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Founding Finance

Founding Finance
How Debt, Speculation, Foreclosures, Protests, and Crackdowns Made Us a Nation

Refuting claims from both the political right and left, this dynamic narrative history brings to life the long-forgotten founding struggles over American finance, economics, and taxes and reveals their immense and startling relevance to political struggles today.

Series: Discovering America Series

October 2012
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284 pages | 5.5 x 9 | 16 halftones |

Recent movements such as the Tea Party and anti-tax “constitutional conservatism” lay claim to the finance and taxation ideas of America’s founders, but how much do we really know about the dramatic clashes over finance and economics that marked the founding of America? Dissenting from both right-wing claims and certain liberal preconceptions, Founding Finance brings to life the violent conflicts over economics, class, and finance that played directly, and in many ways ironically, into the hardball politics of forming the nation and ratifying the Constitution—conflicts that still continue to affect our politics, legislation, and debate today.

Mixing lively narrative with fresh views of America’s founders, William Hogeland offers a new perspective on America’s economic infancy: foreclosure crises that make our current one look mild; investment bubbles in land and securities that drove rich men to high-risk borrowing and mad displays of ostentation before dropping them into debtors’ prisons; depressions longer and deeper than the great one of the twentieth century; crony mercantilism, war profiteering, and government corruption that undermine any nostalgia for a virtuous early republic; and predatory lending of scarce cash at exorbitant, unregulated rates, which forced people into bankruptcy, landlessness, and working in the factories and on the commercial farms of their creditors. This story exposes and corrects a perpetual historical denial—by movements across the political spectrum—of America’s all-important founding economic clashes, a denial that weakens and cheapens public discourse on American finance just when we need it most.

  • Chapter One. The Founders, Finance, and Us (2012)
  • Chapter Two. Regulate, Riot, Occupy (1765 1771)
  • Chapter Three. Two Revolutions? (1771 1776)
  • Chapter Four. Conceived in War Debt (1776 1783)
  • Chapter Five. History on the Verge of a Nervous Breakdown (1913 2012)
  • Chapter Six. An Existential Interpretation of the Constitution of the United States (1784 1789)
  • Chapter Seven. It's Hamilton's World . . . We Just Live In It (1790 1791)
  • Chapter Eight. Crackdown and Lockup: Cincinnatus, the Whiskey Rebels, and the End of Thomas Paine (1792 )
  • Chapter Nine. Gather Your Armies (2012)
  • Acknowledgments
  • References

William Hogeland writes and speaks on startling connections between American history and today’s political and cultural struggles. He is the author of the critically acclaimed narrative histories Declaration and The Whiskey Rebellion, as well as a collection of essays, Inventing American History. His articles have appeared in the New York Times, Atlantic, American History Magazine, Boston Review, Salon, Huffington Post, and elsewhere. He has also appeared on CBS’s Good Morning, America, PBS’s History Detectives, and C-SPAN’s Book TV.


The Founders, Finance, and Us (2012)

On the first day of the meeting that would become known as the United States Constitutional Convention, Edmund Randolph of Virginia kicked off the proceedings. Addressing his great fellow Virginian General George Washington, victorious hero of the War of Independence, who sat in the chair, Randolph hoped to convince delegates sent by seven, so far, of the thirteen states, with more on the way, to abandon the confederation formed by the states that had sent them the union that had declared American independence from England and won the war and to replace it with another form of government.

"Our chief danger," Randolph announced, "arises from the democratic parts of our constitutions."

This was in May of 1787, in Philadelphia, in the same ground-floor room of the Pennsylvania State House, borrowed from the Pennsylvania assembly, where in 1776 the Continental Congress had declared independence. Others in the room already agreed with Randolph: James Madison, also of Virginia; Robert Morris of Pennsylvania; Gouverneur Morris of New York and Pennsylvania; Alexander Hamilton of New York; Washington. They wanted the convention to institute a national government. As we know, their effort was a success.

We often say the confederation was a weak government, the national government stronger. But the more important difference has to do with whom those governments acted on. The confederation acted on thirteen state legislatures. The nation would act on all American citizens, throughout all the states. That would be a mighty change. To persuade his fellow delegates to make it, Randolph was reeling off a list of what he said were potentially fatal problems, urgently in need, he said, of immediate repair. He reiterated what he called the chief threat to the country. "None of the constitutions" he meant those of the states' governments "have provided sufficient checks against the democracy."


The term "democracy" could mean different things, sometimes even contradictory things, in 1787. People used it to mean "the mob," which historians today would call "the crowd," a movement of people denied other access to power, involving protest, riot, what recently has been called occupation, and often violence against people and property. But sometimes "democracy" just meant assertive lawmaking by a legislative body staffed by gentlemen highly sensitive to the desires of their genteel constituents. Men who condemned the working-class mob as a democracy sometimes prided themselves on being "democratical" in their own representative bodies.

What Randolph meant that morning by "democracy" is clear. When he said "our chief danger arises from the democratic parts of our constitutions," and "none of the constitutions have provided sufficient checks against the democracy," he was speaking in a context of social and economic turmoil, pervading all thirteen states, which the other delegates were not only aware of but also had good reason to be urgently worried about. So familiar was the problem that Randolph would barely have had to explain it, and he didn't explain it in detail. Yet he did say things whose context everyone there would already have understood.

We don't. That's our problem with founding finance.


The list of things Randolph found dangerous are things we don't care much about today. Paper money? Problems with the federal "impost"? They sound obscure, dated, and not very problematic. When we think about the Constitutional Convention we like to think about the creation of the American presidency and the two houses of Congress, or about things that came later, like the First Amendment.

But without comprehending the finance and economic issues so important to the founders, we can't connect realistically with our founding. Far from boring to them, the economic situation the founders faced involved some high drama. In 1786, a rebellion had occurred in Massachusetts, the so-called Shays Rebellion; it was over public finance policy, personal debt, crushing taxes, and fear of widespread foreclosures. In 1785, a radically populist government in Pennsylvania operating in the same building where the delegates were meeting in 1787 had withdrawn the charter for a central bank. The confederation Congress had a close relationship with that bank; the bankers got it back, but the scare both to the Congress and to the upscale investing class was real. Meanwhile, investors in millions of dollars in federal bonds were afraid they'd never start collecting their interest. A radical convention in Kentucky had called on small farmers and laborers throughout the whole west to unite against big eastern money. Ordinary people throughout the country, long barred from political power "the democracy" were organizing to get control of American government and use it to make finance and economic policy restrain wealth and foster equality. Such were the effects of what Randolph, and many later historians of the founding period, have called the "imbecilities" of the confederation. The representative state legislatures were weak in resisting the onslaught of democracy. Only a national government, Randolph and others gathered in Philadelphia believed, could correct that.


Most histories of what led up to and then went on in Philadelphia in the summer of 1787 don't mention Randolph's remarks about the all-important need to check democracy by forming a national government. When they do plunder Randolph's opening remarks for background, they focus almost exclusively on the Shays Rebellion, without exploring its real economic causes, as well as on squabbles among the states over borders and commerce. We say America just "needed a stronger government." The financial wracking of America in the 1780s, the open struggle between ordinary people and upscale investors, was edited out of our common memory long ago.

Lately, however, founding finance is back in the public debate. It’s entered our political arguments, embedded itself in our political campaigns, and plays in the 2012 presidential election. The Tea Party movement was first, not only to make protest over economic ideas a hot story again, starting in 2008, but also to make connections between economic protest and elemental events in our founding period. The tri-cornered hats, the placards with pictures of great founders, the "take America back" language, and of course the reference in the movement's name to the Boston Tea Party of 1773 make an insistent claim on what the Tea Party movement promotes as original American values. Joined by those who call themselves "constitutional conservatives," the Tea Party tells us that small government, low taxes, no public debt, and little government spending were once among elemental purposes in our founding as a nation.

Occupy Wall Street comes at our troubled economy from the opposite direction, and it, too, bases protest on a view of the economic values of the American founding. In dramatic actions of 2011 and 2012 against extreme income disparity and what it criticizes as too-close connections between high finance and government power, Occupy has invoked revolutionary Boston, associating Liberty Park in New York with Boston's famous Liberty Tree, describing the real Boston Tea Party as an occupation and protest against multinational corporations. Occupy also draws on the founding national moment of 1787, quoting the first three words of the Constitution, "we, the people," to suggest that a government originally founded by and dedicated to serving what Occupy calls "the 99 percent" has been stolen by big money, the 1 percent. The movement presents the theft as a violation of basic American purposes.

So founding finance is back. Mainstream liberals and conservatives, too, refer to the founding period when justifying or criticizing finance and economic policy. The implication is always that the legacy of the American Revolution supports a particular philosophy. But Edmund Randolph's opening remarks at the Constitutional Convention remind us that, as in fights over economics today, fights over economics in our founding period involved bitter divisions over what kind of country Americans wanted America to be.


We fell silent for so long on founding struggles among Americans over finance and economics that it can be surprising to know that economic conflict in the founding period was once at the front and center of both academic and popular discussions of early American history. In the nineteenth century, historians like Richard Hildreth and John Marshall, as well as members of a jingoistic business community, celebrated the framers of the Constitution for eschewing economic equality. Those readers and writers admired the founders for ensuring stability, for protecting the new country from bloody extremes that egalitarian populism inspired in France after its own revolution. Randolph's remarks at the convention wouldn't have startled those readers and historians. They harbored no delusions that the founders wanted to form a democracy.

Then in 1913 Charles Beard published An Economic Interpretation of the Constitution of the United States. Beard argued that those delegates to the 1787 convention who ended up supporting the Constitution came overwhelmingly from the class of men holding bonds issued by the wartime Congress. Because the bonds' future looked shaky, in the absence of a national commitment to paying them, the government the framers designed and put into effect represented, Beard said, less a glorious triumph of republican philosophy than a political action of moneyed men to assure their own payoffs.

Since many people in Beard's time already praised the framers for being economic conservatives, observing that the framers weren't populist democrats wasn't shocking. But the founders' conservatism had been celebrated for being in the best interest of the country. The shocking thing was Beard's suggestion that when the founders limited democracy by framing the U.S. Constitution, they were not acting on a high-minded commitment to stability, moderation, and balance, but looking first and foremost after their own financial interests.

To many younger historians, Beard's idea wasn't just shocking; it was bracing, inspiring. It scandalized jingoists in the history and business worlds while gaining a degree of influence that, given Beard's radical critique of the basis of our national existence, is amazing to consider today, when his ideas no longer form part of our casual discussions of founding history. For Beard was influential not only on academic history, but also, through journalists and critics and political operators, on the general public. It became common knowledge in some circles that the Constitution was a genteel scam.


Beard's influence had some strange effects. Despite an aggressive, largely successful effort, carried out in academic history circles over the past sixty years, to discredit and dismiss him, we still live with misconceptions about our founding that his work fostered. Beard was describing a class war waged from above, and he cast about for heroes in that war.

Beard's work can be slippery; he drew his conclusions by implication more than by assertion. Still, I think it's fair to say that many readers came away from Beard's study with a false impression that those founders with an agrarian, landowning, antifinance philosophy championed democracy. The young historians of the 1920s and '30s who got excited by Beard's skepticism about the framers had to make some fancy moves to get everything to fit; policymakers and cultural custodians, too, went through gyrations to situate their political ideas in a progressive interpretation of founding-era agrarianism. The FDR administration certainly wasn't about to say that the Constitution under which it operated so actively was inherently undemocratic and right-wing, as Beard's work sometimes seemed to suggest. But with Hamilton the founding face of plutocratic banking, and thus of the country-club Republican conservatism that opposed FDR, the New Dealers made Hamilton's enemy Jefferson the founding face of regulating banking and investment and creating government social programs. Given his disapprobation of Hamilton and the Federalist party, for what Jefferson deemed big-government overreaching, it's bizarre to realize that it was the New Dealers who built Jefferson a memorial in Washington, DC, to compete with Lincoln's, carved his face massively on Mount Rushmore and in miniature on the nickel, and put a statue of his treasury secretary Albert Gallatin in front of the Treasury building. Hamilton, who founded the department, now stands out back. The New Deal slogan "Jeffersonian ends by Hamiltonian means" meant fostering a populist democracy that you'd have to read Jefferson very selectively to believe he'd be anything but opposed to, via the activist federal government Jefferson often deplored, by applying regulations of a kind Hamilton would have excoriated. The slogan shows a blithe and highly effective ignorance of the complexity of the history it laid claim to.


Then came blowback. In the late 1940s, and especially in the 1950s, Beard himself, and progressive history in general, suffered attack. The critic of Beard perhaps best-known to general readers is Forrest McDonald. In 1964, McDonald would serve as chairman of the Barry Goldwater for President Committee of Rhode Island, and in keeping with the right-wing politics of the 1950s, McDonald's interpretation of American history was aggressively probusiness and patriotic. He rejected Beard's economic analysis in favor of reviving adoration of the founders as exemplars of republican greatness, and in his 1958 book We the People, he purported to dismantle Beard's argument with his own supposedly more accurate economic studies.

McDonald's study shows tendentiousness greater than Beard's. In a 1986 article in The Journal of Economic History, Robert McGuire and Robert Ohsfeldt used what economists call "regression analysis" to show that McDonald set false premises and drew foregone conclusions. McGuire's recent book To Form a More Perfect Union strengthens that critique of McDonald and other mid-twentieth-century Beard debunkers. It proposes instead a sympathetic adjustment of Beard's methods and conclusions.

Yet in the 1950s and '60s, a wide range of historians quickly and uncritically adopted McDonald's study, along with others equally flawed, in what has amounted to a massive cultural effort not to criticize and correct Beard but to rule out of serious discussion of the founding any suggestion that important, even defining, conflicts prevailed between rich, well-connected founders those men of a variety of opinions of how government should work, who signed the Declaration of Independence and framed the U.S. Constitution and the huge majority of unrich, ordinary Americans who though we know so little about it spent the founding era protesting, rioting, petitioning, occupying, and making demands on government in hopes of achieving access to economic development and restraining the power of wealth in America. That economic conflict wasn't between revolutionary Americans and British authorities. It was between some Americans and other Americans. I've come to see it not its resolution but the conflict itself as defining our emergence as a people. Knowing about it seems especially important, now, amid new political appeals to founding finance. Our most influential historians, however, have long since moved on to other things.


In Chapter 5, I consider why we don't know much despite striking resonances for the dire political battles we fight right now about founding economic conflicts on which the people involved staked everything. But what this book mostly offers are stories of the many struggles between founding-era Americans over cash, credit, debt, taxes, foreclosures, lending, and access to economic development. It's a surprisingly wild tale.

The most obviously wild players are those like the backcountry North Carolina Regulators, who both rioted and petitioned in the 1760s for things some historians deem anachronistic to the period: progressive taxation, government debt relief, equal access to the franchise. Later, the Pennsylvania Committee of Privates unpropertied militia foot soldiers took over their state and helped bring about American independence. The Shaysites of the 1780s and the whiskey rebels of the 1790s, neglected former soldiers of the Revolution, marched in military formation on federal authority.

Equally wild, though, were the upscale founders, who pushed back against the populist egalitarians. In textbooks, history museums, and political speeches, the Philadelphia delegates of 1787 sit at their desks, perfectly preserved in a vacuum. Genteelly and tinnily, like windup dolls, they debate their ideas about republicanism and unicameralism and checks and balances. They seem remote and ancient philosophers, not hard-nosed modern politicians. Lost to us are the desires and fears that brought them into that room and unified them, for all their differences, against American economic radicalism. In this book I try to revive both the egalitarian populists and the upscale gentlemen who set economic courses we're still on.

My stories question some familiar political ideas about economics and founding American values. When it comes to the Tea Party movement, I think Edmund Randolph and his fellow nationalists of the 1787 convention Hamilton, Madison, and Washington, among others, endorsed from afar by the likes of Thomas Jefferson and John Adams would be surprised to learn that those in 2012 who claim to hew to essential constitutional values believe the nation was founded to reduce taxes, diminish the size of government, and eliminate public debt. As we'll see, Randolph and the rest were proposing to do just the opposite.

They'd be just as surprised by the Occupy movement's adoption of "we, the people" as a slogan for democratizing finance. I think the framers wrote those words, and the document that follows them, specifically to check the economic egalitarians who were fighting for democracy in finance. Both the Tea Party and Occupy have done us the favor of bringing founding finance back into our political debate. But as in the earlier versions of founding economic and finance history associated with FDR, with Goldwater, and with other political figures and movements, we seem to keep trying to do one impossible thing with the passions and terrors and wrangling over money's connection to government that marked our emergence as Americans: resolve them. I hope these stories do the opposite.



“Mixing lively narrative with fresh views of America’s founders, in Founding Finance, William Hogeland offers a new perspective on America’s economic infancy.”
McCormick Messenger




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