Capitalism by Plender John

Author:Plender, John [John Plender]
Language: eng
Format: epub
ISBN: 9781849549578
Publisher: Biteback Publishing
Published: 2015-09-28T04:00:00+00:00

From a historical perspective, the most impassioned debate over the pros and cons of speculation took place between two of the American Founding Fathers, Alexander Hamilton and Thomas Jefferson. Hamilton, the US Treasury Secretary, wanted the federal government to have centralised power to tax and create credit for the new republic. Hence his proposal for a central bank modelled on the Bank of England. Yet for Jefferson, banks, and especially central banks, were anathema, while the cities of the eastern seaboard, where Big Money ruled, were sinks of iniquity. So was London, home of banks to which Jefferson himself owed money. Like so many people before and since, he preferred business to produce real things – ideally agricultural produce – rather than make money out of money, which he – like Aristotle – thought was a nonsense.

What irked Jefferson as much as Hamilton’s plan for the First Bank of the United States was his proposal to issue new federal debt in exchange for the IOUs with which soldiers had been paid in the Revolutionary War. After the war, both the federal and state governments were overloaded with debt. Some states were simply not creditworthy. Hamilton wanted to consolidate all this debt at federal level to boost the credit standing of the country. Yet Jefferson’s reservations were not ill founded. New York speculators, acting on inside information about Hamilton’s plans, bought up great quantities of these IOUs at depressed prices. This left Hamilton with a dilemma. Should the soldiers be compensated for their losses, or should the speculators be allowed their profits? In the interests of establishing the creditworthiness of the new country, he decided that the government should honour contracts and stand behind the transferability of the bonds. Hamilton’s biographer Ron Chernow remarks:

Hamilton stole the moral high ground from opponents and established the legal and moral basis for securities trading in America: the notion that securities are freely transferable and that buyers assume all rights to profits and losses in transactions. The knowledge that government could not interfere retroactively with a financial transaction was so vital … as to outweigh any short-term expediency. To establish the concept of the ‘security transfer’ Hamilton was willing, if necessary, to reward mercenary scoundrels and penalise patriotic citizens.122

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