The museum of american finance. Our partner is the Alexander Hamilton awareness society, an organization you turn to for all things hamilton. We welcome the leadership. As well as friends of the museum doug hamilton, dan simon, suzy pock in the house. Mike newton, our founder and former board chair john herzog and seth cowler brought amazing hamilton documents you should check out afterwards. And, of course, the cspan audience. Now some 20 years ago our board chair wrote me a note that started with the words a stroke of luck. He was introduced to a buffalo phd candidate interested in Alexander Hamilton. This is well before the show and there were people interested in hamilton, very fuf us that were doing a deeper dive on the financial aspects of his vision. And our first look at bob was this phd thesis. 1300 pages. That is staggering. His is 1,000 more. It led to the first quip about bob he is cant hold his ink. Well, fast forward some 20 years. He got 20 more books that hes either authored or coauthored to date. And that led to a second quip about bob is he writes books faster than we can read them. If you add to that five edited volumes, 65 scholarly artic wills, many of which received awards, and i am seriously only at page 10 of his 47 page cv. Incredible document you should check out at his University Web page where he says he teaches i often see pictures of him with fishing gear in tow. He lochz satire. I know his family and he has named one of his sons seriously, alexander first name, middle name, two of them, hamilton was, but them together, Alexander Hamilton was wright. We collaborated on in projects our self, bob, dick and myself. I can tell you when im stumped on something that has to do with early American Financial history, i often turn to bob. Has combed so many archives. He answers often in a new york minute. He lictionz to tell how it is. Ive been able to have a front row seat from the sidelines watching that. But ill tell what you is not controversial in my opinion, the latest project, historians against slavery where he is a board member, his latest book the poverty of slavery. When you look at bobs outpouring of writing, it reminds you of somebody else that couldnt hold his ink, Alexander Hamilton. Today bob will address a four letter word that hamilton created, debt. And a 20 trillion today, you may think its a different four letter word, lets hear from bob about the man that created it and the origins. Its my pleasure to introduce robert wright. Thank you so much, david. Thank you to the museum and for all of you coming today. I know it has absolutely [ no audio ] can you hear me in back . Yeah, im getting the thumbs up. Not to brag too much, but those books even most of the coauthored ones i did do the bulk of the writing with, but one area in my career that was kind of a downer was when i wrote a book with david and dafrds name was first on the cover and it came out and my name was first. And that was a shame. I had nothing to do with it. Just a little legal thing in case you ever coauthor a book. Just because your name is second on the contract doesnt mean its going to be second on the cover. Speaking of books, according to Richard Salzman in his new book, the political economy of public debt three centuries of theory and evidence. Think think it is the closest thing to a free lunch possible. To fund the activities, optimists believe governments need only sell bonds, prefr bring in their own currency. Or if debt issuance is too pricey or too dicey, governments need only print money unflags will occur, 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 think that any government borrowing, especially long term borrowing, abomination. Borrowing simply imposes the tax burden on generations unborn. Every dollar of the government borrows, moreover, takes a dollar away from entrepreneurs and businesses and a process called crowding out. Governments that borrow in another currency will soon find the burden too great and will hard to fault like russia did in the 1909s. Governments that are able to borrow in their own currency will soon print money to cover payments and default by causing unexpected inflation. 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 a nations Economic Situation or irresponsibly to destroy it. And some situations Government Debt is good policy. But in others, it is unwarranted. Neither are always wrong. It depends on the situation. More over, savers and debtors represent economic position thats can and do change over, say, a life cycle or business cycle. Neither dwrup is inherently or morally good or bad. Alexander hamiltons view can be summed up in a single quotation. The line is given a National Debt will be to us a national blessing. Think paint him as an debt optimist due to his mothers struggle with debt dedependence, poll i hadly pessimistic about sovereign debt. But the part left out of the quotation, the dot, dot, dot part shows that hamilton was a debt realist. Consistent of five words, if it is not excessive. So hamilton believed that a National Debt would be a blessing if and only if it was kept within reasonable bounds. A concept to which we will in due time. He should stimulate economy or transfer we will tojt poor to decrease the efficient or another measure of we will nl or income equality. He was arguing for the eventual repayment of a debt already incurred by the state and federal governments. Some of the burden would fall on the unborn as debt pessimists complained. But the unborn would receive something of immense value in return. To fail to repay the debt owned by foreigners would ruin the nations honor and there bs by preventing the United States from borrowing abroad to finance future wars or territorial xangss. Srting the foreign debt is costly in the short run but in the bigger picture, would allow america to continue to borrow abroad should it need to. More debt pessimists were going to the sums owed by the u. S. Government to u. S. Citizens. Such a move would simply be a one time capital levy that would keep taxes down for a time. Most holders of the Government Debt instruments or ious were speculators. They would purchase them for pennies on the dollar. They were rich, in other words, and could well suffer the loss. The low price they were willing to pay for low government ious proved they expected a default. Hamilton countered the low prices we flekted only the time value or opportunity cost of money which was quite high in the 1780s. And the possibility of repudiation. Again, context is critical as most of the ious were this default with the issuing governments paying neither interest nor principle as promised or resorting to the practice of paying interest on ious with yet more ious. Early speculators did not earn wind fall returns, especially when the risk thez undertook are considered. In any event, hamilton argued that repudiation is immoral and make it difficult if not impossible for the federal government to borrow from americans and the next war would have to be financed by oppressive taxes and the sale of state assets at ruinous prices. Hamilton induced congress to pass the mint act to provide for the production of u. S. Coinage, the act carely defined the u. S. Dollar in terms of grains of silver and gold. That anchored the real value of all debts denominated in dollars and induced increasing numbers of americans to give up reckonning value in the old colonial units much account. In faufr of the dollar. Hamilton then went a step further and argued that the federal government ought to assume or take responsibility for the war related debts of the several states. Boy did that ever make them howl. They feared that hamilton was trying to create a huge permanent National Debt that would be used to pile the pop lift into submission of federal authority. But again, hamilton argued from First Principles noting that the states should not have been obliged to incur a wartime debt in the first place. Only the new federal government received the right to tax foreign trade. It could generate the revenue to repay the debts much more cheaply and easily than the state governments could. Of they propose the government pay the wartime ious who were motely soldiers, sailors, and farmers in combination with subsequent holders of the debt. He noted that the administrative difficulties of tracking the chain of ownership for eefrp hundreds of thousands of ious. More over, original holders were not defrauded in most cases, they valedded the catsh payment they received until they finally got around to repaying them. That would ruin the reputation at home and abroad. With the aid of some astute back room bargaining, hamilton managed to implement most of the plan for the revolutionary war debt and nondiscrimination against holders. Here is where most history books stop. Though it is far from the whole story. The details were brilliant. And what established American Public credit or its ability to borrow again in the future from sources foreign and domestic, to do nice little 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. Well, kind of sort of ended slavery. Thats another story. With the possible exception of texas, all those sound like blessings to me. Just kidding. Dont mess with texas. As previously noted, markets for government ious existed through the 1780s. Were thin and hence inefficient by which i mean costly and time consuming. Under hamiltons plan, they traded them in for three types of registered government bonds called threes, sixes and deferred. Registered meant they tracked each owner of the bond by name and location. A fact that will help me make another point a little bit later. They were redeemable at the pleasure of the government. Who in their right mind is going to pay off a 3 debt when they have a 6 debt that is still outstanding . Right . They retained the option to redeem up to 2 of the principle annually. This is a brilliant feature that allowed the federal government to slowly repay the principle due on the bonds when it had adequate resources to do so. The government deferred paying interest on them until the end of the year 1800. They were in the 6 bonds. The market price of deferred slowly rose towards that of sixes and maturity came ever closer. When they redeemed the ious which promised 6 interest, they voluntarily received a combination of sixes, deferred and three thats yielded about 4 total. A few of the holders thought that was a bad deal and held off but most preferred a more or less certain 4 over the possibility of one day receiving 6 . Hamiltons bonds were backed by taxes and pledges and the wartime ious were not. In addition, a lick it with marked for hamiltons bonds formed immediately. That means that holders could sell their bonds to other investors at fair market prices quickly and at minimal brokerage expense. They may not be able to find a buyer at all or offered a low ball price. A holder of the three thats okay. A holder of a three by contrast, could see the going rate published in the local newspaper. And contract to sell for half a percent or less or sell it to a dealer for a dollar or less than the price listed in the paper. That pessimist complained that hamiltons debt is perpetual because threes were payable at pleasu pleasure they were simply wrong about that. There was no way that hamilton or anyone else could know that in the 1790s but clearly what hamilton wanted was repayment flexibility. The opportunity cost of the National Debt is low because his bonds did not lay idle like so many full bodied gold and silver coins did in vaults and chests. Rather, federal bonds were often used to collateralize bank loans and to make large payments. Thousands of separate transactions. Hamiltons bonds were near money instruments that did not crowd tout a considerable degree served a unique role in the portfolios of banks and other businesses as secondary reserved or reserves that paid interest but could be quickly turned into cash when needed. After federal bonds were extinguished, they never did quite so well as hamiltons threes, sixes and deferred had. The next line in hamiltons april 1780 letter to Robert Morris on the National Debt explains that the debt will be powerful cement of our union. Hamilton meant that one of the debts blessings is political rather than economic. By making the federal government the creditor of people throughout the nation debt pessimists including those with antihamill tonian views assumed and claimed that hamiltons bonds were only only by a relatively small number of rich urban ee leets. I showed otherwise in one nation under debt by using federal bond registers to show that tens of thousands of americans throughout the union held debts. The home state of great debt pessimists like thomas jefferson. Many federal bond holders in virginia owned plantations and slaves. Others were professional doctors and lawyers, others were urban retailers. And some were women. Abigail adams wasnt the only one trading government securities, woody. Woody isnt here. Some bond holders lived in what is now called nova, the nations capital. Others lived south side. Others on the blue ridge. And others along the james n richmond and beyond. Well never know with certainty what influence those bond holders had on Public Opinion in virginia. But the fact that federal bobld holders were spread across the state, both geographically, all right, geographically and occupationally, suggests that they could well have cemented the union. One federal bond holder was a bona fide revolutionary war hero who would raise his own legion in defiance of the kings tyranny. He owned a huge musket called davny. I doubt that he would have wrote on richmond, in hand charged and primed if the government there had threatened succession during his lifetime. Keeping the union intact and providing investors with liquid low risk assets, hamiltons funding system kept total taxes to reasonable levels. State taxes disappeared for over a decade and federal taxes came mostly in the form of tariff and tonnage duties. Both of which were relatively cheaply collected and less distortion airy than real estate taxes. Or income taxes, yes. Of course, all taxes create some distortions, the infamous tax on whiskey that led to the whiskey rebellion was needed to offset the tax of the tariff on liquors. They offer some protection to the liquor producers. So hamilton had to offset it so he wasnt encouraging the production of whiskey in the u. S. You may have the wrong idea about hamiltons views on protection. The illustrated biography of hamilton which im sure is around here some place will set you straight on that notion. So he could not raise and did not want to raise for very solid economic reasons the tariff structure. Liked to spend the rest of my time reviewing the secondary effects of hamiltons blessed debt. Foremost among those was the bank of the United States. At least until it sold off the shares in immense profit. The institution which eventually established branchs in seaport city primarily made Short Term Loans to businesses including merchants and manufacturers. It was responsible for paying interest on the National Debt when it felt due four times a year, transer iffed money from where the government earned it which was mostly in the major port cities as i just said. Most importantly they stood ready to lend the government monday should it find the debts outstripped the current revenue. And harder and more infamously in 1792. It implemented what would later be called damage et cetera rule after walter bath et would describe the rule in his 1873 book lombard street, a zbrip description of the money market in london. I take it hamiltons nay, bath ets rule. It is nee which means originally called. Hamilton did not spell the rule out in a book. There was a penalty rate to all who could post sufficient collateral, ie, his threes, sixes, and deferreds. The market soon steadied. And the Young American economy continued to grow robustly and expansion that had begun soon after hamilton announced funding program. The nations handful of other commercial banks including the bafrmg fl new york which hamilton helped to find shortly after the british pulled out of manhattan after the american revolution. Before his untimely demise hamilton also helped to find two other corporations. Another bank here in new york. And the society for the establishment of useful manufacturers over in paterson, new jersey. Hamilton helped them establish work arounds, access to which state governments jealously guarded it first. There were joint stock companies. Due to the ease of entry forced by hamiltons legal genius over 23,000 for profit corporations received special acts of incorporation in the United States before the civil war and another 10,000 plus were chartered under general acts of incorporation. So i have to add that the mother countries corporations were larger on average. Or a guy named Leslie Hannah is going to come after me. Some of you know him. Okay. Early u. S. Corporations were engaged in transportation including bridges, canals, roads, and railroads. Finance including commercial and savings banks, fire, marine and life insurers and building and loan societies. Manufacturing, utilities and gas light and surfaces from cemeteries to hotels. Shares in all those endeavors traded in the same markets that developed to exchange hamiltons bonds and many businesses and state governments learned from the federal government and began selling bonds to finance their operations as well. What the funding plan was nothing short of a financial revolution n just five years, america went from being backwards and bankrupt without public credit or a clear unit of account in which to denominate debts to a nation with a well defined dollar, taxes sufficient to pay the interest on a large debt composed of liquid bonds owned throughout nation and abroad. Hamiltons financial revolution made possible the cultural revolution described by paul rod