Treasurer and Trustee, The Federal Trust
Zagreb, 28th November 2019
It is a great pleasure to be back in Croatia after so long. What I have seen already since my arrival this afternoon constitutes the most eloquent exposition of the positive, transformative, peace and prosperity producing power of the European project. Our Croatian hosts will understand my saying this since the last time I was here was in January 1992, during your war of independence. I saw then things I shall never forget. Terrible things and wonderful things. And some of you saw, even then, your European destiny. That time remains the only occasion I have witnessed a European flag carried into battle. But we can talk of these things afterwards.
My purpose now is to speak in honour of the founder of the Federal Trust, John Pinder. He had of course a federal vision of European unification, by which he meant that the experience of the creation and early development of the United States of America had direct lessons for the creation and development of the European Union. To be precise he believed the European Union should adopt what he and many others call Madisonian Federalism, after the vision of the real inventor of federalism and principal architect of the US Constitution, James Madison. John founded the James Madison Trust before he founded the Federal Trust. So I thought I should talk a little about James Madison and his conception of federalism in America, before addressing the question to what degree that conception of federalism may be appropriately applied to the EU.
In doing so I am indebted very much to the recent, brilliant work by Noah Feldman, Professor of Constitutional Law at Harvard Law School, who has divided Madison’s intellectual evolution into three distinct phases: 1786-9, the creation and ratification of the United States Constitution, when he was the ally of James Hamilton with whom he wrote “The Federalist Papers” and created the United States federal government: 1790-1803, when he became the opponent in alliance with Thomas Jefferson of James Hamilton’s more centralising ambitions for the federal government: and 1803-1817 when first as Jefferson’s Secretary of State and then as President himself he accepted some of Hamilton’s ambitions and rejected others to create the compromise of Madisonian federalism which defined the United States up until the crisis of the Civil War and its replacement by the much more centralised Lincolnian federalism.
On achieving independence from the British Empire, the thirteen colonies faced a situation not unlike, well, Brexit: you see I will not be able to evade the subject. The issue was how to get Britain to open up the vital trade relations which independence had severed. They could not use military force for they were far too feeble. They could only act as one in trade matters using their common market as a lever to force concessions from the British and other European powers, all of whom were protectionist and mercantilist. This common trade policy vested in Congress was the birth both of the United States and of federalism. It was Madison’s invention, his achievement, as Supreme Court Judge Anthony Kennedy said, “to split the atom of sovereignty”. To add to mainstream enlightenment political principles of the vertical separation of powers which had inspired the American rebellion against Britain: “No taxation without representation”, a horizontal separation of policy, with trade decided in the centre by Congress and the Presidency, and effectively everything else reserved to the states.
It is important to record at this stage that though this arrangement came to be described as “federal”, Madison and his then ally Hamilton actually described themselves as “nationalists” in that they both wanted more power vested in the centre in Congress and the Presidency. Madison, for example, wanted a Congressional veto over states’ laws. Hamilton famously wanted a fully central government like that of Britain. Much has been written of the personal and personality differences between Madison and Hamilton. Suffice it to say that Madison was definitely not someone about whom it would be possible to write a hip-hop musical, whereas Hamilton definitely was. Hamilton had a genius for publicity in everything except for himself and it is to him that we owe the term “federal” which he devised to cloak the nationalist nature of the centralisation entailed in the new constitution to sell it to the states’ legislatures and secure its ratification against the “confederal” states’ rights interests: the inspired advocacy of “The Federalist Papers”.
After ratification, Washington became President and Hamilton became his Secretary to the Treasury. There began a sustained effort to furnish the federal government with more powers, notably in finance, with a central bank, and a national debt, but also in defence, with the start of a national navy. Madison resisted these developments bitterly. He, like his fellow Virginia plantation owner Jefferson, with whom he now allied, shared an essentially agrarian, pastoral vision for the United States: a rural, pacific, isolationist republic. In sharp contrast to Hamilton’s ambitions that the United States should become an industrial society on a continental scale. Madison did not prevent Hamilton’s agenda, but he drastically curtailed it taking proper root, by leading a most effective opposition culminating in securing the Presidency for Jefferson in 1800 and for himself effective control over all American trade and foreign policy.
But then, in 1803, came the Louisiana Purchase. Madison did not find it hard to get Jefferson to recognize that they simply had to take up Napoleon’s offer to double the size of the United States and were grateful to Hamilton’s national debt that made this possible. Thereafter increasing trade restrictions imposed by the British blockade and the Napoleonic Continental System made mere trade negotiation without military capacity increasingly impotent. Madison succeeded Jefferson as President in 1809 and supported a further development of the navy. However, he balanced this by allowing the charter for Hamilton’s Bank of the United States to lapse in 1811.
Shortly thereafter pressures for a renewed war with Britain increased as the Royal Navy harassed America’s Continental European commerce. In 1812 Madison declared war on Britain in the expectation, which was widely shared, that the United States would be able to drive the British from North America. The two US attempts at an invasion of Canada which followed failed completely, revealing the gross inadequacy of the states-based militia as an instrument of offensive warfare. Peace was restored, largely due to the British defeat of Napoleonic France removing the restrictions on trans-Atlantic trade, but Madison now accepted a greater federal role not just in finance, but he also allowed the re-establishment of a central bank in 1816 to manage the accumulated war debt, and defence with a proper national army as well as navy. And he was again saved by another genius for, this time, self-publicity, Andrew Jackson, the victor of the last battle of the war at New Orleans, which actually took place after peace had been signed in Ghent, that gave to the war the appearance of a successful resistance to British aggression. Madison left office more popular than any of his predecessors: he was hailed as initiating “The Era of Good Feelings”. Jackson of course, went on to became President in 1829, and can be seen to have completed Madisonian federalism after the distortions of the war of 1812 by removing the charter of the Second Bank of the United States in 1833.
As I said, John Pinder regarded Madisonian federalism as the appropriate model for a federal EU, so let me just run through a comparison between it and where European institutions now are. The present EU is more integrated than Madisonian federalism in one key respect: the European Central Bank. The United States did not establish the Federal Reserve until 1913. It is true that the US, even under Madisonian federalism, issued debt in its own name, though before 1861 this was very modest, but I would argue that the Quantitative Easing deployed by the ECB since 2010 is broadly comparable to that level of pre-Civil War federal financing. I think a case can be made that the role of the European Court of Justice is more significant than that of the US Supreme Court prior to the 14th Amendment of 1868.
The present EU has essentially the same powers over trade both internationally and in the regulation of inter-state commerce as were given by Madison to the US Congress. There was in the US no equivalent to the European Commission, but I think it is becoming increasingly clear that a bureaucratic body for guiding common policy in this, and certainly in other areas is structurally weaker than a more directly democratic one. The underdevelopment of the European Parliament and the Council of Ministers, and thus of the status of the Presidency of the Commission compared with the US Congress, House of Representatives and Senate, and thus of the status of the US President, is the most striking difference between Madisonian federalism and the EU today, to Europe’s disadvantage. One must also obviously add to that the US having a proper military capacity under Madisonian federalism and a monopoly of external diplomatic representation.
John Pinder would certainly have wanted this comparison to be a spur for the EU to develop those areas in which it fell short of the level of integration provided by Madisonian federalism. He was, however, cautious of the areas, essentially surrounding European monetary union, in which the EU exceeds the integration provided by Madisonian federalism. As a strong advocate of the power of EMU, I often debated with him the potential merits of an EU equivalent to the US Treasury market, to little effect. This caution was the result of his conviction that the EU could never become a United States of Europe, because of the deep differences of history and culture and complexity between Europe and America. In essence that America was a new immigrant society aspiring to be a melting pot of culture, whereas Europe was an ancient rooted society determined to remain culturally as Victor Hugo described it “Un sac de billes” – a bag of marbles. America was, he believed, an intrinsically more homogeneous society, more naturally disposed to unity, than Europe.
Of course, Madisonian federalism broke down in America and was replaced, during and after the Civil War, with Lincolnian federalism, which, following its further iteration by Roosevelt’s New Deal and Johnson’s Great Society, has left us with the very powerful federal government that the US has today. One dominated by Hamilton’s military and financial priorities, and perhaps even more by his national debt. But, contrary to John’s analysis, this process of “Ever Closer Union” was not the product of the growing homogeneity of American society, but of its growing diversity. The dispute over slavery masked a divergence between agrarian and industrial interests, between established Americans and new immigrants, which in its modern version between finance and technology and the mainstream economy, and over race and American identity, persists to this day. Instead of the former division between South and North, these pit the two coasts of America against its interior. President Trump can be seen as a Jeffersonian or certainly a Jacksonian figure. Mr Bloomberg is very definitely a Hamiltonian figure.
The Civil War is the critical development which destroyed Madisonian federalism. Secession was always an option prior to Lincoln’s decision to fight, rather than acquiesce in, the formation of the Confederacy in 1861. It is now largely forgotten, but in December 1814, with war raging against Britain, there was a convention called at Hartford Connecticut, in which the New England States, who were suffering particularly from the British naval blockade, sought to secede from the United States. Madison did not try to prevent the convention from taking place, nor did he brand its instigators, in the New England Federalist Party, as rebels and traitors. He did however press for peace with Britain, which was signed in April of the following year. Lincoln, on the other hand, did choose to destroy the Confederacy in 1861. Why? The answer is the key to what made the United States a world power.
Lincoln and the Republicans knew that the diversity of America had made any secession the precursor to the total dissolution of the United States. But they also knew that this diversity, if it could be contained and focussed to create a vast continental-scale integrated economy, would make Americans the richest and most powerful people upon Earth. They had before them the example of Latin America, where independence had led to fragmentation and foreign domination. They saw the rapacity of European powers, rising upon the incoming tide of industrialisation and populist imperialism, not just in Britain, but spreading to France, Germany, Russia. They had to ensure that the Confederacy failed.
And so, in conclusion, to Brexit. I could not avoid it. Britain’s departure from the EU is Europe’s Confederacy. There are many parallels in the divergence of economic, social and political principles between Britain and the EU today, and between the Confederacy and the Union in 1861. And Europeans today, like Americans in 1861, are in possession of the enormous opportunities of creating, and keeping for themselves, excluding the rapacity of outsiders, a gigantic continental-scale integrated economy, which could make them by far the most fortunate people on the planet. But that will only be if they stick together and Brexit is demonstrably a failure, and is at some point reversed.
To the surprise of many in England, the EU has stuck together very well in the Withdrawal Agreement negotiations and I am sure this cohesion will continue and guarantee the failure of Brexit. Brexit is anyway doomed by its own internal economic, political and cultural contradictions and by the divisions it has already incited, and will continue to incite, to an increasing degree, within the United Kingdom. Obviously it will be for the EU to balance its perhaps contrasting interests of making sure on the one hand that Brexit fails and on the other protecting as far as possible its important trading and other relationships with the UK. But the EU would surely be well advised, at the very least, to adopt with regard to Brexit Arthur Clough’s famous dictum on dealing with the terminally ill: “Thou shalt not kill, but need not strive officiously to keep alive.”
And when Brexit has failed, and is reversed, we can see how Madisonian or not the European federalism which follows will prove to be.