A Further Perspective

Rediscovering Hamilton — and Hernando de Soto

The non-development of the developing world can lead to Hamiltonian conclusions.

By 4.13.11

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An extramarital affair he confessed to in print destroyed whatever chances Alexander Hamilton might have had to run for president, but it did not destroy his marriage.

His devoted wife Elizabeth (notwithstanding; and the feeling was mutual), who outlived him by half a century, was the principal keeper of his reputation, his legacy, and his honored place among the Founding Fathers of the American Republic. The Christian faith was made of sterner stuff then, and for that reason the concepts of repentance and forgiveness ran deeper, as did those of damnation and sinfulness. Hamilton had little interest in the perfectibility of man or the creation of a good society. He did not expect such things to happen.

Illegitimate, abandoned by his father, orphaned, working full time in his early teens in an outpost of the British Empire -- the Virgin Islands -- Hamilton was no romantic about the human condition or the chances of improving it by means of idealistic social engineering. He was a statist -- a big government conservative, to use an anachronism -- not because he thought the state could or should make people happy or virtuous, but because he viewed human beings with a caustic eye and thought only a strong central government could impose the modicum of order needed to prevent the relapse into the state of nature -- the jungle -- toward which men are drawn.

He would have agreed with one of Adam Smith's most famous aphorisms, "When two men of commerce meet, you may be sure they are conspiring against the public good." And for this very reason, like Smith, he believed you needed to let commerce flourish, and the goal of political economy is to set up rules, frameworks, in which the flourishing takes place, with the greed and cunning of the many economic actors cancelling one another out in a perpetual search for self-improvement and, thereby, wealth creation.

The experts will correct me if I am wrong, but Adam Smith never wrote about political regimes as such. Hamilton, of course, as one of the authors of The Federalist, was one of the great political thinkers of modern times. He took an active and profound interest in the kind of political system the newly independent Colonies would produce. To revert again to a deplorably facile anachronism, Smith was a libertarian, though no Randian -- his Moral Sentiments makes that clear -- while Hamilton sought a balance between Colbertian mercantilism and free trade.

Hamilton was not an abstract thinker. Whatever works, works. He wanted a powerful United States, whose grand destiny he foresaw, and he was not against mixing government intervention with laissez-faire. In a quite brilliant movie (reviewed Monday by James Bowman) about the great man's life, Rediscovering Alexander Hamilton, Michael Pack and Richard Brookhiser arranged for a number of modern-day experts and interested parties to comment on Hamilton's economic and financial ideas, and the consensus that emerges is that he was definitely an interventionist and a big government man. The federal government's response to the financial crisis of '08, the various experts (academics) and interested parties (investment bankers) agree, was Hamiltonian.

The young United States in the late 18th century was, basically -- to use still another anachronism -- the Third World. We were a poor, under-developed country, sparsely populated. Most Americans were farmers. The Jeffersonians believed there was something virtuous about an agriculture-based economy. It is not clear to me why they felt this way, especially when you consider that the rural economy they knew was based on slavery, which in practical terms meant: kidnapping, murder, forced labor, sexual exploitation. I understand this has to be seen in context. I understand slavery is a historical fact in many societies, and we Americans, in historical perspective, probably dealt with it as well as any other sinful humans bound together in a political entity understood to be a work in progress.

What I mean, though, is that in the great debate between the Jeffersonians and the Hamiltonians in the early years of the Republic, the latter seem to have been much colder-eyed and, in a word, honest. Hamilton himself was an anti-slavery man, though he did not think it should be a deal-breaker -- still another anachronism -- when it was time to forge a more perfect union. He was not sentimental, politically. Personally, he was, and it finally doomed him.

Jefferson tended toward sentimentalism, until he had the responsibility of power, at which point he turned into a real-politiker: a Voltairian, to the immense benefit of his country. But you see the influence of Rousseau and the romantic ideas of the 18th century in his personal life and in his foreign policy ideas. He placed love above marital convention, would not think of apologizing. He was thrilled by the French Revolution, whereas Hamilton almost immediately understood its essential difference from -- and challenge to -- the American one. I hate it when I sound French, but I cannot resist saying that the political history of the modern world is a seesaw between people inspired by the American Revolution and people inspired by the French Revolution. I thought it was all over with the fall of Soviet communism, but it is not. As Secretary of State, Jefferson urged George Washington to pursue an interventionist, war-risking foreign policy. Hamilton, who was Secretary of the Treasury, asked: What's in it for us?

Richard Brookhiser, who has written superb biographies of George Washington and Alexander Hamilton as well as other major books on American history, appears in Rediscovering Hamilton as straight man. He asks a marvelous variety of individuals, ranging from incarcerated female prisoners on the Virgin Islands to gang members in Baltimore, passing by Ron Chernow of Princeton University and the French belle-lettrist and warhawk, Bernie Lévy, just what is Hamilton to us today. And what emerges is this: we are all Hamiltonians. We may disagree with him -- the gang members, for example, lacking his Christian scruples, thought he was a fool not to shoot Aaron Burr when he could have -- but we are all children of Hamilton to the degree we are the legatees of the great commercial and free Republic he imagined and whose basic ground rules he invented.

The trick to being a good legatee, of course, is to know when you should tinker with the inheritance, and how much you should tinker.

BY SHEER LUCK, I saw Hernando de Soto the afternoon before I went to see Rick Brookhiser and Mike Pack for the Hamilton premiere. Hernando de Soto understands Hamilton very well. His work on the reasons for the non-development of the developing world led him to Hamiltonian conclusions. The key issue in the developing world, Hernando de Soto says, is invisibility. People are invisible, in the sense that legally, they and their property do not exist. The informal sector, in much of what used to be called the Third World -- the polite word now is "south" or "developing world," but much of the south is right here in the north, and as to developing world, it is in fact not developing, so why lie about it? -- is larger than the formal sector. But without enforceable property rights because of the prevailing invisibility, the energy of all those hardworking people goes to waste. Or at least it is underused.

Hernando himself, I might note, is anything but invisible. Quite apart from his charm and fluency in several languages -- one of which is English -- he is only too visible to the ultra-statists, the terrorist descendants of the French Revolution. In his native Peru, where they go, or went, by the name of Sendero Luminoso, Shining Path, they tried to kill him. At the Americans for Tax Reform where Grover Norquist was hosting him last week, I thought I noticed at least one bodyguard. It could have been my hypersensitivity, however.

Though some of its apparatniks survive to this day in the murky world of politically tainted South American narcotrafficking, the Shining Path -- officially, the Communist Party of Peru or some such fantastic name -- was defeated in the 1980s and early 1990s by a combination of liberal economic ideas inspired by Hernando de Soto and the strict law-and-order policies of President Alberto Fujimori, whose daughter is a candidate for president in the forthcoming Peruvian presidential election, against a standard-issue socialist soldier. (In Peru the military traditionally goes left.)

The combination of law-and-order and property-law was remarkable and successful in Peru. The people who became visible by entering a legal system with rules (contracts) were not asking for charity -- manna, cargo, foreign aid -- only the chance to work and prosper, which is what Alexander Hamilton, the orphan boy from the West Indies, came to New York to do and what the overwhelming majority of our immigrants do to this day. Governments in many countries, including Mexico and Egypt, have, since then, requested the consulting services of a think-tank Hernando set up in Lima, though its research and recommendations clash with the interests of the ruling classes in these countries and their redistribute-the-crumbs way of governing. The London Economist has called ILD the most important think tank in the world. Observe -- Hernando himself is too polite, a real caballero, but I am a gruff beat reporter -- in this regard, Washington, D.C. think tank ever earned such a distinction.

We are all Hamilton's heirs, and like most heirs, we are always in danger of squandering our inheritance.  Hamilton engaged in nation-building -- my last anachronism of the day -- but to him, this did not mean what it so often means to us today: waiting for hand-outs, or expecting that our generous hand-outs (via USAID and associated agencies) will help nations that are still being built. Handouts -- quite different from the assumption of national debt that Hamilton thought necessary, or the encouragement of infrastructure and manufacturing capabilities -- circulate money heisted from the unsuspecting hard-working American public to promote schemes that distract from real work, the kind of work that makes New York the world's greatest engine of enterprise and, as such, Hamilton's living monument.

Note that Jefferson too has his vibrant monument, the Great River. But when he acquired it, was he not more Hamiltonian than Jeffersonian?

Sometimes a good idea wins, and agencies public and private have supported de Soto's ILD, perhaps without realizing that the success of his ideas, what he calls the other path in a classic study of development and its enemies, would put them out of business.

The aim of the de Soto think tank, Institute for Liberty and Democracy, is to analyze the conditions in non-functioning economies and show how, with a little Hamiltonian tinkering -- for example, making property titles enforceable under the law -- you would go a long way toward undercutting the statist-terrorists, from Shining Path to Muslim Brotherhood, who say, basically, "We have the answer, trust us."

The key Hamiltonian insight is that there is no such thing as "the answer" and hard-working people trust themselves, not hustlers in missionaries' clothing. Economies grow when people are left alone to act as economic agents, in environments that are legally and otherwise secure.

That is the real nation-building.

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About the Author

Roger Kaplan, a Washington-based writer, covers the Middle East and Africa (and tennis) for The American Spectator.