Cato V, Part XIV: The Operations of Commerce Amongst Individuals

            Besides his evident lack of romanticism as to the resilience of American virtue, and his lack of optimism as to the fate which likely awaited the American people, the aspect of the warnings which George Clinton issued to his countrymen in the text of Cato V that is of particular interest in hindsight is the degree to which subsequent events seemed to prove out his prognostications. Consider, to that end, just what it was that Clinton claimed would transpire if certain trends which he observed as being likely to progress further were allowed to reach a point of conclusion. “The progress of a commercial society begets luxury,” he wrote, “The parent of inequality, the foe to virtue, and the enemy to restraint; and that ambition and voluptuousness aided by flattery, will teach magistrates, where limits are not explicitly fixed to have separate and distinct interests from the people [.]” Clinton, it seemed, was of the opinion that commerce was fundamentally an instrument of moral corrosion, and that as it came to dominate a given society the result was bound to be a steady decline into iniquity and self-indulgence. It was a dour prediction, to be sure, and not the only one which the text of Cato V contained.  In that same passage, Clinton went on to level the even more damning claim that,

 

Americans are like other men in similar situations, when the manners and opinions of the community are changed by the causes I mentioned before, and your political compact inexplicit, your posterity will find that great power connected with ambition, luxury, and flattery, will as readily produce a Caesar, Caligula, Nero, and Domitian in America, as the same causes did in the Roman empire.

Was Clinton exaggerating? Was the American republic doomed to follow the path of its Roman predecessor in the event that the citizens thereof acceded to the proposed constitution then being considered? Many of Clinton’s countrymen would doubtless have rejected such warnings out of hand. Not only had the American people already shown themselves to be too sensitive of their liberties and too jealous of their rights to ever trade them for material comforts and flattering words, but the terms of the constitution then being scrutinized in the various states in no way indicated that such a bargain was even possible. Why, then, should anyone have feared the corruption of American morals and the degeneration of its government? What could the likelihood possibly have been of something so bizarre actually taking place?

As it turned out, Clinton’s grim predictions were not so ludicrous after all. By the summer of 1788, the number of states required to ratify the proposed constitution for the system of government described therein to be formally adopted – i.e. nine of thirteen – had been met. By February of 1789, the ballots for the first United States Presidential Election were being tallied. By the end of 1790 the full thirteen states had voted to ratify; by 1791 they had been joined by a fourteenth (Vermont). This may seem a harmless enough progression of events on its own, but it was what these events heralded that spoke to Clinton’s fears. In the years that followed, a national bank was chartered amidst vitriolic debate between its supporters and detractors; a mounting war in Europe defined and solidified emerging partisan interests; a needless war was nearly fought; an election nearly devolved into armed conflict between domestic factions; and an equally needless war was actually fought that nearly bankrupted the nation. Then another bank was chartered, and domestic factionalism reached new heights, and another election gave way to horse-trading, and the people chose a brawling, irascible malcontent as their Commander-in-Chief and applauded every time he treated the law with contempt. And while Clinton himself did not live to see a fair portion of these things – having died in 1812 at the venerable age of seventy-two – none of them took place more than fifty years from the time he offered his aforementioned warnings in the late autumn of 1787.

This is all a lot to process, of course; a lot to consider; a lot to unpack. For the sake of clarity, then, let’s return for the moment to Clinton’s cited complaints about what he perceived to be the likely social effects of the development of American commerce. What he said, in the aforementioned passage of Cato V, was that, “The progress of a commercial society begets luxury, the parent of inequality, the foe to virtue, and the enemy to restraint [.]” Well, American society did progress commercially in the years that followed the publication of Cato V in November, 1787, and at a remarkably hurried pace. In 1791, pursuant to a compromise with opponents of the plan in the House of Representatives, Secretary of the Treasury Alexander Hamilton – who had previously aided in the creation of the aforementioned Bank of North American in 1781 – succeeded in securing the incorporation of the Bank of the United States for the purpose of consolidating the national debt and providing a source of national credit. In the report which he prepared and submitted to Congress wherein he recommended this course of action, Hamilton made it exceptionally clear what function he felt a national bank could, and should, perform. “The tendency of a national bank,” he wrote, “Is to increase public and private credit. The former gives power to the state for the protection of its rights and interests, and the latter facilitates and extends the operations of commerce amongst individuals.” Hamilton’s free admission of the private, commercial benefits to be derived from the incorporation of a national bank are especially noteworthy. In 1787, George Clinton had attempted to warn his countrymen against adopting the proposed constitution by arguing that as American society developed commercially it would become increasingly likely in proportion that the powers allocated to the resulting national government by that selfsame document would be subject to abuse. And here, less than four years later, was the Treasury Secretary of the very same consolidated government whose creation Clinton had opposed advocating for the use of public authority in order to facilitate, “The operations of commerce amongst individuals.” No doubt the author of Cato V rued that particular day.

Matters proceeded swiftly thereafter. With the government of the United States of America now in the business of selling securities, and the resulting credit boom facilitating the creation of any number of private business ventures, the relationship between commerce and public life began to alter dramatically. Whereas public opinion prior to the Revolution had held the concept of chartered corporations – with the Thirteen Colonies themselves – in no small degree of contempt for the way in which they appeared to both sanction and facilitate social inequality by granting special privileges to a small subset of the general population, Americans in the 1790s, 1800s, and 1810s were increasingly of the opinion that more lenient incorporation laws were preferable to those that were more restrictive. Paradoxical though such a turn may seem, however, this was in large part a pragmatic development. While the various state governments, as well as the nascent national government, had generally been eager to take an active role in transforming American society along distinctly republican lines in the years that followed the end of the Revolutionary War in 1783 and the ratification of the United States Constitution in 1788, they were also very reluctant to raise taxes to an extent that would generate sufficient revenues to pay for all of the initiatives that they had hoped to pursue. The solution to this evident impasse was a reluctant turn towards the use of publicly-chartered corporations. Though criticized, as aforementioned, for facilitating inequality and corruption – see, for example, the South Seas Company – corporations were undeniably a proven means by which private capital could be placed at the service of the public welfare. For such institutions to become an accepted tool of public policy in the post-Revolutionary United States, however, there would need to be some degree of adaptation.

The creation of the Bank of the United States in 1791 was almost certainly an essential step in this process. By bestowing the legal and moral blessing of the newly-established national government – and, by extension, the blessings of the elected representatives of the various states – upon the concept of incorporation, the Washington Administration and its supporters in Congress effectively gave notice that the awarding of specific privileges to a private enterprise was did not necessarily constitute a betrayal of the ideals that had lately underpinned the American Revolution. The shareholders and directors of the Bank of the United States, while indeed possessed of a set of collective benefits otherwise unavailable to the mass of their fellow countrymen, performed a useful public function in exchange, the value of which to the American republic as a whole tended to outweigh whatever inequalities said benefits potentially served to foster. The various universities which had been incorporated in the Thirteen Colonies during the colonial era partook of this same basic exchange – i.e. private benefits for public value – as did municipal corporations like the cities of Philadelphia, Boston, New York, and Baltimore. The Mayor of New York undeniably possessed a set of privileges that were unavailable to his fellow Manhattanites; as did the members of the Common Council; as did the city’s Comptroller. But because each of these individuals – in their official capacity – performed a useful function on behalf of the city’s other inhabitants, and because they were each of them elected to their particular office the degree to which their statutory powers perpetuated a kind of state-enforced personal inequality was arguably forgivable. The Bank of the United States may not have been a municipal corporation or a university – and nor were its individual shareholders and officers elected to their positions – but it also wasn’t a hereditary body whose function was only to enrich its members. Its intended function had been well and clearly explained by its architects, and membership therein was available to any and all who could afford to purchase its stock. Granted, this latter characteristic most definitely placed the Bank farther beyond the reach of the average American than, say, Congress, but it was evidently not a condition so offensive to republican sensibilities that the American people couldn’t see their way clear to accepting it.

Not everyone did accept it, of course, either during the debates that preceded the incorporation of the Bank or in the years that followed its initial establishment. Thomas Jefferson, for example, whose abhorrence of banking and commerce has since become legendary, argued strenuously against the adoption of Hamilton’s plan by Congress in his capacity as Secretary of State in the Washington Administration. Writing in a report to the House of Representatives on February 15^th, 1791 in an effort to defeat Hamilton’s efforts, the Sage of Monticello asserted, among others things, that the incorporation of a national bank – with the intention of operating at the behest of the national government and within the jurisdictions of all of the various states – would amount to an unconstitutional attempt by Congress to lend the directors of said bank, “A power to make laws paramount to the laws of the States; for so they must be construed, to protect the institution from the control of the State legislatures; and so, probably, they will be construed.” It also appeared to Jefferson that the advocates for the incorporation of a national bank desired that Congress should give to that institution, “The sole and exclusive right of banking under the national authority; and so far is against the laws of Monopoly.” The result of such a grant of authority, he went on to explain, would effectively render the American people, “Bound to the national bank, who are free to refuse all arrangement, but on their own terms, and the public not free, on such refusal, to employ any other bank.” Taking Jefferson’s reckoning of matters as fact, the privileges which would have devolved upon the officers of the bank would accordingly appear to be both vast and ill-defined. They were expected to operate within the states but outside of their authority, free from competition, and at the behest only of Congress and the President. And while these latter entities were to be subject to popular election, it was also far from inconceivable that the chief executive of the American republic and its legislative officers should have become shareholders themselves whose personal interests lay in perpetuating the authority of the proposed national bank rather than in any way checking its activities.

Granting the cogency of Jefferson’s arguments, it has already been established that he was unsuccessful in his efforts to prevent the incorporation of the Bank of the United States. Hamilton’s case was ultimately the more convincing of the two and the Bank officially came into being on February 25^th, 1791. And while Jefferson’s response was essentially to begin plotting the institution’s destruction – an outcome which was ultimately achieved in 1811 when none other than George Clinton himself, then Vice President of the United States, cast the tie-breaking vote against the renewal of the Bank’s charter in the Senate – the majority of his countrymen seemed instead to embrace the opposite path. Rather than continue to oppose the very idea of corporations like the Bank on principle as being elitist, monopolistic, and fundamentally un-American, legislators in the states began cooperating with various private interests to essentially dilute the exclusivity of corporate privileges by making corporate charters much easier to obtain than had ever before been the case. Whereas – by way of example – no more than a half-dozen corporate charters had been granted to private business during the whole of the colonial era – roughly 1607 to 1775 – the various states collectively granted eleven charters between 1781 and 1785, twenty-two between 1786 and 1790, one hundred and fourteen between 1791 and 1795, and fully one thousand eight hundred between 1800 and 1817. The idea, as remarked by state legislators during this same period as well as by ordinary Americans, was to prevent exactly the kind of monopolization that Jefferson had so vehemently decried.

If corporations were indeed necessary to the achievement of the various social and economic goals of the post-Revolutionary American political community, it was held, then let the privileges thereof be spread as widely as possible to as many entities as possible. Not only did this category include banks – of which the states would at length begin to incorporate their own – but also insurance companies, manufactories, construction firms, and the managers of public infrastructure and utilities. The resulting proliferation of corporate entities not only served to dispel the notion that the holders of a corporate charter were possessed of something which set them apart from their contemporaries, but the resulting competition between said entities was thought to be of direct benefit to the American people as a whole. As a New York City commission responsible for issuing ferry leases put it in 1805, “The only effectual method of accommodating the public is by the creation of rival establishments.” Rival bakeries made bread cheaper; rival banks made loans easier to obtain; and competition in general made it clear to all who cared to observe that being sanctioned by the state in no way implied narrow legal preference or moral superiority.