John Taylor’s Forgotten Assault on Hamilton’s Economic Scheme

In 1794, John Taylor of Caroline published a devastating critique of Alexander Hamilton’s financial system: the national bank, paper money, and debt.

Taylor saw these for what they really were: not mere policy disagreements, but a war on the Constitution itself.

His pamphlet, “An Enquiry into the Principles and Tendency of Certain Public Measures,” was no mere political tract. It was a systematic demolition of Hamilton’s entire program.

Taylor called Hamilton’s constitutional interpretations “constructive treasons” – a phrase that captured the essence of how government power expands through legal sleight of hand.

FOUNDATION UNDER ATTACK

By Washington’s second term, Americans sensed something was wrong. The whispers were getting louder – about monarchy, about corruption, about a Constitution being systematically destroyed. Taylor didn’t dismiss these concerns as partisan hysteria. He knew they deserved investigation.

“It is often asserted that the administration is driving at monarchy – that the legislature is corrupt – and that the constitution has been more deliberately broken, than it was formed. These assertions are alarming. They deserve investigation.”

Taylor understood the stakes when he decided to act. Sending his pamphlet directly to President Washington meant attacking measures the President himself had signed into law. But he chose truth over political convenience.

“In the spirit of truth, and not of adulation, does the following performance solicit your attention. Nor is its hope of acquiring some share of your countenance diminished, by the circumstance of your not having in an official character withheld your signature, from several of the measures investigated.”

Here was Taylor’s insight: the problem wasn’t just bad policies. Even sound constitutional structures could be corrupted from within. Good government could rot just as easily as bad government could flourish.

“As a bad form of government, may by means of a good administration, produce national happiness, so a good form of government, may be abused into an engine of fraud and corruption.”

The mechanism of this corruption was insidious. Dangerous precedents would quietly become accepted rules over time.

“Mischievous precedents, or innovations upon the constitution, are matured by time into municipal regulations, or fundamental rules.”

Taylor explained how this constitutional rot spreads using a farmer’s analogy. Political laziness works exactly like agricultural laziness – ignore the problem and weeds take over the field.

“The wheat can only be separated from the chaff by sifting. Laziness in politics is like laziness in agriculture. It will expose the soil to noxious weeds. The wholesome plants will shrink from a state of indiscriminate amnesty, and disdaining a dishonorable society, will leave the field in the possession of tares and thistles.”

THE FOUNDATIONAL PRINCIPLES

Taylor didn’t attack Hamilton’s system with vague complaints. He established clear constitutional principles to test every piece of the program. These weren’t academic theories – they were the measuring sticks of legitimate government.

His first principle cut to the heart of American government itself: All power flows from the people.

“That the constitution contemplates a republican form of government, flowing from and depending on the people; and that a mode of administration, destructive of such dependence, and introductory of monarchical ingredients, innovates upon and subverts the constitution.”

The second principle drew a bright line around congressional taxing power: general welfare did not include taxes for the benefit of individuals or private gain.

“That Congress can impose taxes for the common defence and general welfare, of the United States, but not for the benefit of individuals or their own private emolument.”

This wasn’t some minor technical point – it was the difference between legitimate government and legalized plunder.

Taylor’s third principle reminded readers that government serves as merely an agent of the people of the several states. The moment it exceeds constitutional limits, “government is converted into an usurpation.”

THE BANK SCHEME

Having established his constitutional standards, Taylor put Hamilton’s system to the test. He didn’t need to look far for evidence. The national bank scheme revealed everything – a system designed to benefit a powerful few at everyone else’s expense.

Established in 1791, the bank’s funding mechanism exposed its true purpose. Instead of requiring actual money deposits, the law allowed stockholders to purchase three-fourths of their bank stock using government securities that carried six percent interest. Those who had bought up government debt at pennies on the dollar during the 1780s could now exchange it at full face value for bank stock.

Taylor called it what it was – a wealth transfer scheme disguised as economic policy under the law. The result: wealth flowed upward, legally.

“A portion of the rich class of citizens, are the proprietors of the device, whilst labour supports it. An annuity to a great amount, is suddenly conjured up by law, which is received exclusively by the rich, that is the aristocracy. Will it not make them richer?”

But the corruption went deeper than just enriching speculators.

The bank created conflicts of interest that struck at the heart of constitutional government. When members of Congress became stockholders or bank directors, they developed self-dealing interests that operated on the legislature. The bank corrupted Congress itself.

“If a number of the members of Congress are stock-holders, or bank directors, then an illegitimate interest is operating on the national legislature – then the bank hath seduced away from their natural and constitutional allegiance, the representatives of the state.”

The corruption didn’t stop with domestic conflicts of interest. The bank opened the door to foreign influence. When foreigners bought bank stock, they gained direct influence over American government. Taylor saw the danger immediately – foreign enemies buying what they couldn’t conquer.

“And then, even foreigners – our late most malignant and inveterate enemy – have obtained an influence on our national councils, so far as they have obtained bank stock. The English who could not conquer us, may buy us.”

THE PAPER MONEY DECEPTION

Taylor wasn’t fooled by fancy language about banking. He knew that Hamilton was building a system to manufacture money out of thin air.

Here’s how it worked: The national bank issued paper notes which were the only notes the federal government accepted for tax payments. When people paid taxes with these notes, the money flowed right back to the bank itself. It was a closed loop that gave the new banking institution enormous power over the nation’s monetary system, and created the closest thing to a de-facto national paper currency.

Hamilton didn’t hide what he was doing. In theory, all those notes were redeemable in specie. But Hamilton openly acknowledged the bank would issue more paper than it held in gold and silver, basically an early system of fractional reserve banking. He justified this by pointing to other banks that had done the same.

“It is a well established fact, that Banks in good credit can circulate a far greater sum than the actual quantum of their capital in Gold & Silver.”

The numbers prove the point. According to the St. Louis Federal Reserve, the First Bank maintained a loan-to-specie ratio of about 5:1 throughout its twenty-year existence. For every dollar of real money the bank held, it created five dollars in paper

John Taylor saw this fraud coming from a mile away. He’d lived through the Continental currency disaster during the Revolution. Ever wonder where the phrase “not worth a continental” comes from? That’s right – massive inflation caused by paper money printing during the War for Independence.

Taylor had watched that economic catastrophe unfold, and now Hamilton was setting up the same disastrous system.

“The nation, but just emerged from the unforeseen misfortunes of paper money, are suddenly overwhelmed by the ruin of a paper policy.”

The economic damage from the Revolution’s paper money, Taylor argued, rivaled the carnage of the battlefield.

“The calamities of the last war, resulting from the banishment of specie by a paper medium, were probably equivalent to those produced by the sword. The banking contrivances are rapidly reducing us again, to the same ruinous and miserable situation.”

But this wasn’t just bad policy – Taylor also held that it was blatantly unconstitutional.

“In not giving the power of establishing a paper currency to the one, and in taking it expresly from the other, the constitution designed to secure the society against the frauds and vices of paper tricks. That circulating paper medium of every kind was intended to be inhibited, is obvious from the distinction, between such a medium, and making any thing a tender.”

Taylor took the position that the Constitution slammed the door on paper money schemes. Hamilton just kicked it down.

THE DEBT AS A TOOL OF CONTROL

Taylor’s next target was the debt itself. He called out the dangerous philosophy driving Hamilton’s economic system.

“A minister intoxicated with influence, will exclaim, ‘Public debt is a public blessing,’ for taxes are an incitement to industry.”

That wasn’t just Taylor’s hypothetical. Years earlier, Hamilton had famously written exactly that to Robert Morris.

“A national debt if it is not excessive will be to us a national blessing; it will be powerfull cement of our union. It will also create a necessity for keeping up taxation to a degree which without being oppressive, will be a spur to industry.”

Hamilton’s program was built to keep the United States in debt – permanently. Taylor challenged the constitutional basis for this entire scheme.

“Where does the constitution contemplate an influential character in the person of a Secretary of the Treasury, entitling him to prescribe to Congress political dogmas? Or whence arises the right of the federal government, to apply stimulants to industry?”

Thomas Jefferson saw exactly what Hamilton was doing as well. In a letter to President Washington, he called out Hamilton’s addiction to debt as a tool of power and control.

“This exactly marks the difference between Colo. Hamilton’s views and mine, that I would wish the debt paid tomorrow; he wishes it never to be paid, but always to be a thing wherewith to corrupt and manage the legislature.”

Taylor also understood the mechanics of how this debt-based control actually worked.

“It was and is the fashion of thinking, that a public debt unequally held, gives permanency and weight to government. That is, to use plain terms, it will enable government to controul the will of the people, by counterbalancing it with the weight of wealth.”

At this point, pretty much everyone knew Hamilton had wanted to eliminate the states and create a single, national government. His plan for federal assumption of state war debts was seen by Taylor as a tool designed to centralize power by destroying state independence.

“To dissolve all money relationship, between individuals, and the separate states, would on the one hand diminish the state power, and tend to consolidation, and on the other create an undue influence, by which the consolidated power might be managed.”

He could see exactly where this would lead. One state debts were assumed, federal taxation would follow.

“A recurrence to direct taxation by Congress, will swallow up the little sovereignty, now left to the once sovereign individual States; and every accumulation of the debts of the union, is an impulse towards that end.”

Taylor saw the bank as the key mechanism to implement Hamilton’s scheme, and explained it as a 3-step strategy.

“The funding system was intended to effect, what the bank was contrived to accelerate. 

Accumulation of great wealth in a few hands. 

A political moneyed engine 

A suppression of the republican state assemblies, by depriving them of the political importance, resulting from the imposition and dispensation of taxes.”

This wasn’t accidental policy drift – it was a coordinated assault on the Constitution.

THE COUNTER-REVOLUTION

Taylor saw Hamilton’s program for what it really was – a full-blown revolution against the Constitution and the people. It aimed to “radically to destroy the constitution, and to erect upon its ruins an usurpation, not sanctioned by the national will, or acknowledging the fundamental principle; that the people are the only legitimate fountain of civil government.”

How did Hamilton’s supporters justify this constitutional coup? They fell back on “constructive” powers – the idea that the Constitution secretly implied powers it never actually delegated.

These defenders of the bank, Taylor noted, were “reduced to the narrow ground of asserting, that a power is tacitly implied, conflicting and subverting the most fundamental principles, earnestly and loudly expressed.”

Think about that for a moment. They were claiming the Constitution contained hidden meanings that directly contradicted its explicit text.

Taylor had a name for the people pushing these phantom powers. They weren’t just wrong – they were criminals: “Constructive powers, are like constructive treasons.”

Legalized treason.

SOLUTIONS

Taylor didn’t just tear down Hamilton’s system and walk away. He understood that the Constitution required active defense by the people and the states themselves.

“Therefore if liberty is a national object, the nation itself must watch over the constitution, preserve it from violation, and supply its defects, or admit it to be the Lethe of the community, producing an intire forgetfulness of the rights of man.”

His solution came in three parts.

First – and this should be obvious – stop electing corrupt representatives to the House.

Second, the states needed to maintain control over the Senate. That power, however, was later stolen from us through the Seventeenth Amendment.

Third, and most important, the states themselves had to act as constitutional guardians.

“Through the organs of state legislatures,” he wrote, “the state legislatures have at least as good a right to judge of every infraction of the constitution, as Congress itself.”

Constructive powers. Constructive treasons. Here’s the bottom line: They end when the people and the states say no.

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