OR, AS LIBERTARIANS CALL IT, THE ORIGINAL SIN:

Ron Paul Vs. Alexander Hamilton (Jerry Bowyer 10.03.08, Forbes)

As George Washington was taking the oath of office, U.S. credit markets were in full meltdown. America faced a credit crisis in which debt obligations were being purchased by banking houses at 25 cents on the dollar. Paulson's predecessor was a guy named Hamilton, and Bush's predecessor was a guy named Washington. Hamilton wrote up a plan (called "Report on the Public Credit") in which he proposed that the Treasury department buy the troubled securities from the private sector, thus restoring the collapsing credit market.

Jefferson was opposed. He hated financial markets and manufacturing, which he thought were the industries of the past, associating them with Europe from which America had just broken away. He believed the future lay in small farming. Jefferson also believed that the Hamilton bailout plan was unconstitutional, and he talked Madison into fighting the plan in the House. Populists in the House said that since the debt was not created by the federal government, the federal government ought not to put itself on the hook.

Hamilton's case was simple. When any part of a nation participates in a massive repudiation of debt, the creditworthiness of the whole nation is damaged. Hamilton saw this as a national problem in need of a national solution. He argued that the whole nation would benefit from a return to a well-functioning credit market, with low interest rates fueling growth.

Hamilton believed that if the Constitution gave executive power to the president, then that included the authority to create specific institutions and programs necessary to exercise that power.

Jefferson's brand of suspicious populism held sway in the lower House and the bill was defeated. Credit markets reacted with panic.

Finally Hamilton and Jefferson sat down together and hashed out a compromise. Jefferson traded his support for the ultimate piece of political pork--the District of Columbia. The nation's capital was to be moved south, from New York to northern Virginia. The Washington administration agreed; Jefferson told Madison to support it. It passed; the Treasury bought up the paper, America's credit markets were restored quickly, and although we've had a few rough patches, the ensuing 218 years have gone pretty well so far.