I am in the middle of reading “The Hamilton Scheme: An Epic Tale of Money and Power in the American Founding,” by William Hogeland. Naturally, it’s hard to put a 546-page book into a nutshell but it’s so applicable to today’s METAR discussion of Treasuries that I will try.
In a nutshell — protecting the payment of interest on the national debt was key to founding the United States as a federal government instead of a loose confederation of states!
The point was to protect the moneyed interests (which included George Washington and Hamilton himself) while bleeding the small farmers, artisans and workers (which the author calls “the Democracy”). This goes back to before the American Revolution – to the actual financing of the Revolution itself.
We weren’t taught in history class about how the rich in America (as in England) exploited the white working class with high-interest debt until they were little better than slaves. There were rebellions in England over this. In America, before and during the Revolution, there were organized working-class attacks on the wealthy Americans at the same time that Washington was trying to recruit these same men into the revolutionary army against the British.
Skipping the details, the soldiers’ pay (what little there was) was eventually siphoned up by speculators. Hamilton schemed to pay the officers in government debt which put them on the side of protecting this debt. Threat of attack on Congress (pre-Constitution) by the officers was part of the leverage of the Hamilton Scheme.
The complex Hamilton Scheme included absorbing all the States’ debts into one massive federal debt. Then the scheme progressed to taxing liquor producers to come up with the money – the smaller Western liquor producers being hardest hit while the rich liquor producers (Hamilton’s cronies) had large, efficient factories. This resulted in the Whiskey Rebellion.
The bottom line is that the United States has never defaulted on a bond issued by the central government (dating to Continental Congress days). Bond holders got interest payments and the maturing bonds were covered by new bond issuance.
Alexander Hamilton (and his cronies) had a vision of a powerful federal United States which used capital to build profitable factories. (This was the beginning of the Industrial Revolution and the American factories used water power before steam power was invented.)
Hamilton’s vision was fiercely opposed by the states and by Thomas Jefferson. But ultimately Hamilton’s plan of strong banks with paper backed by hard money (from merchant traders) and central government debt prevailed.
It wasn’t until the Civil War that the U.S. absorbed the bank currencies into a single government currency. But that’s a different story.
The absolute safety of interest payments on government debt has been unbroken since before the Constitution was written.
Will it be shaken now?
Wendy
