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David Skeel

Founding Finance

Against the consensus account of America's formative years.

The standard story about America's founding era goes something like this. One group of founders, such as James Madison and Alexander Hamilton, insisted on a strong federal government to replace the spineless Articles of Confederation, while the other preferred to leave much more authority with the states and warned about the dangers of an overweening federal government. Both sides were committed to democracy, and they forged a compromise that preserved elements of both positions when they gathered in Philadelphia to hammer out the Constitution in 1787.

It comes as no surprise that William Hogeland has major nits to pick with this story in Founding Finance. Why bother banging out yet another book about the founding era if he didn't? But Hogeland doesn't just set out to show how the conventional story has things shaded a little wrong or omits a telling incident. He wants to persuade us that it's a cover-up.

The first problem with the consensus narrative is that most of the gentlemen who gathered in Philadelphia were more anxious to squelch democracy—democracy of a certain sort, at least—than to let it blossom. "Our chief danger," Edmund Randolph of Virginia said on the first day of the meetings that became the Constitutional Convention, "arises from the democratic parts of our [state] constitutions." What he and others feared was the social tumult that had boiled over in violent protests like Shays Rebellion in Massachusetts and would give rise to the Whiskey Rebellion in Pennsylvania a few years later. The second problem is that, while finance is an afterthought in the standard story, it was utterly central at the time. "The financial wracking of America in the 1780s," Hogeland writes, "the open struggle between ordinary people and upscale investors, was edited out of our common memory long ago."

Hogeland praises the Tea Party and Occupy movements for bringing these economic issues back to our attention. But both movements get the founding era all wrong. Although the Tea Party is right "to connect economic protest with elements in our founding period," it mistakenly "tells us that small government, low taxes, no public debt, and little government spending were elemental purposes in our founding as a nation." And in "associating Liberty Park in New York with Boston's famous Liberty Tree," and quoting the Constitution's " '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 Occupy movement is no less deluded.

In Hogeland's telling, the framers did indeed argue strenuously over how much power to give the federal government and other issues, but both sides were property-holding gentlemen who agreed on the need to stifle the "radical egalitarians," as Hogeland calls them, who were insisting on a place at the table. The Constitution was intended to keep liberty in check, not to promote it.

Hogeland begins his story with a remarkable and mostly forgotten radical named Herman Husband, who, as the leader of a movement called the North Carolina Regulation, became "one of America's first full-time activists for economic and political equality." Husband had grown up wealthy in Maryland, but—after hearing George Whitefield preach in 1739—he became convinced that the millennium could be achieved in America, moved to North Carolina, and led a revolt of the commoners against the propertied class. (Husband's spiritual journey took him from his parents' Anglicanism to Presbyterianism, Quakerism, and then out of organized religion altogether). He fled the state in 1771 to avoid being hung and wound up in Western Pennsylvania, where he was elected to the Pennsylvania assembly and eventually jailed during the Whiskey Rebellion.

From Husband's rebellion in North Carolina, Hogeland shifts to Philadelphia. Although most historical accounts of 1776 focus on the meetings of Thomas Jefferson and his colleagues in the building we now know as Independence Hall, they'd borrowed the building from another set of lawmakers, the Pennsylvania assembly. The leader of the Pennsylvania assembly, John Dickinson, was a patriot but opposed breaking with England. To undercut Dickinson and to further independence, Samuel and John Adams conspired with the Pennsylvania rabble, first in an unsuccessful voting campaign to unseat the current assembly members, and then by persuading the framers to add to a May 10, 1776 referendum a preamble that called into question the legitimacy of the Pennsylvania assembly (Pennsylvania actually was unusually progressive, allowing even the unpropertied to vote) because the assembly, like other colonial legislatures, swore loyalty to the crown. The preamble spurred militia-led uprisings throughout Pennsylvania in support of independence. Were it not for this subversion of the elected assembly, Hogeland argues, the most important colony might have refused to support independence, and the Declaration of Independence might have died on the vine.

Next up is the Newburgh Crisis of 1783, which flared when a group of military officers, weary of waiting for their pay, threatened to launch an insurrection. Only a famous speech by George Washington averted bloodshed. Washington began his call for unity by reaching for his glasses and saying that not only had his hair gone gray during his years of service to America, he'd given his eyesight too. But before Washington got there, Hogeland shows, Alexander Hamilton had tried to maneuver him into leading the insurrection rather than quelling it. It was all part of Hamilton and financier Robert Morris' plan to pressure Congress to enact an impost—that is, a tax—that could be used to pay the interest on the new nation's debt and thus establish a stable basis for finance in the new country.

The final chapters of the book chronicle Shays Rebellion in Massachusetts, a revolt by the radical egalitarians against taxes, debt, and the paucity of coinage to pay either; Hamilton's eventual success in getting his impost, plus assumption by the federal government of the states' debt; Thomas Paine's growing disillusionment with George Washington and eventual imprisonment in France when the Washington Administration refused to come to his aid; and the military crackdown on the egalitarian rebellion against a whiskey tax in Pennsylvania.

It's a rip-roaring story whose most remarkable rips come in an unusual chapter ("History on the Verge of a Nervous Breakdown") in the exact middle of the book. "I'm untrained," Hogeland begins. He isn't confessing so much as throwing down the gauntlet against the élites in the history business. Starting with the blockbuster biographies of John Adams and Alexander Hamilton by David McCullough and Ron Chernow, Hogeland assails recent historians for having airbrushed the radical egalitarians out of the history of America's founding. McCullough's account of the preamble to the 1776 resolution, which ignores its dislodging of the Pennsylvania assembly and "empower[ment of] a Pennsylvania working- class movement," is "disingenuous." Chernow downplays Hamilton's role in the Newburgh Crisis. He "goes out of his way to give readers the impression that Hamilton confronted the debt for the first time when he became treasury secretary, and that Hamilton's plan was not to fund the debt, as everybody, including Chernow, knows it was … but to pay it off."

Scholarly historians are no better: "only the least well-known [including several on whom Hogeland relies] focus on early American struggles between wealthy founders and ordinary people." Hogeland points to a symptomatic 1955 study by Robert E. Brown purporting to find that nearly all white male adults were able to vote in Massachusetts in the founding era, whether or not they owned property, and thus that the colony was quite democratic. Brown's argument made it easy to forget the passionate protests by the disenfranchised in North Carolina, Massachusetts, and Pennsylvania. Even progressive historians like Richard Hofstadter and Gordon Wood, Hogeland notes, have tended to take Brown's findings as dispositive and as debunking the early 20th-century historian Charles Beard's claims that the Constitution was an élitist document. Although Wood does not ignore the radical egalitarians, he dismisses them by "reflexively identify[ying] the movement with 'egalitarian resentments,' " seeming "to presume that envy and aggrievement are the sole possible causes for egalitarian agitation."

While Hogeland is taking his swings at the big boys, I'll lodge a small complaint about his own story. I wish Founding Finance had a little more finance. Hogeland devotes only three or four pages (in chapter 2) to 18th-century credit, debt, and banking. In this brief interlude, he gives an admirably clear overview of some of the chief features of 18th-century finance, such as the bills of exchange—IOUs—that merchants issued due to the severe scarcity of coinage. It would have been helpful to consider the increasing use of debt by ordinary Americans during this period; to note the wide variation in the colonies' laws on default, insolvency, and debtors' prison; and perhaps to include the details of an actual debtor who lost a farm or livelihood because he couldn't repay his debts. (Among the excellent recent books on these issues is one by Bruce Mann, a legal historian at Harvard who is best known at the moment as the husband of Elizabeth Warren).

By weaving references to the Tea Party and Occupy movements throughout Founding Finance, Hogeland has given his narrative both an up-to-the-moment relevance and a limited shelf life. But Hogeland wants to make his case now, and he gleefully breaks many of the rules of formal history to do it. No university ID-carrying historian would include a chapter taking on the leading figures in the field smack in the middle of the narrative (that's usually done oh-so-subtly in a bibliographic essay at the end), or link his story so insistently to current events.

Hogeland must have been tempted to conclude the book by commenting on the recent debate over income inequality and the question (already front and center in the 2012 election when the book went to print) whether the wealthy should pay more in taxes. Happily, he doesn't do any of this. He points out how both the Left and the Right have distorted the history of America's founding to their own purposes, then leaves us to draw our own conclusions about the present.

David Skeel is a law professor at the University of Pennsylvania and the author, most recently, of The New Financial Deal: Understanding the Dodd-Frank Act and Its (Unintended) Consequences (Wiley, 2011).

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