On the Glenn Beck radio program today, Newt Gingrich once more confirmed his support for Hamiltonian industrial policies. In some instances, such as ethanol, Gingrich argued, the federal government should subsidize some industries over others. In other instances, such as the automobile industry, such subsidies should not be undertaken.
Gingrich failed to offer a convincing argument why subsidies are appropriate for some industries and companies, but not others.
When he cited the history of subsidies to manufacturers and other companies in America, the former professor of history got in to big trouble with those of us who support the three core values of the Tea Party movement: (1) Constitutionally Limited Government (2) Free Markets and (3) Fiscal Responsibility.
Gingrich pointed to two examples of “successful” industrial subsidies in our nation’s first century — Alexander Hamilton’s 1791 Report on Manufactures and the transcontinental railroad built during the 1860s.
He could not have found two better examples that illustrate the corrupting nature of the federal government picking winners and losers. In fact, “Professor” Gingrich seems to have either missed history’s lessons about the adverse affects of crony capitalism, or he’s emulating some big-government villains in American history.
As I point out in my new book, Covenant of Liberty: The Ideological Origins of the Tea Party Movement, Alexander Hamilton was the original champion of crony capitalism. Indeed, before introducing his Report on Manufactures to the Second Congress in December, 1791, Hamilton had organized and raised capital for a private company called The Society for Establishing Useful Manufactures. Though he himself was not an investor, he wrote the prospectus, and persuaded his many financial speculator friends in New York City to invest in the deal. Why wouldn’t they? With the public backing of the Secretary of the Treasury, it was a sure thing. Hamilton persuaded the State Government of New Jersey to invest, as well as numerous Congressmen, a future Supreme Court Justice, and the Governor of New Jersey himself.
In his Report on Manufactures, Hamilton asked Congress to subsidize this very company, without specifically naming it. The Chairman of SEUM, a financial manipulator by the name of William Duer, soon was caught up in the first national Wall Street financial scandal, emptied all the investor funds from the company, and went to debtors prison. Hamilton got his friends at the Bank of New York (where much of the federal government’s funds were invested) to loan $10,000 to the essentially bankrupt enterprise, and it limped along for another five years before it became, at least temporarily, a shell company.
SEUM purchased land in what is now Paterson, New Jersey, and the ruins of its buildings can be seen there today. Why did the enterprise fail ? Because neither Hamilton nor any of the investors in the company (the speculators and politicians) knew anything about manufacturing.
This is a project that Gingrich points to as an example we should emulate today?
It gets worse.
In 1862, the Republican controlled Congress passed, and President Lincoln signed, the Pacific Railway Act of 1862. The law authorized two companies — California’s Central Pacific, and the newly organized Union Pacific — to receive significant federal subsidies (in the form of low interest, guaranteed construction loans and grants of federal land along the railroad routes). The law was largely written by Theodore Judah, a co-owner of the Central Pacific, who was allowed to serve as the secretary to both the House Committee and Senate Committee that had jurisdiction over the bill ! Little surprise that only one company was authorized to operate in California.
While the transcontinental railroad was successfully built, and by 1869 had connected the West Coast to the East Coast, the construction work was so shoddy, the corruption and graft so great, over the next five years every mile of the track had to be rebuilt. In addition, $23 million of the $54 million of federal funding provided to the project was stolen by Thomas C. Durant, Abraham Lincoln’s former law client, and the man who controlled both Union Pacific and its designated construction company, Credit Mobilier. Throughout the 1860s, many Republican members of Congress were bribed with shares of Credit Mobilier in return for their continued funding of Union Pacific.
As the Iowa caucuses and New Hampshire primary approach, it is well for those of us in the Tea Party movement to remember that just because Newt Gingrich gives speeches to tea party groups, it does not mean he supports the three core values of the movement. Indeed, if the Tea Party movement is defined as the champion of the limited government of Jefferson, Madison, and Jackson, it is fair to say that Newt Gingrich is the champion of Hamiltonian statism. If you don’t believe me, just listen to Gingrich himself.
Michael Patrick Leahy is the editor of the Voices of the Tea Party e-book series and co-founder of Top Conservatives on Twitter and the Nationwide Tea Party Coalition. His new book, Covenant of Liberty: The Ideological Origins of the Tea Party Movement, will be published by Broadside Books in spring, 2012. He can be reached on Twitter at @michaelpleahy .