HISTORY ALWAYS REPEATS ITSELF:

Hamiltonian Democrats (Harold Meyerson, April 19, 2006, Washington Post)

It's come to this: The chief project to restate Democratic economics for our time was unveiled a couple of weeks ago, and it's named after the father of American conservatism, Alexander Hamilton.

Necessarily, the authors of the Hamilton Project preface their declaration with an attempt, not altogether successful, to reclaim Hamilton from the right. The nation's first secretary of the Treasury, they note, "stood for sound fiscal policy, believed that broad-based opportunity for advancement would drive American economic growth, and recognized that 'prudent aids and encouragements on the part of government' are necessary to enhance and guide market forces."

Which is true, as far as it goes. Hamilton believed in balanced budgets...

Alexander Hamilton's Financial Program (Digital History)

The most pressing problems facing the new government were economic. As a result of the revolution, the federal government had acquired a huge debt: $54 million including interest. The states owed another $25 million. Paper money issued under the Continental Congresses and Articles of Confederation was worthless. Foreign credit was unavailable.

The person assigned the task of resolving these problems was 32-year-old Alexander Hamilton. Born out-of-wedlock in the West Indies in 1757, he was sent to New York at the age of 15 for schooling. One of New York's most influential attorneys, he played a leading role in the Constitutional Convention and wrote 51 of the 85 Federalist Papers, urging support for the new Constitution. As Treasury Secretary, Hamilton designed a financial system that made the United States the best credit risk in the western world.

The paramount problem facing Hamilton was a huge national debt. He proposed that the government assume the entire debt of the federal government and the states. His plan was to retire the old depreciated obligations by borrowing new money at a lower interest rate.

States like Maryland, Pennsylvania, North Carolina, and Virginia, which had already paid off their debts, saw no reason why they should be taxed by the federal government to pay off the debts of other states like Massachusetts and South Carolina. Hamilton's critics claimed that his scheme would provide enormous profits to speculators who had bought bonds from Revolutionary War veterans for as little as 10 or 15 cents on the dollar.

For six months, a bitter debate raged in Congress, until James Madison and Thomas Jefferson engineered a compromise. In exchange for southern votes, Hamilton promised to support locating the national capital on the banks of the Potomac River, the border between two southern states, Virginia and Maryland.

Hamilton's debt program was a remarkable success. By demonstrating Americans' willingness to repay their debts, he made the United States attractive to foreign investors. European investment capital poured into the new nation in large amounts.

The notion that Hamilton would have been much bothered by running a larger than normal debt to finance a war is just silly. Note too that the foreigners today are only too happy to have us issue debt because we're the only ones they can trust to repay it going forward.

Posted by Orrin Judd at April 19, 2006 5:10 PM