The Lesson of Alexander Hamilton
How many things are in a person's pocket that they don't even know about?
We take money for granted -- most people can't tell us which way George Washington is facing on the quarter. They can tell us that Ben Franklin is on the front of the hundred, but they can't tell us that Independence Hall (where he helped draft the Constitution) is on the back.
One might think that as denominations get smaller and more common, the pictures on them would become more famous and well-known. The ten-dollar bill features Alexander Hamilton on the front. Since he was never a president himself, one wonders how many Americans could explain how he got on the note. A hint is on the back, where there is a picture of the U.S. Treasury. In short, Alexander Hamilton was the first secretary of the Treasury.
But it was how he handled that position that garnered him immortality on our money.
A lot of people living in the United States in 1790 believed (as a lot of people do today) that the debts incurred during the American Revolution should just be ignored. What modern people would think of as the United States didn't begin until 1789. The debts run up before that time were under a different government, so why should the new government be responsible for that debt?
Alexander Hamilton argued against this.
He believed that the new nation needed a good reputation on the international scene. If the United States was known to honor its debts, it would find it easier to get loans. Hamilton pointed out that this would be especially useful in a national emergency. Moreover, Hamilton wanted the federal government to take up all the state debt as well. He believed that it would help foster kinship among Americans by uniting them against a common problem.
It was this belief in capitalism that propelled our fledgling nation to its status as a land of prosperity. This attempt to learn and implement free-market ideas makes for one of the key reasons why the experiment in the United States was a success, whereas revolutions in other nations failed.
But the idea of ignoring incurred debt is once again trendy. From the shantytowns of Occupy Wall Street to Western European states, there is a groundswell for debt forgiveness and a war against austerity. The theory is that the government should not ever slow down spending.
Not surprisingly, these ideas are most popular in lands that have amassed large amounts of debt very rapidly. Nations such as Greece now believe that after running up large bills, they can just ignore what they owe and continue their lives. Such nations remind one of spoiled teenagers who want to sleep all day and party all night while relying on Mommy and Daddy for their food. They forget just how expensive living can be.
Such thoughts are very nearsighted, because hidden costs are still costs. In the short term, such nations believe they will get a clean slate, with everything forgiven. But in the long run, they're setting a precedent and demonstrating just how dishonest they can be, especially when the pressure is on. In the long run, they will find it harder to get credit. People work very hard for their money; they don't like seeing it pour down bottomless holes. The crashing bond markets are already beginning to reflect some of these fears.
Alexander Hamilton understood this. He warned:
For when the credit of a country is in any degree questionable, it never fails to give an extravagant premium, in one shape or another, upon all the loans it has occasion to make. Nor does the evil end here; the same disadvantage must be sustained upon whatever is to be bought on terms of future payment. (The First Report on Public Credit, 1789)
The United States was blessed with a leadership that heeded Hamilton's advice at that crucial time in history. This was due to the Founders' interest in capitalism. They had lived in what Marx had called "The Natural Order" -- that is, the master-serf relationship. And the Founders hadn't liked it.
How ironic it is that two hundred and ten years later, the leadership of the United States is ignoring Hamilton's lessons and wisdom: from auto and bank bailouts to housing bailouts to proposals for student loan "forgiveness," ignoring debts and obligations is becoming alarmingly stylish amongst the Ruling Elite. The only genius being displayed anymore comes in the ways terms are being rewritten and words redefined.
Unfortunately, a clever liar is still a liar. These people are doing us no service in the long run. It's not going to take long for creditors to figure out that politicians who don't want to repay loans will come up with all kinds of fancy ways out of it -- be it through laws and regulations, or "nationalization of industries," or outright fraud.
Alexander Hamilton knew that the key to a strong nation is the management and handling of debt. His work not only allowed the United States to pay off the Revolutionary War, but it set the nation on the course to prosperity never seen anywhere else on Earth at any point in history.
One wonders what Alexander Hamilton would think, seeing his smiling picture on the rapidly inflating ten-dollar bills being used to pay for wildly irresponsible out of control debt.
We should all fear for our Republic.
Jeremy Meister has a degree in history from the University of Nebraska at Lincoln. His e-mail is firstname.lastname@example.org.