Newt Gingrich’s story is that Freddie Mac was so impressed with his skills as an historian that they paid him at least $1.6 million not to lobby, but to serve as their historical muse. Gingrich was, of course, a lobbyist for Freddie Mac, a politically inconvenient fact for a candidate for the Republican nomination for president.
Newt has given further evidence that he is not an historian. He told his audience in Jackson, Mississippi, that:
“The right to bear arms came from God,” through the Declaration of Independence and the Constitution. He described the 2010 laws that overhauled healthcare and imposed rules on banks and investment firms as a “repudiation of the Declaration of Independence.”
My memory of the Declaration did not include the provision declaring that natural law decreed that banks should not be regulated. (Geek warning: our family engages in group renditions of songs from the musical 1776. The musical is not history, but it is a rousing tribute to the Declaration that includes a recitation of much of the text.)
I reread the Declaration in preparation for writing this article and confirmed that it makes no reference to the “Laws of Nature” banning bank regulation. Here are three key historical facts about the framers’ views about government, corporations, and banks. (I leave to religious scholars the response to Newt’s blasphemous claims that Jesus blessed weapons and greed.) First, the framers did not view corporations as people who were endowed with natural rights and should be immune from regulation. Corporations were creatures of the state. They existed only if the government granted them a specific charter to engage in a specific activity. Corporations had an exceptionally negative reputation in 1776. Adam Smith wrote this famous warning in that year in The Wealth of Nations:
The directors of such companies, however, being the managers rather of other people’s money than their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own.
Yes, the phrase “other people’s money” is at least 236 years old — and its connotation remains unchanged.
Second, the framers’ view of banks varied, but it was frequently scathing. (Occupy Wall Street’s anti-banking rhetoric pales in comparison with several of the framers.) Thomas Jefferson, the principal author of the Declaration of Independence, wrote the following in his May 28, 1816 letterto John Taylor:
The system of banking we have both equally and ever reprobated. I contemplate it as a blot left in all our constitutions, which, if not covered, will end in their destruction, which is already hit by the gamblers in corruption, and is sweeping away in its progress the fortunes and morals of our citizens.And I sincerely believe, with you, that banking establishments are more dangerous than standing armies….
Thomas Jefferson would have been the last person in the world to draft the Declaration of Independence to denounce the regulation of banks as an affront to natural law. He believed that banks were an affront to democracy and the leading threat to the economy. He opposed their creation. (Religious scholars will also explain that Jefferson, which his personally expurgated bible, was most unlikely to claim that Jesus blessed the war makers and their weapons.)
In Jefferson’s era, all English banks owned in stock form were creatures of the state dependent on the grant of a government charter to form a corporation. The charter limited the banks’ powers. The 13 colonies had no formal banks. The first bank in the nascent United States, The Bank of North America, was chartered by Congress on the last day of 1781 (operating under the Articles of Confederation). Several states doubted Congress’ power to grant such a charter so they granted the bank state charters. In 1785, Pennsylvania revoked its state charter for The Bank of North America and when it reinstated the charter it added further restrictions on the bank’s powers. In 1784, Alexander Hamilton founded the first private bank in America, the Bank of New York. He was unable to get a state charter to run the bank until 1791. Only three banks were founded in America in the 1780s and two of them found it difficult to obtain, and retain, charters.
I have drawn the facts contained in this discussion of early U.S. banking from The state, the financial system, and economic modernization (Cambridge University Press: 1999) by the authors’ Richard Eugene Sylla, Richard H. Tilly, and Gabriel Tortella Casares. They emphasize that it was the hostility of Americans to banks that explained the initial slow creation of banks. The authors also note that the U.S. was unusual relative to Europe in that our banks were overwhelmingly owned in stock form while European banks were typically owned by individuals or partnerships. Early American banks were subject to governmental restrictions though their charters.
Formal banking regulation began in 1851 with the creation of the New York State Banking Department. Federal banking regulation began in 1864 with the creation of the Office of the Comptroller of the Currency.
Third, the Declaration of Independence did not claim that (the non-existent colonial) banks should be exempt from regulation. The Declaration was not a libertarian tract. It complained repeatedly that the “King of Great Britain” was preventing the 13 colonies from adopting necessary legislation. The first three bases for independence cited in the Declaration were:
- He has refused his Assent to Laws, the most wholesome and necessary for the public good.
- He has forbidden his Governors to pass Laws of immediate and pressing importance, unless suspended in their operation till his Assent should be obtained; and when so suspended, he has utterly neglected to attend to them.
- He has refused to pass other Laws for the accommodation of large districts of people, unless those people would relinquish the right of Representation in the Legislature, a right inestimable to them and formidable to tyrants only.
The next two abuses cited also complained of the King blocking or extorting the colonial legislators. The Declaration’s list of abuses compelling separation later returns to this theme of the King’s blocking the colonial legislatures from adopting laws.
- For taking away our Charters, abolishing our most valuable Laws, and altering fundamentally the Forms of our Governments:
- For suspending our own Legislatures, and declaring themselves invested with power to legislate for us in all cases whatsoever.
I conclude by emphasizing that Newt’s policy position is a prescription for repeated disaster. If Newt’s policy as president were that we are forbidden to regulate banks, then we will continue to tolerate the criminogenic environment that is producing the epidemics of elite bank frauds that drive our recurrent, intensifying financial crises. Gingrich has emphasized in the context of terrorism that the guarantee of free speech clause of the First Amendment to the Constitution is not a “suicide pact.”
Gingrich would interpret the Declaration of Independence to be an economic suicide pact banning the regulation of banks. Here’s the key difference. The First Amendment really was intended to protect free speech. The Declaration of Independence was not intended to prevent the regulation of banks (which did not exist in the thirteen American colonies in 1776). Newt’s historical argument rests on a non-existent provision in the Declaration of Independence that he claims was designed to protect non-existent banks from regulation.