Ive got a question. This . Me we live like and it wasnt always that way. For instance, at a stage of history with the socalled. Pure whites of Northern Europe were little better than savages, Eastern Africa had flourishing cultures, and the great civilization of northern china had begun to develop. All people contributed to civilization, reaching high levels at different times, each learning from the experience of the other. But there were certain basic ideas that were common to all branches of the human race, a belief in a supreme being, the home and the family. , how civilized a person is depends on the surroundings in which he grows up. The differences in the ways people behave are not inherited from their ancestors. They come from something called cultural experience or environment. You can watch this and other American History programs on our website where all of our video is archived. That is cspan. Org history. Next on American History tv, political economy professor and author Robert Wright discusses Alexander Hamiltons views on debts and imagines how he would have addressed the current debt which is now over 19 trillion. This event is a little over one hour. The Alexander HamiltonAwareness Society and the museum of American Finance cohosted this event. Welcome, everyone. Im david cowan president of the , museum of American Finance. Our partner is the Alexander HamiltonAwareness Society and that is an organization that you turn to for all things hamiltonian. We welcome their leadership. As well as friends of the museum. Seth has brought some amazing documents you should check out afterwards. And of course the cspan , audience. 20 years ago, our board chair wrote me a note that started with the words, a stroke of luck. What he was referring to was he had been introduced to a buffalo phd candidate interested in Alexander Hamilton and early American Financial history. This was before the show. Very few people were interested in hamilton. Very few of us were doing a deeper dive on the financial aspects of his vision. His phd thesis, 1300 pages. That is staggering. To put that in perspective, mine was a paltry 300 and his was 1000 more. It led to the first quip about bob from him which was he cant hold his ink. Fastforward 20 years, he has 20 more books he has authored or coauthored. And that led to a second quip about bob which is he writes books faster than we can read them. To add to that, five edited volumes, 65 scholarly articles, many of which have received awards. I am only at page 10 of his 47 page cv. Its an incredible document you should check out at his University Webpage where he says he teaches, but i often see pictures of him with fishing gear. In case you did not realize, we have been very good friends since we met two decades ago. He loves satire. He listed that on his webpage as his favorite type of humor. I know his family. And he has named one of his alexander, middle name together and it means Alexander Hamilton was right. We have collaborated on many projects together. When i am stumped on something that has to do with early American Financial history, i turn to bob. He has combed so many archives he often answers in a new york minute. He is never one to shy away from full opinion or works thousand or espousing the hamiltonian way. He likes to tell it like it is, especially to jeffersonians. I have been able to have a front row seat from the sidelines watching them. His latest project is historians against slavery, where he is a board member. His latest book is the poverty of slavery. When you look at his incredible outpouring of writing it reminds , you of someone else who could not hold his ink, Alexander Hamilton. Today, bob will adjust a fourletter word that hamilton created debt. At 20 trillion today, you may think its a different four letter word. Lets hear from bob about the 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. Thank you to the museum. I know it has absolutely nothing to do with the heat outside and the airconditioning in here. Can you hear me in back . Im getting the thumbs up. Mosto brag too much, but of the coauthored ones, i did do the bulk of the writing. But one area in my career that was kind of a downer was when i wrote a book with david. Financial founding fathers. Davids name was supposed to be first on the cover. They came out and my name was first. And that was a shame. I regret it. Although i had nothing to do with it. It was a little legal thing. A case you ever coauthore book just because your name is , second on the contract doesnt mean it will be second on the cover. According to Duke University salzmancientist richard and his new book people hold one , of three views on Government Debt. If they hold any at all. Holders of the optimistic view believe debt is an unadulterated good, the closest thing to a prelaunch possible in a world of scarcity. To fund their activities, optimists believe governments need only sell bonds, preferably in their own currency, or if debt issuance is too pricey or too dicey, governments need only print money. Inflation will occur, but especially unexpected inflation is a good thing, because it redistributes wealth from creditors who are just evil rich people to debtors, the poor salt of the earth. Holders of the pessimistic view by contrast think any government especially longterm borrowing, is an abomination. Borrowing simply imposes the tax burden on 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 burden too great and will hard default, like russia did in the 1990s. Governments that are able to borrow their own currency will soon print money to cover payments and stop default by causing unexpected inflation. That will hurt creditors in other words, the salt of the earth, savers, and help debtors, a species of profligate swine. Holders of the third view, he calls realists. For them context is everything. ,borrowing is simply a tool that can be used responsibly to improve the nations Economic Situation or irresponsibly to destroy it. In some situations, Government Debt is good policy. But in others, it is unwarranted. Neither optimists nor pessimists are always wrong. It depends on the situation. Moreover, savers and debtors simply represent economic decisions that can and do change over a lifecycle or business cycle. Neither group is inherently 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 april 1780 merchant and financier of the revolution. The line is often given as, a National Debt 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 consisted 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 always borrow money to stimulate the economy or to transfer wealth to the poor. Rather hamilton was arguing for , the eventual repayment of debt already incurred by the state same government to win the american revolution. Some of the burden would fall on the unborn, as pessimists complained, but the unborn would receive something of value in return. Political liberty. The failure to repay the debt to foreigners would ruin the nations sacred honor and prevent the United States from borrowing abroad to finance future wars or territorial expansions. Servicing the foreign debt would be costly in the short run, but in the Bigger Picture it would allow america to continue to borrow abroad when it needed to. Pessimists were willing to repudiate the domestic debt or the sums owed by u. S. Governments to u. S. 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 argued most , holders of the Government Debt instruments were speculators who had purchased them for pennies on the dollar. They were rich, in other words, and could well suffer the loss. In fact the low price they were , willing to pay proved they expected a default. Hamilton countered that the low prices reflected only the time value or opportunity cost of money which was 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 in revolutionary war debt did not earn windfall returns, especially when the risk they undertook were 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 and or the sale of state assets at room this ruinous 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. Hat 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 the decimal eyes to dollar. Alized hamilton then went a step further and argued that the federal government ought to assume or take responsibility for the war related debt of the several states. Boy, did that ever make the debt pessimists howl. They feared that hamilton was trying to create a huge permanent National Debt that would be used to cow the population into submission to federal authority. Hamilton argued from principles noting the state should not have been obliged to incur a wartime debt in the first place, only the want of an effective federal government had necessitated the practice. Moreover, only the new federal government received 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 also pushed for what was called discrimination. They proposed that the government pay the original holders of government ious which were mostly soldiers and sailors in combination with subsequent holders of the debt, who they depicted as wealthy speculators who defrauded the original holders. Hamilton put the kibosh on this as well. Hamilton noted the administrative difficulty of tracking the chain of ownership for each of hundreds of thousands of ious. Moreover, the original holders had not been defrauded in most cases. They simply valued the Cash Payments they received over ious until the bankrupt government could issue repay 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 for them but 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. And what ultimately established American Public credit was the ability to borrow again in the future from sources foreign and domestic, to do nice things, like double the size of the country, fight and win a second war for independence, defeat mexicans angry over the annexation of texas, and win a long, bloody 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 ious existed throughout the 1780s, but most were rather thin and inefficient, meaning costly and timeconsuming. Literally scores of different ensconcedous were and 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. Registered meant the government tracked each owner of the bond by name and location, a fact that will help me make another point later. Becauseere socalled 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 a 3 debt when they have a 6 debt that is still outstanding . The government paid 6 annually, or 1. 5 quarterly on sixes and retained the option to redeem up to 2 of the principal annually. This is a brilliant feature that allow the federal government to slowly repay the principal due on the bond when it had adequate resources to do so. It was an option, not an obligation. Were socalled because the government deferred paying interest on them until 1800, when they converted into sixes. They were zero coupon bonds but not toible on maturity, cash, but to 6 bonds. 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 voluntarily received a combination of sixes, deferreds, and threes that yielded about 4 total. A few of the holders thought that was a bad deal. They held off. But most preferred the more or less certain 4 over the possibility of one day receiving 6 . Hamiltons bonds were fully funded and backed by taxes. While the wartime ious were not. In addition, a liquid market in for hamiltons bonds formed immediately. Holders could sell their bonds to other investors at fair market prices quickly 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 a holder of a three, by contrast, 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. 5 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. Debt pessimists complained that hamiltons debt would be perpetual because threes were payable at pleasure and sixes had no definitive 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 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 natural 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 vaults and chests like coins did. Federal bonds were often used to collateralize bank loans and make 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 instruments that did not crowd out private investment and served the role were near money instruments that a unique role in 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 deferreds had. The next line in his letter on the National Debt explained the debt will be powerful cement of our union. By that, hamilton meant one of the debts blessings would be political rather than economic. By making the federal government the creditor of people throughout the nation, the federal debt would create Political Sentiment in favor of the union as bondholders protected their vested interest in the health of the national government. Debt 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 throughout the union owned federal bonds at some point. I devoted an entire chapter to bondholders in virginia, the home state of great debt pessimists like Thomas Jefferson. Many federal bondholders in virginia owned plantations and slaves. Others were professional doctors and lawyers, others were artisans and retailers. And so