interest is always a better manager of pecuniary interests than Governments.”
Jackson understood the value of private enterprise and instead of making the bank a public institution, he simply revoked its charter, detaching the country from a centralized system of finance.
Breitbart’s Hamilton, like many historians, attacked Jackson’s policy of cutting the bank loose as the cause of the 1837 crash, but a there is a sizeable amount of evidence from economic historians that it was caused by unrelated events. A downturn in the British economy and a flood of Mexican silver into the United States both contributed to the crash, and there is very little evidence that the BUS could have stopped the downturn once it was in motion.
Crashes and downturns happen in every nation’s economy, but it is the response to a crash that often determines the success or failure of digging out. The Jacksonian response to the 1837 crash was nearly the opposite of the recent one in 2007.
During the financial crash of 2007, both Republican and Democratic administrations decided that a policy of government bailouts would solve the problem. The Obama administration went even further and passed a massive stimulus bill to flood the economy with government money.
Detroit was a major recipient of this bailout and the dying American auto industry was allowed to continue hobbling along because of it. Obama was touting his bailout policy just a year ago, saying how he not only saved the auto industry but that it should be used as a general principle:
I believe in American workers, I believe in this this American industry, and now the American auto industry has come roaring back… Now I want to do the same thing with manufacturing jobs, not just in the auto industry, but in every industry.
What Americans are experiencing now, especially in Detroit, is ongoing bloodletting from once prosperous cities, and the constant, slow financial death, not only of bankrupt localities, cities, and states, but the whole nation. This is due to rewarding failed governance and a failed economic ideology.
In contrast, the Jacksonians understood American values and the need for limited, Constitutional government, which ultimately led to a hands-off solution in 1837: letting the market work without government meddling.
The economic crash of 1837 occurred about a year after Jackson left the presidency, under the administration of Martin Van Buren. Jackson, the tall, lanky Tennessean of Southern origins, and Van Buren, the short, pudgy Northerner with ties to the original Dutch inhabitants in Kinderhook, New York appeared different on the surface, but turned out to be remarkably similar in philosophy and outlook.
During Jackson’s presidency the economy had been roaring and the nation’s entire debt had been paid off. There was an explosion of government infrastructure projects on the state level and politicians were scrambling to get federal money. Van Buren foresaw the danger and warned of a “torrent of reckless legislation” unless something was done to prevent all of the logrolling. The “improvement virus,” as Van Buren called it, that is, the widespread building of oftentimes needless infrastructure projects, was infecting even loyal, limited-government Jacksonians.
Jacksonian biographer Marquis James said of the era:
From the mounting enthusiasm for public spending stemmed an evil difficult for the average congressman to resist. Having obtained appropriations for measures of national significance, members courted favor by proposing all sorts of local schemes to be paid for with public funds
When the crash came, states and their politicians came to Van Buren begging for bailouts and government money to sustain their spending, but Van Buren stood by his principles.
Van Buren said in his September 4, 1837 message to Congress:
Those who look to the action of this Government for specific aid to the citizen to relieve embarrassments arising from losses by revulsion in commerce and credit lose sight of the ends for which it was created and the powers with which it is clothed. It was established to give security to us all in our lawful and honorable pursuits, under the lasting safeguard of republican institutions. It was not intended to confer special favors on individuals or on any classes of them, to create systems of agriculture, manufactures, or trade, or to engage in them either separately or in connection with individual citizens or organized associations.
Van Buren rejected the notion that it was the government’s job to prop up businesses or states when encountering sudden failure. Ultimately, Van Buren allowed the market to choose winners and losers, and did not tip the scales with government power. To bailout specific individuals, states, or industries would damage the general welfare of the country.
Van Buren said:
All communities are apt to look to government for too much. Even in our own country, where its powers and duties are so strictly limited, we are prone to do so, especially at periods of sudden embarrassment and distress. But this ought not to be. The framers of our excellent Constitution and the people who approved it with calm and sagacious deliberation acted at the time on a sounder principle. They wisely judged that the less government interferes with private pursuits the better for the general prosperity.
Van Buren was right, although he paid a terrible price for it, losing the election in 1840 to the Whig candidate William Henry Harrison.
Though many state governments suffered during the recession following the panic of 1837, the refusal to bail them out helped both the states that pursued wise policies and the whole country in the long run.
Some states, like Florida, repudiated their debt, wrecking their finances for decades, but many others chose to follow a wiser course. The states’ ability to model different solutions shows the strength of Constitutional federalism that the Founding Fathers envisioned, and Van Buren stuck by that system.
Realizing that they could not control their spending, especially in boom times, a massive number of states passed balanced budget amendments. In fact, most state balanced budget amendments stem from the 1840s.
Though state governments felt the crush of the 1837 downturn, average Americans working in the private sector fared reasonably well and the country’s economy started to roar again by the 1850’s. Though Van Buren lost an election, the country turned around in a big way.
The Second Bank of the United States actually survived for a little while after being detached from the federal government, as it got re-chartered by the Commonwealth of Pennsylvania. But the bank’s president, Nicholas Biddle, made some poor speculative investments in land and commodities and the institution went bankrupt by 1840. Quite a fall for the institution Jackson called the “Monster.” But the country not only survived, it thrived.
It has been clear for some time that Detroit is a failing city with a bloated and incompetent government. Steve Malanga wrote in the Wall Street Journal:
Today, Detroit is an estimated $18 billion in debt including a $3.5 billion pension shortfall. Its population has shrunk to under 700,000 from 1.84 million in 1950. Unemployment is at 16.3%, and the number of jobs in Detroit has declined by more than half since [Coleman A.] Young became mayor in 1974. The city’s auto manufacturing base has shrunk despite the bailouts of GM and Chrysler, as those jobs moved to the likes of Kentucky and Alabama.
No number of bailouts will save the city. It is up to the innovating and invigorating free-market principles that rely on the power of private enterprise, along with the wise governing philosophy of federalism to bring it back from decay and extinction. Progressive bailout schemes will only perpetuate ruin.
It is time for American statesmen to re-embrace the fundamental governing philosophy of the Jacksonian leaders in the early 19th century, and to make principled stands like they did when facing a catastrophic crisis.