January 26, 2013


Why the Founding Fathers Loved the National Debt (William Hogeland, Jan 25, 2013, Bloomberg)

[T]he Founding Fathers were deeply committed to -- some might say obsessed with -- supporting a national debt. And during the founding period, the threat of default came not from conservatives but from what the founders, at least, saw as a radical left.

It's a fact so little-understood as to remain startling that the Constitution, far from trying to limit federal borrowing and shrink government, was specifically intended to create a large and mighty government capable of taxing all Americans for the purpose of funding a large federal debt.

Although many historians today focus on the Revolutionary War debt to foreign countries, the kind of debt that captivated the founders themselves, and served as one of the main prods to forming a nation, was domestic. It involved multiple tiers of bonds, issued by the wartime Congress and bought by wealthy American investors, who hoped to finance the war in return for tax-free interest payments of 6 percent. The first American financiers, in other words, were also the first American nationalists.

Both the young Alexander Hamilton (savviest of the founders regarding finance) and his mentor Robert Morris (the wartime Congress's superintendent of finance and America's first central banker) believed that a domestic debt, supported by federal taxes collected from all the states, would unify the country. It would concentrate wealth, and yoke that wealth to a consolidated government. The goal was a nation capable of grand projects -- ultimately an economic empire to compete with England's.

Other famous founders worked with Morris and Hamilton in building nationhood around the public debt. James Madison, who became Hamilton's political enemy in the 1790s, was among his closest allies for nationalism in the 1780s. Madison's famous "Federalist No. 10" conveys a horror of default on the domestic debt as deep as anything ever expressed by Hamilton.

In letters written before the Constitutional Convention to George Washington, another supporter of sustaining federal debt via taxes, Madison made clear the nationalists' shared desire to shore up public credit by throwing out the Articles of Confederation and forming a nation. Edmund Randolph opened the convention by charging the delegates to redress the country's failure to fund -- not pay off, fund -- the public debt by creating a national government with the power to do so.

...deep in debt.
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Posted by at January 26, 2013 6:48 AM

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