Branches of the human race, a believe in a supreme being and the family. A person isd depends on the surrounding in which he grows up. The way we behave comes from something called cultural experience, or environment. You can watch this and other American History programs on our cspan. Org history. On American History tv, political economy professor and author Robert Wright discusses Alexander Hamiltons views on the National Debt, and imagines how he would have addressed the current debt. According to the treasury department, the debt is now over 19 trillion. The Alexander HamiltonAwareness Society and the museum of American Finance cohosted this event. It is a little over an hour. Welcome, everyone. I am president of the museum of American Finance. Our partner is the Alexander HamiltonAwareness Society and you turn to them for all things hamiltonian. We turn it to friends of the museum. We have wrought some amazing documents you should check out afterwards. We thank the cspan audience. 20 years ago, our board chair wrote me a note that started with the words a stroke of luck. Had been introduced to a buffalo phd candidate. He was interested in early American Financial history. This was before the show. Very few people were interested in hamilton. We were doing a deeper dive into his mission. His phd thesis, 1300 pages. That is staggering. Mine was 300 and his was 1000 more. He cant hold his ink. Skip forward 20 years, he has 20 more books he has authored or coauthored. That led to another quip, he writes books faster than we can read them. To add to that five at volumes, the five scholarly articles, many have received awards. I am only at page 10 of his 47 page cv. Its an incredible document you should check out at his webpage. I see pictures of him with fishing gear. In case you did not realize, we then very good friends. He loves satire. He listed that on his web age as his favorite type of humor. I know his family. He is named one of his sons alexander. We have collaborated on many projects together. Whether it be books or chap ares, he is on the magazine editorial board. When i am stumped on something has to do with early American Financial history, i turn to bob. He answers often in a new york minute. He is never one to shy away from the hamiltonian way. He likes to tell it like it is, especially to jeffersonians. I have been able to have a front from the sidelines watching them. His latest project is historians against slavery, where he is a board member. His latest book is called the poverty of slavery. When you look at his output, it reminds you of someone else who could not hold his ink, Alexander Hamilton. Today, bob will address a war letter word that hamilton created debt. At 20 trillion today, you may think its a different four letter word. Lets hear from bob about a man who created it and its origins. It is my pleasure to introduce professor Robert Wright. [applause] Robert Wright thank you so much for coming today. I know it has absolutely nothing to do with the heat outside in the airconditioning in here. Can you hear me in back . Im getting the thumbs up. Most of the coauthored ones, i did do the will of the writing. Bulk of the writing. One area in my career that was kind of a downer was when i one i wrote about with david. When i wrote a book with david. Davids name was supposed to be first on the cover. They came out and my name was first. That was a shame. I regret it. I had nothing to do with it. It was a little legal thing. Just because your name is second on the contract doesnt mean its second on the cover. According to Duke University political scientist and his new book, people hold one of three views on Government Debt. The optimistic view believes that is an unadulterated good, the closest thing to a free lunch possible. Funds activities, governments need only sell back in their own currency. To fund their activities, optimists believe governments need only sell bonds, preferably in their own currency, or if debt issuance is too pricey for or too dicey, governments need only print money. Inflation will occur, but unexpected inflation is a good thing, because it we it redistributes wealth from creditors who are just evil rich people to debtors, the poor salt of the earth. Holders of the pessimistic view think any government borrowing especially longterm borrowing is an abomination. Borrowing imposes the tax generations not yet born. Every dollar the government borrows, moreover, takes a dollar away from entrepreneurs and businesses. In a process called crowding out. Governments that borrow in another currency will find the and will hardt default, like russia did in the 1990s. Ourrnments that are able to their own currency will soon print money to cover payments and stop default by causing uninspected inflation. Inill hurt creditors other words, the salt of the and her debtors, a species of profligate swine. Kurt debtors, a species of profligate swine. Holders of the third view, he calls realists. To them, context is everything. Borrowing is a tool that can be used responsibly to improve the nations Economic Situation or irresponsibly to destroy it. Some situations, Government Debt is good policy. In others, it is unwarranted. Neither optimist nor pessimists are always wrong. It depends on the situation. Represent debtors economic decisions that do change over a lifecycle or business cycle. Neither group is morally good or bad. Alexander hamiltons view of the National Debt can be summed up in a single quotation from his letter to a philadelphia merchant. The line is often given as a will be to us a national blessing. That rendition though was designed by hamiltons enemies to paint him as a debt optimist in a country that was solidly pessimistic about sovereign debt. The part left out of the quotation, the part, showed that hamilton was a debt realist. It consists of just five words. If it is not excessive. So, hamilton believed the National Debt would be a blessing if it was kept within reasonable bounds. A concept to which we will return in due time. But first, it is important to understand the context of the debt as hamilton understood it. He was not advocating the government should borrow money to stimulate the economy or two to transfer wealth to the poor, or to jimmy income inequality. Hamilton was arguing for the eventual prepayment of debt already incurred by the state and federal government to win the american revolution. Some of the burden would fall on the unborn. The unborn would receive something of value in return. Political liberty. The failure to repay the debt to foreigners, it would ruin the nations sacred honor and prevent the United States from borrowing abroad to finance future territorial expansions. It would be costly in the short run, but in the Bigger Picture it would allow america to aro abroad when needed. More debt pessimist were able to repudiate the domestic debt. Or the sums owed by u. S. Governments to u. S. Citizens in citizens. Such a move would simply be a onetime capital levy that would keep taxes down for a time. For everyone in the future the , debt pessimists argue most holders of the Government Debt instruments for speculators who were speculators who had purchased them for pennies on the dollar. They were rich and good suffer the loss area the low price they were able to pay proved they expected a default. Hamilton countered that the low prices were only the time value, which was height in the 1780s. Quite high in the 1780s, and the possibility, not the certainty, of repudiation. Again, context is critical as most of the ious were in default with the issuing governments paying neither interest nor principle as promised, or resorting to paying interest on ious with more ious. Late in the 20th century, a financial historian showed hamilton was right and early speculators did not earn windfall returns, especially when the risk was considered. In any event hamilton also , argued that repudiation would be immoral and make it difficult if not impossible for the federal government to borrow from americans and maybe even foreigners when necessary in the future. That would mean the next war would have to be financed by taxes and selling state assets. To ensure the government would not try to repudiate its debt by changing the value of money, hamilton passed an act that provided you coinage. It defined dollars in terms of range of silver and gold. That anchored the value of real money and increased the numbers that anchored the real value of all debt denominated in dollars and increased the numbers of americans to give up reckoning value in the old colonial units of account like york shillings, in favor of a decimal eyes dollar. Hamilton then went a step further and argued that the federal government ought to assume or take responsibility for the war related debt of several states. Boy a did that ever make the debt pessimists howl. They feared that hamilton was trying to create a huge Permanent National that that debt that would cow the population into submission. Hamilton argued from principles noting the state should not have been obliged to incur a wartime debt in the first place, only a government had necessitated it. Only the want of an effective federal government had necessitated the practice. Moreover, only the new federal government receive the right to tax trade so that it could generate the revenue to repay the debt much more cheaply and easily than the state governments could. The debt pessimists led by James Madison and Thomas Jefferson had also pushed for what was called discrimination. They propose that the government pay the original holders of government ious which were mostly soldiers and sailors in combination with holders of the debt, who they depicted as wealthy spectators. Seanton but the kabbalah put the kibosh on this as well. Hamilton noted the administrative difficulty of tracking the chain of ownership of hundreds of thousands of ious. Moreover, the original holders had not been defrauded in most cases. Basically valued the they simply valued the Cash Payments over holding the iou until the bankrupt government could issue repaying them. They knew when they sold that they were relinquishing all rights to the principal and were fine with it. To give them some of the cut would be a windfall and ruin the nations reputation home and abroad. With the aid of some bargaining, hamilton managed to implement most of his plan for the revolutionary war debt, including assumption of state debt. And nondiscrimination against holders. Here is where most history books stop, though it is far from the whole story. Details of hamiltons Funding Program were brilliant. What ultimately established American Public credit was the ability to borrow in the future. From sources foreign and things, to do nice the double the size of country, fight and win a second war for independence, defeat mexicans angry over the annexation of texas, one a war and win a war between the states that ended slavery. Kind of sort of ended slavery, but thats another story. With the possible exception of texas, all of those sound like blessings to me. Just kidding. Just kidding. Dont mess with texas. As previously noted, markets for government i are use existed throughout the 1780s, but most were rather thin and inefficient, meaning costly and timeconsuming. Scores of different kinds of ious, not even brokers knew the details of each, not even brokers. Under hamiltons plan holders of , the ious traded them in for three types of government bonds. Breeze, fixes, deferred. Registered meant the government tracked each owner of the bond by name and location, a fact that will help me make another point later. The government paid on them 3 interest annually. Threes were socalled because the government paid 3 interest on them annually. Or 0. 7 5 quarterly, to be precise. Redeemable at the pleasure of the government, which meant after the other bonds were paid off, because who in their right mind is going to pay off 3 of debt when they have a 6 that debt that is still outstanding . The government paid 6 annually, 1. 5 quarterly and retain the option to redeem up to 2 of the principal annually. On sixes. This is a brilliant feature that allowed the government to slowly repay the principal due on the bond when it had adequate resources. It was an option, not an obligation. The thirds allowed the government to avoid interest until 1800, when they converted into sixes. The marketplace slowly rose to sixes as maturity came closer. When a holder of revolutionary war debt redeemed ious, most of which promised 6 interest, they received a combination of sixes, deferreds, and threes that listed 4 . That yielded about 4 total. A few of the holders thought that was a bad deal. Most preferred the 4 over the possibility of oneday receiving 6 . Hamiltons bonds were fully funded and backed by taxes. The wartime ious were not. In addition, a liquid market in the bonds formed immediately. Holders could sell their bonds to other investors at fair market prices quickly and it extent. Holders of ious might not be and at minimal brokerage expense. Holders of revolutionary war ious might not be able to find a buyer at all. Or they mightve been offered a lowball price. A holder of a three, by could see the going rate published in the local newspaper. And contract with a broker to sell it in a day or two for a half Percent Commission or less. Or a holder could sell it immediately to a dealer for a dollar or less than the price listed in the paper. Pessimists complained that hamiltons debt would be perpetual because threes were payable at pleasure and sixes had no repayment schedule. They were simply wrong about that as the National Debt was entirely repaid during Andrew Jacksons presidency. There was no way hamilton or anyone else could know that in the 1790s, but clearly what hamilton wanted was repayment, was flexibility. He wanted the government to repay its obligation when it was best able to do so, not according to a rigid schedule that might coincide with a war , a financial disaster, or an opportunity to buy additional territory. The opportunity cost of the National Debt, hamilton argued, was low because the bond did not lay idle. They did not stay in faults and vaultss bolt and chests like coins did. They made large payments. Millions of dollars changed hands each year at a time when 1 million was 1 million. In thousands of separate transactions, hamiltons bonds were near money insurance instruments that did not crowd out private investment and served the role of the portfolio of other banks. As a secondary reserve or a reserve it paid interest that could be turned into cash when needed. After federal bonds had been extinguished in the 1830s, state bonds filled the same roles, but they never did quite as well as hamiltons threes, sixes, and differs had. The next time the next line in his letter on the National Debt explained the debt would be powerful cement of our union. By that, hamilton meant one of the debts blessings would be political rather than economic. It made the government a creditor of people throughout the nation. It would create Political Sentiment in favor of the union as bondholders protected their vested interest in the health of the national government. Pessimists, including many historians with antihamiltonian views, assumed and claimed that hamiltons bonds were owned by a small number of rich urban elite. I showed otherwise in one nation under debt by using bond registers to show tens of thousands of americans rep owned throughout the union owned federal bonds at some point. Toevoted an entire chapter bondholders in virginia, the home state of pessimist like Thomas Jefferson. Many bondholders owned plantations and slaves. Others were professional doctors and lawyers, others were artisans and retailers. Some were women. Abigail adams wasnt the only female trading government securities. Some bondholders lived in nova. Others lived south side. Others in the blue ridge. Others in the valley. Others along the james in richmond and beyond. We will never know with certainty what influence those bondholders had on Public Opinion in virginia. But the fact that they were spread across the state geographically and occupationally suggest that they could have cemented the union. One federal bondholder was a bona fide revolutionary war hero who had raised his own region in defiance of the kings tierney. Tyranny. He owned a huge musket. He was considered what we would today call a bad ass. I doubt not he would have wrote ,n richmond, charged and primed if the government threatened secession in his lifetime. In addition to keeping the union intact, hamiltons funding system cut taxes to reasonable levels. State taxes all but disappeared for over a decade. Federal taxes aimed mostly in k mostly in the form of tariffs and tonnage duties, both theich came mostly in form of tariffs and tonnage duties, both of which were cheaply collected. The tax on whiskey offset caps the effects of the tariffs on imported liquors, which were about 15 or so. They offer some protection to liquor producers. Hamilton had to offset it. So that he wasnt encouraging the production of whiskey in the u. S. If this sounds odd to you that Alexander Hamilton counteracted a protective tariff, you have probably the wrong idea about hamiltons view on protection. The biography will set you straight on that notion. He needed those revenues in order to service the National Debt. He did not want to raise the tariff structure. I w