I am part of a very weird Venn diagram: people who write about both blockchain and Alexander Hamilton. Before reporting on the crypto scene for BREAKER, I wrote the book Alexander Hamilton’s Guide to Life.
These are two radically different subjects. It’s like focusing on both Artificial Intelligence and pottery. No one at a crypto meet-up is likely to geek-out about Hamilton, and vice versa.
And yet. Truly understanding bitcoin, of course, involves a deeper understanding of blockchain and decentralization. It’s easy to get the basics. It’s harder to grasp the more subtle, and far-reaching, ways that decentralization could impact society.
I didn’t truly understand decentralization until I saw it through the eyes of Alexander Hamilton.
To play out this (admittedly goofy) thought experiment, let’s go back in time a couple of centuries, to the year 1790. Hamilton was just sworn in as our first Treasury Secretary. He used his quill to scribble the blueprints of our economy, diving deep into the minutia of currency, banks, bonds, and corporations. He worked day and night.
Hamilton knew that the young country’s finances were something of a hot mess, hobbled by the following issues:
*After the Revolutionary War, the government owed the army a staggering debt. ($54,124,464.56, to be exact.) On top of this, the state debt was another $20+ million.
*There was no real means to pay it.
*There was no banking system.
*There was no stable currency. Most states still used their own coins, or even British pounds and shillings, which made interstate commerce more frustrating than a phone call to Time Warner Cable.
So he whipped up a plan to fix all of this. Hamilton pushed for the federal government to gobble up all of the states’ debt. He established a national bank—a central bank. He worked to create a solid, trusted, federal currency. He knew that all of these state-by-state coins (altcoins?) would just lead to more confusion in the marketplace.
And Hamilton didn’t just delegate this stuff—he nerded out with the most granular of details, such as precisely what metals should be used for each coin, and in exactly what proportion. He rummaged through old history and science books to find good comps for the US. “The old piastre of Spain,” he patiently explains, “weighed 17 dwt. 12 grains and contained 386. grains and 15 Mites of fine silver.”
Hamilton had a larger end-game. He knew that all of these moves—one stable currency, the consolidation of debt, and the creation of a bank—were about more than just dollars and cents and pounds and shillings. At the time, the United States of America still behaved more like the united states of America. A shared debt would help yoke the states together, and he considered it to be a “powerful cement to our union.”
What does this have to do with bitcoin? We’re getting there. “Hamilton knew that bond-holders would feel a stake in preserving any government that owed them money. If the federal government, not the states, was owed the money, creditors would shift their main allegiance to the central government,” explains Ron Chernow (host of the 2019 White House Correspondents’ Dinner) in Alexander Hamilton. “Hamilton’s interest was not in enriching creditors or cultivating the privileged class so much as insuring the government’s stability and survival.”
(To clarify, Hamilton never intended the national debt to be a permanent thing. “The creation of debt should always be accompanied by the means of extinguishment,” he warned us.)
Say what you will about the flaws of today’s banking system, but at the time, the banks helped give the nation a solid economic footing.
In the case of currencies, Hamilton suggested that putting the images of Presidents (or other such patriotic images) on coins would help forge a sense of national unity, and be a “great safeguard against counterfeits.” He knew that money had power. Currency had power.
And when Hamilton was done?
His plan worked.
It worked better than anyone could have imagined. Say what you will about the flaws of today’s banking system, but at the time, the banks helped give the nation a solid economic footing.
“As if by magic,” explains Richard Sylla, a financial historian and author of Alexander Hamilton: The Illustrated Biography, “by 1795 the United States had in place all the key elements of a modern financial system: stable public finances and national debt management, a dollar currency convertible into hard money, a banking system, a central bank, securities markets, and a host of corporations. In 1789, it lacked every one of them.” This rock-solid foundation, in turn, helped spur two centuries of economic growth.
Hamilton, in effect, used a combination of debt and currency to grow the muscle of the national government. His efforts, by definition, were centralized. (Note: This does not mean, necessarily, that Hamilton could or should be described as “big government” by today’s standards. At various points throughout history, both the Left and the Right have claimed him as their own, and extrapolating Hamilton’s 1790 politics to 2018 is a dangerous, slippery game.)
So. Back to bitcoin.
As any crypto-enthusiast knows, bitcoin owes no fealty to any state, government, or bank. It’s decentralized.
If Hamilton used the levers of government-issued currency and centralized debt to “cement” the union, with a bit of imagination, we can sense how bitcoin—in all of its decentralized glory (or chaos, depending on your POV) could do the opposite. The specifics are still fuzzy and debatable and, at this stage, perhaps unknowable. Yet Hamilton’s economic brilliance, for me at least, gives a deeper appreciation for why governments could be wary of cryptocurrencies. It’s more than just concern about scams or money-laundering. It’s more than just fear of the unknown. It’s more than technophobia. Hamilton understood that financial obligations can be a social and political glue.
So what happens if, theoretically, bitcoin prevailed as the dominant currency? “It’s a great question, and it’s something I’ve thought a lot about,” says Nic Carter, a notable bitcoin maximalist (who doesn’t love the term “bitcoin maximalist“.) “Hamilton would be pretty upset with bitcoin, would be my guess. Because I do view it as competitive with the state administered monetary systems.” Carter clarifies that bitcoin maximalists don’t necessarily believe that bitcoin will become the one and only coin of the realm, and that there are many “alternative possible outcomes where it is influential, but not the single world currency.”
Even so, Carter says that “no matter what happens, if it continues to succeed and be vindicated in its approach, it does sort of rival national currencies.” The infrastructure is still crude—cue the obligatory line about how bitcoin is still like the “internet in the ’90s”—but eventually, long-term, Carter says that bitcoin could “reduce discretion in monetary policy” and it would “reduce the US’s ability to perform seigniorage, which is essentially the ability to mint new money.” It could also “impair the ability of a state to efficiently collect tax revenue.”
Another example: To help maintain a stable currency, some countries, like China, cap the amount of capital that citizens can send abroad. Bitcoin would make this easy to get around. “There’s a reason China banned bitcoin,” says Carter. “I think it’s mostly—or exclusively—due to that. It could, in theory, undermine the monetary authority of the People’s Bank of China. Not yet, but that’s them being foresighted about it.” (Again, most of this is long-term speculation. In the short to medium-term, Carter suspects that bitcoin is more likely to threaten the weaker sovereign currencies in countries like Nigeria, Argentina, or Venezuela.)
I reached out to a few Hamilton historians to get their thoughts on what Hamilton would think of bitcoin. (Disclaimer: Most historians are squeamish about the question “what would so-and-so think about such-and-such?” So they were kind enough to play along, and suggest you take all of this with a grain of salt.) They generally agreed that Hamilton would be queasy of crypto, but offered some additional caveats and context.
“I don’t think Hamilton would have thought that bitcoin, Ethereum, and other cryptocurrencies that fluctuate a lot in value were ‘good’ money,” reasons Richard Sylla. “Moreover, an issue with these cryptocurrencies is that they can be used for illegal purposes such as money laundering; Hamilton would not have liked that aspect of them.” (This is the point, of course, when crypto-folk would jump to bitcoin’s defense and say that cash can be used for illegal purposes, too.)
Sylla, who knows more about this stuff than just about anyone, reminds us that while Hamilton did push for a stable US dollar, he was also worried about government corruption… so maybe that could make Hamilton surprisingly crypto-friendly. “Because he was against politicians controlling the creation of money (as discussed in his Dec. 1790 National Bank Report), Hamilton would not have objected to the idea of cryptocurrencies functioning independent of governments/politicians,” says Sylla. “Hamilton gave the government a 20 percent stake in the Bank of the United States, but otherwise it was under private control, which he deemed important.”
Or maybe Hamilton would embrace the blockchain technology, but use it to arm the government. (#BlockchainNotBitcoin.) “If cryptocurrencies really do have the promise that their backers claim, my guess is that Hamilton would favor the independent central bank adopting the technology, and issuing a national cryptocurrency that all of us could use,” says Sylla. “In other words, instead of having hundreds of competing, privately issued cryptocurrencies (which might be chaotic), there would be one national version. And the central bank would be charged with regulating its value, just as it does now.”
Michael Newton, author of Alexander Hamilton: The Formative Years and editor of the blog Discovering Hamilton, can see it argued a couple of different ways. “Hamilton believed in currencies and debt that had strong backing. Hamilton opposed a land bank because the collateral (land) was illiquid and of uncertain value, and instead favored a bullion [gold or silver] bank,” says Newton. “I don’t think he would have seen the value of a cryptocurrency since there is nothing backing it. He might have preferred it to fiat currencies, but not to real money (gold or silver coins or paper money backed by gold or silver).”
Of course, Hamilton’s monetary policy was rooted in a world where currencies needed to be backed by things like gold and silver. Things have changed. What if Hamilton could time-travel to 2018, and had the benefit of what we know now? “It’s much harder to say where Hamilton would stand,” says Newton. “Seeing Hamilton as a traditionalist, one might argue he would have been against this newfangled currency. If it had some sort of backing, he might support it. But as he would point out, you can’t pay your taxes with it, so what good is it?” (Actually, that might be changing in some places like Ohio.)
Richard Salsman, a professor of political economics at Duke and another Hamilton authority, emails me a nice rundown of all the contradictions and unknowns. “Hamilton would probably say cryptocurrencies: 1) are inferior to gold, silver, and specie-redeemable currency as money; 2) are a waste of human effort, not really producing anything real, tangible or relevant to prosperity; 3) at least try to allow only steady growth in the money supply, which might (eventually) keep its value steady; 4) are an understandable response to the arbitrary, volatile issuance of fiat paper money by modern central banks; 5) are cool because advanced technology, like the blockchain, are aspects of economic progress.”
Newton rightly points out that no one really knows exactly what’s going to happen with cryptocurrencies, so Hamilton would likely show some caution. “I assume, like most people, he would take a wait-and-see attitude,” says Newton. “I don’t think he’d have a problem with two people transacting business in cryptocurrencies. But I very much doubt he would have the US government collect taxes in it or give it any sort of official sanction.”
And would Hamilton buy any bitcoin for investment reasons, and click refresh on his Blockfolio app 10 times a day? “I very much doubt he would have bought any for himself,” says Newton. “Perhaps he would have mined some.”
Yes. Absolutely. I love the visual of Hamilton—who was as young, scrappy, and hungry as any blockchain coder—setting up a rig and mining bitcoin.
Now please excuse me while I prepare the ICO for my new cryptocurrency, Hamilcoin.