Transcripts For CSPAN3 Alexander Hamiltons Views On Debt 201

We have brought 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. There were very few of us that were doing a deeper dive into the financial aspects of his vision. His phd thesis, 1300 pages. That is staggering. Perspective, mine was a paltry 300 and his was 1000 more. It led to the first quit about bob. 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. Was. E name hamilton put it together, Alexander Hamilton was great. We have collaborated on many projects together. Whether it be books or chapters, 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 a bold opinion or espousing the hamiltonian way. He likes to tell it like it is, especially to jeffersonians. And jacobins. 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 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 four 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 bulk of the writing. One area in my career that was kind of a downer was 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. 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 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 think any government borrowing especially longterm borrowing is an abomination. Borrowing 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 to great and will hard default, like russia did in the 1990s. Governments that are able to our their own currency will soon print money to cover payments and stop default by causing uninspected inflation. That will hurt creditors in other words, the salt of the earth and help 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. In some situations, Government Debt is good policy. In others, it is unwarranted. Neither optimist nor pessimists are always wrong. It depends on the situation. Savers and debtors represent 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 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 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 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 borrow 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. 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 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 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 grains 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 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. The debt pessimists howl. They feared that hamilton was trying to create a huge permanent National 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 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 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. Hamilton 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. 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 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 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. Threes were socalled because the government paid 3 interest on them annually. Or 0. 75 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 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 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 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 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 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 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 vaults 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 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 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 throughout the union owned federal bonds at some point. I devoted an entire chapter to 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. In 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 tyranny. He owned a huge musket. He was considered what we would today call a bad ass. I doubt not he would have wrote on 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 came mostly in the form of tariffs and tonnage duties, both of which were cheaply collected. The tax on whiskey offset the effects of the tariffs on imported liquors, which were about 15 or so. They offer some protection to liquor producers. A 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 a order to service the National Debt. He did not want to raise the tariff structure. I would like to spend the rest of my time with you reviewing some of the secondary effect of hamiltons debt. Foremost among those was the bank of the United States, chartered in 1791. The bank, the first bank, the bus as it was sometimes called, was a commercial bank owned in part by private investors and in part by the federal government. Until it sold off its shares at an immense profit. The institution established branches in eight seaport cities and made shortterm loans to businesses and manufacturers. It was also the federal government cost bank. It was responsible for paying interest on the National Debt when due, four times a year, transferred money from where the government earned it, which was mostly in major port cities, to where the government spent it, which was mostly along the frontier and in military forts. As i explained couple of minutes ago, the bondholders lived throughout the country. Most importantly, the bank lent money to the government if debts outstretched its current revenue. The bank of the United States was a lender of last resort during the financial panic that hit the Financial System in 1791 and in 1792. Under hamiltons guidance, it implemented a rule that i have taken to calling hamiltons nee badgetts rule. Hamilton did not spell the rule out in a book, but he implemented it perfectly, especially in 1792 when he persuaded bankers to lend freely at a penalty rate to all who could post sufficient collateral, i. E. , his threes, sixes, and deferred. The market soon studied and the American Financial<\/a> history. This was before the show. Very few people were interested in hamilton. There were very few of us that were doing a deeper dive into the financial aspects of his vision. His phd thesis, 1300 pages. That is staggering. Perspective, mine was a paltry 300 and his was 1000 more. It led to the first quit about bob. 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. Was. E name hamilton put it together, Alexander Hamilton<\/a> was great. We have collaborated on many projects together. Whether it be books or chapters, he is on the magazine editorial board. When i am stumped on something has to do with early American Financial<\/a> history, i turn to bob. He answers often in a new york minute. He is never one to shy away from a bold opinion or espousing the hamiltonian way. He likes to tell it like it is, especially to jeffersonians. And jacobins. 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 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<\/a>. Today, bob will address a four 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<\/a> wright. [applause] Robert Wright<\/a> 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 bulk of the writing. One area in my career that was kind of a downer was 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<\/a> political scientist and his new book, people hold one of three views on Government Debt<\/a>. The optimistic view believes that is an unadulterated good, the closest thing to a free lunch possible. 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 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 think any government borrowing especially longterm borrowing is an abomination. Borrowing 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 to great and will hard default, like russia did in the 1990s. Governments that are able to our their own currency will soon print money to cover payments and stop default by causing uninspected inflation. That will hurt creditors in other words, the salt of the earth and help 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<\/a> or irresponsibly to destroy it. In some situations, Government Debt<\/a> is good policy. In others, it is unwarranted. Neither optimist nor pessimists are always wrong. It depends on the situation. Savers and debtors represent 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<\/a> can be summed up in a single quotation from his letter to a philadelphia merchant. The line is often given as a National Debt<\/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<\/a> 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 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<\/a> from borrowing abroad to finance future territorial expansions. It would be costly in the short run, but in the Bigger Picture<\/a> it would allow america to borrow 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. 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<\/a> instruments 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 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 grains 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 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. The debt pessimists howl. They feared that hamilton was trying to create a huge permanent National Debt<\/a> 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 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<\/a> and Thomas Jefferson<\/a> 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. Hamilton 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. They simply valued the Cash Payments<\/a> 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<\/a> were brilliant. What ultimately established American Public<\/a> credit was the ability to borrow 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 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. Threes were socalled because the government paid 3 interest on them annually. Or 0. 75 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 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 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 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 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 half Percent Commission<\/a> 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<\/a> was entirely repaid during Andrew Jacksons<\/a> presidency. There was no way hamilton or anyone else could know that in the 1790s, but clearly what hamilton wanted 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<\/a>, hamilton argued, was low because the bond did not lay idle. They did not stay in vaults 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 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 line in his letter on the National Debt<\/a> 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<\/a> 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 throughout the union owned federal bonds at some point. I devoted an entire chapter to bondholders in virginia, the home state of pessimist like Thomas Jefferson<\/a>. 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. In 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<\/a> 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 tyranny. He owned a huge musket. He was considered what we would today call a bad ass. I doubt not he would have wrote on 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 came mostly in the form of tariffs and tonnage duties, both of which were cheaply collected. The tax on whiskey offset the effects of the tariffs on imported liquors, which were about 15 or so. They offer some protection to liquor producers. A 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<\/a> 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 a order to service the National Debt<\/a>. He did not want to raise the tariff structure. I would like to spend the rest of my time with you reviewing some of the secondary effect of hamiltons debt. Foremost among those was the bank of the United States<\/a>, chartered in 1791. The bank, the first bank, the bus as it was sometimes called, was a commercial bank owned in part by private investors and in part by the federal government. Until it sold off its shares at an immense profit. The institution established branches in eight seaport cities and made shortterm loans to businesses and manufacturers. It was also the federal government cost bank. It was responsible for paying interest on the National Debt<\/a> when due, four times a year, transferred money from where the government earned it, which was mostly in major port cities, to where the government spent it, which was mostly along the frontier and in military forts. As i explained couple of minutes ago, the bondholders lived throughout the country. Most importantly, the bank lent money to the government if debts outstretched its current revenue. The bank of the United States<\/a> was a lender of last resort during the financial panic that hit the Financial System<\/a> in 1791 and in 1792. Under hamiltons guidance, it implemented a rule that i have taken to calling hamiltons nee badgetts rule. Hamilton did not spell the rule out in a book, but he implemented it perfectly, especially in 1792 when he persuaded bankers to lend freely at a penalty rate to all who could post sufficient collateral, i. E. , his threes, sixes, and deferred. The market soon studied and the American Economy<\/a> continued to grow robustly after hamilton announced a spending program. The bubbles the first included government wants and stocks in the bank and the other commercial banks, including the bank of new york, which hamilton had helped found after the british pulled out of manhattan after the american revolution. Hamilton also founded to other corporations in new york. All three had problems maintaining charters first hamilton helped them establish workarounds that have the effect of interest into the corporate sector with state governments. Thanks to hamiltons loopholes, there was a perpetual succession and limited liability by contract rather than statutes. They had to ease their charter requirements or face the formation of numerous unchartered and unregulated companies. Due to the ease of entry forced by hamiltons genius, 23,000 corporations received special acts of incorporation in the United States<\/a> before the civil war and 10,000 were chartered under general acts of incorporation. There were far more corporations per capita than any other nation on earth, including britain. Early u. S. Corporations were engaged in transportation, including bridges, canals, roads, railroads, finance is pretty common. Manufacturing, including everything from cotton and textiles, utilities including water and gas light and Services Like<\/a> cemeteries and hotels. Shares traded in the same market to exchange hamiltons bonds. Many businesses in state governments began selling bonds to finance their operations as well. Hamiltons funding plan amounted to nothing short of a financial revolution. In five years, america went from being backwards in bankrupt without public credit or a unit of accounts to a nation with taxes sufficient to play the interest of a large debt and a small but growing commercial banking and insurance system. Hamiltons financial revolution in in turn made possible the agricultural revolution described by rothenberg and others whereby farm efficiency increased as crop yields jumped in and local transportation revolutions made it less expensive to bring goods to market. The agricultural revolution freed laborers from farm work, making them to work on regional transportation connections like railroads and steamship lines and improve transportation on a much lower cost. This rendered feasible the growth of cities and factories. Thanks to hamilton, the north and parts of the south industrialized before the civil war. If you did not know that already, thats because other business historians did not have good archival skills. They assumed the antebellum economy away. Since passage of the u. S. Constitution, white male citizens enjoy the government the productive life, liberty, and businesses from invaders both foreign and domestic. There was constant affirmation of the governments willingness and ability to fill its promises. The new government created by the constitution was key while places like western new york six experienced agricultural and industrial revolutions. Adjacent areas in canada with identical cultures and climate remained economically backward. It was subject to the whims of the distant monarch and his or her placement in the new world. They were bent on rent seeking. I am related to marco rubio, by the way. No, not really. Only after canadians declared their independence from the british in the 1830s, 150 years ago. Only after they got rid of the crown in canada start to catch up to america economically. By the time i begin making beer runs to ontario, western new york and canada were virtually indistinguishable, except for the drinking age and the metric system. Virtual economic parity could cash had been reached had been reached several decades earlier. The toronto half, that stretch that goes from eastern part of lake erie down both sides of the river to Niagara Falls<\/a> on the shore of lake ontario, the canadian half looks much better than western new york. Thats where i went to school. The reason for the present disparity may be the u. S. National that has become excessive. It is now larger than the nations annual gdp. The nominal national that stayed about the same during hamiltons tenure as treasury secretary. Strong economic and population growth meant that dropped dramatically. Thereafter, thanks to the constitutions rules about barring and taxation, like, dont borrow without having a path to repay the debt, the national that increased as a percent of gdp only during war and depression and after territorial acquisitions like the louisiana purchase. After each of those borrowing binges, Economic Growth<\/a> and budget surpluses reversed the trend. As recently as the end of the cold war in the 1990s, the u. S. Debt to gdp ratio improved so much so that at the end of bill clintons term, there was concern that government bonds would be completely extinct for the second time in u. S. History. One of those bond traders going to do . What is the fed going to do . But as you know, that was not to be. Debt optimists swept into power and there were punitive wars on drugs and terror. They borrowed and spent in order to win votes, taxing and spending is to risky because people immediately feel that. Taxing and spending, most people pay little attention to borrowing. The debt optimists are there now, telling them they dont need to worry, you dont need to worry about the National Debt<\/a>. Everything is going to be just fine. Which is true if you are one of those 12 people who own more than they owe. Everything will be fine. I am talking about the part of the national that, the entitlement programs added many trillions to the burden. Interest on the national that in National Debt<\/a> in 2016 amounted to 241 billion or 1. 3 of gdp. Spending on Social Security<\/a> and medicare was 2 trillion. An we spent even more in 2017. The spending is formulaic and has largely capped. Interest on the National Debt<\/a> has skyrocketed. Most of the debt comes due and must be refinanced every five years or so. It is a floating rate debt. Interest rates are low now. They are heading higher. Inthey are heading higher. As i mentioned, they reached into the upper teens in the late 1970s and could go there again if Inflation Expectations<\/a> rise. By 2023, we could be spending 20 on debt service alone. That would put tremendous pressure on other expenditures. Including defense and nondefense discretionary spending. That would put tremendous upward pressure on tax rates and fourth and force places. 20 is a nightmare scenario. Sometimes nightmares come true. Please forgive my hamiltonian realism. Is there anything we can do to get out of this mess . Yes, thanks for asking. [laughter] hamilton advised the creation of an Efficient Government<\/a> that did one thing well for as little money as possible. That one thing was to protect americans lives, liberty, and property from tyrants foreign and domestic. I think hamilton would slash the military budget without creating a debility to ward off foreign entities. Terrorists might be stopped at the borders and not the mountains of asia. The government subsidizes one group at the expense of another. Not only do we scale back, it should be slowly so people can adjust and the markets can grow again. Phasing out the department of education would not end education in the United States<\/a>. It would force parents to run fund their childrens education, which most of them could do if their taxes werent so high. Government would phase out those programs and render the poor better off. A study by bureau of Economic Research<\/a> shows that Social Security<\/a> redistributes wealth from poor black men and hispanics to white middleclass widows. They live a long time. Phasing out Social Security<\/a> would not relegate the nations elderly to eating pet food. It would give people incentives to save or retirement as they did before Social Security<\/a> was implemented in the 1930s. It was in response to what was a temporary problem. A there is a euphemism for the great depression. Hamilton would stop war on drugs, which is really just a war on brown people, against whom he had no prejudice. He would improve the services to immigrants and africanamericans. So that they had incentives to work harder and smarter. That mostly means doing expensive things to people and allow them to live like other americans, without fear of the police, ice, atf, so on so forth. If you dont believe me, you shouldve come to my talk on monday night when i explained that hamilton thought blacks equal to whites in every way. As for his views on indians, look into the history of Hamilton College<\/a> in new york. The most important thing hamilton would do today is restore americas fiscal constitution. Him a flexible set of rules established by realists. Americas fiscal constitution held that government should are a only when absolutely necessary during declared wars or to finance a territorial acquisition, and only when the taxes are sufficient to offset the borrowing. The ability of the government to repay the debt was demonstrated and the future cost of borrowing is laid bare. Bush and obama replaced this with more nonsense about the debt. The first step is to run the debt optimists out of power and replace them with that realists with debt realists so we can restore our fiscal constitution. We to shrink the burden in the process. That does not mean austerity or running surpluses, it means keeping government deficits small. If america can stay out of war for a decade or so, the National Debt<\/a> will become acceptable once again and buffalo will prosper once more. If america treated citizens equally and phase out part of the government not needed in the first place, the National Belt<\/a> National Debt<\/a> will become a blessing in places like buffalo. Thank you. [applause] questions . Remember to wait for the microphone. Thank you. Thank you for your talk. I have one question regarding the idea of hamiltonian versus the Citizens United<\/a> ruling and the plutocracy going on right now. How do you think he wouldve approached that situation . Bob wright i want to make sure i am answering the right question. Insofar as the first duty of society. Bob wright the ruling from five years ago . That said in short that corporations are people. Hamilton made very clear corporations are corporations. They are not people. If they were people we would not need to form corporations. The corporation is a entity has certain qualities, the most important of which is perpetual succession. He helped to establish corporations that did not live forever. They had sunset clauses builtin. The jeffersonians are wrong about that as they were about so many other things. Perpetual succession simply means the Ownership Structure<\/a> can change without having to dissolve the Business Firm<\/a> and restart it. Its the commonlaw rule for general partnership a corporation can have stockholders change every day. It doesnt matter, the corporation continues economically. They are distinct. They dont need to have limited liability. Although they can. We dont need to have situations where a voting chair, a case where there is different class. Hamilton in the charter for the bank of the United States<\/a> felt a opposite way and said you only get one vote per share. This was to help balance the rights of minority shareholders. In no way is a corporation a person. I have written a book about this called Corporation Nation<\/a> that nobody read it. You can probably pick up a two dollar copy of it. I look forward forward to finding that two dollar book. You mentioned in your talk a point about hamiltons colleague James Madison<\/a>. You said he was a debt pessimist. That had me thinking as im doing my own reading on the constitution. Is it possible for a debt pessimist to have been a federalist . It seems to me that part of the federalist pitch was have a structured society and rescue the states and create a Strong National<\/a> government. That would imply debt realism. Bob wright could he a been a debt pessimist and also a federalist . Its been a while since i studied this. I do seem to recall that he was in a federalist all that long. He was not pushed on the issue of repayments of the debt. What is in the constitution, the federal government has the right to borrow. A debt pessimist can let that slide. Maybe not a hardcore one, but you can certainly let that go and he is pushed on it and he leaves. Thank you for your edifying talk. You indicated that some valid reasons for federal deficits, given hamiltons views like declared wars or purchases of territory. One thing that occurs to me is in 2008 when the Financial System<\/a> came crashing down and that is partly due to significant deficits at the time. We had to bail out a lot of institutions. How would hamilton deal with that . Bob wright thats an excellent question. How would hamilton have handled 2008 . Would it be right to borrow money to recapitalize jpmorgan or wells fargo or some of these other big banks . I wrote about this that no one read. It is called bailout. You might be able to get it for one dollar. Its even smaller than the other one. The basic argument is hamilton would have applied his rule and would have let to all firms that could prove solvency. At a penalty rate, not a lower rate. Today, the fed drops Interest Rates<\/a> when things go down. Hamiltons intervention was more discerning. If you bring me security enough in the amount of cash you want to are a, the lender of last resort will lend it to you. But not at something that could be the market rate, its above that so we know youre not just borrowing willynilly. You are not borrowing just to borrow. I think he wouldve used his rule. The fed should have used his rule. We would have been much better off. We would not be in a longterm economic funk afterwards. We havent been in a recession since then, but the road economy but the economy has not been growing robustly. We created a massive hazard problem. You can make any law you want saying there will be no more will out. There will be another bailout. Why not take a little more risk . Not to mention the risk that is inherent in the feds Balance Sheet<\/a>. Janet yellen was just on tv this afternoon. She said that is going to shrink its Balance Sheet<\/a> and they and talking about that for five years. How theyre going to do it is still unclear. There is quite a bit of risk there. Its not at all clear that what we did in 2008 was optimal and it doesnt seem to be hamiltonian. I have a question about the bank of the United States<\/a>. What percentage of it was private and what percent was government . It was gold backed . You couldnt print money like todays Central Banks<\/a>. Do you think the bank of the United States<\/a> led to todays Central Banks<\/a> . Bob wright did the bank of the United States<\/a> lead to the fed . Kind of sort of. There is a short gap between the first bank and the second bank here in we discovered it would be nice to have a central bank and there are many decades the that pass after the second bank shuts down in 1836. By the time of the Federal Reserve<\/a> fired up before world war i, the founders of the fed knew about the first and second banks of the United States<\/a>. It was a somewhat different thing that they came up with. It is hardly a direct and obvious lineage. Any other question was about the backing . What percentage was owned by the government . It declined over time because the shares were not restricted shares. The fed today, the member banks own shares in the Federal Reserve<\/a> but they are restricted. The shares that the federal government owned were negotiable. They sold them in the market. That changed over time. Then there was another part of that. Something about backing. Anyone with a bank note was supposed to be able to take it to the bank of issue and receive the equivalent in gold or silver so it tethered u. S. To the gold standard. The length of the tether could be influenced by the bank of the United States<\/a>. By the speed with which they took monetary liabilities and returned them to the state a per gold and silver. The first bank was on a rampage returning these things promptly. There were multiple deposit creations. That meant a smaller money supply. There was some flex in it. It was not the flex the federal government had during the revolution when it printed obscene amounts of currency and the confederacy did during the civil war and so forth. I wanted to thank you for your scholarship and push back a little bit. The question has to do with Social Security<\/a> and Congress Passed<\/a> the First Pension<\/a> in 1792. This was pension for disabled veterans. Maybe this is a future book. If hamilton supported it, i dont know if he did or not, but if he supported it after the first congress, potentially that is support for him on an interpretation of debt and Social Security<\/a>. Robert wright i think the question is, maybe hamilton would have been cool with Social Security<\/a> because he might have supported veterans pensions . It seems to me that these two are vastly different. Veterans, for the most part, they were young people and did not know that they were going to be disabled during the revolution so they had no chance of creating any sort of savings program. Unlike retirees, who know theyre going to retire at some point, and who are not disabled, and have the ability to earn income and invest and save. So, i think he would make that distinction right off the bat. There are probably others as well. We have some more questions. But i appreciate the pushback. Good thing. Everyone, just because im wearing a suit and no tie does not mean i know everything. Ok. I will start. To slant the response to debt realism or debt optimism, thank you so much for reminding us that considering debt is a percentage of gdp. We are very much a country at 100 of gdp. I realize this has to be subjective, and situational, but my observations of the last nations that have hit the wall have gone down whether it be greece, ireland, portugal, or spain, it seems like they hit in the 140 . I know there is no false precision to this, but i would like to hear your comments. Many people have said we have gone over the cliff, and we have not yet. There is a cliff. I dont know if you want to make comments on where you believe the end of the road would be for this country . This is debatable. And is subjective. So the question is how big can the u. S. National debt get . Yeah. Of course, nobody knows. And debt optimists will point to places like Great Britain<\/a>, which several times in its history hit roughly 250 of its gdp. Wow. No, no the british had something , akin to our fiscal constitution. During the britania, held the line on deficits and the debt to gdp ratio came down considerably during that 100 years. That is how they were able to run it up again during world war i and world war ii. It is not just the size of it. Are there brakes in place that can keep us from sliding more and more . As bill white writes, i rely on him as a politician and he studied the current environment in details. If he is right, the fiscal constitution is dead, and there is no sign of it being revived. This was things like bush ii funding the iraq war with a series of appropriations. So, rather than percentage, i am more concerned, can we stop it . When will we do so . And i dont see a stop in sight. It seems like both parties are parties of spending and borrowing. It is difficult to see what is a break. Brake before thank you. [applause] announcer this weekend on American History<\/a> tv on cspan3, tonight at 8 p. M. Eastern on lectures in history, Lebanon Valley College<\/a> professor, James Grizzard<\/a> on the lead up to the american revolution. Attacks on things the tea, we import, glass, will collected at the ports and no one has to be bothered. Big surprise. We are outraged. More anger, more fear. Announcer sunday at 4 p. M. On railamerica, the 1963 film, assignment iran. Learning techniques to sustain himself in distant reaches of the jungle. Or in arctic wasteland. Above all, he knows the ultimate alternative faced by the special forces man in action. They just i just or die. At 6 00 on american artifacts, a preview of collections for the Diplomacy Museum<\/a> set to open next year. Americas first professional diplomat, conducted this treaty. This treaty of commerce was essential, it granted france the most favored nation trading status. The french were very excited about being able to get into that economic trading war with Great Britain<\/a> after the war was over. This treaty would remain in effect for several years afterwards. Announcer American History<\/a> tv, every weekend on cspan3. Sunday on you and day, on q and a, the book, the accidental president , harry truman and the four months that changed the world. Truman was terrified to give this speech. He prayed to god the night before that he would not mess it up. He climbs the stairs to the pulpit, looks out and sees his wife in the crowd and she is crying. Roosevelting because is dead and the nation is in shock and she never wanted to be the first lady. She never wanted her president to be president. She is frightened, she is frightened for him. He has to get up there and inspire confidence in the whole world. The whole world has to understand that america will continue. The war will continue. Q a sunday night on cspan. This coming monday, professor Clayborne Carson<\/a> teaches a class on Martin Luther<\/a> king jr. s early years. Ebenezer Baptist Church<\/a> in atlanta where mlk was pastor. Here is a preview. Lets look at these. These documents. One of the things we find, how was he born . One of the things, the birth certificate indicates, there was a midwife and a doctor. The doctor also lived on auburn avenue. What does that tell us about Martin Luther<\/a> king . This neighborhood was diverse. A doctor could live on this neighborhood but there was also working class People Living<\/a> in this neighborhood. Also the fact, there was a midwife at the birth . ,hich indicates we are still his family was somewhat privileged. At least there was a doctor, also attending. We can see from that, Martin Luther<\/a> kings early upbringing , what ixture of the would call the striving for middleclass status. Who wereeople predominant in this neighborhood, workingclass families. So we can also see from this document, at that time, his father is a preacher. Where . Right here. We can see that there is another person in this household, who is that . Is, at that time of his birth, both of the grandparents were still alive. His grandfather is also the minister of entities or church of ebenezer church. A lot of these things we can find by looking at the birth certificate, the auto biography of spiritual development, these were the forces that shaped him. Announcer you can watch the entire lecture with professor Clayborne Carson<\/a> on dr. Martin luther king jr. s early years this coming monday at 8 p. M. Eastern here on American History<\/a> tv. Up next on the presidency, columbia law professors sit down at the New York Historical<\/a> society to talk about president ial war powers and how they have evolved over time. This is one hour. If you are not a lawyer, which most of us are not, reading the columbia law review is unlikely to get you very excited, with all due respects the two great lawyers here. Matthew waxman, the chair of the Cyber Security<\/a> center and the","publisher":{"@type":"Organization","name":"archive.org","logo":{"@type":"ImageObject","width":"800","height":"600","url":"\/\/ia600109.us.archive.org\/9\/items\/CSPAN3_20180113_153000_Alexander_Hamiltons_Views_on_Debt\/CSPAN3_20180113_153000_Alexander_Hamiltons_Views_on_Debt.thumbs\/CSPAN3_20180113_153000_Alexander_Hamiltons_Views_on_Debt_000001.jpg"}},"autauthor":{"@type":"Organization"},"author":{"sameAs":"archive.org","name":"archive.org"}}],"coverageEndTime":"20240630T12:35:10+00:00"}