Its a little over an hour. Welcome, everyone, as the commemoration of Alexander Hamilton continues, im president of the museum of the american finance. Our partner is Alexander Hamilton Awareness Society an organization you turn to for all things hamiltonian we welcome in their leadership. Mike youthon our founder and former Board Chair john herzog. And south has amazing Alexander Hamilton documents to check out afterwards. Of course cspan audience. 20 years ago our Board Chair wrote me a note that started with the words a stroke of luck. What he was referring to he had been introduced to a Soony Buffalo Phd candidate who was interested in Alexander Hamilton and early financial history. This was well below the show, there were few of us like dig and myself doing a deeper dive on the financial aspects of his vision. Our first look at bob was his phd thesis, 1300 pages. That is staggering. To put that in perspective. My was 300 his is 1,000 more. It led to the first equip about bob from dick which was, he cant hold his ink. Well fast forward 20 years he has 20 more books that he has either authored or coauthored to date. That led to second equip of dick about bob was he writes books faster than we can read them. Now if you add to that five edited volumes, 65 scholarly articles, many of which have received awards, and im seriously only at page 10 of his 47page cv. An incredible document you should check out at his August University Web Page where he says he teaches, i often see pictures of him with Fishing Gear in tow. In case you havent realized bob and i have been very good friends since we met two decades ago. Yes, he loves satire, its listed on his Web Page as his favorite type of humor. He named his Son Alexander first name middle name two of them hamilton was. Put it together, Alexander Hamilton was wright. Put it together. He is on books editorial board. When im stumped on something with early american financial history i turn to bob. He has combed so many archives, he answers often in a New York minute. He is never one to shy away from a bold opinion es spousing the hamiltonian way. He likes to tell it like it is, especially to jeffersonians and jackovians. While quite controversial at times ive had fun from the sidelines watching. Whats not controversial is his latest project historians against slavery where he is a board member, latest book, poverty of slavery. When you look at bobs incredible outpowering of writing reminds you somebody else who couldnt hold his ink, Alexander Hamilton. And Today Bob will address a Fourletter Word that hamilton created, debt. And while at 20 trillion today, you may think its a different Fourletter Word. Lets hear from bob about the man who created it and its origins. Its 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 absolutely nothing to do with the Heat Outside and the airconditioning in here. Can you hear me in back. Yeah. Im getting getting the thumbs up. 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 one area in my career that was kind of a downer was when i wrote a book with David And David financial founding fathers and Davids Name was supposed to be first on the cover and it came out and my name was first. And that was a shame. Regret it. Though i had nothing to do with it. Just a little legal thing in case you ever coauthor a book. Just because your name is second on the contract doesnt mean its going to be second on the cover. But any event. Speaking of books. According to Duke University political scientist Richard Salsman 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 debt is an unadulterated good, the closest thing to a free lunch possible in a world of scarcity. To fund activities, optimists believe governments need only sell bonds, preferably in 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 predator whos are just evil, rich people, do debtors, the Core Salt of the earth. Holders of the pessimistic view, by contrast, think any government bond, especially longterm borrowing is an abomination. Borrowing 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 that are able to borrow in their own currency will soon print money to cover payments and soft defaults by causing unexpected inflation that will hurt creditors, in other words, savers, the salt of the earth, and help debtors, a species of prove ligate swine. Holders of the third View Salsman calls realists, for them, context is everything. Borrowing is simply a tool that can be used responsibly to improve the nations economic situation or irresponsibly to destroy it. In some situations, Government Debt is good policy. In others it is unwarranted. Neither pest mists nor optimists are always wrong. Kds. Depends on the situation. More offer safers and debtors represent economic situation thats change over a Life Cycle or business cycle. Neither is inherently good or bad. Alexander Hamiltons View of the National Debt can be summed newspaper a line from summed up in a simple quotation the line is often given as quote, a national Debt Dot Dot dot will be to us a national blessing. Unquote. That rendition, though, was designed by hamiltons enemies to paint him as a debt optimist in a country that was, due to its mothers long struggle with debt dependence, solidly pessimistic about solemn debt. But the part left out of the quotation showed that hamilton was a Debt Realist and not prolix. Just five words, quote, if it is not excessive, unquote. He believed the National Debt would be a blessing if it was cap 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 the government should always borrow money to stimulate the economy or to transfer wealth to the poor in order to decrease the Nations Measure of Wealth Or Income inequality. Hamilton was arguing for the eventual prepayment of the 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 to foreigners would ruin the nations sacred honor and prevent the United States from borrowing abroad to finance future territorial expansions. It would be costly in the short run, but in the bigger picture it would allow america to continue to borrow abroad. More debt pessimists were able to repudiate the domestic debt. Such a move would simply be a onetime Capital Levy that would keep taxes down for a time. The debt pessimists argued most holders of the Government Debt instruments were speculators who had purchased them for pennies on the dollar. They were rich, and could well suffer the loss. The low price they were able to pay proved they expected a default. Hamilton countered that the low prices reflected only the time value, which was quite high in the 1780s. And the possibility, not certainty, of repudiation. Again, context is critical as most of the ious were in default with the issuing Governments Pain neither Interest Nor Principal as promised, or resorting to paying interest on ious with yet more ious. Late in the 20th century, edward perkins showed that hamilton was right. Early speculators did not earn windfall returns, especially when the risk was considered. Hamilton also argued that repudiation would be immoral and would 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 oppressive taxes and selling state assets at ruinous prices. To ensure the government would not try to repudiate part of its debt by changing the value of money, hamilton induced congress to pass the mint act. Carefully defining the u. S. Dollar in terms of grains, in silver and gold. That anchored the value of real money and increased the numbers of americans to give up reckoning value in the old colonial units of account like york shillings. In favor of a decimalized dollar. Hamilton went a step further and argued the federal government ought to assume or take responsibility for the War Related Debts of the several states. Boy, did that make the debt pessimist howl. They argued he was trying to create a huge permanent national that that would cow the population into submission. But again hamilton argued from principles, noting the states should not have been obliged to incur a wartime debt in the first place, only the federal government had necessitated it. Only the new federal government received tax to generate the revenue or pay the debt much more cheaply and easily than the state governments could. The debt pessimists, led by James Madison and thomas jefferson, also pushed for discrimination. They proposed the government pay the original holders of government wartime ious, which were mostly soldiers, sailors, and farmers, in combination with holders of the debt, which were wealthy spectators. Hamilton noted the administrative difficulties of tracking the chain of ownership of hundreds of thousands of ious. The original holders had not been defrauded, they valued the cash payments over holding the ious until the bankrupt government could repay them. They knew when they sold that they were relinquishing all rights to the principal and were fine with it. To give them some of the cut would be a windfall and ruin the Nations Reputation for fail dealing at both home and abroad. With the aid of some astute bargaining, hamilton managed to implement most of his 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 was the ability to borrow again in the future from sources foreign and domestic to do nice little things like double the size of the country, defeat mexicans angry over the annexation of texas, and win a long, bloody war between the states that ended slavery. Kind of, sort of, ended slavery, thats another story. With the possible exception of texas, all of those sound like blessings to me. Just kidding. Just kidding. Dont mess with texas. Markets were government ious existed throughout the 1780s. But most were rather thin and inefficient, costly, and timeconsuming. Scores of different kinds of ious were extant, and not even brokers knew the details of each, not even brokers. Under hamiltons plan, holders of the ious traded them in for three types of Government Bonds. The government tracked each owner of the bond by name and location, a fact that will help me make another point a little bit later. Threes were so called 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 meant 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 that is still outstanding . The government paid 6 annually, or 1. 5 quarterly and retained the option to redeem up to 2 of the principal annually. This is a brilliant feature that allowed the federal government to slowly repay the principal due on the bonds when it had adequate resources to do so. It was an option, not an obligation. The government deferred interest on them, until the 1800s, when they converted into sixes. They matured not into cash, but into 6 bonds. The marketplace slowly rose to sixes as maturity came ever closer. When a holder of revolutionary War Debt redeemed their ious, most of which 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 the 4 over the possibility of one day receiving 6 . Hamiltons bonds were fully funded and backed by taxes and pledges. The wartime ious were not. In addition, a liquid market for the bonds formed immediately. That means holders could sell their bonds to other investors at fair market prices quickly and at minimal brokerage expense. Holders of ious might not be able to find a buyer at all. Or they might have been offered a lowball price. A holder of a three sorry. Thats okay. 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. Debt pessimists complained that the debt would be perpetual because threes were payable at pleasure and sixes had no definitive repayment schedule. They were simply wrong about that as the National Debt was entirely repaid during andrew jacksons presidency. There was no way that hamilton 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 additional territory. The cost of the National Debt was low because the bonds did not lay idle. They did not stay in vaults and chest like coins. Indeed, millions of dollars changed hands each year at a time when 1 million was 1 million. In thousands of separate transactions, his bonds were near money instruments that did not crowd out private investment and served a unique the role in the portfolio of banks. The interest could be turned into cash when needed. After federal bonds had been extinguished in the 1830s, state bonds will fill the same roles. But they never did quite as well as these. The next line in Hamiltons Letter on the National Debt explained the debt would be powerful cement of our union. By that, hamilton meant that one of the debts blessings would be political rather than economic. It made the federal government the creditor of people throughout the nation. It would create political sentiment in favor of the union as bondholders protected their vested interest in the health of the national government. Debt pessimists including many historians with antihamiltonian views assumed and claimed that hamiltons bonds were owned only by a small number of rich urban elites. I showed otherwise by using extant federal bond registers to show that tens of thousands of americans owned federal bonds at some point throughout the union. I devoted an entire chapter to bond holders in virginia, the Home State of debt pessimists like thomas jefferson. Many owned plantations and slaves, others were doctors and lawyers, others were urban artisans and retailers. And some were women. Abigail adams wasnt the only female Trading Government securities, woody. Oh, woody is not here, okay. Some bondholders lived in nova. What would become the nations capital. Some lived in the valley. Others along the james, in richmond and beyond. We will never know with certainty what influence those bond holders had on public opinion in virginia. But the fact that they were spread across the state both geographically and occupationally suggests they could well have cemented the union. One federal bond holder, charles dabney, was a bona fide revolutionary War Hero who raised his own legion in defiance of the kings tyranny. He owned a huge musket. He was considered what we would today call a badass. I doubt not that he would have road on richmond, with gun in hand, charged and primed, if the government had threatened secession during his lifetime. In addition to keeping the union intract, hamiltons funding System Cut taxes to reasonable levels. Federal taxes came mostly in the form of tariffs and tonnage duties. They were cheaply collected. All taxes create some distortions. The tax on Whiskey Offset Caps on imported liquors, which were about 15 or so. And offered some protection to domestic liquor producers. Hamilton had to offset it. So he wasnt encouraging the production of whisky in the u. S. If this sounds odd to you that Alexander Hamilton counteracted a protective tariff, that is probably because you have the wrong idea about Hamiltons Views on protection. The biography will set you straight on that notion. He needed those revenues in order to service the National Debt. So he could not and did not want to raise the tariff structure. For very solid economic reasons. I would like to spend the rest of my time with you reviewing some of the secondary effects of hamiltons blessed debt. Foremost among those was the bank of the United States, chartered in 1791. The bank, or first bank, the bus, the b. U. S. , as its sometimes called, was a commercial bank, owned in part by private investors, and in part by the federal government, at least until it sold off its shares at an immense profit. The Institution Established Branches in eight seaport cities and made shortterm loans to businesses and manufacturers. It was also the federal governments bank. It paid interest on the National Debt when it fell due four times a year. Transferred money when the government earned it, which was mostly in the major port cities. Mostly from Tariff And Tonnage duties. The government spent it mostly along the frontier and military forts. And wherever bondholders lived. Which, as i explained couple of minutes ago, the bondholders throughout the country. Most importantly, the bank lent money to the government if it outstretched its current revenue. The bank of the United States was a lender of last resort during the financial panics that hit the financial system in 1791 and harder in 1792. Under hamiltons guidance, it implemented what would later be called badgetts rule. Its described in a book, but i call it hamiltons, neigh, badgetts rule. That term means originally called. Hamilton did not spell the rule perfectly. The market remained steady and the american economy continued to grow robustly after hamilton announced Funding Program. The bubbles burst when it included Government Bonds and stocks in the bank and the other commercial banks, including the bank of New York, which hamilton found after the british pulled out of manhattan after the american revolution. Hamilton also founded two other corporations. All had difficulties obtaining charters first. Hamilton helped them establish workarounds that have the effect of interest into the corporate sector with state governments. Thanks to hamiltons loopholes, there was a perpetual succession and limited liability rather than statutes. They had to ease their charter requirements or face the formation of numerous unchartered and completely unregulated joint stock companies. Due to the ease of entry forced by hamiltons legal genius, over 23,000 for profit 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. There were far more corporations per capita than any other nation on earth, including britain. The mother countrys corporations were larger, on average. Or a guy named Leslie Hannah will come after me. Oh, some of you know him. Okay. Early u. S. Corporations were engaged in transportation, including bridges, canals, roads, and railroads. Finance and insurers, manufacturing. Including everything from cotton and textiles. Utilities including Water And Gas light and services like cemeteries to hotels. Shares in all of those traded in the same markets developed to exchange hamiltons bonds. Eventually many businesses in state governments 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 in bankrupt without public credit or a clear unit of accounts to a nation with a well defined dollar, taxes sufficient to pay the interest on a large debt, and a small but growing commercial Banking And Insurance system. Hamiltons financial revolution in turn made possible the agricultural revolution described by rothenberg and others whereby Farm Efficiency increased as crop yields jumped and local transportation revolutions 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 railroads and steamship lines. And improve transportation on a much lower cost per ton mile. This rendered feasible the growth of cities and factories. Thanks to hamilton, the north and even parts of the south industrialized before the civil war. If you did not know that already, thats because chandler and other businesses historians did not have good archival skills. They assumed the antebellum economy away. White male citizens enjoyed a government that procected life, liberty, and businesses from foreign attacks. 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 and industrial and economic revolutions. Adjacent areas in canada with identical cultures and climate remained economically backward. Canada was still subject to the whims of the distant monarch and his or her placement in the new world. And de facto ruled by an Oligarch Bent on rent seeking. Only after canadians declared their independence from the british in the 1830s, 150 years ago. Give it up for canada. They celebrated their [ applause ] only after they got rid of the crown did canada start to catch up to america economically. By the time that i 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. Virtual economic parity 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 to niagara falls and the western shore of lake ontario, the canadian half looks much better than western New York. Thats where i went to school. The reason for the present disparity may well be that the u. S. National debt has become excessive. It is now larger than the nations annual gdp. And seemingly out of control. Canadas is less than 60 of its gdp and well out of control. While the nominal National Debt stayed about the same during Hamiltons Tenure as treasury secretary, growth dropped dramatically. Thanks to the constitutions rules about borrowing and taxation, like dont borrow without taxing a service, the National Debt increased as a percent of gdp only during war and after territorial acquisitions like the louisiana purchase. After those borrowing binges, economic growth and small budget surpluses combined to reverse the trend. As recently as the end of the World War, the u. S. Debt to gdp ratio improved so much so that at the end of bill clintons term, there was genuine concern that u. S. Government bonds would be completely extinct for the second time in u. S. History. What are those bond traders going to do . What is the fed going to do . That was not to be. As debt optimists swept into power there were punitive wars on debt and terror. All bush ii and obama have done is borrow and spend in order to win votes. Taxing and spending is too risky because people immediately feel taxes, in fact before theyre imposed a lot of times. Taxing and spending, most people 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. Everything is going to be just fine. Which is true if you are one of those 12 people who owe more than they own. And you dont rely on a fixed income. Everything will be fine. I am talking about the part of the National Debt, the socalled entitlement programs that added many trillions to the burden. Interest on the national that in 2016 amounted to 241 billion or 1. 3 of gdp. Spending on social Security And Medicare and medicaid was 2 trillion. A little more than 10 of gdp. We spent even more in 2017. The spending is formulaic and largely capped. Interest debt on the National Debt can skyrocket. It comes due and must be refinanced every five years or so. Its a floating rate debt, essentially. Interest rates are low now. Thankfully, but theyre heading higher. As i mentioned, they reached into the upper teens in the late 1970s and could go there again if inflation expectations rise. By 2023, we could be spending 20 of gdp on Debt Service alone. That would put tremendous pressure on other expenditures. Including defense, and nondefense discretionary spending, currently 3. 3 of gdp. That would put tremendous upward pressure on tax rates and force places like buffalo to be idle. 20 is a nightmare scenario. But sometimes nightmares come true, as they did multiple times as i was growing up in the 1970s. So please forgive my hamiltonian realism. Is there anything can do to get out of this fiscal mess . Yes, thanks for asking. Hamilton advised the creation of an energetic, efficient government 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 hamilton would slash the Militarys Budget without removing its to ward off foreign enemies. Terrorists might be stopped at the borders and not the mountains of asia. The government subsidizes one group at the expense of another. Not only do we scale back, it should be, but slowly so people can adjust and that markets can grow again. Phasing out the department of education would not end all education in the United States. It would mere 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 bureau of economic research shows that social security redistributes wealth from poor black men and hispanics to white middle class widows. Because the widows live a long time. And the blacks dont, they get nothing in return. Phasing out some 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. It was a temporary macroeconomic problem. There is a euphemism for the great depression. Hamilton would stop the war on drugs, which is really just a war on brown people, against whom he had no prejudice. He would improve the services to immigrants and africanamericans. American indians, immigrants, so they would 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. If you dont believe me, you shouldve come to my talk on Monday Night when i explained that hamilton thought blacks equal to whites in every way. And advocated freeing the slaves. As far as his views on indians, look into the history of Hamilton College here in New York. But the most important Thing Hamilton would do today is restore americas fiscal constitution. A flexible set of rules established by Debt Realists. For Debt Realists. Americas constitution held that government should borrow only when absolutely necessary during declared wars or to finance a territorial acquisition, and only when the taxes are sufficient to offset the borrowing. That way the ability of the government to repay the debt is demonstrated and the future costs of the borrowing are immediately laid bare. Bush ii and obama replaced this 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 so we can restore our fiscal constitution. Shrinking the burden in the process. That does not mean austerity or running surpluses, it means keeping government deficits small compared to productivity advances. If america can stay out of war for a decade or so, the National Debt will become acceptable once again and places like buffalo will prosper once more. If america can learn to treat all its citizens equally and phase out parts of the government never needed in the first place, the national belt will become a blessing and places like Buffalo Will Blossom like never before. Thank you. [ applause ] questions . Remember to wait for the microphone, too. Thank you. Oh, okay. Thank you. Thank you for your talk. I have one question regarding the idea of hamiltonianism versus the citizens united ruling and the quasiplutocracy going on in congress right now. How do you think he wouldve approached that situation . Yes, yes, im trying to yeah. I want to make sure i am answering the right question. Hamilton said the first duty of society is justice. So what would hamilton think about the citizens united ruling in scotus five years ago, that said that corporations are people . Yes. Hamilton made very clear that corporations are corporations. They are not people. If they were people we would not need to form corporations. A corporation is a type of Business Entity that has certain qualities, the most important of which is perpetual succession. Which doesnt mean they live forever. He helped to establish operations that did not live forever. They sad had sunset clauses built in. The jeffersonians are wrong about that as they were about so many other things. It simply means that the Ownership Structure can change without having to dissolve the Business Firm and restart it. Which was the Commonlaw Rule for general partnerships. A corporation can have stockholders change every day. It doesnt matter, the corporation continues to function as long as its economically able to do so. They are distinct. They dont need to have limited liability. Though they can. And we dont need to have situations where a voting share, a case where there is different classes of stock. In fact, hamilton, in the charter for the bank of the United States, went the opposite way. And said you only get one vote per share. You get less than one vote per share, based on the formula that was in the charter. This was to help balance the rights of minority shareholders and majority shareholders. But, yeah, no way is a corporation a person. I have written a book about this called Corporation Nation that no one read. So you can probably pick up a 2 copy on abebooks or amazon or what have you. I will forward to finding that 2 book. Thank you very much for the talk. You mentioned in your talk a point about Hamiltons Colleague James Madison. You said that James Madison was a debt pessimist. That had me thinking as im doing my own readings on the tore mags of the constitution and what happened afterward. Is it possible for a debt pessimist part of the federalist pitch was to have a structured Society And Rescue the states and create a strong national government. That would imply debt realism. Could you clarify about debt pessimism and madison . Could madison have a been a debt pessimist and also a federalist . Isnt that at odds, logically . Its been a while since i studied this. But i do seem to recall that madison wasnt a federalist all that long. Right . He was, but he was not pushed on the issue of repayment of the debt. Or of, you know, issues of the National Debt. Because frankly, what is in the constitution, the federal government shall have the right to borrow. But a debt pessimist can let that slide. Maybe not a superduper hardcore pessimist, but he can let that go. He was pushed on it, and he leaves, goes off and starts playing with jefferson. So, you know okay, thank you for your very edifying talk. You indicated that some valid reasons for having a 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 financial system came crashing down and basically the united still states in worldwide, we had to bail out a lot of financial institutions. How would hamilton deal with something like that . Thats an excellent question. How would he have handled 2008 . Would it be right to borrow money to recapitalize jpmorgan or wells fargo or some of these other big banks . I wrote a book about this as well that no one read. Its called bailouts. You may be even able to get it for a buck, its smaller than the other one. The basic argument is that hamilton would have applied his rule and would have lent to all firms that could prove solvency. At a penalty rate, not a lower rate. Because today, things go bad, the fed immediately drops the interest rate. Hamilton was more discerning. If you bring me security enough in the amount of cash you want to borrow, the lender of last resort will lend it to you. Its not market rate, its above that so we know youre not just borrowing willynilly. You are not borrowing just to borrow. Youre not borrowing from the government when you have a chance to borrow from the market. Right . So, yeah, i think he wouldve used his rule. And i think the fed should have used his rule. And we would have been much better off. We would not have been in a longterm economic funk afterwards. Because we havent been in a recession since then, but the economy has hardly been growing robustly. And weve created a massive moral hazard problem. You can make any law you want saying there will be no more bailouts, but people on Wall Street believe there will be another bailout. So why not take on a little bit more risk. Not to mention the risk inherent in the feds Balance Sheet right now. Janet yellen was on tv this afternoon saying, yes, the fed will shrink its Balance Sheet. How theyre going to do it is still unclear. There is quite a bit of risk there. So, yeah, its not at all clear that what we did in 2008 was optimal and it doesnt seem to be hamiltonian. I have a question about the bank of the United States. What percent of it was private and what percentage was government . From my understanding, it was goldbacked. Do you think the bank of the United States led to the central banks . Okay, so a couple of questions there. Did the bank of the United States lead to the fed . Kind of, sort of. There is a short gap between the first bank and the second bank because we fought the second war for independence, then, oh, it would be nice to have a central bank. And there are many decades that pass after the second bank shuts down in 1836. By the time we get the federal reserve fired up before World War i, the founders of the fed knew about the first and second banks of the United States. And looked to them. But it was a somewhat different model that they came up with. There are some there. But its hardly a direct and obvious lineage. And the other question was about the backing of the what percent was private yes, what percentage 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. But you will not see them on stock tickers. The shares of the b. U. S. Were negotiable. They sold them in the market. So that changed over time. Was it 80 20 . Okay. Yeah. And then there was another part of that. Something about backing, or they couldnt print the money then. It was gold backed. Whereas today yeah. 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 the Bank Note and depositors were able to change for gold. It tethered the u. S. O the gold standard. But the length of the tether could be influenced by the bank of the United States. By the speed with which it took State Bank monetary labiliies and return them to the state per gold and silver. The first bank was on a rampage returning these things promptly. There was some flex in it. But certainly not the sort of flex the federal government had during the revolution when it rented obscene amounts of currency and 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. The question has to do with good debt versus bad debt and social security. In 1792 congress passed the first one for military veterans. Maybe this is a future book. If hamilton supported it in 1792, potentially that is support for hamilton being more openended on this. Thank you. I think the questions, maybe hamilton might have been cool with social security because of military pensions. It seems to me like the two are vastly different things. The veterans, for the most part, theyre young people who didnt know that the revolution was coming and didnt know that they were going to be disabled during it. 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 have the ability to earn income and to invest and save. So i think he would make that Distinction Right off the bat. And there are probably some other ones. But i appreciate the pushback, though. Thats a good thing. I like it in students and everyone. Dont just just because im wearing a suit and no tie doesnt mean i know everything. Go ahead. Okay. Trying not to slant the response to debt pessimism or debt optimism or debt realism, thank you so much for reminding us that the real way to consider National Debt is a percentage of gdp. Were very much a country at 100 of gdp. I realize this has to be subjective and situational, but my observations of nations that have hit the wall and have gone down, whether it be greece, ireland, portugal, or spain, it seemed like they hit in the 125 to 140 . And i know there is no false precision to this, but i would like to hear your informed comments. Many people said we have gone over the cliff, and we have not yet. I dont know if you want to make comments upon where the end of the road would be for this country . Its obviously debatable and subjective. So the question is how big can the u. S. National debt get . Yes. Of course nobody knows. And debt optimists will point to places like great britain, which hit roughly 250 of its gdp several times. Wow. But the british no, no, i dont know that theyre special. The british had something akin to our fiscal constitution. During the pax brittania, for example, held the line on deficits. And that debt to gdp ratio came down considerably during that 100 years of peace. That is how they were able to run it up again during World War i and World War ii. It is not just the size of it. Are there brakes in place that can keep us from sliding more and more . And if bill white is right, and i rely on him because hes a politician and has studied the current environment in detail, if hes right, the fiscal constitution is dead. And theres no sign of it being revived. This was things like bush ii funding the Iraq War with a series of emergency appropriations, rather than with real yes. So rather than that percentage, i am 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. Yeah. Its difficult to see what is going to brake before it breaks. Thank you. Oh, okay, thank you. [ applause ] selected by president George Washington in 1789, Alexander Hamilton served as the first secretary of the treasury until january 1795. Next on american history tv, in a talk titled the hamilton scheme, enemies and allies in the creation of an american economy, Author And Scholar William Hoagland discusses Alexander Hamiltons financial ideas. He is the author of several books about the founding period. The Alexander Hamilton Awareness Society and the museum of american finance cohosted this event. It is about 50 minutes. While the museum, the gallery of the museum is closed because of a flood that we sustained, our robust programming continues as evidenced by