Category: Books

Hamilton’s SEUM at Paterson Was an Early Failure of Centrally Planned Industrial Policy

(p. 384) The 1792 financial panic came on the heels of the two great projects by which Hamilton hoped to excite the public with the shimmering prospects for American manufacturing: the Society for Establishing Useful Manufactures and submission of his Report on Manufactures. The outlook for both was badly damaged by the panic. Even a short list of the worst offenders in the share mania–William Duer, Alexander Macomb, New York broker John Dewhurst, Royal Flint–included so many SEUM directors that it almost sounded like a company venture. Duer’s notoriety was especially detrimental since he had been SEUM governor, its largest shareholder, and its chief salesman in hawking securities.
. . .
(p. 385) How exactly would the SEUM, its coffers cleaned out by Duer, pay for its property on the Passaic River? Hamilton privately approached William Seton at the Bank of New York and arranged a five-thousand-dollar loan at a reduced 5 percent interest rate. He cited high-minded reasons, including the public interest and the advantage to New York City of having a manufacturing town across the Hudson, but more than the public interest was at stake: “To you, my dear Sir, I will not scruple to say in confidence that the Bank of New York shall suffer no diminution of its pecuniary faculties from any accommodations it may afford to the Society in question. I feel my reputation concerned in its welfare.” The SEUM’s collapse, Hamilton knew, could jeopardize his own career. In promising Seton that he would see to it as treasury secretary that the Bank of New York was fully compensated for any financial sacrifice entailed by the SEUM loan, Hamilton mingled too freely his public and private roles.
(p. 386) For several days in early July 1792, Hamilton huddled with the society directors to hammer out a new program. “Perseverance in almost any plan is better than fickleness and fluctuation,” he was to lecture one superintendent, with what could almost have been his personal motto. Rewarding his efforts, the society approved wide-ranging operations: a cotton mill, a textile printing plant, a spinning and weaving operation, and housing for fifty workers on quarter-acre plots. Never timid about his own expertise, Hamilton pinpointed the precise spot for the factory at the foot of the waterfalls that had so impressed him with their strength and beauty during the Revolutionary War.
It was an index of the hope generated by Hamilton that the SEUM, at his suggestion, hired Pierre Charles L’Enfant, the architect who had just laid out plans for the new federal city on the Potomac River, to supervise construction of the society’s buildings and plan the futuristic town of Paterson. At the same time, it was an index of Hamilton’s persistent anxiety that he dipped into managerial minutiae befitting a factory foreman rather than an overworked treasury secretary. For instance, he instructed the directors to draw up an inventory of tools possessed by each worker and stated that, if any were broken, the parts should be returned and “a report made to the storekeeper and noted in some proper column.” With his reputation at stake, Hamilton even subsidized the venture with his own limited funds, advancing $1,800 to the mechanics. Despite the Duer fiasco, the SEUM commenced operations in spinning, weaving, and calico printing.
The subsequent society records make for pretty dismal reading, as Hamilton was beset by unending troubles. L’Enfant was the wrong man for the job. Instead of trying to conserve money for the cash-strapped society, he contrived extravagant plans for a seven-mile-long stone aqueduct to carry water. He was enthralled by the idea of creating a grand industrial city on the pattern of the nascent Washington, D.C., with long radiating avenues, rather than with building a simple factory. By early 1794, L’Enfant shucked the project and spirited off the blueprints into the bargain. To find qualified textile workers, the society sent scouts to Scotland and paid for the laborers’ passage to America. Even the managers clamored for better pay, and SEUM minutes show that some disgruntled artisans personally hired by Hamilton began to sabotage the operation by stealing machinery. One of the saddest parts of the story relates to the employment of children. Whatever hopeful vision Hamilton may have had of children performing useful labor and being educated simultaneously, they had neither the time nor the money to attend school. To remedy the problem, the board hired a schoolmaster to instruct the factory children on Sundays–which, as Hamilton must have known, was scarcely a satisfactory solution.
By early 1796, with Hamilton still on the board, the society abandoned its final (p. 387) lines of business, discontinued work at the factory, and put the cotton mill up for sale. Hamilton’s fertile dream left behind only a set of derelict buildings by the river. At first, it looked as if the venture had completely backfired. During the next two years, not a single manufacturing society received a charter in the United States. Hamilton’s faith in textile manufacturing in Paterson was eventually vindicated in the early 1800s as a “raceway” system of canals powered textile mills and other forms of manufacturing, still visible today in the Great Falls Historic District. The city that Hamilton helped to found did achieve fame for extensive manufacturing operations, including foundries, textile mills, silk mills , locomotive factories, and the Colt Gun works. Hamilton had chosen the wrong sponsors at the wrong time. In recruiting Duer and L’Enfant, he had exercised poor judgment. He was launching too many initiatives, crowded too close together, as if he wanted to remake the entire country in a flash.

Source:
Chernow, Ron. Alexander Hamilton. New York: The Penguin Press, 2004.
(Note: italics in original.)

Social Security “Produces Inequality Systematically”

(p. B5) Mr. Kotlikoff, 64, did not set out to become Dr. Social Security. Two decades ago, he and a colleague were studying the adequacy of life insurance. To do so, you need to know something about Social Security. Soon, Mr. Kotlikoff was developing a computer model for various payouts from the government program and realized that consumers might actually pay to use it.
From that instinct, a service called Maximize My Social Security was born, though it wasn’t easy to do and get it right. “We had to develop very detailed code, and the whole Social Security rule book is written in geek,” he said. “It’s impossible to understand.”
Because of that, most people filing for benefits have to get lucky enough to encounter a true expert in their social circle, at a Social Security office or on its hotline. They are rare, and this information dissymmetry offends Mr. Kotlikoff. “We have a system that produces inequality systematically,” he said. It’s not because of what the beneficiaries earned, either; it’s simply based on their (perhaps random) access to those who have a deep understanding of the rules.
. . .
“Get What’s Yours” is a useful book. Indeed, we all need better instruction guides for the many parts of our financial lives that only grow more complex over time.

For the full commentary, see:
RON LIEBER. “YOUR MONEY; The Social Security Maze and Other U.S. Mysteries.” The New York Times (Sat., MARCH 14, 2015): B1 & B5.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date MARCH 13, 2015.)

The book under discussion is:
Kotlikoff, Laurence J., Philip Moeller, and Paul Solman. Get What’s Yours: The Secrets to Maxing out Your Social Security. New York: Simon & Schuster, 2015.

Hamilton Fostered the Preconditions for Capitalism

(p. 345) In a nation of self-made people, Hamilton became an emblematic figure because he believed that government ought to promote self-fulfillment, self-improvement, and self-reliance. His own life offered an extraordinary object lesson in social mobility, and his unstinting energy illustrated his devout belief in the salutary power of work to develop people’s minds and bodies. As treasury secretary, he wanted to make room for entrepreneurs, whom he regarded as the motive force of the economy. Like Franklin, he intuited America’s special genius for business: “As to whatever may depend on enterprise, we need not fear to be outdone by any people on earth. It may almost be said that enterprise is our element.”
Hamilton did not create America’s market economy so much as foster the cultural and legal setting in which it flourished. A capitalist society requires certain preconditions. Among other things, it must establish a rule of law through enforceable contracts; respect private property; create a trustworthy bureaucracy to arbitrate legal disputes; and offer patents and other protections to promote invention. The abysmal failure of the Articles of Confederation to provide such an atmosphere was one of Hamilton’s principal motives for promoting the Constitution. “It is known,” he wrote, “that the relaxed conduct of the state governments in regard to property and credit was one of the most serious diseases under which the body politic laboured prior to the adoption of our present constitution and was a material cause of that state of public opinion which led to its adoption.” He converted the new Constitution into a flexible instrument for creating the legal framework necessary for economic growth. He did this by activating three still amorphous clauses–the necessary-and-proper clause, the general-welfare clause, and the commerce clause–making them the basis for government activism in economics.

Source:
Chernow, Ron. Alexander Hamilton. New York: The Penguin Press, 2004.

Our Personal Projects Can Create Compelling Idiogenic Motives

Brian Little, the author of the book mentioned below, was persuasively praised in Quiet, a book I liked a lot. (I have not yet read Little’s book.)

(p. 7) When we’re in danger of exhausting ourselves by exercising free traits that go against the grain of our fixed traits, he recommends the use of “restorative niches” in which to recover. After a morning of acting as a pseudo-extrovert on the lecture stage, Little confides, he restores his introverted nature by spending time alone in the men’s room. Alas, on one occasion an opposing personality came along to spoil his solitude. Little describes his biogenic fixed-trait response to the intruder: “I could feel my autonomic nervous system kicking in. He sat down in the cubicle next to me. I then heard various evacuatory noises — very loud, utterly unmuffled. We introverts really don’t do this; in fact, many of us flush during as well as after. Finally I heard a gruff, gravelly voice call out, ‘Hey, is that Dr. Little?’ He was an extravert — he wanted to chat!”
. . .
“Me, Myself, and Us” is most insightful when Little goes beyond polarized divisions — to explore, for example, the effects on our personalities of what he calls our “personal projects.” “Beyond the influence of the biogenic and sociogenic sources of motivation, there is another compelling influence on our daily behavior that I call idiogenic motives. They represent the plans, aspirations, commitments and personal projects that we pursue in the course of daily life.”

For the full review, see:
ANNIE MURPHY PAUL. “‘Who Do You Think You Are?” The New York Times Book Review (Sun., DEC. 28, 2014): 7.
(Note: ellipsis added.)
(Note: the online version of the review has the date DEC. 26, 2014, and has the title “‘Me, Myself, and Us,’ by Brian R. Little.”)

The book under review is:
Little, Brian R. Me, Myself, and Us: The Science of Personality and the Art of Well-Being. New York: PublicAffairs, 2014.

Hamilton “Was the Clear-Eyed Apostle of America’s Economic Future”

(p. 344) The American Revolution and its aftermath coincided with two great transformations in the late eighteenth century. In the political sphere, there had been a repudiation of royal rule, fired by a new respect for individual freedom, majority rule, and limited government. If Hamilton made distinguished contributions in this sphere, so did Franklin, Adams, Jefferson, and Madison. In contrast, when it came to the parallel economic upheavals of the period–the industrial revolution, the expansion of global trade, the growth of banks and stock exchanges–Hamilton was an American prophet without peer. No other founding father straddled both of these revolutions–only Franklin even came close–and therein lay Hamilton’s novelty and greatness. He was the clear-eyed apostle of America’s economic future, setting forth a vision that many found enthralling, others unsettling, but that would ultimately prevail. He stood squarely on the modern side of a historical divide that seemed to separate him from other founders. Small wonder he aroused such fear and confusion.

Source:
Chernow, Ron. Alexander Hamilton. New York: The Penguin Press, 2004.

Lincoln Defended Innovative Rail Against Incumbent Steam

(p. A15) “Lincoln’s Greatest Case” convincingly shows that 1857 was a watershed year for the moral and political questions surrounding slavery’s expansion to the west, something that Jefferson Davis’s preferred railroad route would have facilitated. Mr. McGinty’s discussion of Lincoln’s philosophy and the career-making speeches he would develop in the late 1850s allows us to see the transportation disputes in light of the political and cultural dynamics that would lead to the Civil War. The book is also a case study of discomfort with new technology–and the futility of using a tort suit to prevent the adoption of inevitable innovation.
The book ends on an elegiac note, with steamboats making their inevitable passage into the mists of history. The rails, which could operate year-round through paths determined by man, not nature, would reign supreme, thanks in part to the efforts of a technophile future president.

For the full review, see:
MARGARET A. LITTLE. “BOOKSHELF; When Steam Was King; A dispute over a fiery collision pitted steamboats against railroads and the North against the South. Lincoln defended the rail.” The Wall Street Journal (Mon., Feb. 23, 2015): A15.
(Note: the online version of the review has the date Feb. 22, 2015, and has the title “BOOKSHELF; Technology’s Great Liberator; A dispute over a fiery collision pitted steamboats against railroads and the North against the South. Lincoln defended the rail.”)

The book under review is:
McGinty, Brian. Lincoln’s Greatest Case: The River, the Bridge, and the Making of America. New York: Liveright Publishing Corp., 2015.

Homer Spoke from a “Vengeful, Frighteningly Violent Time”

(p. 17) The Homeric epics are long, contradictory, repetitive, composite works, riddled with anachronisms, archaic vocabulary, metric filler and exceedingly graphic brutality. Over the millenniums, Nicolson asserts, they have been cleaned, scrubbed and sanitized by generations of translators, editors, librarians and scholars, in order to protect readers from the dangers of the atavistic world lurking just below the surface of the words. He writes that everyone from the editors at the Ptolemaic library in Alexandria to the great 18th-century poet Alexander Pope wished to civilize or tame the poems, “wanted to make Homer proper, to pasteurize him and transform him into something acceptable for a well-­governed city.” Part of Nicolson’s objective is to follow the poems back to the vengeful, frighteningly violent time and culture from which they came, and to restore some of their rawness.

For the full review, see:
BRYAN DOERRIES. “Songs of the Sirens.” The New York Times Book Review (Sun., DEC. 28, 2014): 17.
(Note: ellipses added.)
(Note: the online version of the review has the date DEC. 26, 2014, and has the title “‘Why Homer Matters,’ by Adam Nicolson.”)

The book under review is:
Nicolson, Adam. Why Homer Matters. New York: Henry Holt and Co., 2014.

In American Political System “It Will Be far More Difficult to Undo than to Do”

(p. 330) Jefferson traced the formation of the two main parties–to be known as Republicans and Federalists–to Hamilton’s victory over assumption. For Jefferson, this event split Congress into pure, virtuous republicans and a “mercenary phalanx,” “monarchists in principle,” who “adhered to Hamilton of course as their leader in that principle.”
Why did Jefferson retrospectively try to downplay his part in passing Hamilton’s assumption scheme? While he understood the plan at the time better than he admitted, he probably did not see as clearly as Hamilton that the scheme created an unshakable foundation for federal power in America. The federal government had captured forever the bulk of American taxing power. In comparison, the location of the national capital seemed a secondary matter. It wasn’t that Jefferson had been duped by Hamilton; Hamilton had explained his views at dizzying length. It was simply that he had been outsmarted by Hamilton, who had embedded an enduring political system in the details of the funding scheme. In an unsigned newspaper article that September, entitled “Address to the Public Creditors,” Hamilton gave away the secret of his statecraft that so infuriated Jefferson: “Whoever considers the nature of our government with discernment will see that though obstacles and delays will frequently stand in the way of the adoption of good measures, yet when once adopted, they are likely to be stable and permanent. It will be far more difficult to undo than to do.”

Source:
Chernow, Ron. Alexander Hamilton. New York: The Penguin Press, 2004.
(Note: italics in original.)

Disclosure Regulations Often Have Unintended Consequences

(p. B5) . . . , some disclosure works. Professor Levitin cites two examples. The first is an olfactory disclosure. Methane doesn’t have any scent, but a foul smell is added to alert people to a gas leak. The second is A.T.M. fees. A study in Australia showed that once fees were disclosed, people avoided the high-fee machines and took out more when they had to go to them.
But to Omri Ben-Shahar, co-author of a recent book, “More Than You Wanted To Know: The Failure of Mandated Disclosure,” these are cherry-picked examples in a world awash in useless disclosures. Of course, information is valuable. But disclosure as a regulatory mechanism doesn’t work nearly well enough, he argues.
First, it really works only when things are simple. As soon as transactions become complex, disclosure starts to stumble. Buying a car, for instance, turns out to be several transactions: the purchase itself, the financing, maybe the trade-in of old car and various insurance and warranty decisions. These are all subject to various disclosure rules, but making the choices clear and useful has proved nigh impossible.
In complex transactions, we then must rely on intermediaries to give us advice. Because they are often conflicted, they, too, become subject to disclosure obligations. Ah, even more boilerplate to puzzle over!
And then there’s the harm. Over the years, banks that sold complex securities often stuck impossible-to-understand clauses deep in prospectuses that “disclosed” what was really going on. When the securities blew up, as they often did, banks then fended off lawsuits by arguing they had done everything the law required and were therefore not liable.
“That’s the harm of disclosure,” Professor Ben-Shahar said. “It provides a safe harbor for practices that smell bad. It sanitizes every bad practice.”

For the full review, see:
JESSE EISINGER. “In an Era of Disclosure, an Excess of Sunshine but a Paucity of Rules.” The New York Times (Thurs., FEBRUARY 12, 2015): B5.
(Note: ellipsis added.)
(Note: the online version of the review has the date FEBRUARY 11, 2015.)

The book under review is:
Ben-Shahar, Omri, and Carl E. Schneider. More Than You Wanted to Know: The Failure of Mandated Disclosure. Princeton, NJ: Princeton University Press, 2014.

“The Most Celebrated Meal in American History”

(p. 328) If we are to credit Jefferson’s story, the dinner held at his lodgings on Maiden Lane on June 20, 1790, fixed the future site of the capital. It is perhaps the most celebrated meal in American history, the guests including Jefferson, Madison, Hamilton, and perhaps one or two others. For more than a month, Jefferson had been bedeviled by a migraine headache, yet he presided with commendable civility. Despite his dislike of assumption, he knew that the stalemate over the funding scheme could shatter the union, and, as secretary of state, he also feared the repercussions for American credit abroad.
Madison restated his familiar argument that assumption punished Virginia and other states that had duly settled their debts. But he agreed to support assumption–or at least not oppose it–if something was granted in exchange. Jefferson recalled, “It was observed… that as the pill would be a bitter one to the southern states, something should be done to soothe them.” The sedative measure was that Philadelphia would be the temporary capital for ten years, followed by a permanent move to a Potomac site. In a lucrative concession for his home state, Madison also seems to have extracted favorable treatment for Virginia in a final debt settlement with the central government. In return, Hamilton agreed to exert his utmost efforts (p. 329) to get the Pennsylvania congressional delegation to accept Philadelphia as the provisional capital and a Potomac site as its permanent successor.
The dinner consecrated a deal that was probably already close to achievement. The sad irony was that Hamilton, the quintessential New Yorker, bargained away the city’s chance to be another London or Paris, the political as well as financial and cultural capital of the country. His difficult compromise testified to the transcendent value he placed on assumption. The decision did not sit well with many New Yorkers. Senator Rufus King was enraged when Hamilton told him that he “had made up his mind” to jettison the capital to save his funding system. For King, Hamilton’s move had been high-handed and secretive, and he ranted privately that “great and good schemes ought to succeed not by intrigue or the establishment of bad measures.”

Source:
Chernow, Ron. Alexander Hamilton. New York: The Penguin Press, 2004.
(Note: ellipsis in original.)