Philadelphia Reflections

...Trying Out the New Constitution

George Washington's first term as President was much like a continuation of the Constitutional Convention, with many of the same participants.

Intrigues, At the Highest Levels

Alexander Hamilton and James Madison

EVOLVING scholarship now suggests the ideas and driving vigor behind the Constitution were mainly Washington's, with young Madison mainly his leg man. Young Alexander Hamilton was a second devoted agent of Washington, easily recruited after his earlier relationship as the General's chief aide and assistant during the Revolution. These three made things happen. Madison seems to have begun the relationship absorbed with advancing his place in the Virginia dream of the Potomac River: future gateway to the West and main highway of the nation. Hamilton was ambitious as well, perceiving early where the Industrial Revolution was likely to take America. He was not landed gentry. He had aristocratic ambitions, but they grew out of an orphaned boyhood spent in a Caribbean counting-house; above all, Hamilton was a risk taker and a climber. As we now know the different paths they eventually took, we see they were very different. But at the beginnings of the Constitution, they were both Washington's boys, following Washington's orders, advancing his vision.

The Potomac vision was just between Madison and the General until Hamilton eventually put it into a deal, traded for the location of the national capital, at a famous dinner party in New York hosted by Tomas Jefferson. In the meantime, the two younger men advanced Washington's long-range goals in different areas and different parts of the country. Throughout the early years, Washington maintained his natural aloof dignity. A better idea of what he was seeking emerges from how he acted. Start with his being aroused from plantation retirement by Shay's Rebellion.

Daniel Shay

Daniel Shay was a leader of 1200 rebellious farmers in central Massachusetts who in 1786 stirred up concern about chaotic government by making it worse, surrounding the debtor's courthouse in Springfield Mass. and threatening to raid the local armory to overthrow the Massachusetts government. Shay's rebellion was eventually put down but only after two years of fighting which thoroughly frightened local citizens. The rest of the country had some sympathy with a former captain in the Revolutionary War who lost his property because of currency shortages very similar to the ones that started the Revolution. Regardless of earlier rights and wrongs, the public now demanded a government which could maintain law and order. Washington was particularly upset by Shay's Rebellion because of its resemblance to the earlier revolt of the Pennsylvania Line. He continued to be blistered by the Continental Congress' inability to raise troops and pay them, inflicting hardships on the patriots Congress had once begged to protect them. Washington wrote dozens of letters around the country protesting the sorry situation and privately set about to recruit people like Madison and Hamilton to help. Madison's initial task was to recruit the Virginia Legislature and the Virginia congressional delegation to devise necessary legal provisions that would make this country a fit place to live. Washington's position in public opinion could not be resisted; he almost invariably got what he wanted. But if he could have read a letter written by Thomas Jefferson at the time, he would have had a warning that important people disagreed with him. Said Jefferson:

"A little rebellion now and then is a good thing . . . .It is a medicine necessary for the sound health of government... God forbid we should ever be twenty years without such a rebellion. The people cannot be all, and always, well informed. The part which is wrong will be discontented, in proportion to the importance of the facts they misconceive. If they remain quiet under such misconceptions, it is lethargy, the forerunner of death to the public liberty . . . . and what country can preserve its liberties, if its rulers are not warned, from time to time, that this person preserves the spirit of resistance? Let them take arms. The remedy is to set them right as to the facts, pardon and pacify them. What signify a few lives lost in a century or two? The tree of liberty must be refreshed, from time to time, with the blood of patriots and tyrants. It is its natural manure."

Thomas Jefferson, 1787

Let's jump ahead. Washington is now our first president, confronted with our ships and sailors under attack by the Barbary Pirates."Would to Heaven we had a navy to reform those enemies to mankind or crush them into non-existence," Gen. Washington wrote in 1786. The nation built that navy largely because the pirates' hostage-taking and escalating ransom demands became politically unbearable. The ships were built in time, and in one of history's great ironies, it was President Jefferson who gets credit for subduing the pirates on the Shores of Tripoli.

General Sullivan

Throughout Washington's long career it became evident that whenever America developed conflicts in the neighborhood, the enemy's uniform response was to stir up the backwoods Indians to assassinate the settlers. Andrew Jackson is the President who is most famous for responding by confronting whole regions of Indians with the choice of extermination or eviction to lands further west, but Washington was well aware of the realities of the frontier. In response to British-inspired Indian massacres, while he was at Valley Forge, Washington dispatched General Sullivan to march against the Iroquois and exterminate them. There is legitimate doubt the settlers around Wilkes Barre in the Wyoming Valley had any right to be there, but Washington knew that above all else, a leader of a country is expected to protect it.

The most dramatic illustration of Washington's idea of a central government came in the case of the Whiskey Rebellion. When Hamilton persuaded him to impose a tax on whiskey, the corn growing frontiersmen around Pittsburgh started a rebellion against the tax. The old General's reaction was prompt and violent. Riding his horse at the head of 1500 militia, Washington marched across Pennsylvania to put an abrupt end to such ideas of defiance against his new system of proper government. He made a great show of pardoning the intimidated farmers, but he left them with no mistaking that George Washington meant business. And still, there was a warning if he could only see it. Albert Gallatin, who was to be Jefferson's future Secretary of the Treasury and thought the leader in everything economic, was one of the leaders of the Whiskey Rebellion. To see the hand of Jefferson or Madison in this affair is not alarmist.

Washington wanted a strong central government. One that would pay its troops and keep its promises, collect its taxes and defend the coasts. The rest of this mechanical formula called the Constitution was left for Madison to work out. Hamilton persuaded him that a country had to be rich and strong to be able to protect its citizens, so Washington went along with the Bank, and the Report on Manufactures. He agreed with anything Madison proposed in the way of process and balances of power. What Washington wanted of a country were law and order. When Madison eventually started talking like Jefferson, Washington never spoke to him again.

Population Growth: Constitutional Mathematics

Citizens and academics have little appreciation for the intense attention that politicians devote to the rules. By 1787, James Madison had read everything he could get his hands on related to voting procedures, representation, democratic and republican nuances, recent and past. Consider the size of the legislative body, a seemingly inconsequential matter.

Constituents per Congressman

Remember, one way to prevent a particular decision, is to prevent any decision at all. Those who experience blockade by inaction, therefore legitimately argue that improving a committee means reducing its size. That is not invariably the case, because a committee containing inadequate wisdom will seldom be adequately wise. With effective procedures and experienced leaders, a legislative body of two or three hundred can remain productive and efficient. Whatever the limit is, it is safely larger than anything the Constitutional Convention of 1787 had in mind for the United States Congress. The convention concentrated instead on the number of constituents each congressman should have. Divide that number into the population of the nation, and you arrive at the size of the body without specifying it. It would be two centuries before America itself grew to the size where it was necessary to constrain the number of congressmen down to a manageable size. During the earlier years of the republic, there might be a concern that "the body" was too small and thus too easily controlled by personal dominance. But the nation would eventually grow to the point where the size of Congress had to be limited to around 500 members; that would eventually reverse some important considerations. If we ever reach a size where both the size of the body and the number of constituents per congressman are both undesirably large, there could be a lot of squirming.

The House of Representatives has remained frozen at 435 since 1913. A law to remain at that size was passed in 1929.

The focus the founders chose was the number of constituents each representative should have. Here, the argument was that a congressman representing a small group would likely respond to the narrow parochial interests of that small group, while a representative of a large group would more likely have many narrow interests to consider, thus be more likely to represent the interests of the nation as a whole. Natural conflicts between farmers and fishermen would illustrate this dynamic; small districts or less numerous ones would likely split between those representing fishermen and those representing farmers, large districts or more numerous ones would force the representative to respect the interest of both. Small districts would be more partisan, in this view. However, the founders recognized it becomes more difficult to influence a representative who has too many constituents. An amendment was even proposed to limit a congressional district to thirty thousand voters, but it was never ratified. While the electorate hesitated, the country grew to the point where three hundred million inhabitants would produce a House of Representatives of more than twenty-five thousand Congressmen, far too large to operate in anything resembling its present methods. Forced by population growth to choose between an unworkable legislative body, and the originally intended personal familiarity between Congressmen and constituents, the familiarity was sacrificed and political machines came to dominate the selection process, mainly at the level of the nominating primary election. It was probably unnecessary for political parties to become so partisan so soon, but the ultimate result was inevitable in a growing nation. Since many of the non-democratic nations who might consider adopting our system are already larger than we are, there is little doubt that the size limitations of deliberative bodies are presently inhibiting democratic transformations. Eventually, even we will have to confront the issue, and it is past time for us to be discussing what we would like to do.

It is disconcerting to reflect we have already experienced some examples of the power of the representation issue and seen it can have some major effects. At the time of the Constitutional Convention, the number of members of the House and Senate was probably too small. The House soon grew to be the more powerful of the two because it had enough members to staff a wider variety of committees; in time the Senate grew more slowly and overtook the overpopulated House in influence. At present, the main problem is that both legislative bodies are being overshadowed by the enormous bureaucracy in the Executive Branch, with much longer average tenure and far less responsiveness to manageable electorates. Indeed, the elected representatives are slowly being forced to pander to the voting power of the bureaucracy in Maryland and Virginia, and the rural bias of state legislatures who have retreated to isolated rural villages in order to avoid the press and public scrutiny. Few people could now name their state representatives; in time that will be the destiny of Congressmen and Senators. The representation concern was widespread at the time of the founding of the country; it was accepted during the 18th Century that republics must remain small to remain republics. Madison found this to be one of the most serious obstacles to agreeing to a national republic, and he took considerable trouble to rebut it. This theory was behind the otherwise peculiar concept which Benjamin Franklin had advanced for many decades, which was that England and British America ought to have separate parliaments, united in allegiance to the same king. There seemed little difference between that commonwealth idea and the design of the Articles of Confederation with thirteen colonies reporting to the Continental Congress, so it was fortuitous that the abject failure of the Articles made it unnecessary to argue the merits of this multi-chamber approach at the Constitutional Convention.

Article the first... After the first enumeration required by the first article of the Constitution, there shall be one Representative for every thirty thousand, until the number shall amount to one hundred, after which the proportion shall be so regulated by Congress, that there shall be not less than one hundred Representatives, nor less* than one Representative for every forty thousand persons, until the number of Representatives shall amount to two hundred; after which the proportion shall be so regulated by Congress, that there shall not be less than two hundred Representatives, nor more** than one Representative for every fifty thousand persons.

Ratified but Never Acted On

Nevertheless, it was a serious concern, based on clear logic. The anti-Federalists were a national group, ultimately a political party of individualists hostile to overbearing top-down authority. Their cause was hampered by the plain failure of the Articles of Confederation, but nevertheless, they were legitimately very restless about a Congress with a weak perception of its duty to represent minorities. The anti-Federalists somehow envisioned each representative as a lawyer defending local interests at court. Indeed, in the days of a strong British monarchy, that was essentially how the British Parliament operated. As the King lost effective power to rule, ministries elected from within the Parliament took over the powers and attitudes of monarchs. In a sense, that was worse, because the districts lost their power to nominate their own representative, who was selected for them by the party leaders -- now acting in the role of substitute King. So that was no good, either, and the anti-Federalists even though collectively a majority, were basically supporters of the Articles of Confederation, and the Articles were a failure. They thus lost the ratification battle, but although soon taking over the government, had no better proposal to make. A few decades later the South seceded and essentially reinstated the Articles of Confederation in their own part of the country; once again the loose confederation idea failed.

In advancing his argument that a large republic was indeed going to be workable, Madison promoted the idea that a large constituency would produce statesmen of distinction. Only a person of great merit, wealth and effectiveness would be well enough known to be elected. Therefore, congressmen with large districts to represent would tend to be rich, well-born and famous. Senators would be even more so because they were selected by legislatures and governors (before the Seventeenth amendment), and thus the entire government would become progressively and permanently made up of the elite. Madison particularly liked this idea, because it seemed to solve what he considered the main flaw of an elected government. Poor people would always outnumber rich ones, and would inevitably use their voting power to enrich themselves at the expense of the upper classes. Constructing an elitist government by enlargement of congressional district size was thus a highly elegant design feature. Unfortunately for Madison, the scheme didn't produce that result.

Much has been written about the most famous about-face in American history when Madison the Federalist founder became Madison the leader of the anti-Federalist faction. Madison, George Washington's trusted Federalist agent, became Jefferson's anti-Federalist agent, and Washington never spoke to him again. Briefly, it has been speculated that the Virginia tobacco plantation culture out of which Madison had emerged, had begun to crumble, undercutting Madison's Virginia base. And it has been speculated that Hamilton's spectacular leadership of the American banking version of the Industrial Revolution unsettled Madison's earlier conviction that the Old Dominion of Virginia could easily rule the new nation. And it has been muttered that Madison, the ever-scheming politician, saw that his own future presidency would be more enhanced by Jefferson's popularity than by Washington's physical leadership in his lame-duck years. There may be still other important considerations in Madison's famous switch which we can only hope historians will be able to uncover. But there seems little doubt that Madison was able to see with his own eyes that the Congress of Merit, Distinction, and Success which he had imagined would result from large congressional districts, had in fact already in Washington's administration begun to deteriorate into the stereotype of professional politician which today's satirists and cartoonists are pleased to pillory in their blogs on the Internet. Madison had feared the poor would outvote the rich, but in fact, the main form this demographic took was that machine politics and special-interest factionalism essentially drove the natural leadership of gentlemen entirely off the stage. The rules changed; winning this game required aggressive power and organization, not just the offer of service.

A committee containing inadequate wisdom will seldom be adequately wise.

Over time, the relationship between the Senate and the House of Representatives changed, and the size of the membership had much to do with it. At first, the House was more powerful and prestigious. Direct election by constituents had more prestige than appointment by Legislatures. Later on, the Senate was a more suitable size as a deliberative body than the much larger House; running for election every six years was much to be preferred over running every two years. In the past century, the volume of work forced both bodies to develop a standing committee system. With five hundred members, the House could develop specialists in certain areas, and often a senior member in a safe district could remain in a topic area for thirty or more years. The Senate had fewer members, so each Senator is on several committees. Whatever the merits of a smaller deliberative body, the Senators have increasingly found themselves spread too thin, with new members taking too long to become expert, and older members too tired to keep up with everything. The consequences in both chambers have produced a phenomenon that even Madison never envisioned.

The legislative staff has continued to grow and has in general grown increasingly professional and proficient at their jobs. In general, the staff went to better Universities and got better grades there than the member they work for, and need not worry about running for election. Often having spent their lives immersed in a legislative topic, they know it cold. Consequently, we have all the makings of a "Yes, Minister," phenomenon in which the people who were not elected are more expert and more academically serene than the member who was elected, and who has the vote. The member and the staff member desperately need each other to succeed, but nevertheless, the potential for secret resentments and secret contempt is present every day in a highly tense environment of constant overwork. The present code word for this underseas warfare is that the Congress is "dysfunctional", a condition no one who has read much history would worry about. When Ronald Reagan introduced the idea of shrinking the government, and the younger George Bush actually tried to do it, the result was leaked to the newspapers and rumors to the effect that a President who had gone to Yale and had an MBA from Harvard, was a pumpkin. Just how serious all this is, and how exaggerated, is hard to say. But it is a concept that would have dominated the thinking of James Madison for months if it had ever occurred to him. We have entered an era of 1200-page bills, much of which the first surface in conference committees a few hours before the vote. Only a handful of members and a handful of staff know what is in these bills, and it can sometimes be a month after passage before the press discovers many buried features. The members cannot master these masterworks of legislation, so they get bigger by being patched. And by getting bigger, it is harder to master them. If, as someone like Ronald Reagan would genially remark, we just fired all the staff, then the bills would be reduced to one or two pages. In some ways, the legislation would be better, in some ways worse. But it would be different because maybe it should be different.

Delaware's Court of Chancery

Chancery

Georgetown, Delaware is a pretty small town, but it's the county seat so it has a courthouse on the town square, with little roads running off in several directions. The courthouse is surprisingly large and imposing, even more, surprising when you wander through cornfields for miles before you suddenly come upon it. The county seat of most counties has a few stores and amenities, but on one occasion I hunted for a barbershop and couldn't find one in Georgetown. This little town square is just about the last place you would expect to run into Sidney Pottier and all the top executives of Walt Disney. But they were there, all right, because this was where the Delaware Court of Chancery meets; the high and mighty of Hollywood's most exalted firm were having a public squabble.

Only a few states still have a court of Chancery, but little Delaware still has a lot of features resembling the original thirteen colonies in colonial times. The state abolished the whipping post only a few decades ago, but they still have a chancellor. The Chancellor is the state's highest legal officer, and four other judges now need to share his workload, which was almost completely within his sole discretion seventy-five years ago. In fact, the Chancellor usually heard arguments in his own chambers, later writing out his decisions in longhand. The Court of Chancery does not use juries.

Going back to Roman times, the Chancellor was the highest office under the Emperor, and in England, the Lord Chancellor is still the head of the bar in a meaningful way. Sir Francis Bacon was the most distinguished British Chancellor and gave the present shape to a great deal of the present legal system. A court of Chancery is concerned with the legal concept of equity, which is a sense of fairness concerning undeniable problems which do not exactly fit any particular law. The Chancellor is the "Keeper of the King's conscience" concerning obvious wrongs that have no readily obvious remedy. You better be pretty careful who gets appointed to a position like that, with no rules to follow, no supervisor, no jury, dealing with mysterious issues that have no acknowledged solution.

George Read

Delaware's Court of Chancery evolved in steps, with several changes of the state Constitution over a span of two hundred years. As you might guess, a few powerful chancellors shaped the evolution of the job. Going way back to 1792, Delaware changed its Supreme Court from the design of its Constitution, and George Read was the new Chief Justice. However, it was all a little embarrassing for William Killen, who had been the Chief Justice, getting a little old. Read refused to have Killen dumped, and in this he was joined by John Dickinson, who had been Killen's law clerk. So Killen was made Chancellor, and a court of Chancery was invented to keep him busy.

Under a new 1831 Constitution, the formation of corporations required individual enabling acts by the Legislature and limited their existence to twenty years. However, the 1897 Constitution relaxed those requirements and permitted entities to incorporate under a general corporation law and allowed them to be perpetual. By this time, other states were distributing equity cases to the county level, but Delaware was too small to justify more than a single state-wide Court. That court was attractive to corporations because it could become specialized in corporate matters, but retained a pleasing number of equity cases among common citizens, thus retaining a folksy point of view. In unique situations or those without a significant history of public debate, it was thought especially desirable to strive for unchallenged acceptance of the court's decision.

But other states thought they could see what Delaware was up to. In 1899 the American Law Review contained the view that states were having a race to the bottom, and Delaware was "a little community of truck farmers and clam-diggers . . . determined to get her little, tiny, sweet, round baby hand into the grab-bag of sweet things before it is too late." However, that may be, corporations stampeded to incorporate in the State of Delaware, and the equity of their affairs was decided by the Chancellor of that state. In one seventeen year period of time, the U.S. Supreme Court reversed the decision of the Chancellor only once.

Chancery's jurisdiction was complementary to that of the courts of common law. It sought to do justice in cases for which there was no adequate remedy at common law.

A. H. Manchester Modern Legal History of England and Wales, 1750-1950 (1980)

Some legal scholar will have to tell us if it is so, but the direction and moral tone of America's largest industries has apparently been shaped by a small fraternity or perhaps priesthood of tightly related legal families, grimly devoted to their lonely task in rural isolation. The great mover and shaker of the Chancery was Josiah O. Wolcott (1921-1938), the son and father of a three-generation family domination of the court. Most of the other members of the court have very familiar Delaware names, although that is admittedly a common situation in Delaware, especially south of the canal. The peninsula has always been fairly isolated; there are people still alive who can remember when the first highway was built, opening up the region to outsiders. Read the following Chancelleries quotation for a sense of the underlying attitude:

"The majority thus have the power in their hands to impose their will upon the minority in a matter of very vital concern to them. That the source of this power is found in a statute, supplies no reason for clothing it with a superior sanctity, or vesting it with the attributes of tyranny. When the power is sought to be used, therefore, it is competent for anyone who conceives himself aggrieved thereby to invoke the processes of a court of equity for protection against its oppressive exercise. When examined by such a court, if it should appear that the power is used in such a way that it violates any of those fundamental principles which it is the special province of equity to assert and protect, its restraining processes will unhesitatingly issue."

That is a very reassuring viewpoint only when it issues from a person of totally unquestioned integrity, a member of a family that has lived and died in the service of the highest principles of equity and fairness. But to recent graduates of business administration courses in far-off urban centers of greed and striving, it surely sounds quaint and sappy. And many of that sort have found themselves pleading in Georgetown. Just let one of them a bribe, muscle, or sneak into the Chancellor's chair someday, and the country is in peril.

Publius (James Madison) Explains the Proposed Constitution

Publius (James Madison)

New York's ratification of the Constitution could expect a close vote, so Alexander Hamilton organized the publication of The Federalist Papers to drum up support. He recruited two allies, James Madison and John Jay, to assist under the pen name of "Publius". Federalist # 10 was written by James Madison and is often spoken of as containing the central organizing theme, which is that larger nations are harder to dominate by political parties ("factions"), and hence a single strong Union of thirteen was more stable than a loose confederacy of many small nations. At about the same time, George Clinton was publishing Anti-Federalist Papers under the pen name "Cato", opposing ratification. Clinton argued that small homogeneous nations were less likely to split internally than bigger ones who already had more conflicting viewpoints. Both arguments are somewhat true, of course. Which argument you prefer depends on which kind of splitting you predict. Federalist # 10 has also been read as explaining the absence of political parties in the Constitutional plan, but a careful reading is convincing that Madison was saying political factions were deplorable but inevitable, not that they would never arise. Failure to mention them in the Constitution may have grown out of reluctance to expand debate, or else reluctance to give political parties some status they had not fought for.

Since it would be necessary for the state legislatures to ratify the Constitution, the arguments Madison could use before the vote were necessarily conciliatory, conceivably even somewhat contrived. However, since "Federalism" was settled early in the Convention (Madison's notes put it at June 21), it was the cornerstone around which everything else was built. By the end of the Convention in November, it no longer mattered whether the arguments of Federalist #10 were sincerely Madison's views or not; they had been adopted by the Convention as its own.

Few delegates at the convention needed to argue that a bigger nation was better. The Delegates had usually been selected to improve the Articles of Confederation, not to defend them. In the ratification process that would not be the case. The wisdom of getting bigger had to be confronted and balanced against the increased risk of falling apart. Centuries later, it is not certain why Colonial America then believed the advantages of the union had grown more attractive than the risks. Or why kings were suddenly so undesirable; at the time, all nations had kings. The easiest assumption to make is that discovery of the New World continents was itself the main reason relative risks seemed reversed; cheap land and abundant resources lessen the reasons to envy them. Hard experiences have since tempered the enthusiasm of America for that notion, but a succession of new challenges replaced it. The Industrial Revolution offered new rewards, but also new ways to control them. A century of expanding frontiers repeatedly did the same thing. Industrial power led America to a brief fantasy of Manifest Destiny. The atom bomb provoked mutually assured destruction to restrain it. Even today, the computer revolution presents new opportunities for wealth while supplying electronic remedies for brute power. Madison's theme has adapted and persisted. America has been fairly consistently able to devise sources of new wealth and to match them with new ways of maintaining stability. Usually, the new challenge will require new ways to quiet the disruption it causes. Foreign ideas contain a lot of affection for central controls and are to be treated with suspicion until new immigrants get used to our ideas. Immigration must not overwhelm our power to resist the ideas we abandoned in 1787. The secret formula for resisting dictatorship seems to be no more than a grim determination to resist it, no matter what, combined with the spreading realization that somehow in the past, that grim determination has been all it took.

To repeat: As nations grow larger, they do indeed grow harder to govern and some will look for strong monarchs to control them. But America stumbled on another way. In mild cases, persuasion may be enough; just read some history. Sometimes the persuasion can be sly, even contrived. But ultimately, the frontiersman will defend his cabin by himself, and make his own rules to do it if he must. Well before Madison was on the political stage, after fighting against monarchy for many years, America was having no more monarchy. The mere mention of it made George Washington grow livid. So Madison was really claiming we had here a safe way to enlarge the nation without resorting to tyranny. If we somehow got too big, we could always split apart along older boundaries. When the Civil War showed that approach wasn't nearly as peaceful as we hoped, it was at least preferable to returning to a monarchy. As long as a country firmly believes anything is preferable to monarchy, monarchy won't stand much chance.

Gallatin Part II

Act 1 Gallatin Triumphantly Returns to Congress.

When Washington pardoned the Whiskey Rebels, Gallatin was immediately elected to Congress. It was his payback time for Hamilton and all his works. The desperate Federalists tried to oust him a second time with a Constitutional Amendment, which failed before the force of Gallatin's oratory. Gallatin then threw his influence behind Jefferson's deadlocked congressional contest with Aaron Burr, electing Jefferson and earning his own reward as Secretary of the Treasury. Although elected Vice President, Burr's fury is turned against Hamilton, foreshadowing the coming duel.

Act 2 The Virtuoso Financier.

Jefferson proves hopeless in domestic affairs, so Gallatin essentially takes over that role, just as Hamilton had taken over from Washington, who was another Virginia cavalier adrift in these matters. Gallatin promptly repealed the whiskey tax, cut government expenses, in particular, the million dollars annual tribute to the Barbary pirates, and almost performed magic in financing the Louisiana Purchase together with Stephen Girard and William Bingham.

Act 3 Burr Kills Hamilton

After his Vice President kills the leader of the opposition party, Jefferson's party was on the political defensive. But not Gallatin, who spits out his famous remark, "A majority of both parties seem disposed to deify Hamilton and treat Burr as a murderer. The duel, for a duel, was certainly fair." It is an all-time low moment in the politics of the young nation.

Act 4 Diplomacy or War?

As the Napoleonic wars engulf the whole world, both England and France harass our merchant ships, and cries go up for war. Partly out of a desire to annex Canada in the process, Gallatin sneers at proposals to restrain the fighting Europeans with mere sanctions. His prediction proves dismayingly correct that nothing would come of it except to make our own citizens into smugglers.

Act 5 War It Is.

The First Bank's charter was to expire in 1811, and the bank closed, creating an opportunity for Girard to buy it out and finance the coming war himself. Gallatin was desperate to end the war as quickly as possible, especially after the British burned Washington. To speed matters up, Gallatin took a leave of absence and went off to the peace conference in St. Petersburg himself.

Epilogue in front of the curtain.

Gallatin finally announces his resignation from the longest term of Treasury Secretary in our history. He is seventy years old, three scores and ten. Rather than play golf, he was to spend the last eighteen years of his life in three more careers. As a diplomat, he negotiated both our permanent northern and southern borders. As an academic, he founded the discipline of ethnology with the study of native Indian languages, meanwhile founding New York University. And as a banker, he founded a bank which has since evolved into JPMorgan Chase. After all, a man has to find something to keep himself busy.

States Rights Confront Civil War

Dr. Randall Miller

Dr. Randall Miller of St. Joseph's University recently gave the Union League an interesting insight into the non-military upheavals of America by Congress during the Civil War. (Parenthetically, Dr. Miller is the author of Encyclopedia of Greater Philadelphia, which may give him still greater prominence in these columns when it reaches print.) Lincoln and the military get most of the headlines, but the greatest nation-building activities were products of the Congress, not Abraham Lincoln directly; the President was too busy directing the war to take much lead in other matters. The Republican Party of that time was freshly created, still strong in its idealism around elements of the party platform which really meant something to them. Although Senators John Sherman of Ohio and William P. Fessenden of Maine are remembered by history, most of the activity was conducted by members of the Congress who had reached seniority in committees and hence mostly had died off by the end of the War. It seems like one of history's great unfairnesses that a remarkable transformation of the nation was accomplished by people who are now largely unknown.

So Lincoln gets much of the credit by default, and the idealism and grand plans are lost in the current view that the Civil War was about liberating the slaves. That was, of course, part of it, but the Civil War was in fact mostly fought about the Union, and the Whig principles essential to nation-building. And the transformation was the vision of party politicians in offices which we currently regard as being filled by party hacks in safe seats. That wasn't the case at all; these visionaries knew where they wanted the country to go, and cleverly designed a set of programs to make it happen. Lincoln wanted to win the war; these men wanted to have a new nation emerge, after the war.

Civil War

It almost goes without saying that a Civil War over the secession of rebellious state governments from a Union created by the Constitution was going to weaken state power -- and strengthen Federal control -- if the Unionists won the war. That's what the Republicans wanted, and what the Southerners feared. But, strangely, both sides harbored warm feelings for the Constitution, wanting to preserve much of its essence. The Republicans, therefore, realized that many of the laws which were essential for winning the war, would lose their popularity and hence their force, once victory had been achieved. Reconstruction of the South, for example, was going to be unsustainable as soon as the huge Union Army was demobilized. The liberated slaves were unlikely to migrate to the western wilderness, and so the problems of racial readjustment were going to remain Southern problems for decades to come, without an army of occupation to maintain stability, law, and order. In fact, it was largely Southern whites who migrated to the far West, leaving the situation even more unstable back in the old Confederacy. How was a brave new nation to emerge from this mess?

War measures did help. There was no Federal currency until the War, and so a national system of greenbacks and war bonds helped to unify a vast and far-flung continent. The National Banks, fought over and feared for nearly a century, simply had to be created; all of these national rather than local symbols strengthened the national feeling. Putting 10% tax on state bonds was a pretty good indication that the congressional Republicans knew where they were driving things. The telegraph was of great value to wartime communication; it helped create a virtual community, with national news taking the place of local news.

Up until the Civil War, the main source of Federal income was derived from the sale of land; the new nation had a lot more land than gold. After the war, the nation found itself with taxation as the main source of income. The income tax was a step too far, of course, and it was repealed; but a system of national currency organized a system of national taxes which persisted. The country still had plenty of raw lands, but it was distributed by giving it to railroads in return for national transportation, and to land-grant colleges in return for greater uniformity of culture. Notice the hand of Congress, however. This land was to be surveyed land, not the land between this rock and that creek. Surveyors since the time of William Penn and George Washington were the agents of orderliness, law, and peaceful settlement of disputes. To that extent, surveyors broke up the reliance on local clans and territoriality; peace instead of conquest. The leaders of the North, the Republicans in Congress and the cabinet knew what they wanted; it was that the sacrifices of the war would find a reward in the peace that would follow and that reward would be a new nation.

Notice carefully the second section of the Thirteenth Amendment. The first section freed the slaves. The second section gave to the Federal government the charge of enforcing that liberty. The crafters of words and designers of rules, knew exactly where they wanted to go.

The Constitution

They did their work so well, that it begins to look as though the next few decades will display a crisis, created by going too far, too fast. In all these idealistic schemes, the state government is the enemy. State governments would interfere with Reconstruction; state governments would interfere with land grants and misuse their undisputed control of local law enforcement. State governments would introduce little strategies for restoring the power to tax and control, and to govern. State governments would slowly remember that the Constitution conferred only a few limited powers on the Federal government, and reserved all other powers to the states. The Constitution would never have achieved ratification without this explicit provision in the XII Amendment. And so, step by step, we have achieved some sort of goal by making the state governments into the weakest, most ineffectual, and yes the most corrupt parts of our national system. California, New York, New Jersey, and Michigan lead the way into what seems a certain disaster of enlisting municipal employees into political machines of the worst sort, and bankrupting the states that permit it. Massachusetts, Rhode Island, Maryland and West Virginia are not far behind.

Fanatics could persuade themselves that a solution readily lies in simply going all the way and eliminating state governments. But to do so would destroy James Madison's brilliant insight. The states place a limit on unlimited power from whatever source by offering the citizens a choice: if things get too bad, just move to a nearby state.

Aftermath: Who Won, the States or the Federal?

Thirteen Sovereign States

In the case of the American Constitution, the initial problem was to induce thirteen sovereign states to surrender their hard-won independence to a voluntary union, without excessive discord. Once the summary document was ratified by the states, designing a host of transition steps became the foremost next problem. The dominant need at that moment was to prevent a victory massacre. The new Union must not humble once-sovereign states into becoming mere minorities, as Montesquieu had predicted was the fate of Republics which grew too large. Nor must the states regret and then revoke their union as Madison feared after he had been forced to agree to so many compromises. As history unfolded, America soon endured several decades of romantic near-anarchy, followed by a Civil War, two World Wars, many economic and monetary upheavals, and eventually the unknown perils of globalization. When we finally looked around, we found our Constitution had survived two centuries, while everyone else's Republic lasted less than a decade. Some of its many flaws were anticipated by wise debate, others were only corrected when they started to cause trouble. Still, many tolerable flaws were never corrected.

Great innovations command attention to their theory, but final judgments rest on the outcome.

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Benjamin Franklin advised we leave some of the details to later generations, but one might think there are permissible limits to vagueness. The Constitution says very little about the Presidency and the Judicial Branch, nothing at all about the Federal Reserve, or the bureaucracy which has since grown to astounding size in all three branches. Political parties, gerrymandering, and immigration. Of course, the Constitution also says nothing about health care or computers or the environment; perhaps it shouldn't. Or perhaps an unmentioned difficult topic is better than a misguided one. Gouverneur Morris, who actually edited the language of the Constitution, denounced it utterly during the War of 1812 and probably was already feeling uncomfortable when he refused to participate in The Federalist Papers . Madison's two best friends, John Randolph, and George Mason, attended the Convention but refused to sign its conclusions, as Patrick Henry and Thomas Jefferson almost certainly would also have done. On the other hand, Alexander Hamilton and Robert Morris came to the Convention preferring a King to a President, but in time became enthusiasts for a republic. Just where John Dickinson stood, is very hard to say. Those who wrote the Constitution often showed less veneration for its theory, than subsequent generations have expressed for its results. Understanding very little of why the Constitution works, modern Americans are content that it does so, and are fiercely reluctant about changes. The European Union is now similarly inflexible about the Peace of Westphalia (1648), suggesting that innovative Constitutions may merely amount to courageous anticipations of radically changed circumstances.

President Franklin Roosevelt

One cornerstone of the Constitution illustrates the main point. After agreeing on the separation of powers, the Convention further agreed that each separated branch must be able to defend itself. In the case of the states, their power must be carefully reduced, then someone must recognize when to stop. If the states did it themselves, it would be ideal. Therefore, after removing a few powers for exclusive use by the national government, the distinctive features of neighboring states were left to competition between them. More distant states, acting in Congress but motivated to avoid decisions which might end up cramping their own style, could set the limits. The delicate balance of separated powers was severely upset in 1937 by President Franklin Roosevelt, whose Court-packing proposal was a power play to transfer control of commerce from the states to the Executive Branch. In spite of his winning a landslide electoral victory a few months earlier, Roosevelt was humiliated and severely rebuked by the overwhelming refusal of Congress to support him in this judicial matter. The proposal to permit him to add more U.S. Supreme Court justices, one by one until he achieved a majority, was never heard again.

Taxes Disproportionately

Although some of the same issues were raised by the Obama Presidency seventy years later, other more serious issues about the regulation of interstate commerce have been slowly growing for over a century. Enforcement of rough uniformity between the states rests on the ability of citizens to move their state of residence. If a state raises its taxes disproportionately or changes its regulation to the dissatisfaction of its residents, the affected residents head toward a more benign state. However, this threat was established in a day when it required a citizen to feel so aggrieved, he might angrily sell his farm and move his family in wagons to a distant region. People who felt as strongly as that was usually motivated by feelings of religious persecution since otherwise waiting a year or two for a new election might provide a more practical remedy. However, spanning the nation by railroads in the 19th Century was followed by trucks and autos in the 20th, and then the jet airplane. While moving residence to a different state is still not a trivial decision, it is now far more easily accomplished than in the day of James Madison. A large proportion of the American population can change states in less than an hour if they must, in spite of a myriad of entanglements like driver's licenses, school enrollments, and employment contracts. The upshot of this reduction in the transportation penalty is to diminish the power of states to tax and regulate as they please. States rights are weaker since the states have less popular mandate to resist federal control. It only remains for some state grievance to become great enough to test the present power balance; we will then be able to see how far we have come.

High Gasoline Taxes of Europe

Since it was primarily the automobile which challenged states rights and states powers, it is natural to suppose some state politicians have already pondered what to do about the auto. The extraordinarily high gasoline taxes of Europe have been explained away for a century as an effort to reduce state expenditures for highways. But they might easily be motivated by a wish to retard invading armies or to restrain import imbalances without rude diplomatic conversations. But they also might, might possibly, respond to legislative hostility to the automobile, with its unwelcome threat to hanging on to local populations, banking reserves, and political power.

It helps to remember the British colonies of North America were once a maritime coastal settlement. The thirteen original states had only recently been coastal provinces, well aware of obstructions to trade which nations impose on each other. Consequently, they could readily design effective restraints to mercantilism within the new Union. Two centuries later, repeated interstate quarrels provided fresh viewpoints on old international problems. As globalization currently becomes the central revolution in trade affairs of a changing world, America is no beginner in managing the intrigues of international commerce. Or to conciliating nation states, formerly well served by nation-state principles of the Treaty of Westphalia, but this makes them all the more reluctant to give some of them up.

An Industrial Nation, or a Plantation Society?

There is a phrase much used in diplomacy and politics, sometimes attributed to Lord Palmerston, sometimes to Cicero.

In politics, there are no permanent friends, no permanent enemies, only accommodations.

Regardless of who coined the adage, it is difficult to imagine either stone-faced George Washington listening with any approval, or politician James Madison displaying the least surprise. The only American scholar of politics and political history available to Washington, Madison eventually evolved into a total politician. The evolution in the underlying core beliefs of these two men, in opposite directions, seems to explain the slow transformation of their Virginia plantation friendship into outright hostility. On one level, their disagreements may be seen as responses to their new roles: Washington created and molded the executive department, and while he helped him do it, Madison himself migrated into the role of leader of Congress. Once there, he was not strong enough to escape the collective power of Congress to mold its leaders into servants, a situation that was not corrected until Henry Clay over-corrected it in the opposite direction. On another level, it is possible to view the two Virginians as having different reactions to the oncoming Industrial Revolution.

Although both were Virginia plantation owners, General Washington's wartime experience was that his own solitary opinion, right or wrong, would ultimately be all that mattered. All that advice he got was simply information-gathering. On the other hand, while the leader of the legislative branch was often able to change legislative opinion, he would be ultimately forced to accept the collective opinion of Congress or resign his leadership of it. That was also true of the Chief Executive Officer, but several steps removed from Congressional decisions, and of the opinion, he must finally accept their final wishes if they seemed to represent the will of the people who voted them into office. Of the two, he was better able to understand what Hamilton was talking about, better able to appreciate that the strength of a nation has an economic base as well as a military one. The mythology of the era has Alexander Hamilton in combat with James Madison, with Washington in the middle but eventually siding with Hamilton. That's true enough, but the greater truth is that these individuals were cast as the symbols of the changing beliefs of the country. It must be conjectured the high adventure of creating a new form of government held the three together, even as many things turned out to be unanticipated. Washington seems more dismayed by gradually perceiving some unwelcome imperatives of the Constitution, while Madison simply set about to make the most of them. Washington believed in character, a personality based on steadfastness, courage, and determination. Adaptability, yes, pliability, no.

James Madison

The official organizing principle of every legislature, Congress, or parliament is that each member has one vote and therefore is the equal of every other member. Washington understood leaders would emerge, able to persuade others. What he did not anticipate was that some would scheme to acquire the power to compel obedience. Unofficial ways to acquire power over colleagues differ among legislatures but have certain recurring features.

Vote-swapping.

The press of business usually requires a division of labor into committees, who soon acquire special expertise. A chairman is selected to handle routine matters, and to negotiate compromises with overlapping committees; the chairman acquires power. Members differ in their degree of interest in almost any topic; those who have little interest in a particular outcome have an opportunity to trade their vote for assistance on some other matter of much greater concern to them; why not? From this evolves the strategy of striving to discover what each voter secretly wants most of all; offering assistance on that favorite topic is the first step in enlisting later support on some other issue. If he wants your help badly enough, he may even vote against something else he really favors. If he wants to be chairman of a committee important to his interest, it may even be possible to force him to vote for something he privately hates. Vote-swapping is the fundamental currency of legislative trading, and it is sometimes a loathsome business. But just try to imagine George Washington swapping votes to become chairman of a committee, or to enact an appropriation; it couldn't happen.

One suspects it did happen, at least once. Washington badly wanted the nation's capital to be across the Potomac River from his plantation. Indeed, he wanted the Potomac River to be the main commercial highway of the nation to the Great Lakes and the Mississippi. He never said he wanted the nation's capital to be named after him, but he did not object a great deal, either. When there was quibbling about the location of the White House, the old surveyor went there himself and laid it out with a surveyor's transit. Washington wanted Virginia to be the biggest most important state in the union; four of the first five presidents were Virginians. And so, when Hamilton and Jefferson negotiated the Compromise of 1790, everyone knew what Washington's feelings were. The revolutionary debts of Virginia became federal debts, in return for relocating the capital from the banks of Delaware to the banks of the Potomac. Robert Morris was fit to be tied. Washington stood aloof and uninvolved. Anyone who has ever been involved in one of these compromises knows that some participants see nothing wrong with it, while others hate themselves forever, for having had anything to do with it. In fact, the legislators most offended by vote-swapping are the ones who once somehow got unwillingly dragged into it, and never entirely forgave themselves. Natural politicians like Madison, however, are irked by those who criticize such a natural and effective process, whose successes are everywhere to be listed. While no one can read the minds of these two founding fathers, there seems little doubt they were on different sides of this enduring division in the personality types of people in public office and therefore headed for a collision whenever a sufficiently major issue arose.

The genius of the evolving American form of government was to leave land ownership in private hands while creating a new power center in banking and finance.

The issue was major, all right. It was the question of whether this proud new nation was going to join the Industrial Revolution, with all its smoke and crowding, greed and striving. Or whether it was going to sweep majestically along with the romantic movement of the day, the happy farmer and the noble savage, spreading out on a bountiful endless continent. To some extent, this was an echo of the French Revolution which so enthralled Madison's best friend Thomas Jefferson, drawing the conflict between England and France into our own rather recent revolution. Great Britain was a century ahead of France in the Industrial Revolution, which originated north of Manchester where William Penn's Quakers came from. Yes, factories were sort of polluting and crowded, certainly enough to get Marx and Engels excited. But there was another undeniable truth: England soon got richer, acquired a world empire, had a bigger navy, and was soon to beat Napoleon at Waterloo. It was rather easy to prove to George Washington that an economically stronger nation was likely to be militarily stronger as well. Eventually, the point would even be forcibly brought home to Robert E. Lee. American tourists in Europe today echo the sentiment when they chose a vacation itinerary: no churches, and no museums, please. But to be fair to the Virginians, the point was not at all obvious in 1790. Virginia owned what are now three states, and held significant claims to what is now five more. Why would Virginians have any interest in dirty factories or the grubby strivings of immigrant merchants?

Still another historical curiosity emerges from the twenty-five years of Philadelphia as the new nation's capital, which is really our national epic poem, waiting for its Homer to compose it. Just about everybody at the Convention agreed the national government had to be strengthened; the state legislatures were going to ruin us. Madison, representing the views of the landowner aristocracy, was also afraid the national government could get too strong and ruin them by disturbing private property ownership. Hamilton didn't care about the land, he cared about money; he wouldn't mind a King if one was necessary to get things done. It should be remembered that feudalism was largely based on the king's right to reassign land ownership in return for military support. The genius of the evolving American form of government was to leave land ownership in private hands while creating a new power center in banking and finance. So it eventually evolved that Madison and his friends from Appalachia wanted to limit the powers of the national government strictly to those few areas where we needed it strong; enumerated powers were the result. The Federalists following Hamilton stretched enumerated power as far as it would reach with extra "implied" powers, together with their "emanations and penumbras". If you were to defend the nation, you needed a navy; eventually, it would be implied you needed an air force, maybe atom bombs. Increasing Federalism was the driving force of the Republican Party down to the time of Franklin Roosevelt, indeed down to the moment when the Philadelphian Owen Roberts tipped the Supreme Court majority in favor of eliminating "the commerce clause". Since that time, the Republican descendants of Alexander Hamilton have sought to shrink and restrain federal powers and bureaucracy, while the political descendants of James Madison have sought to populate Virginia with civil servants up to and beyond Piedmont. Both Madison and Hamilton must be turning in the grave about the way this topic evolved. But the power being struggled for is all commercial power; ownership control of land remains off the political table. Perhaps the day will come when fresh land no longer seems unlimited, making monopoly control of it seem more threatening. More likely, the agricultural economy will nearly vanish, taking its power struggles along with it. The paradox emerges that increased productivity will likely shrivel the importance of manufacturing as well, leaving both farm and factory as relics of the past. The test of a constitution is how well it adapts to an unknown future.

Morris Defends Banks From the Bank-Haters

Robert Morris

IN 1783 the Revolution was over, in 1787 the Constitution was written, but the new nation would not launch its new system of government until 1790. It was a fragile time and a chaotic one. Earlier, just after the British abandoned their wartime occupation of Philadelphia in 1778, Robert Morris had been given emergency economic powers in the national government, whereas the state legislatures were struggling to create their own models of governance, often in overlapping areas. While the Pennsylvania Legislature was still occupying the Pennsylvania State House (now called Independence Hall) in 1778, it -- the state legislature -- issued the charter for America's first true bank the Bank of North America, and in 1784 the charter came up for its first post-war renewal. Morris was a member of the Pennsylvania Assembly both times. Although he was not a notable orator, it was said of him that he seldom lost an argument he seriously wanted to win. Keeping that up for several years in a small closed room will, unfortunately, make you many enemies.

Tavern and Bank

Morris was deeply invested in the bank, in many senses. He had watched with dismay as the Legislature squandered and mismanaged the meager funds of the rebellion, issuing promissory notes with abandon and no clear sense of how to repay them, or how to match revenues with expenditures. There was rioting in the streets of Philadelphia, very nearly extinguishing the lives of Morris and other leaders, just a block from City Tavern. Inflation immediately followed, resulting in high prices and shortages as the farmers refused to accept the flimsy currency under terms of price controls. Every possible rule of careful management was ignored and promptly matched with a vivid example of what results to expect next. Acting only on his gut instincts, Robert Morris stepped forward and offered to create a private currency, backed by his personal guarantee that the Morris notes would be paid. The crisis abated somewhat, giving Morris time to devise The Pennsylvania Bank, and then after some revision the first modern bank, the Bank of North America. The BNA sold stock to some wealthy backers of which Marris himself was the largest investor, to act as last-resort capital. It then started taking deposits, making loans, and acting as a modern bank. Without making much of a point of it at the time, the Bank interjected a vital change in the rules. Instead of Congress issuing the loans and setting the interest rates as it pleased, a commercial bank of this sort confines its loans to a fraction or multiple of its deposits, and its interest rates are then set by the public through the operation of supply and demand. The difference between what the Legislatures had been doing and what a commercial bank does, lies in who sets the interest rates and who limits the loans. The Legislature had been acting as if it had the divine right of Kings; the new system treated the government like any other borrower. As it turned out, the government didn't like the new system and has never liked it since then. Today, the present system has evolved a complicated apparatus at its top called the Open Market Committee of the Federal Reserve, most of whose members are politically appointed. Several members of the House Banking Committee are even now quite vocal in their C-span denunciations of the seven members of the Open Market Committee who in rotation are elected by the commercial banks of their regions. Close your eyes and the scene becomes the same; agents of the government feel they have a right to control the rules for government borrowing, while agents of the marketplace remain certain governments will always cheat if you don't stop them. This situation has not changed in two hundred years and essentially explains why some people hate banks.

Seigniorage

That's the real essence of Morris's new idea of a bank; other advantages appeared as it operated. The law of large numbers smooths out the volatility of deposits and permits long-term loans based on short term deposits. Long-term deposits command higher loan prices than short-term ones can; higher profits result for the bank. And a highly counter-intuitive fact emerges, that making a loan effectively creates money; both the depositor and the borrower consider they own it at the same time. And finally, there is what is called seigniorage. Paper money (gold and silver "certificates") deteriorates and gets lost; the gold or silver backing it remains safe in the bank's vault, where it can be used a second time, or even many times.

For four days, Morris stood as a witness, hammering these truisms on the witless Western Pennsylvania legislators. At the end of it, scarcely one of them changed his vote, and the bank's charter was lost. But at the next election, the Federalists were swept back into the majority, defeating the opponents of the bank. Although, as we learn the way democracy works, still leaving them unconvinced of what they do not want to believe.

Robert Morris, Financial Virtuoso

For reader convenience, we here divide Robert Morris' financial rescue of wartime America into two parts before and after 1780, because he had two episodes of being officially in charge. The first immediately followed the Battle of Fort Wilson when chaos and worthless paper money required a strong hand; it will be described next. The second episode followed the later near-revolt of the Continental Army but has already been outlined. Here, Morris was recalled to the office with chaos erupting at the end of the war came in sight and everyone was reluctant to fight battles for no military purpose. At the same time British, French and American politicians connived for victory in a war each had failed to win militarily. For simplicity, time sequences have been distorted a bit, concentrating the creation of modern banking into the second episode, where failure to coordinate banking with taxation ultimately led to the Constitutional Convention in 1787. Chronology has been sacrificed to enhance clarity. It is now time to return to the brilliant expedients Morris employed after he took charge following the Fort Wilson shocker, omitting some of the banking details already described.

What helped the first crisis most was the ready availability of a financial genius to turn around a crisis, when just about everyone else was at a total loss. Robert Morris had made his fortune, probably the richest man on the continent, and nursed the grievance of crowd abuse at the Battle of Fort Wilson. He had some novel concepts to test; it is not too much to say he showed them off, particularly since they displayed a man in charge with prodigious energy, applying a financial virtuosity of seemingly unlimited ideas. No one else came close to Morris in stature, and he must be forgiven for flaunting it a little.

Robert Morris

At the climactic moment, however, Morris played coy. He was not so sure he would accept the office of Financier, a term newly invented for the occasion. Accepting Ben Franklin's cynical assessment of the future, he wanted everyone to be clear: he was not going to give up his private partnerships. And he insisted on his right to hire and fire anyone at all within the government bureaucracy who was concerned with public money. He accepted responsibility for new debts of the government, but not for old debts incurred before he took office. He would furthermore delay taking the oath of office for a few months. These conditions naturally generated wild opposition in Congress; Morris was serene, and Congress finally had to agree. Most of these terms had some obvious purpose while making no secret of his distrust of Congressmen. In fact, the opposition might well have hardened its position if the purpose of delaying the oath had been fully expressed. Morris wanted to delay becoming a federal officer in order to delay resigning from the Pennsylvania Assembly. During the interval, he applied similar power tactics to the Legislature, ending up simultaneously in charge of both state finances and federal.

Yorktown: Oct. 19, 1781

That purpose was soon to emerge, as just one instance of many tough tactics. Inflation tossed and turned the finances of everyone, so Morris would buy with one currency and sell with another, taking advantage of brief fluctuations, then quickly reverse the currency transaction when advantages shifted. He arranged with the French and Spanish ministers to keep their loans and foreign aid in separate accounts, applied the same techniques with state accounts, and even between near and distant counties within Pennsylvania. He thus had a choice between many currency values at any one moment. His far-flung commercial network supplied him with more precise information than his counterparties could get, and usually more quickly, so his trading activities were usually profitable. One rather extreme example was the arrangement with Benjamin Franklin in Paris; Morris would write checks to Franklin in one currency and Franklin would write identical deposits back to him on the same day but a different currency. He thus extended ancient practices among international merchants, carrying them over to government operations, which had the effect of creating a modern currency exchange. To outsiders, however, particularly his political enemies in Massachusetts and Virginia, it looked fishy. To modern observers, the astonishing thing was his ability to keep such complexity in his head. The political class which even today sees it as natural that governments might want to manipulate currency as they please might describe Morris strategies as dubious. Those who believe the market price is usually the true price however, must applaud this strategy for forcing manipulated prices back to market levels. Since here has rested the central dispute in American politics for two centuries, Morris must be credited with inventing even that dispute. One would normally suppose that doubling the silver price of American currency in two months would vindicate his trading strategy; but it has not always done so, suggesting the nature of the questioning has been more ideological than economic.

Within days of assuming office, the "legal tender" laws were repealed, stripping government of the ability to force its citizens to accept the worthless currency, impose rationing and price controls, and otherwise assume the mantel of "sovereignty". Like a miracle, food began to reappear in the Philadelphia marketplace at a lower price, and confidence in the competence of government began to return. To whatever degree the British ministry had been deliberately stalling the peace talks in the hope of American collapse, this incentive was dissipated.

The list of financial innovations which Morris produced in a remarkably short time, is seemingly endless. He next became central in the creation of the first American bank of the modern sort, the Bank of North America. And somewhere in that welter of activity appears to be the recognition of the so-called yield curve. Loans for a few weeks or months command a much lower interest rate than long-term loans; in the colonial period, almost all loans were for six months or less. Morris seems to have realized early that great profitability could be achieved by merging a sequence of several short loans into one long one. He thus devised a number of strategies which had the general effect of linking short loans together. Using the remittance for a transatlantic cargo in one direction as payment for the return cargo on the same ship was an early example. Once you grasped the idea and did it deliberately, long sequences of linked loans began to suggest themselves. Just to complete the thought, it might be noticed that present-day globalization reverses the process, with shorter-term loans for components substituting for longer-term loans for the entire assembled product. With lower interest rates, competitive prices can be reduced, unless a choice is made to increase profits.

There's one last issue in Robert Morris folklore: Did he finance the whole Revolution out of his own pocket? The answer is surely no because Beaumarchais ended up spending much more than any other individual, however involuntarily. The degree to which hard currency originated with the French, Spanish and American governments is a little unclear, and war damages are impossible to appraise. There were moments when Morris did personally finance major cash shortages, adding the considerable advantage of speeding up what could be a cumbersome process of budgeting, committee consideration, disputes, and hesitation. Where it was feasible, he sought restitution. Every bureaucrat has experienced delays and obstructions he dreams of eliminating by simply paying for it himself; Morris had the advantage that within reason, he could afford it.

As a very rich man, his more important personal contribution was his pledge to make good if the Treasury defaulted. Creditors generally preferred his credit to that of the government; his pledge was to pay if the government could not. His "Morris Notes" were not paying, but rather reinsuring government debts, in modern terms offering a Credit Default Swap. If we lost the war and our debts defaulted, Morris would have lost everything he had. But short of that, his pledge would result in much smaller losses. The public couldn't be expected to understand all that, so some simplified explanations were understandable. There were probably a number of similar examples, but near the end of the war, there was a particularly clear one. The Continental Army was very close to revolt when it looked as though Congress would disband the soldiers without paying them; there was no money but unpaid demobilization would likely send rioting soldiers through the countryside. Morris came forward with a million dollars of his own money and saved the day. Washington was forced to make emotional speeches appealing to the patriotism of the troops, but with most of the army barefoot, that was not certain to hold them back. Under those circumstances, to come forward later like Arthur Lee and remind everyone that Morris had once refused to sign the Declaration of Independence, was ingratitude of the meanest sort.

The accusation made after the war was that he profited from government losses, but there has never been evidence of that. His position was that he came out about even. Unspoken in these quarrels was the plain fact that until he got involved in the post-war real estate boom, he didn't need to cheat. Probably didn't even have time for it.

The Revolutionary War continued for two years after Morris took office for the second time, so war losses continued in spite of improved financial management. Both the French Government and the American one were at the edge of bankruptcy. Britain was also in political chaos, but it was only small consolation that Parliament had granted Independence to the Colonies when King George III remained adamant that it wasn't going to happen to his colonies. Strengthened by the British defeat of the French Caribbean fleet, the capitulation by the Spanish about Gibraltar, and great uncertainty about the Crimea and India -- almost anything was possible. Eventually, matters began deteriorating again. The British even then had the financial strength to hold out much longer, but obvious neglect of other opportunities eventually wore them down. Morris seemed to be winning, just by not losing.

In the midst of such anarchy, Morris had to admit his greatest failure as the Financier but was already formulating his plan for setting things on their feet. The Revolutionary War as seen by a financier had either been won by the British system of taxation or else lost by the American and French lack of such a system. It was irrelevant whether the War was described as a defeat for Britain or a victory for America; in Morris' view, the British had a good system and we had a poor one. No nation can finance a major war out of current receipts; you have to borrow. Your security for loans is the economy of your nation. Even if your illiquid assets are adequate for the war, the banking markets regard your ability to pay cash for the interest on the loan as their only reliable test of your solvency. That is, a nation at war must have the ability to keep the bankers happy with regular interest payments. For that, a nation had to have a proven system of reliable taxation. Britain had it, and the American/French alliance didn't. Franklin's masterful diplomacy was just lucky enough to achieve generous terms, but that wasn't good enough, we had to have a Federal tax system to survive and thrive. And to achieve that, we had to have a new Constitution. Never mind that resentment about British taxes got us into this mess. Never mind the chaos attending the Treaty of Paris. Never mind the war-weariness, bitterness, and destitution of the troops. Never mind that Morris was now about to embark on one of the most mind-boggling real estate ventures in history, was going to go to debtor's prison, was going to engage in millions and millions of dollars of borrowing and restitution. Never mind. We needed a new Constitution, and we were going to get it. Think big.

Power of the Purse

Liberty Bond

In 1917, Congress passed a law, quite possibly not understanding its full implications. From the founding of the republic until that time, Congress had approved the exact amount of each bond issue as enacted, neither more nor less. With the First Liberty Bond Act of 1917, however, Congress began to allow the administration to issue bonds as it pleased, up to some specified debt limit. Periodically since that time, as the amount in circulation approaches the debt limit, Congress raises the limit. No doubt this procedural change seemed like legislative streamlining, making it unnecessary for Congress to interrupt other activities to respond to a debt level which creeps up on its own time schedule. The overall effect of this change was significantly different, however, and probably unintentionally.

If the authorized debt limit is raised by large enough steps, it effectively amounts to Congress turning over debt decisions to the executive branch. Conversely, raising the limit only a small amount soon triggers a repeat request, which by routine becomes so inconsequential that Congress stops paying attention to it. Regardless of the size of the block grant, bulk authorization of blocks of debt results in the power of debt creation shifting toward the President. That was not what the Constitutional Convention intended.

Founding Fathers

The Founding Fathers remembered taxation as one of the main issues of the revolt from England. Whether by King or President they had no intention of permitting the Executive to tax as he pleased; the issue traced back to the Magna Charta. Nor would they permit unlimited federal borrowing to generate escape hatches which would soon enough transform into higher taxes. Taxes, therefore, must originate in the House of Representatives, and bond issues were approved one by one. Following the 1917 liberalization, it required only fifty years before unrestrained bond limits reached a point where future national debt obligations loomed beyond the easy ability to pay them off. If they were ever pronounced unpayable by the international bond market, interest rates would rise, and eventually, federal bonds would become unsalable. With Greece, Portugal, and Ireland already flirting with bankruptcy, the approaching danger seems quite understandable to the voting public.

Constitutional Convention

The issue is constrained by another barrier. The Fourteenth Amendment to the Constitution, Section Four, forbids dishonoring "the validity of the public debt of the United States, authorized by law." Enacted after the Civil War, this Amendment was intended to prevent future states or congresses from reversing the Reconstruction Acts, but it has the additional effect of preventing future Congresses from dishonoring interest and debt repayments on existing debt. The present Congress, therefore, retains the latitude to prohibit the issuance of additional debt but is forbidden from dishonoring existing debt.

This seems like a good principle to re-emphasize, entirely disregarding the merits of the TARP, the Dodd/Frank Act, or Obamacare. Indeed, restating the Constitutional intent for Congress to be chiefly responsible for taxes and debts, seems like a very good thing to do, quite regardless of whether present national debt limits ought to be raised. The 1917 Act was a mistake, probably an unconstitutional one, and should be reversed. Holding conferences in the White House about whether to issue debt raises uncertainty about whose duty it is. The responsibility belongs to the House of Representatives, and should stay there.

National Debt, National Blessing

Alexander Hamilton

In 1789 while arguing for the establishment of a National Bank, Alexander Hamilton made one of the most famous counter-intuitive assertions of his controversial career. "A national debt, if it is not excessive, will be to us a national blessing".

The very suggestion of such an idea enraged Thomas Jefferson and his Calvinist adviser, Albert Gallatin. James Madison, ever the political schemer, immediately recognized a new bargaining chip in his move to relocate the national capital to Virginia. Political parties were promptly invented to mobilize votes on both sides, and the national bank remained a divisive issue for half a century afterward. Neither a borrower nor a lender is; how could anyone, then or now, say the debt was a blessing?

Indeed, that's evidently how the leaders of Singapore, Malaysia, Australia, China, and several other prosperous states still feel about it. While not eliminating taxes, these countries accumulated surpluses and created sovereign-wealth funds. Having paid off the national debt, and still finding a national surplus, what else are you going to do with it?

Gallatin

These countries hired investment advisers to buy stock for the funds, evidently feeling American stocks were the safest bet; it's hard to criticize that conclusion. In the present credit crunch, they are investing five and ten billion per transaction in the equity of America's premier investment banks. So far, they only acquire 5 or 10 percent ownership, but then the credit crisis may not be over yet. For them eventually to acquire 51% controlling ownership somewhere is not at all inconceivable. An ominous sign of where that might lead is found in our own captive pension funds. The state employee pension funds have quickly become captive to unions with their own agenda, with the result that the prosperity of the companies in the portfolio could be sacrificed to the benefit of interest groups. And yet, it wouldn't be so hard for America to do the same thing. If Congress had adopted the Bush proposal of three years ago to create an investment fund for Social Security, we ourselves would soon have what amounts to the largest sovereign wealth fund in the world. Could this be a solution to the weakness of the Federal Reserve in controlling the currency with bank debt? Could we somehow create a common world currency based on a common fund of sovereign wealth funds and with that, create a new definition of wealth based on equity rather than debt? The technical answer to the potential corruption issue would probably lie in stripping the voting power from such shares and then submerging them in a world index fund. The United Nations sound of it nevertheless still boggles the mind. Are people who oppose an equity-based world currency going to be forced like Gallatin to eat their own dusty words when the reality of debt-based currency sinks in? How many of the ambassadors of ideas about such suggestions, both pro, and con, would eventually surface as sneaky connivers like Madison, with a hidden side-agenda? After all, in a democracy, everyone is expected to marshal every argument, weak or strong, for his own self-interest.

Federal Reserve

The loss of banks as a tool for the Federal Reserve would undermine the way the Fed does its job. A deeper reality is that many governments really don't want the job to be done perfectly and independently. The European common currency, the Euro, is already irking the French and other national governments who sometimes hanker to inflate away their debts or deflate their way out of the subsequent inflation. A perfectly automatic currency regulation threatens an important ingredient of the sovereignty of nations, thus the whole concept of nationhood. Somehow, the desire of markets to enhance wealth must come to terms with the desire of governments to re-elect themselves.

It will take more than the present crisis to provide credibility for ideas as wild as substituting equity-based currency for the present debt-based one. Unless someone devises a better-sounding scheme, it seems more likely that financial Jacobins will propose sacrificing the unwelcome intruder. Derivatives, whatever that means, started this mess. Maybe we should make them illegal.

Funding the National Debt

Alexander Hamilton

Although Alexander Hamilton's arresting slogan that "A national debt is a national treasure" has diverted attention to the underlying idea toward him, Robert Morris had introduced and argued for the same insight in the preamble to his 1785 "Statement of Accounts". The key sentence was, "The payment of debts may indeed be expensive, but it is infinitely more expensive to withhold payment." This fatherly-sounding advice was surely a distillation of a long life as a merchant, and the gist of it may have been passed down to him as an apprentice. Failure to pay your debts promptly and cheerfully results in the world assigning a higher interest rate to your future credit; it is not long before compounded interest begins to drag you down. It doesn't exactly say that, but that's what it means.

Liberty Bond

Another way of looking at this folk wisdom is that it leads to a simplified method of organizing the finances of an organization. Because higher rates of interest are demanded of long-term borrowing than short-term, it becomes efficient to segregate them. That is, to establish a cash account for every-day transactions, and a separate bond account for a long term, or capital, debt. As bills arrive, they need only be verified for accuracy and sent for payment from either a cash account or a capital account. The original responsibility for agreeing to such debts lies with top management, not the treasurer. The job of the treasurer's office is to pay legitimate bills as quickly and cheerfully as possible, ignoring any imprudence of earlier agreeing to them; rewards will come from lower interest charges and improved credit rating. An unexpected benefit of thus organizing institutions and governments is to make the accounting profession possible. Accountants perform the same function in every business, whether the business is selling battleships or parsnips. The accounting profession made itself computer-ready, two hundred years before the computer was invented.

Robert Morris

In the same document, the retiring national Financier was advising the wisdom of "funding" the war debts, which were largely owed to France, with whom relations were rapidly souring. Lump them all together into a fund, issue bonds and sell them as representations of the nation's capital at the time of issue. Disregard what the money was used for, by either the debtor or the creditor. In spite of appearances, money sequestered in a fund for later payment belongs to the creditor the moment it is promised, not the moment it is transferred. Morris and Hamilton discovered that the fund itself had the property of a bank, in creating money. As long as the creditor did not cash your bonds, he could use them as money, in effect doubling the amount of money you yourself can spend. It was this discovery which so exhilarated Alexander Hamilton, causing him to over-praise the methodology to an already suspicious Congress. Tending toward the teachings of Shakespeare's Polonius, Hamilton's excitable manner caused them to remember, neither a borrower nor a lender is. But Congress was eventually persuaded. The federal government lumped the states' debts together in an "assumption of debts" , consolidated all these various little debts into a single "funded debt", and made the deal work with changing the "residency" of the nation's capital from Philadelphia to the banks of the Potomac. It was called the Great Compromise of 1790.

Morris well understood that a funded system requires some final payor of last resort. Such a payor need set aside only a small portion of the debt for dire contingencies, but his name gets first attention on the list presented to prospective creditors. In 1778 Morris had offered his own personal wealth as that last resort, which the public at the time trusted far more than the Treasury of the United States. Over the next twenty years, he came to realize that the last resort of established nations, no matter what the paper said, was the aggregate underlying wealth of the whole nation. With a vast continent stretching to the West, and countless immigrants clamoring to join from the East, the wealth supporting the debt of the United States in 1790 seemed endless. After two hundred years we have finally begun to accumulate a national debt which equals our Gross Domestic Product, and have only begun to pull back as we observe what happens to other nations who got to that point sooner. Let's hope devising an automatic check and balance does not require a second Robert Morris. Men like him can be hard to find, so limit your debts -- or your nation's debts -- to sixty percent of your assets. Financial geniuses are invited to devise a better debt limit, if they can.

Evolving Constitution

Muddle: The War of 1812

H.G. Callaway

HOWARD Callaway is an old friend and an expert historian of the War of 1812. This is the two hundredth anniversary of that war, so Howard is in demand as a speaker. At a recent meeting of the Right Angle Club, he gave a fascinating recital of his analysis of the reasons for the war, and its subsequent upheavals in American politics. The audience at the Club stayed well beyond the allotted hour to ask questions and finally had to be sent home by the moderator. We will here try to summarize his views fairly.

American impressions of this war come largely from Henry Adams, who wrote a nine-volume history of it, concluding it was a senseless muddle. Henry Adams however, was the grandson of John Quincy Adams, and the great-grandson of John Adams, both of whom were active participants of the event, its causes, or its consequences. He later killed himself, having displayed fugues of depression in his autobiographical Education of Henry Adams. No matter how serene his writing style, you have to be a little careful about the views of such an involved person. New England hated this war almost universally, not a single Federalist congressman or Senator voted for it, and the Federalist political party essentially dissolved as a consequence of it. New England even considered secession. In particular, maritime New England hated the two-year embargo on European trade which Thomas Jefferson had imposed as a measure short of war. Since Jefferson had stripped the Army down to 3000 soldiers and the Navy down to a single ship -- he didn't have many choices. Great Britain at that time had eight hundred ships in its navy. When it came, the war was mainly supported by the more rural South and West of the nation. It was the war of the "republican" political party of Jefferson and Madison, actively demonstrating that Virginia had defeated the Federalists and now would dominate American politics for decades. Regardless of details, the War of 1812 made it clear that New England was not the central essence of America any longer; the rest of the country would not follow its lead.

Henry Adams

His opponents called it "Mr.Madison's War", and the bad management of it certainly damaged the later reputation of the principal author of the Bill of Rights, perhaps the Constitution. It's pretty hard to maintain the image of a Founding Father when you get us into a war that could not be won and was not even conducted well. Whatever Madison's early skill as a political philosopher, his later execution as its chief officer was a shambles. He was indeed a clever politician, never completely revealing his true beliefs, so it is a question how much he was really in favor of the war, and to what degree he could merely see how the wind was blowing. It might be argued, for example, that a supporter of the constitutional intent that Congress would declare wars, the president would only command them, might well have been yielding reluctantly to his party's clear wishes. Howard does not think so.

There was no time to expand on the evidence, but our speaker is convinced that Madison and the whole "Republican" party were anxious to sever the cultural ties to England and turn the nation to looking Westward. Certainly that was Jefferson's view, and certainly, the nation entered a century of turning its back on Europe, England in particular, becoming in one word, isolationist. That's the sort of grand strategy which might offer coherence to the subsequent Wilson and Franklin Roosevelt reversals of attitudes, which contain a major element of anglophilia.

Quite a lot to think about, considering what a bumbling rout the War seemed to be in 1812.

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REFERENCES

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Alexander James Dallas: An Exposition of the Causes and Character H.C. Callaway ISBN-13: 978-1906716288

Amazon

Implicit Powers of the Federal Government

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The two highest achievements of James Madison, had been and still remain, the writing of the Bill of Rights, and acting as a close collaborator with George Washington in fleshing out the role of the President in the new government. The Ninth and Tenth Amendments made it clear that the federal government was to be constrained to a limited and enumerated set of powers, while all other activities belonged to the states. This was already clear enough in the main text of the Constitution, which Madison also dominated after close consultation with Washington before the Constitutional Convention. So he had battled and successfully negotiated one matter twice, before the most powerful and distinguished assemblies in the nation. As to the second matter, circumstances had promoted a shy young bookworm into the role of preceptor to the most famous man in America. In the earliest days of the new republic, certainly during the first year of it, Washington and Madison worked closely together in defining the role of the Presidency.

George Washington

During the first weeks of that exploratory period, Washington induced Congress to create a cabinet and the first four cabinet positions, even though the Constitution did not mention cabinets. It all was explained as an "implicit power", inherently necessary for the functioning of the Executive branch. Soon afterward, Alexander Hamilton as Secretary of the Treasury proposed the creation of a national bank. Madison and his lifelong friend Thomas Jefferson were bitterly opposed, using the argument that creating banks was not one of the enumerated powers granted by the Constitution. Hamilton's reply was that creating a bank was an "implicit power" since it was necessary for running the federal government. Of course, Hamilton and Jefferson both had other unspoken motives for their position: for and against promoting urban vs. rural power, for and against the industrialization of the national economy, and dominating the states in matters of currency and financial leadership. It empowered a national rather than a confederated economy.

Alexander Hamilton

For Madison, the legalism probably carried considerably more weight than it did for Jefferson and Hamilton because it demonstrated the enduring consequences of being vague about the boundaries of any constitutional restriction. If this loophole got firmly established, it might reduce the whole federal system to a laughingstock. In order to promote the "general welfare", anything at all could be called an implicit power, and both separation of powers and enumerating federal powers would soon become quaint flourishes. The whole Constitution might fall apart in endless debates. On a personal level, Madison's highest achievements would have to be supplanted by something more practical. Besides which, Madison was a Virginian, a rich slave-holding farmer, and a young politician, seemingly on the verge of a promising career which might easily lead to the presidency for himself. Hamilton his most visible opponent, was already proposing a tax on whiskey which would almost surely antagonize farmers to the west, and assuming the Revolutionary debts of the states was equally divisive.

Mt. Vernon

As matters eventually worked out, the main disputants made ostensible constitutional arguments, while the real political dispute would be settled by a political deal struck at a dinner. It traded relocation of the national capital to Virginia, for the assumption of the debts of all states (when Virginia had already paid off its debt.) Location of the capitol opposite George Washington's home at Mt. Vernon also took care of difficulties coming from that direction. By the time the uproar about this arrangement subsided, the precedent for settling the inherent conflict between enforcing Constitutional limitations versus enlarging their boundaries had been set. The most opportune time for stricter interpretation was fading while the most likely advocates of it were restrained by their own example. The negotiation was a little unseemly, and probably encouraged similar decisions to migrate to a less conflicted body, which eventually John Marshall would define as the U.S. Supreme Court.

Jury Nullification

Tom Monteverde

We must be grateful to the late distinguished litigator, Tom Monteverde, for reminding us of the importance of the jury in American history. Juries seldom realize how much power they can have if they unite on a common purpose. In fact, juries have the implicit right to veto almost anything the rest of government does, by rendering it unenforceable. If the jury opinion is a majority view, nothing but a civil war can legally stop them. So it helped Washington to have jury nullification seem an invincible Quaker idea, while the South trusted a rich slave-owner who had renounced power.

William Penn

The right to a jury trial originated in the Magna Carta in 1215, but a jury's essentially unlimited power was established four centuries later by Quakers. The legal revolution grew out of the 1670 Hay-market case, where the defendant was William Penn, himself. Penn was accused of the awesome crime of preaching Quakerism to an unlawful assembly, and while he freely admitted his guilt he challenged the righteousness of such a law. The jury refused to convict him. The judge thus faced a defendant who said he was guilty and a jury who said he wasn't. So, the exasperated judge responded -- by putting the jury in jail without food.

The juror Edward Bushell appealed to the Court of Common Pleas, where the problem took on a new dimension. The Justices certainly didn't want juries flouting the law, but nevertheless couldn't condone a jury being punished for its verdict. Chief Justice Vaughn decided that intimidating a jury was worse than extending its powers, so the verdict of Not Guilty was upheld, and Penn was set free. Essentially, Vaughn agreed that any jury that wasn't allowed to acquit was not really a jury. In this way, the legal principle of Jury Nullification of a Law was created. A verdict of not guilty couldn't make William Penn innocent, because he pleaded guilty. A verdict of not guilty, under these circumstances, meant the law had been rejected. Jury nullification thus got to be part of English Common Law, hence ultimately part of the American judicial system.

Andrew Hamilton

This piece of common law was a pointed restatement of just who was entitled to make laws in a nation, whether or not nominally it was ruled by a king or a congress. Repeated British evasion of the principles of jury trial became an important reason the American colonists eventually went to war for independence, and probably a better one than some others. The 1735 trial of Peter Zenger was an instance where Andrew Hamilton, the original "Philadelphia Lawyer", convinced a jury that British law, blocking newspapers from criticizing public officials for improper conduct, was too outrageous to deserve enforcement in their court. In that case, jury defiance became even more likely when the judge instructed the annoyed jury that "the truth is no defense". Benjamin Franklin's Pennsylvania Gazette was here quick to come to the side of jury nullification, saying, "If it is not the law, it ought to be law, and will always be law wherever justice prevails." Franklin quickly became allied with Andrew Hamilton, who became Speaker of the Pennsylvania Assembly.

John Hancock

The Zenger case was often stated to be the origin of the Freedom of the Press in our Constitution fifty years later, but in fact the First Amendment merely provides that Congress shall pass no laws like that. Hamilton had persuaded the Zenger jury they already had the power to stop enforcement of such tyranny, and the First Amendment could be seen as trying to prevent enactment of laws that will foreseeably incite a jury to revolt.

The Navigation Acts of the British government, for example, were predictably offensive to the American colonists, whose randomly chosen representatives on juries were then rendered useless with their wide-spread refusal to convict. This, in turn, provoked the British ministry. John Adams made a particularly famous defense of John Hancock who was being punished with confiscation of his ship and a fine of triple the cargo's value. Adams was later singled out as the only named American rebel the British refused to exempt from hanging if they caught him. As everyone knows, Hancock was the first to step up and sign the Declaration of Independence, because by 1776 there was widespread colonial outrage over the British strategy of transferring cases to the (non-jury) Admiralty Court. Many colonists who privately regarded Hancock as a smuggler were roused to rebellion by the British government thus denying a defendant his right to a jury trial, especially by a jury almost certain not to convict him. To taxation without representation was added the obscenity of enforcement without due process. John Jay, the first Chief Justice of the Supreme Court of the newly created United States, ruled in 1794 that "The Jury has the right to determine the law as well as the facts." And Thomas Jefferson built a whole political party on the right of common people to overturn their government, somewhat softening, it is true, when he grasped where the French Revolution was heading. Jury Nullification then lay fairly dormant for fifty years. But since the founding of the Republic and the reputation of many of the most prominent founders was based on it, there was scarcely need for any emphasis.

Slave

And then, the Fugitive Slave Law of 1850 began to sink in. It became evident that juries in the Northern states would routinely refuse to convict anyone under that law, or under the Dred Scott decision, or any other similar mandate of any branch of government. In effect, Northern juries threw down the gauntlet that if you wanted to preserve the right of trial by jury, you had better stop prosecuting those who flouted the Fugitive Slave law. In even broader terms, if you want to preserve a national government, you had better be cautious about strong-arming any impassioned local consensus. A rough translation of that in detail was that no filibuster, no log-rolling, no compromises, no oratory, no threats or other maneuvers in Congress were going to compel Northern juries to enforce slavery within their boundaries of control. All statutes lose some of their majesties when the congressional voting process is intensely examined, and public scrutiny of this law's passage had been particularly searching. Even if Southern congressmen would be successful in passing such laws, it wasn't going to have any effect around here. The leaders of Southern states quickly got a related message, and their own translation of it was, "We have got to declare our independence from this system of government that won't enforce its own laws". If juries can nullify, then states can nullify, and the national union was coming to an end. Both sides disagreed so strongly on this one issue they were willing, for the second time, to risk war for it.

Ku Klux Klan

The idea should be resisted that Jury Nullification is always a good thing. After the Civil War, many of the activities of the Ku Klux Klan were tolerated by sympathetic juries. Many lynch mobs of the Wild, Wild West were encouraged in the name of law and order. Prohibition of alcohol by the Volstead Act was imposed on one part of society by another, and Jury Nullification effectively endorsed rum-running, racketeering, and organized crime. The use of marijuana and abortion are two further examples where disagreement is so strong that compromise eludes us. What is at stake here is protecting the rights of a minority, within a society run by a majority. If minority belief is strong enough, jury nullification issues an unmistakable proclamation: "To proceed farther, means War."

Oliver Wendell Holmes

That's a somewhat strange outcome for a process started by pacifist Quakers, so the search goes on for a better idea. Distinguished jurists differ on whether to leave things as they are. In a famous exchange, Oliver Wendell Holmes once had dinner with Judge Learned Hand, who on parting extended a lawyer jocularity, "Do justice, Sir, do justice." To which, Holmes then made the somewhat surly response, "That is not my job. My job is to apply the law."

Thus lacking any better approach, it is hard to blame the US Supreme Court for deciding this was something best left unmentioned any more than absolutely necessary. The signal which Justice Harlan gave in the majority opinion on the 1895 Sparf case was the very narrow ruling that a case may not be appealed, solely on the basis that the trial jury was not informed of its right to nullify the law in question. Encouraged by this vague hint, what has evolved has been a growing requirement that incoming jurors take an oath "to uphold the law", officers of the court (ie lawyers)are discouraged from informing a jury of its true power to nullify laws, and Judges are required to inform the jury in their charge that they are to "take the law as the judge lays it down" (ie leave appeals to higher courts). If a jury feels so strongly that it then persists in spite of those restraints, well, you apparently can't stop them. Nobody thinks this is a perfect solution, and aggrieved defendants like the Vietnam War protesters are quite vocal in their belief that the U.S. Supreme Court finally emerged with a visibly asinine principle: a jury does indeed have the right to nullify, but only as long as that jury is unaware it has that right. That's almost an open invitation to perjury if accurate; but while it's not precisely accurate, it comes close to being substantially true.

That's where matters stand, and apparently will stand, until someone finds better arguments than those of Benjamin Franklin, John Jay, Andrew Hamilton -- and William Penn.