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Government Failure as a Root Cause of Market Failure

10 Monday Jul 2023

Posted by Nuetzel in Government Failure, Market Failure

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Capital Formation, central planning, Chevron Doctrine, Competitive Equilibrium, Corruption, crowding out, Declaration of Independence, Don Boudreaux, External Benefits, External Costs, Government Failure, Inflation, John Cochrane, Labor Supply, Market Failure, Michael Munger, monopoly power, Pareto Superiority, Peter Boettke, Price Controls, Protectionism, Redistribution, Regulatory Capture, rent seeking, Risk-Free Asset, Side Payments, Social Security, State Capacity, Tax Distortions, Thomas Jefferson, Treasury Debt, William R. Keech

We’re told again and again that government must take action to correct “market failures”. Economists are largely responsible for this widespread view. Our standard textbook treatments of external costs and benefits are constructed to demonstrate departures from the ideal of perfectly competitive market equilibria. This posits an absurdly unrealistic standard and diminishes the power and dramatic success of real-world markets in processing highly dispersed information, allocating resources based on voluntary behavior, and raising human living standards. It also takes for granted the underlying institutional foundations that lead to well-functioning markets and presumes that government possesses the knowledge and ability to rectify various departures from an ideal. Finally, “corrective” interventions are usually exposited in economics classes as if they are costless!

Failed Disgnoses

This brings into focus the worst presumption of all: that government solutions to social and economic problems never fail to achieve their intended aims. Of course that’s nonsense. If defined on an equivalent basis, government failure is vastly more endemic and destructive than market failure.

Related to this point, Don Boudreaux quotes from Peter Boettke’s Living Economics:

“According to ancient legend, a Roman emperor was asked to judge a singing contest between two participants. After hearing the first contestant, the emperor gave the prize to the second on the assumption that the second could be no worse than the first. Of course, this assumption could have been wrong; the second singer might have been worse. The theory of market failure committed the same mistake as the emperor. Demonstrating that the market economy failed to live up to the ideals of general competitive equilibrium was one thing, but to gleefully assert that public action could costlessly correct the failure was quite another matter. Unfortunately, much analytical work proceeded in such a manner. Many scholars burst the bubble of this romantic vision of the political sector during the 1960s. But it was [James] Buchanan and Gordon Tullock who deserve the credit for shifting scholarly focus.”

John Cochrane sums up the whole case succinctly in the “punchline” of a recent post:

“The case for free markets never was their perfection. The case for free markets always was centuries of experience with the failures of the only alternative, state control. Free markets are, as the saying goes, the worst system; except for all the others.”

Tracing Failures

We can view the relation between market failure and government failure in two ways. First, we can try to identify market failures and root causes. For example, external costs like pollution cause harm to innocent third parties. This failure might be solely attributable to transactions between private parties, but there are cases in which government engages as one of those parties, such as defense contracting. In other cases government effectively subsidizes toxic waste, like the eventual disposal of solar panels. Another kind of market failure occurs when firms wield monopoly power, but that is often abetted by costly regulations that deliver fatal blows to small competitors.

The second way to analyze the nexus between government and market failures is to first examine the taxonomy of government failure and identify the various damages inflicted upon the operation of private markets. That’s the course I’ll follow below, though by no means is the discussion here exhaustive.

Failures In and Out of Scope

An extensive treatment of government failure was offered eight years ago by William R. Keech and Michael Munger. To start, they point out what everyone knows: governments occasionally perpetrate monstrous acts like genocide and the instigation of war. That helps illustrate a basic dichotomy in government failures:

“… government may fail to do things it should do, or government may do things it should not do.’

Both parts of that statement have numerous dimensions. Failures at what government should do run the gamut from poor service at the DMV, to failure to enforce rights, to corrupt bureaucrats and politicians skimming off the public purse in the execution of their duties. These failures of government are all too common.

What government should and should not do, however, is usually a matter of political opinion. Thomas Jefferson’s axioms appear in a single sentence at the beginning of the Declaration of Independence; they are a tremendous guide to the first principles of a benevolent state. However, those axioms don’t go far in determining the range of specific legal protections and services that should and shouldn’t be provided by government.

Pareto Superiority

Keech and Munger engage in an analytical exercise in which the “should and shouldn’t” question is determined under the standard of Pareto superiority. A state of the world is Pareto superior if at least one person prefers it to the current state (and no one else is averse to it). Coincidentally, voluntary trades in private markets always exploit Pareto superior opportunities, absent legitimate external costs and benefits.

The set of Pareto superior states available to government can be expanded by allowing for side payments or compensation to those who would have preferred the current state. Still, those side payments are limited by the magnitude of the gains flowing to those who prefer the alternative (and if those gains can be redistributed monetarily).

Keech and Munger define government failure as the unexploited existence of Pareto superior states. Of course, by this definition, only a benevolent, omniscient, and omnipotent dictator could hope to avoid government failure. But this is no more unrealistic than the assumptions underlying perfectly competitive market equilibrium from which departure are deemed “market failures” that government should correct. Thus, Keech and Munger say:

“The concept of government failure has been trapped in the cocoon of the theory of perfect markets. … Government failure in the contemporary context means failing to resolve a classic market failure.”

But markets must operate within a setting defined by culture and institutions. The establishment of a social order under which individuals have enforceable rights must come prior to well-functioning markets, and that requires a certain level of state capacity. Keech and Munger are correct that market failure is often a manifestation of government failure in setting and/or enforcing these “rules of the game”.

“The real question is … how the rules of the game should be structured in terms of incentives, property rights, and constraints.”

The Regulatory State and Market Failures

Government can do too little in defining and enforcing rights, and that’s undoubtedly a cause of failure in markets in even the most advanced economies. At the same time there is an undeniable tendency for mission creep: governments often try to do too much. Overregulation in the U.S. and other developed nations creates a variety of market failures. This includes the waste inherent in compliance costs that far exceed benefits; welfare losses from price controls, licensing, and quotas; diversion of otherwise productive resources into rent seeking activity, anti-competitive effects from “regulatory capture”; Chevron-like distortions endemic to the administrative judicial process; unnecessary interference in almost any aspect of private business; and outright corruption and bribe-taking.

Central Planning and Market Failures

Another category of government attempting to “do too much” is the misallocation of resources that inevitably accompanies efforts to pick “winners and losers”. The massive subsidies flowing to investors in various technologies are often misdirected. Many of these expenditures end up as losses for taxpayers, and this is not the only form in which failed industrial planning takes place. A related evil occurs when steps are taken to penalize and destroy industries in political disfavor with thin economic justification.

Other clear examples of government “planning” failure are protectionist laws. These are a net drain on our wealth as a society, denying consumers of free choice and saddling the country with the necessity to produce restricted products at high cost relative to erstwhile trading partners.

There are, of course, failures lurking within many other large government spending programs in areas such as national defense, transportation, education, and agriculture. Many of these programs can be characterized as centrally planning. Not only are some of these expenditures ineffectual, but massive procurement spending seems to invite waste and graft. After all, it’s somebody else’s money.

Redistribution and Market Failures

One might regard redistribution programs as vehicles for the kinds of side payments described by Keech and Munger. Some might even say these are the side payments necessary to overcome resistance from those unable to thrive in a market economy. That reverses the historical sequence of events, however, since the dominant economic role of markets preceded the advent of massive redistribution schemes. Unfortunately, redistribution programs have been plagued by poor design, such as the actuarial nightmare inherent in Social Security and the destructive work incentives embedded in other parts of the social safety net. These are rightly viewed as government failures, and their distortionary effects spill variously into capital markets, labor markets and ultimately product markets.

Taxation and Market Failures

All these public initiatives under which government failures precipitate assorted market failures must be paid for by taxpayers. Therefore, we must also consider the additional effects of taxation on markets and market failures. The income tax system is rife with economic distortions. Not only does it inflict huge compliance costs, but it alters incentives in ways that inhibit capital formation and labor supply. That hampers the ability of input markets to efficiently meet the needs of producers, inhibiting the economy’s productive capacity. In turn, these effects spill into output market failures, with consequent losses in .social welfare. Distortionary taxes are a form of government failure that leads to broad market failures.

Deficits and Market Failure

More often than not, of course, tax revenue is inadequate to fund the entire government budget. Deficit spending and borrowing can make sense when public outlays truly produce long-term benefits. In fact, the mere existence of “risk-free” assets (Treasury debt) across the maturity spectrum might enhance social welfare if it enables improvements in portfolio diversification that outweigh the cost of the government’s interest obligations. (Treasury securities do bear interest-rate risk and, if unindexed, they bear inflation risk.)

Nevertheless, borrowing can reflect and magnify deleterious government efforts to “do too much”, ultimately leading to market failures. Government borrowing may “crowd out” private capital formation, harming economy-wide productivity. It might also inhibit the ability of households to borrow at affordable rates. Interest costs of the public debt may become explosive as they rise relative to GDP, limiting the ability of the public sector to perform tasks that it should *actually* do, with negative implications for market performance.

Inflation and Market Failure

Deficit spending promotes inflation as well. This is more readily enabled when government debt is monetized, but absent fiscal discipline, the escalation of goods prices is the only remaining force capable of controlling the real value of the debt. This is essentially the inflation tax.

Inflation is a destructive force. It distorts the meaning of prices, causes the market to misallocate resources due to uncertainty, and inflicts costs on those with fixed incomes or whose incomes cannot keep up with inflation. Sadly, the latter are usually in lower socioeconomic strata. These are symptoms of market failure prompted by government failure to control spending and maintain a stable medium of exchange.

Conclusion

Markets may fail, but when they do it’s very often rooted in one form of government failure or another. Sometimes it’s an inadequacy in the establishment or enforcement of property rights. It could be a case of overzealous regulation. Or government may encroach on, impede, or distort decisions regarding the provision of goods or services best left to the market. More broadly, redistribution and taxation, including the inflation tax, distort labor and capital markets. The variety of distortions created when government fails at what it should do, or does what it shouldn’t do, is truly daunting. Yet it’s difficult to find leaders willing to face up to all this. Statism has a powerful allure, and too many elites are in thrall to the technocratic scientism of government solutions to social problems and central planning in the allocation of resources.

Inequality and Inequality Propaganda

21 Saturday Dec 2019

Posted by Nuetzel in Income Distribution, Inequality, Uncategorized

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Alexandria Ocasio-Cortez, Bernie Sanders, Capitalism, Consumer Surplus, David Splinter, Declaration of Independence, Declination blog, Diffusion of Technology, Economic Mobility, Edward F. Leamer, Elizabeth Warren, Gerald Auten, Income Distribution, Inequality, J. Rodrigo Fuentes, Jeff Jacoby, Luddite, Marginal cost, Mark Perry, Marriage Rates, Pass-Through Income, Redistribution, Robert Samuelson, Scalability, Thales, Uber, Workaholics

I’m an “inequality skeptic”, first, with respect to its measurement and trends; and second, with respect to its consequences. Economic inequality in the U.S. has not increased over the past 60 years as often claimed. And some degree of ex post inequality, in and of itself, has no implication for real economic well-being at any point on the socioeconomic spectrum, the growls of class-warmongers aside. So I’m not just a skeptic. I’m telling you the inequality narrative is BS! The media has been far too eager to promote distorted metrics that suggest widening disparities and presumed injustice. Left-wing politicians such as Bernie Sanders, Elizabeth Warren, and Alexandra Ocasio-Cortez pounce on these reports with opportunistic zeal, fueling the flames of class warfare among their sycophants.

Measurement

Comparisons of income groups and their gains over time have been plagued by a number of shortcomings. Jeff Jacoby reviews issues underlying the myth of a widening income gap. Today, the top 1% earns about the same share of income as in the early 1960s, according to a recent study by two government economists, Gerald Auten and David Splinter.

Jacoby recounts distortions in the standard measures of income inequality:

  • The comparisons do not account for tax burdens and redistributive government transfer payments, which level incomes considerably. As for tax burdens, the top 1% paid more taxes in 2018 than the bottom 90% combined.
  • The focus of inequality metrics is typically on households, the number of which has expanded drastically with declines in marriage rates, especially at lower income levels. Incomes, however, are more equal on a per capital basis.
  • The use of pension and retirement funds like IRAs and 401(k) plans has increased substantially over the years. The share of stock market value owned by retirement funds increased from just 4% in 1960 to more than 50% now. As Jacoby says, this has “democratized” gains in asset prices.
  • A change in the tax law in 1986 led to reporting of more small business income on individual returns, which exaggerated the growth of incomes at the high-end. That income had already been there.
  • People earn less when they are young and more as they reach later stages of their careers. That means they move up through the income distribution over time, yet the usual statistics seem to suggest that the income groups are static. Jacoby says:

“Contrary to progressive belief, America is not divided into rigid economic strata. The incomes of the wealthy often decline, while many taxpayers go from being poor at one point to not-poor at another. Research shows that more than one-tenth of Americans will make it all the way to the top 1 percent for at least one year during their working lives.”

Mark Perry recently discussed America’s record middle-class earnings, emphasizing some of the same subtletles listed above. A middle income class ($35k-$100k in constant dollars) has indeed shrunk over the past 50 years, but most of that decrease was replaced by growth in the high income strata (>$100k), and the lower income class (<$35k) shrank almost as much as the middle group in percentage terms.

Causes

What drives the inequality we actually observe, after eliminating the distortions mentioned above? The reflexive answer from the Left is capitalism, but capitalism fosters great social and economic mobility relative to authoritarian or socialist regimes. That a few get fabulously rich under capitalism is often a positive attribute. A friend of mine contends that most of the great fortunes made in recent history involve jobs for which the product or service produced is highly scalable. So, for example, on-line software and networks “scale” and have produced tremendous fortunes. Another way of saying this is that the marginal cost of serving additional customers is near zero. However, those fortunes are earned because consumers extract great value from these products or services: they benefit to an extent exceeding price. So while the modern software tycoon is enriched in a way that produces inequality in measured income, his customers are enriched in ways that aren’t reflected in inequality statistics.

Mutually beneficial trade creates income for parties on only one side of a given transaction, but a surplus is harvested on both sides. For example, an estimate of the consumer surplus earned in transactions with the Uber ride-sharing service in 2015 was $1.60 for every dollar of revenue earned by Uber! That came to a total of $18 billion of consumer surplus in 2015 from Uber alone. These benefits of free exchange are difficult to measure, and are understandably ignored by official statistics. They are real nevertheless, another reason to take those statistics, and inequality metrics, with a grain of salt.

Certain less lucrative jobs can also scale. For example, the work of a systems security manager at a bank produces benefits for all customers of the bank, and at very low marginal cost for new customers. Conversely, jobs that don’t scale can produce great wealth, such as the work of a highly-skilled surgeon. While technology might make him even more productive over time, the scalability of his efforts are clearly subject to limits. Yet the demand for his services and the limited supply of surgical skills leads to high income. Here again, both parties at the operating table make gains (if all goes well), but only one party earns income from the transaction. These examples demonstrate that standard metrics of economic inequality have severe shortcomings if the real objective is to measure differences in well-being. 

Economist Robert Samuelson asserts that “workaholics drive inequality“, citing a recent study by Edward E. Leamer and J. Rodrigo Fuentes that appeals to statistics on incomes and hours worked. They find the largest income gains have accrued to earners with high educational attainment. It stands to reason that higher degrees, and the longer hours worked by those who possess them, have generated relatively large income gains. Samuelson also cites the ability of these workers to harness technology. So far, so good: smart, hard-working students turn into smart, hard workers, and they produce a disproportionate share of value in the marketplace. That seems right and just. And consumers are enriched by those efforts. But Samuelson dwells on the negative. He subscribes to the Ludditical view that the gains from technology will accrue to the few:

“The Leamer-Fuentes study adds to our understanding by illuminating how these trends are already changing the way labor markets function. … The present trends, if continued, do not bode well for the future. If the labor force splits between well-paid workaholics and everyone else, there is bound to be a backlash — there already is — among people who feel they’re working hard but can’t find the results in their paychecks.“

That conclusion is insane in view of the income trends reviewed above, and as a matter of economic logic: large income gains might accrue to the technological avant guarde, but those individuals buy things, generating additional demand and income gains for other workers. And new technology diffuses over time, allowing broader swaths of the populace to capture value both in consumption and production. Does technology displace some workers? Of course, but it also creates new, previously unimagined opportunities. The history of technological progress gives lie to Samuelson’s perspective, but there will always be pundits to say “this time it’s different”, and it probably sounds heroic to their ears.

Consequences

The usual discussions of economic inequality in media and politics revolve around an egalitarian ideal, that somehow we should all be equal in an absolute and ex post sense. That view is ignorant and dangerous. People are not equal in terms of talent and their willingness to expend effort. In a free society, the most talented and motivated individuals will produce and capture more value. Attempts to make it otherwise can only interfere with freedoms and undermine social welfare across the spectrum. This post on the Declination blog, “The Myth of Equality“, is broader in its scope but makes the point definitively. It quotes the Declaration of Independence:

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the Pursuit of Happiness.”

The poster, “Thales”, goes on to say:

“The context of this was within an implied legal framework of basic rights. All men have equal rights granted by God, and a government is unjust if it seeks to deprive a man of these God-given rights. … This level of equality is both the basis for a legal framework limiting the power of government, and a reference to the fact that we all have souls; that God may judge them. God, being omniscient, can be an absolute neutral arbiter of justice, having all the facts, and thus may treat us with absolute equality. No man could ever do this, though justice is often better served by man at least making a passing attempt at neutrality….”

Attempts to go beyond this concept of ex ante equality are doomed to failure. To accept that inequalities must always exist is to acknowledge reality, and it serves to protect rights and opportunities broadly. To do otherwise requires coercion, which is violent by definition. In any case, inequality is not as extreme as standard metrics would have us believe, and it has not grown more extreme.

Hamilton, Jefferson & Miranda’s Propaganda

12 Sunday Jun 2016

Posted by Nuetzel in Constitution, Slavery

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13th Amendment, Abraham Lincoln, Alexander Hamilton, Bank of the United States, Ben Affleck, Central Bank, Charles Kessler, Commerce Clause, Corwin Amendment, Declaration of Independence, Hamilton on Broadway, James Madison, James Monroe, King George, Lin-Manuel Miranda, Manumission, Maria Reynolds, Michelle DuRoss, Necessary and Proper Clause, Raymond Burr, Ron Chernow, Spencer Kornhaber, State's Rights, The Atlantic, The Federalist Papers, Thomas Jefferson, Three-Fifths Compromise, Warren Meyer, Yeoman Farmer

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I know too well to take any history I get from the theatre with a grain of salt! Nevertheless, I’d really like to see Hamilton on Broadway. It’s a hugely successful musical by Lin-Manuel Miranda about the life of Alexander Hamilton, one of our nation’s founding fathers, inspired by the book Alexander Hamilton by Ron Chernow. I’ve heard much of the show’s music, infused with R&B and rap/hip-hop; it’s more appealing to me than I’d ever have expected of rap. The show has been nominated for a record 16 Tony Awards (the ceremony is tonight), and of course it’s a very hot ticket. The last time I checked, the cheapest seats available were about $650 each for the last row in the house, and that was about 45 days out! With a party of four, that’s a cool $2,600 for an evening of theatre. I think we’ll wait for the touring production to roll through the midwest next year.

In Hamilton, all of the founding fathers are cast as people of color, a controversial decision that led to a recent uproar over a casting notice encouraging non-white performers to audition for leads. The casting of the founding fathers is an interesting artistic decision. One writer, Spencer Kornhaber in The Atlantic,  says that the “colorblind” casting:

“… is part of the play’s message that Alexander Hamilton’s journey from destitute immigrant to influential statesman is universal and replicable….“

That’s admirable, as far as it goes. I believe Kornhaber comes closer to Miranda’s  true motivation for the casting decision a paragraph later:

“… movements like Black Lives Matter, and renewed calls for the consideration of reparations, are built on the idea that ‘all’ remains an unfulfilled promise—and that fulfillment can only come by focusing on helping the specific populations that suffer greatest from America’s many inequalities rooted in oppression. … While Hamilton does not explicitly take a side, the simple fact of its casting suggests which way it probably leans.“

In broad strokes, the following is true about the drafting of the U.S. Constitution and arguments over its adoption: Alexander Hamilton favored provisions that tipped power in favor of the central government at the expense of the states, while Thomas Jefferson favored more stringent limits on central powers and strong states’ rights, or federalism as it is commonly known. It’s also true that over the years, Hamilton’s constitutional legacy tended to receive little emphasis in historical narratives relative to Jefferson’s. In the musical, Hamilton is portrayed as a hero to those who would benefit from a powerful and benevolent central government, particularly slaves, while Jefferson is portrayed in less flattering terms. Miranda’s casting implies that the relative emphasis on federal power versus states rights would surely have been reversed had the founding fathers been people of color.

A friend of mine saw the show before it became quite so hot. His kids are “theatre kids”, as mine were up to a certain age. I have great respect for my friend’s intellect and I am sympathetic to his political orientation, which I’d describe as libertarian with strong Randian influences. Here is his brief review of Hamilton:

“I loved Hamilton — it was a great night of theater. I even like the music — which is rap/hip-hop style that I haven’t found enjoyable, at least until now. My biggest concern about the play is its portrayal of Jefferson and Madison, who don’t come off well. Jefferson is a party boy more interested in partying in Paris than in seriously running a new nation. Both are portrayed as instigators in digging up dirt on Hamilton to use against him politically. Yes, they would have benefited from Hamilton’s womanizing scandals, but did they actively seek out that kind of trash? The play says yes…

And of course the play takes the position, I’d argue, that nothing Jefferson writes or says can be taken seriously because he is a slaveholder….the Bank of the U.S. is regarded by the play as a wonderful creation, thanks to Hamilton.“

I’ve read a number of accounts confirming Miranda’s treatment of Jefferson in the show, and the influence it apparently has on viewers without much background in political thought, American history, and the U.S. Constitution. I’ve lost the link, but one writer quoted his teenage daughter as saying “That Jefferson, he’s the WORST!”

There are a number of historical inaccuracies in Miranda’s book of Hamilton. An important fact contradicting the show’s vilification of Jefferson is that he, Madison and Aaron Burr:

“…did not approach Hamilton about his affair [as represented in the show], it was actually James Monroe and Frederick Muhlenberg in 1792. Monroe was a close friend of Jefferson’s and shared the information of Hamilton’s affair with him. In 1796, journalist James Callendar broke the story of Hamilton’s infidelity. Hamilton blamed Monroe, and the altercation nearly ended in a duel. “

In no way did Chernow implicate Jefferson as a participant in blackmail against Hamilton over the affair with an “emotionally unstable” Maria Reynolds. That is entirely Miranda’s invention. His fictionalized Jefferson is a conniving devil, a disgraceful misrepresentation.

Let’s get one other thing out of the way: it is not reasonable to condemn individuals or their actions of 220 years ago outside the context of general attitudes and practices of that period. That’s not to condone those attitudes and practices, however. Last year, I quoted Warren Meyer on this point:

“Meyer mentions the recent incident involving Ben Affleck, who asked the host of a PBS documentary to omit any mention of a slave-owning Affleck ancestor:

‘So an ancestor held opinions about slavery we all would find horrifying today. But given the times, I can bet that pretty much every relative of Affleck’s of that era, slaveholder or no, held opinions (say about women) that we would likely find offensive today.’“

By all accounts, Chernow’s book about Hamilton is an excellent biography, but not without its faults. Charles Kessler states that Chernow relies on other biographies rather than original source material, and that Chernow misrepresents the attitudes of Jefferson and James Madison on commerce; like Hamilton, they viewed it as a “civilizing influence of the highest order“. I’m the first to vouch for the importance of well-functioning capital markets, but apparently Chernow is under the mistaken impression that capitalism itself is intricately tied to powerful banks, particularly central banks like the Federal Reserve! And Chernow exaggerates the difference in the views of Jefferson and Hamilton on the Constitution itself. Here is Kessler:

“A huge gulf remains between Hamilton’s loyalty to what he called a ‘limited Constitution’ and today’s ‘living Constitution,’ which seems capable of justifying virtually any activity that the federal government sees fit to undertake.“

Both Jefferson and Hamilton recognized that abolition would have represented a huge obstacle to forming a new nation. And there was the related problem, recognized by both men, of whether and how to compensate slave owners in the event of abolition. It should go without saying that a failure to reach an agreement between the colonies at the Constitutional Convention would not have led to abolition of slavery by other means. The contrary is implicit in any argument that the constitutional compromise was wholly unjust. It might have been hoped that forming a union would establish a framework within which dialogue on the issue could continue, though ultimately, a fractured union and a war was necessary to finally  emancipate the slaves.

Yes, Jefferson held slaves and had a strong economic interest in keeping them. In his circle of wealthy landowners, slavery was considered a normal part of life. However, Jefferson also publicly advocated various plans to free slaves, one as early as 1779. Here is a clause from Jefferson’s rough draft of the Declaration of Independence, before it was revised by other members of the Committee of Five and by Congress, in reference to “his present majesty”, King George:

“he has waged cruel war against human nature itself, violating it’s most sacred rights of life & liberty in the persons of a distant people who never offended him, captivating & carrying them into slavery in another hemisphere, or to incur miserable death in their transportation thither. this piratical warfare, the opprobrium of infidel powers, is the warfare of [the] Christian king of Great Britain, determined to keep open a market where MEN should be bought & sold, he has prostituted his negative for suppressing every legislative attempt to prohibit or to restrain this execrable commerce ….“

While the clause was explicitly critical of trade in slaves, as distinct from ownership, it reveals the thinking of a man who was very progressive for his time. As for outright abolition, it is easy today to be critical of Jefferson’s proposals, which called for gradualism and, later, even deportation of freed slaves to Santo Domingo. Those proposals were based in part on fear shared by many authorities of an economic crisis and civil disorder if slaves were freed en masse. Jefferson certainly did not view slaves as equals to white men, but that was not unusual in those times; he did call for training them in certain skills as a condition of granting them freedom.

Hamilton’s record on slavery is not quite as heroic as Miranda’s musical would have you believe. He was highly ambitious and something of a social climber, so he was reluctant to air his views publicly regarding abolition. He married into a prominent New York slaveholding family, and there are records of his role in returning slaves captured by the British to their previous owners. From historian Michelle DuRoss (linked above):

“… when the issue of slavery came into conflict with his personal ambitions, his belief in property rights, or his belief of what would promote America’s interests, Hamilton chose those goals over opposing slavery. In the instances where Hamilton supported granting freedom to blacks, his primary motive was based more on practical concerns rather than an ideological view of slavery as immoral.“

Hamilton’s is known to have advocated manumission: freeing slaves who agreed to serve in the fight against the British. That position was a practical matter, as it would help in the war effort, and it might have played on the patriotic instincts of slaveowners who would otherwise insist on compensation. His mentor, George Washington, himself a reluctant slave owner, undoubtedly saw the practical value of manumission.

Hamilton’s real constitutional legacy came in two parts: first was his strong support for the Constitution during the ratification process and his (anonymous) contributions to The Federalist Papers. Later came his relatively broad interpretation of provisions granting certain powers to the federal government: the power to issue currency, the commerce clause and the “necessary and proper clause”. He also proposed a few ideas that were never adopted, such as lifetime terms in office for the president and members of the Senate. He did not propose any constitutional provision for the abolition of slavery or for granting full constitutional rights to slaves.

Hamilton was a major proponent of establishing a so-called national bank, known as the Bank of the United States when it was chartered in 1793. This allowed the new country to issue currency and was used as a way to eliminate war debts that were, by then, greatly diminished in value. Hamilton’s central bank meant great rewards to any investor who held the debt, especially those who had purchased the debt at a steep discount. Unfortunately, this was tantamount to monetizing government debt, or paying off debt by imposing an inflation tax (which reached 72% in the bank’s first five years of operation). The establishment of the bank also removed a major restraint on the growth of the federal government. Moreover, Hamilton was a protectionist, advocating tariffs on foreign goods and subsidies to domestic producers. It is little wonder that some have called him the “father of crony capitalism”.

Jefferson was quite possibly a bon vibrant in the best sense of the term, as opposed to the “party boy” depicted by Miranda. He was a man of great intellect, capable and actively conversant in philosophy, science and the practical arts. He wrote the Declaration of Independence, itself a forceful testimonial to natural rights. His constitutional legacy was powerful if indirect: he was a mentor to James Madison, who wrote the first draft of the Constitution. Jefferson was an advocate of majoritarian rule but also sought to protect individual rights against a tyranny of the majority. To that end, he advocated government limited in function to the protection of rights. In short, he was a classical liberal.

There were certainly contradictions between Jefferson’s philosophy and actions. Slaveholding was one, as already noted, but that was not unusual among southern aristocrats of the time, and Jefferson at least recognized the ethical dilemma and publicly offered policy solutions. But as a slaveholder, he made an odd spokesperson for the interests of the “yeoman farmer”, an agrarian individualist in the popular mind and a myth that persists to this day. Jefferson also advocated protectionist policies, such as an embargo on U.S. exports starting in 1807.

Yes, there were abolitionists at the time of our nation’s founding. Both Hamilton and Jefferson were quite sympathetic to the principle of abolition, but both recognized the practical difficulty of pushing it forward without endangering the founding of the nation, and both had personal and probably selfish reasons to avoid fighting that battle. The musical Hamilton glosses over this reality in the case of Hamilton himself, and at the same time condemns Jefferson. Miranda might just as well condemn Abraham Lincoln for his initial support of the original 13th (Corwin) Amendment in the early 1860s, which was never ratified. Ultimately, in 1865, a different 13th Amendment was ratified, accomplishing what would have been evident from the original text of the Constitution but for the so-called “three-fifths compromise”. That provision essentially counted a slave as 3/5s of a “free person” for purposes of apportioning representation and taxes, an idea originally proposed by Madison and revived by Alexander Hamilton himself!

I will still see the musical Hamilton when I get an opportunity. Lin-Manuel Miranda is a man of great talent, but he has misrepresented crucial facts about the Founders of the nation. Those interested in the truth, including those who teach our children, should not take it seriously as an account of history.

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Passive Income Kickstart

OnlyFinance.net

TLC Cholesterol

Nintil

To estimate, compare, distinguish, discuss, and trace to its principal sources everything

kendunning.net

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DCWhispers.com

Hoong-Wai in the UK

A Commonwealth immigrant's perspective on the UK's public arena.

Marginal REVOLUTION

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Stlouis

Watts Up With That?

The world's most viewed site on global warming and climate change

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Commentary from a Paleoconservative and Nationalist perspective

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In advanced civilizations the period loosely called Alexandrian is usually associated with flexible morals, perfunctory religion, populist standards and cosmopolitan tastes, feminism, exotic cults, and the rapid turnover of high and low fads---in short, a falling away (which is all that decadence means) from the strictness of traditional rules, embodied in character and inforced from within. -- Jacques Barzun

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