National debt. The Alexander Hamilton society and museum of finance host this. Welcome, as the commemoration of Alexander Hamilton continues. I am the president of the American Museum on american finance. Our partner today is the Alexander Hamilton awareness society, an organization that you turn to for all things hamiltonian. We welcome their leadership, rand, mariana and tom, nicole, sergio, as well as friends of the museum, doug hamilton, dan simon, susie pock in the house. Mike newton, our founder and former board chair, john herzog. And seth caller has brought some amazing original hamilton documents you should check out afterwards. And of course the cspan audience. Now some 20 years ago our board chair professor Richard Sylla wrote me a noke that started with the words a stroke of luc. He had been introduced to a sunni buffalo ph. D. Candidate who was very interested in Alexander Hamilton and early American Financial history. You have to remember, this is well before the show, although while they were people interested in hamilton there were very few of us doing a financial dive on the aspect of his financial vision. Our first look at bob was his ph. D. Thesis, 1300 pages. That is staggering. To put that in perspective, mine was a paltry 300. His was 1,000 more. It led to the first equip about bob. Which is he cant hold his ink. Fast forward 20ers yao. He has 20 more books he has either authored or coauthored to date. That led to a second equip about books which is that he writes books faster than we can read them. If you add to that, five edited volumes, 65 scholarly articles, many of which have received awards and i am seriously only at page 10 of his 47page cv. An incredible document you should check out at his Augustana University webb page where he says he teaches but i only have seen pictures of him with fishing gear in tow. We have been good friends since we met some two decades ago. Yes, he loves satire. He lests that on his webb page as his favorite type of humor. And i know his sons. One of which he has named Alexander Hamilton was wright. I can tell you when i am stumped on something that has to do with early American Financial history i often turn to bob. He has combed so many archives, and he answersed in a new york minute. He likes to tell it like it is, especially to jeffersonians and jacobians. I love having a front row seat from the sidelines watching that. What is not controversial, his latest project, historians against slavery. His latest book, the poverty of slavery. When you look at bobs incredible outpouring of writing it reminds you of somebody else who couldnt hold his ink, Alexander Hamilton. Today is bob will address a fourletter word that hamilton created. Debt. And while at 20 trillion today you may think it is a different fourletter word. Lets hear from bob about the many who created it and its origins. It is my pleasure to introduce Professor Robert wright. [ applause ] thank you so much, david. And thanks to aha and the museum of course and all of you for coming today. I know it has absolutely nothing to do with the heat outside and the airconditioning in here. Can you hear me in back . Yeah, i am getting getting the thumbsup. 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 was find of a downer is when i wrote a book with david. Our financial Founding Fathers and difds name was supposed to be first on the cover. It came out and my name was first. That was a shame. And regret it though i had nothing to do with it. Just a little thing in case you ever coauthor a book. Just because your name is second on the contract, doesnt mean it is going to be second on the cover. In any event, speaking of book, according to Duke University political scientist rochester salzman in his new book, the political economy of public debt, three centuries of theory and evidence, people hold one of three views on Government Debt. If they hold any at all. Holders of the optimistic view believe that debt is an unadulterated good. The closest thing to a free lunch possible and a world of scarcity. To fund their activities, optimists believe governments need only sell bonds, preferably this their own currency. Or, if debt issuance is too pricey or too dicey, governments need only print money. Inflation will occur, but inflation, 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, by contrast, think any government borrowing, especially long term borrowing are an abomination. Borrowing simply imposes the tax burden on generations unborn. Every dollar the government borrows, moreover, takes a dollar away from entrepreneurs and businesses in a process called crowding out. Governments that borrow in another currency will soon find the burden too great and hard default like russia did in the 1990s. Governments able to borrow in their own currency will soon print money to cover payments and relate in doe Police Station that will hurt creditors, in other words, savers, the salt of the earth and help debtors, a species of swine. Holders of the third view salzman 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 dent is good policy. In others it is unwarranted. Neither pest miss nor optimists are always wrong. It depends upon the situation. Moreover, savers and debtors simply represent economic positions that can and do change over say a life cycle or a business cycle. Neither group is inherently or morally good or bad. Alexander hamiltons few of the National Debt could be summed up in a single quotation a line from his april 1780 letter to a philadelphia merchant and financier of the american revolution, robert lewis. The line is often given as, quote, a National Debt, dot, dot, dot, will be to us a national blessing, unquote. That re that rent dags, though, was designed by as a debt optimist in a country that was, due to its mothers long struggle can debt dependence, pessimistic about sovereign debt. But the part left out of the quotation, the dot, dot, dot part, shows that hamilton was a debt realist and consistent of just five words. Quote, if it is not excessive, unquote. 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 return in due time. But first, it is important to understand the context of the debt as hamilton understood it. He was not advocating that the government should always borrow money, to stimulate the economy or to transfer wealth to the poor in order to decrease the countrys coefficient. Rather, hamilton was arguing for the eventual repayment of a debt already incurred by the state and federal governments to win the american revolution. Some of the burden would fall on the unborn, as debt pessimists complained, but the unborn would receive something of immense value in return. Their political liberty. To fail to repay the debt owned owed to foreigners, a position owned by on a few seine phones, would ruin the nations honor and thereby presenting the United States from borrowing abroad to finance future wars. More debt pessimists, however, were willing to repute yat the domestic debt, where the sum owed by the u. S. Government to u. S. Citizens. Such a move would simply be a onetime capital levy that would keep taxes down for a time, for everyone in the future, the debt pessimists argued. Most holders of the Government Debt instruments of ious were speculators who had purchased them for pennies on the dollar. They were rich, in other words, and could well suffer the loss. In fact, the low price they were willing to pay for government ious proved that they expected a default. Hamilton countered that the low prices reflected only the time value or opportunity cost of money which was quite high in the 1780s. And the possibility, not the certainty, of repudiation. Again, context is critical, as most of the ious were in default with the issuing governments, paying i ining neither interest principle as promised or resorting to practice of paying interest on ious with yet more ious. Late in the 20th century, Edwin Perkins showed that hamilton was right and that early speculators and revolutionary war debt did not earn windfall returns, especially when the risk they undertook are considered. In any event, hamilton also argued that repudiation would be immoral and make it difficult, if not impossible, for the federal government to borrow from americans and maybe even foreigners when necessary in the future. That would mean the next war would have to be financed by a oppressive taxes and or the sale of state assets that ruin its prices. To ensure that the federal government would not try to repute yat part of its debt by changing the value of money, hamilton induced congress to pass the mint act. In addition to providing for the production of u. S. Coinage, the act carefully 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 reckoning value in their old colonial units of account, like york schillings in favor of a decimalized dollar. Hamilton then went a step further and argued that the federal government ought to assume or take responsibility for the warrelated debts of the several states. Boy, did that ever make the debt pessimists howl. They feared that hamilton was trying to create a huge permanent National Debt that would be used to cow the populous 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. Opt the want of an effective federal government has december stated the practice. Moreover, only the new federal government received the right to tax foreign trade, so it could generate the revenue to repay the debts much more cheaply and easily than the State Governments could. The debt pessimists, led by James Madison and thomas jefferson, also pushed for what was called discrimination. They proposed that the government pay the original holders of government of wartime ious, who were mostly soldiers, sailors and farmers, in combination with subsequent holders of the debt, who they de ed as wealthy speculators who defrauded the original holders. Hamilton by the kibosh on discrimination, as well, noting the administrative difficulties of tracking the chain of ownership for each of hundreds of thousands of ious. More over, original holders were not defrauded in most cases, they valued the Cash Payments they received until the bankrupt governments finally got around to repaying them. They knew when they sold, they were relinquishing all rights to the principle and were fine with it. To give them the cut would be fine for them but would ruin the reputation for the nation dealing 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, including assumption of state debts and nondiscrimination against holders. And here is where most history books stop, though it is far from the whole story. The details of hamiltons Funding Program were brilliant. And what ultimately 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. But 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. But most were rather thin and hence inefficient, by which i mean costly and time consuming. Literally, scores of different types of ious were extant and not even broker ed due to the details of each. Not even brokered. Under hamiltons plan, holders of the ious traded them in for just three types of registered government bonds. Called threes, sixes and deferreds. Registered meant the government tracked each owner of the bond by name and location. A fact that will help me make another point a little bit a little later. Threes were socalled because the government paid on them 3 interest annually. Or 0. 75 quarterly, to be precise. They were redeemable at the pleasure of the government, which means, in effect, after the other bonds had been paid off, because who in their right mind is going to pay off a 3 debt when they have a 6 debt thats still outstanding, right . The government paid 6 about uli, or 1. 5 quarterly, on sixes, and 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. Because it was an option. It wasnt an obligation. Deferreds were socalled because the government deferred paying interest on them until the end of the year 1800, when they converted into sixes. So, in a sense, they were zero coupon bonds but they were convertible on maturity, not into cash, but into 6 bonds. The market price of deferreds slowly rise towards that of sixes and maturity came ever closer. When a holder of revolutionary war debt redeemed their ious, most of which had promised 6 interest, they voluntarily received a combination of sixes, deferreds and threes that 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 funds were fully funded, in other words, backed, by taxes and pledges, while the wartime ious were not. In addition, a liquid market 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. Holders of revolutionary war ious may not be able to find a buyer at all or they might have been offered a low ball price. A holder of a three a holder of a three, by contrast, could see the going rate published in the local newspaper and contract with a broker to sell it in a day or two for a half Percent Commission or less. Or the holder could sell it immediately 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 pleasure and sixes had no definitive repayment sked ewe. They were simply wrong about that, as the National Debt was entirely repaid during Andrew Jacksons presidency. There was no way that hamilton or anyone else could know that in the 1790s, but clearly, what hamilton wanted was repayment flexibility. He wanted the government to repay its obligations when it was best able to do so, not according to some rigid schedule that might coincide with a war, a Natural Disaster or an opportunity to buy addition alter toir. The opportunity was 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 used to clat rise bank loans and make large payments. Indeed, millions of dollars changed each year at a time when a Million Dollars was, you know, a Million Dollars. And thousands of separate transactions, hamiltons bonds were, in other words, near money instruments that kid not crowd out private investment to a considerable degree and that served a unique role in the portfolios of banks and other businesses as secondary reserves. Or reserves that paid interest but could be quickly turned into cash when needed. After federal bonds were extinguished in the 1830s, state bonds were demanded to fill those roles, but they never did quite so well as hamiltons threes, sixes and deferreds had. The next line in hamiltons april 1780 letter to Robert Morris on the National Debt explained that the debt, quote, will be powerful cement of our union. Unquote. By that, hamilton meant that one of the debts blessings would be political rather than economic. By making the federal government the creditor of people throughout the nation, the National Debt would create Political Sentiment in favor of the union as bold holders protected their vested interest in the health of the national government. Debt pessimists, including many historians with antihamiltonian views, assumed and claimed that his bonds were held only by a small number of rich urban elites. I showed otherwise by using federal bond registers to show that tens of thousands of americans throughout the union owned federal bonds at some point. I devote an entire chapter to bondholders in virginia, 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 artisans and retailers. And some were women. Abigail adams wasnt the only female trading government securities, woody. Woodys not here, okay. Some bond holders lived in what is now called nova, what could become the nations capital, others lived on the south side, others on the blue ridge, and others along the james, in richmond and beyond. Well never know with certainty what influence those bond holders had on Public Opinion in virginia. But the fact that federal bond holders were spread across the state, both geographically, all right, geographically and occupationally, suggests that they could well have cemented the union. One federal bondholder 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. And generally was considered what we would today call a bad ass. I doubt not that davny would have rode on richmond, charged and primed, if the government there had threatened secession during his lifetime. In addition to establishing public credit, keeping the union intact and providing investors with liquid lowrisk assets, hamiltons funding system kept total taxes to reasonable levels. State taxes all but disappeared for over a decade and federal taxes came mostly in the form of tariff and tonnage duties, both of which were rell tefly cheaply corrected and less distortionary 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. Which were about 15 or so, so offered some protection to liquor producers. So, hamilton had to offset it so that he wasnt encouraging the production of whiskey in the u. S. Now, if it sounds odd to you that he countedacted a tariff, that may be because you 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. Hamilton needed those revenues in order to service the National Debt, so he could not raise and did not want to raise, for very solid economic reasons, the tariff structure. Id like to spend the rest of my time with you reviewing some of the secondary effects of hamiltons blessed debt. Mother most among those was the bank of the United States. Chartered in 1791, the bank, the first bank, the bus, the bus as it is sometimes called, was a commercial bank owned in part by private investors and in part by the federal government, at least until it sold its shares at an immense profit. The institution, which eventually established branched, primarily made shortterm loans to businesses, but it was also the federal governments bank. It was responsible for paying interest on the National Debt when it fell due, four times a year, transferred money from where the government earned it, which was mostly in the major port cities, as i just said, mostly from tariff and tonnage duties, to where the government spent it, which was mostly along the frontier and military forts and wherever bondholders lived. Which, as i explained just a couple of minutes ago, was throughout the country. Perhaps most importantly, it stood ready to lend the government money, should it find that its debts outstripped its current revenue. The bank of the United States also acted as a lender of last resort during the financial panics that hit the nations Financial System in 171791 and harder in 1782. It would implement a rule that described the rule in his 1873 book, lombard street. Hamilton did not spell the rule out in a book, but he impleme implemented it perfectly, especially during the 1792 panic when he persuaded bankers to lend freely at a penalty rate to all who could cost 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 bubble that burst in 1791 and 292 included government bands but also the stocks of the b. U. S. And the nations handful of other commercial banks, including the bank of new york, which hamilton had helped to found shortly after the british pulled out of manhattan. Before his untimely demise, hamilton also helped to found two other corporations, another bank here in new york and the society for the establishment for useful manufacturers over in patterson, new jersey. All three had difficulties obtaining charters at first, so hamilton helped them to establish workarounds that had the effect of easing entry into the corporate sector, excess to which State Government s jealously guarded at first. Thanks to hamiltons loopholes, which established per pech watt succession and even limited liability by contract, rather than statute, State Governments realized they had to ease their charter requirements or face the formation of numerous unchartered, which is to stay, completely unregulated, joint stock companies. Due to the ease of entry forced by hamiltons legal genius, over 23,000 forprofit corporations received special acts of incorporation in the United States before the civil war and another 10,000plus were chartered under general acts of incorporation. That was far more corporations per capita than any other nation on earth, including britain. So i have to add that the mother countrys corporations were larger on average. Or, a guy named Leslie Hannah is going to come after me. Oh, some of you know him. Okay. Early u. S. Corporations were engaged in transparaatiortatiot, including bridges, canals, roads, and railroads. Finance including commercial and savings banks, fire, marine and life insurers and building and loan societies. Manufacturing, including cotton and wool and textiles to steam engines. Utilities, including water and gas light. And services from cemeteries to hotels. Shares in all those endeavors traded in the same markets that had dropped to exchange hamiltons bonds and eventually many businesses and State Governments learned from the federal government and began selling bonds to finance their operations, as well. What hamiltons funding plan amounted to was nothing short of a financial revolution. In just five years, america went from being backwards and bankrupt without public credit or even a clear unit of account in which to denominate debts, to a nation with a welldefined dollar, taxes sufficient to pay the interest on a large debt composed of liquid bonds owned throughout the nation and abr d abroad. Hamiltons financial revolution in turn made possible the agricultural revolution described by paul rody and ot r others whereby farm efficiency increased as crop yields jumped and local transportation revolution bridges, short canals and turnpikes made it less expensive to bring goods to market. The agricultural revolution freed laborers from farm work, making them available to work on regional transportation connections like long canals, railroads and steam ship lines, improve transportation meant a much lower cost per ton mile, which rendered feasible the growth of both cities and factories in the nations vast interior. Thanks to the series of economic transformations initiated by hamiltons financial revolution, the north, and even parts of the south, industrialized before the civil war. You didnt know that already, thats because Alfred Chandler and other early business historians didnt have very good archival skills and just assumed the antebellum economy away. Since passage of the u. S. Constitution, white male citizens enjoyed a government that protected life, liberty and property from invaders foreign and domestic. The bonds traded regularly in public markets, so there was constant affirmation of the governments willingness and ability to fulfill its promises. The new government created by the constitution was key. While places like western new york experienced agricultural transportation and industrial revolutions and thrived economically, adjacent places in canada, with identical culture, climate, flora and fauna remained economically backward. Canada was still subject to the whims of a distant monarch and his or her placement in the new world, and de facto rule by unelect unelected bent on rentseeking. Im related to marco rubio, by the way, if anyone is wondering. No, not really. Only after canadians won their independence in the 1830s and 40s, and from the crown in 1867, its 150 years ago, by the way. Give it up for canada, they celebrated their [ applause ] only after their got rid of the crown that canada began to catch up to america economically. By the time that i personally began making beer runs to ontario in the late 1980s, does it show . Western new york and canada were virtually indistinguishable, except for the drinking age and the metric system, you know. Virtual economic parity, im told, had been reached several decades earlier. Now, if anything, the toronto half, that stretch that goes from the eastern part of lake erie down both sides of the niagara river, the west and northern shore of lake ontario, the toronto half, the canadian half, looks much better than the western new york half. Where i went where i went to school. The reason for the present disparity may well be that the u. S. National debt has become excessive, in hamiltons sense. It is now larger than the nations annual gdp and seemingly out of control. Canadas National Debt is just 66 of its gdp and well under control. While the nominal National Debt stayed about the same during hamiltons tenure as treasury secretary, strong economic and population growth meant that debt as a percentage of gdp dropped dramatically. Thereafter, thanks to the fiscal constitution, which was a series of rules about borrowing and taxation, like, dont borrow without dedicating a tax to service and repay a debt that hamilton put into place. The National Debt increased as a percentage of gdp only during wars and depressions and after territorial acquisitions, like the louisiana purchase. After each of those borrowing binges, Economic Growth and small budget surpluses combined to reverse the trend. As recently as the end of the cold war in the early 1990s, the u. S. Debttogdp ratio improved cyclically, so much so that the end of bill clintons second term, there was genuine concern that u. S. Government bonds would be completely extinct for the second time in u. S. History. Then what are all those bond traders going to do, and you know, what is the fed going to do . But as we know, that was not meant to be. As debt optimism swept into power and under the cover of wars on terror and drugs, in fact, all bush two and obama have done is to borrow and spend in order to win votes. Taxing and spending is too risky, as people immediately feel taxes. In fact, they feel taxes before theyre actually imposed a lot of times. Taxing and spending. Yeah, so, most people, however, pay little attention to borrowing. And the debt optimists are there now, telling them that they dont need to worry. You dont need to worry about the National Debt. Everythings going to be just fine. Which is true, you know, if youre one of those 12 people who owe more than they own and arent releague on bonds, Social Security or other forms of fixed income, right . Then everything will be fine. And im just talking about the explicit part of the National Debt, socalled entitlement programs add many trillions to the nations fiscal burden. Interest on the National Debt in 2016 amounted to 241 billion or 1. 3 of gdp. Spending on Social Security, medicare and medicaid totaled 2 trillion, or a little over 10 of gdp. Well spend even more in 2017, but the spending is formulaic, and hence, largely capped. Interest paid on the National Debt, by contrast, could skyrocket, because most of the debt comes due and must be refinanced every five years or so. So, its essentially, its a floating rate, its a floatingrate debt. Interest rates are low now, thankfully, but theyre heading higher. And as i mentioned, effectively are not capped. They reached into the upper teens in the late 1970s and can go there again if Inflation Expectations rise. By 2023, we could be spending 20 of gdp on debt service alone, which would put tremendous pressure on other areas of expenditure, including defense, which is currently 3. 2 of gdp and nondefense discretionary spending, which is currently 3. 3 of gdp. And that, of course, would put tremendous upward pressure on tax rates and would force places like buffalo to waddle in idleness as entrepreneurs are crowded out of funding by the massive borrowings of the federal government. 20 is a nightmare scenario, but sometimes nightmares come true, as they did multiple times when i was growing up in the 1970s. So, please forgive my hamiltonian realism. Is there anything that we can do to get out of this fiscal mess . Yes, thanks for asking. Hamilton advised the creation of an energetic, efficient government, one that did one thing well for as little money as possible, and that one thing was to protect americans lives, liberty, and property from tyrants, foreign and domestic. Straight off, i think that hamilton would slash the militarys budget without degrading its ability to deter foreign incursions. Nuclear weapons can deter foreign states, at least rational ones. Terrorists, on the other hand, might best be interdicted at the borders in place of attack and not the mountains and deserts of asia. Much of the rest of what the federal government does is to subsidize one group at the expense of another, and hence, not only can it be scaled back, it should be scaled back from the hamiltonian point of view, but slowly, so that people can adjust, so that markets can grow again. Phasing out the department of education, for example, would not end all education in the United States, right . It would merely force parents to fund their childrens educations, which most of them could do, if their taxes werent so high. The socalled entitlement programs, hamilton would phase out over time, and in the process, render the poor better off. Yes, ive gotten the sign right on that. A study by the National Bureau of economic research, one of many, showed that Social Security redistributes wealth from poor, black men and hispanics to white middleclass widows. White middle class widows live a long time and the blacks dont and they pay into it and die and never receive anything into return. Phasing out Social Security would not relegate the nations elderly to eating pet food. It would give people incentives to save for retirement, just as they did before Social Security was implemented in the 1930s, in response to, after all, what was a temporary macroeconomic problem. Now, theres a euphemism for the Great Depression temporary macroeconomic problem. Hamilton would also stop the war on drugs, which is really just a war on brown people against whom he held no discernible prejudice. He would work to improve the administration of justice for africanamericans, hispanics, American Indians and immigrants so that they have incentives to work harder and smarter. That mostly means to stop doing expensive things to people and simply allow them to live like other americans, without fear of the police, i. C. E. , atf or so on and so forth. And if you dont believe me, you should have come to my talk at franc francis tavern monday night, where i explained that hamilton thought blacks equal to whites in every way and advocated for freeing the slaves. As for hamiltons views on indians, look into the history of Hamilton College here in new york. But the most important thing that hamilton would do today is to restore americas fiscal constitution, that flexible set of rules established by debt realists for debt realists. As brilliantly described by bill white, a democratic politician and businessman from texas, americas fiscal constitution held that the federal government should borrow only when absolutely necessary, as during declared wars or to finance a territorial acquisition, and only when a tax sufficient to offset the borrowing was passed and dedicated to the debts repayment. That way, the ability of the government to repay the debt is demonstrated, and more importantly, the future cost of the borrowing is immediately laid bare. Bush ii and obama, white showed in his 2014 book americas fiscal constitution, replaced those commonsense checks and balances with more nonsense about the debt ceiling. The first step is to run the debt optimists out of power and replace them with debt realists like hamilton, so they can restore our fiscal constitution. Then we need to let the economy grow into the debt, shrinking its burden in the process. That does not mean austerity or even running surpluses. It just means keeping federal deficits small compared to productivity advances. If america could stay out of war, real and fanciful ones, for a decade or so, the National Debt will become nonaccessible once again and places like buffalo will prosper once more. If america can learn to treat all its citizens equally and slowly phase out parts of the federal government it never really needed in the first place, the National Debt will again become a blessing and places like buffalo will blossom as ever before. Thank you. [ applause ] questions . Remember to wait for the microphone, too. Hi. Thank you for oh, okay. Thank you. Hi. Thank you for your talk. I have one question regarding the idea of hamiltonianism versus the Citizens United ruling and the quasi plutocracy that was going on in the congress right now. How do you think he would have approached that situation . So, the question is how would yes, yes, im trying to and also to make sure that im answering the right question, too. Right. Insofar as hamilton said the first duty of society is justice. Right. In light of the Citizens United ruling and whats going on in the congress right now. So, what would hamilton think about the Citizens United ruling, which is a scotus ruling from, what five years ago, yeah. Five years ago . That said, in short, that corporations are people. Yes. Hamilton made very clear that corporations are corporations. Theyre not people. If they were people, we wouldnt need to form corporations. What a corporation is, is simply a type of business entity that has certain qualities, the most important of which is perpetual succession, which does not mean that a corporation lives forever. He helped to establish corporations, as i noted, that did not live forever. They had sunset clauses built in. So, jeffersonians were wrong about that, as they were so many other things, whether they were just not all that bright or if they were evil. You know, ill leave for you to decide. But perpetual succession simply means that the Ownership Structure can change without having to dissolve the Business Firm and restart it, which was the common law rule for general partnerships. Corporation, you can have stockholders change every day, every minute, it doesnt matter. The corporation continues to function, as long as it is economically able to do so. So, they are distinct. They dont need to have limited liability, though they can. And we dont need to have situations where there are super voting shares, you know, a case where theres a and b class stock and a stock has total control of the corporation because they have all their in fact, hamilton, in the charter for the bank of the United States went the opposite way and said, you dont get one vote per share, you get less than one vote per share, based on a formula that was in the charter. And this was to help balance the rights of minority shareholders and majority shareholders. But yeah, no way is a corporation a person. Ive written a book about this, by the way, called Corporation Nation that no one read. So, you can probably pick up a 2 copy on amazon or what have you. I look forward to finding that 2 book. Thank you very much for the talk. I think you mentioned in your talk a point about hamiltons colleague in the federalist papers, James Madison. And you, i think, cited that James Madison was the debt pessimist. And this has me thinking as im currently doing my own readings on the formation of the constitution and its ratification thereafter. Is it really possible for a debt pessimist to have been a federalist, as then your comment would imply madison was . It seems to me that part of the federalist pitch was, indeed, to offer a structure that could indeed consolidate debt and rescue the states and create a Strong National government, but that would imply debt realism. So, perhaps just clarify for my own understanding on that particular point, about debt pessimism and madison. So, the question is could madison have been a debt pessimist, because he was also a federalist . And arent those at odds, logically . Well, you know, its been a while since i studied this period, but i do seem to recall that madison wasnt a federalist all that long. No. Very brief. Right. But he was doing all of the ratification. Well, he was, but he was not pushed on the issue of repayments of the debt or of, you know, issues of the National Debt. Because frankly, what is in the constitution is the federal government shall have the right to borrow. But you know, a debt pessimist can let that slide. Maybe not a super duper hardcore debt pessimist, but you know, can certainly let that go. And then hes pushed on it and then he leaves, right, and goes off and starts playing with jefferson. So, you know. Okay, thank you for your very edifying talk. I think you indicated that some valid reasons for having the federal deficit, given hamiltons views, would be things like declared wars or purchases of territory. But one thing that occurs to me is, lets say in 2008, when the federal when the Financial System came crashing down, and basically, the United States and worldwide and i think that certainly contributed to significant deficits at the time we had to bail out a lot of financial institutions. How do you think hamilton would deal with some issue like that . Excellent question. Its basically, how would hamilton have handled 2008 . Would it have been right, for example, to borrow money to, you know, recapitalize jpmorgan or wells fargo or some of these other big banks . Ive written a book about this as well that no one read. Its called bailouts. [ laughter ] its even smaller than the other, so you might be able to get it for a buck. But the basic argument, in regards to your question, is that hamilton would have applied hamiltons nee badgets rule and would have lent to all firms that could prove their solvency, at a penalty rate, not a lower rate. Like because today, you know, things go bad, the fed immediately drops the interest rate. Hamiltons intervention was more discerning, right . So, you bring me security enough for the amount of cash that you want to borrow and the lender of last resort will lend it to you, but not at something that could be the market rate, its something thats above that, so that we know that youre just not borrowing willy nilly. Youre not borrowing just to borrow. That youre not borrowing from the government when you have a chance to borrow from the market, right . So, yeah, i think he would have used his rule. And i think you know, the fed should have used his rule, and we would have been much better off. We wouldnt have been in a longterm economic funk afterwards, right . Because weve we havent been in a recession since then, but the economys hardly been growing robustly, right . And weve also created a massive moral hazard problem where there you can make any law that you want saying that there will be no more bailouts, but people on wall street believe that there will be another bailout, so why not take on a little bit more risk . Not to mention the risk thats inherent in the feds Balance Sheet right now. Janet yellen was just on tv this afternoon. I happened to catch a few minutes of it. Saying, yes, the fed is going shrink its Balance Sheet. And theyve been talking about that now for five years, and how theyre going to do it is still unclear. And so, theres still quite a bit of risk there. So, yeah, its not at all clear that what we did in 2008 was optimal, and it certainly doesnt seem to be hamiltonian to me. I have a question about the bank of the United States. What percentage of it was private and what percentage was government . From my understanding, it was goldbacked, so you couldnt print money like todays Central Banks. So and do you think the bank of the United States led to these Central Banks . Okay. So, a couple questions there. Did the bank of the United States lead to the fed . Yes. Kin day kinda sorta. Theres a huge gap between the first bank and the second bank. Because we fought the second war for independence and then we discovered, oh, it would be nice to have a central bank. But then theres many decades that pass after after the second bank shuts down in 1836, and by the time we get the Federal Reserve fired up just before the outbreak of world war i. So and, you know, the founders of the fed certainly knew about the first and second banks of the United States and looked to them, but it was a somewhat, you know, different model that they came up with. So, id say there are some there, but its hardly a direct and obvious lineage. And the other question was about the backing of the what percentage was private versus government . Oh. What percentage of the bank of the United States was owned by the government . It declined over time because the shares were not restricted shares. The structure of the fed today, the member banks owned shares in the Federal Reserve, but theyre restricted. You wont see them on stock tickers because you cant trade them. The shares that the b. U. S. , of the b. U. S. That the federal government owned were negotiable, and they sold them into the market, so that changed over time. And i forgot, was it 80 20. 80 20, okay. And then [ inaudible ] yeah. And then there was another part of that . Something about backing or well, they couldnt print money then. It was goldbacked, whereas todays yeah. Anyone anyone with a bank note was supposed to be able to take it to the bank of issue and receive the equivalent in gold or silver upon demand. So, holders of bank and also depositors were able to change their gold. So, it tethered the u. S. To the gold standard. But the length of the tether could be influenced by the bank of the United States, by the alacrity or speed with which it took state Bank Monetary liabilities and return them to the state bank for gold and silver. When the first bank was on a rampage, returning these things very promptly, the state bankers knew that they had to keep higher reserve requirements, which through the multiple deposit creation process meant a smaller money supply. So, there was some flex in it. But certainly not the sort of flex that the federal government had during the revolution when it printed obscene amounts of continentals and or the confederacy did during the civil war and so forth. I wanted to thank you for your scholarship, but also push back a little bit. And the question has to do with good debt versus bad debt and Social Security. And in 1792, Congress Passed the first pension. This was a pension for military veterans, disabled veterans. So, a suggestion is that if hamilton supported it maybe this is a future book if you havent written it yet but if hamilton supported and i dont know if he did or not but if he supported that pension three years after the First Congress in 1792, First Congress in 1789, then potentially, that support for hamilton being more openended on an interpretation of debt and social safety net, Social Security, et cetera. Thank you. So, i think the question is maybe hamilton would have been cool with Social Security because he might have supported veterans pensions . Seems to me like the two are vastly different things. The veterans are, for the most part, you know, young people who didnt know that the revolution was coming and didnt know that they were going to be disabled during it and so they had no chance of creating any sort of savings program, unlike retirees, who know that theyre going to retire at some point and who arent disabled and who have the ability to earn income and invest and save. So, i think he would make that distinction right off the bat. And there are probably other ones, too, but we have some more questions. But i appreciate the pushback, though. Thats a good thing, yeah. I like it in students and everyone. Dont just just because im wearing a suit and no tie doesnt mean i know everything. Yeah, sorry, go ahead. Ill start eventually. Okay. Trying not to slant a response to debt pessimism or debt optimism or debt realism. Realism, thank you so much for reminding us that the real way to consider National Debt is as a percentage of gdp. We are very much a country at 100 of gdp. I realize this has to be subjective and it has to be situational, but my observations of the last nations that have hit the wall and have gone down, whether it be greece or ireland or portugal or spain, or any of the ones it seemed like they hit in the 125 to 140 . And i know theres no false precision to this, and i know this is subjective. But id like to hear your informed comments about, you know many people have said weve gone over the cliff. We havent yet. There is a cliff. I mean, i dont know if you want to make any comments upon what, you know, where you believe the end of the road could reasonably be for this country. Its obviously debatable and subjective and so, the question as i take it is how big can the u. S. National debt get without yes. And of course, nobody knows, and debt optimists will point to places like great britain, which several times in its history hit roughly 250 of its gdp. Yeah, wow. But the British Special no, no, i dont know the special gate. The british had something akin to our fiscal constitution, and held the line on deficits and that debttogdp ratio came down considerably over that 100 years of peace. And thats how it was able to run it up again during world war i and world war ii, right . So, its not just the size of it, its are there breaks in place that could keep us from sliding more and more . And if bill whites right, and i rely on him because hes a politician and he studied the current environment in detail if hes right, the physical constitution is dead and theres no sign of it being revived. This was things like bush ii, you know, funding the iraq war with a series of emergency appropriations, rather than with real yes. And so, its im more rather than that percentage, im more concerned about can we stop it . And when will we do so . And i dont see a stop in sight. It seems like both parties now are parties of spending and borrowing, and yeah. So, its difficult to see whats going to brake, brake, before a break, break. Yes, thank you. [ applause ] thank you. Youre watching a special edition of American History tv, during the week. American history tvs real america series looks through American History through archival films. Tonight starts with m. D. International. A 1958 American Medical Association march of medicine program, that highlights american doctors and includes an introduction by Vice President richard nixon. Thats tonight at 8 00 eastern. American history tv now and over the weekend on cspan 3. Selected by president George Washington in 1789, Alexander Hamill top served as the first secretary of the treasury until 1795. Up next on American History tv, historian and author William Hogland discusses Alexander Hamiltons financial ideas. This is about 50 minutes. Now, while the museum, the gallery of the museum is closed because of a flood that we sustained, our robust programming continues as evidenced by today. And our author, who is speaking is William Hogland, he has written multiple books on early u. S. History, including autumn of the black snake, he