US Government Debt Different - Finance Department - University of ...

2 U.S. Government Debt Has Always Been Different!Five years after Smith published his great work, an American soldierfighting against Great Britain on the other side of the Atlantic voiceda far more positive view of public debts than appeared in Europeanconventional wisdom:Speaking within moderate bounds our population will be doubled inthirty years; there will be a confluence of emigrants from all partsof the world; our commerce will have a proportionable progress, andof course our wealth and capacity for revenue. It will be a matter ofchoice, if we are not out of debt in twenty years, without at all encumberingthe people.A national debt if it is not excessive will be to us a national blessing; itwill be a powerful cement of our union. It will also create a necessityfor keeping up taxation to a degree which without being oppressive,will be a spur to industry. 2The writer was Lt. Col. Alexander Hamilton, a member of the ContinentalArmy and the principal aide-de-camp to the commander,Gen. George Washington. Hamilton wrote to Robert Morris, oneof America’s leading merchants, who had recently been appointed byCongress to the position of Superintendent of Finance. Hamilton’soptimistic view of the future and his positive view of national debtsare remarkable because they were expressed in one of the darkestmoments of the War of Independence. Over-issuance of paper Continentaldollars had resulted in hyperinflation, and Morris had beencalled in to turn around the dire financial situation that threatenedan American defeat in the war. Hamilton’s long letter to Morrisrecommended a series of financial reforms that included a nationalbank. Morris was of a like mind, and began to implement versionsof the reforms. Morris also used a French specie loan both to financethe crucial Yorktown campaign and to capitalize the first U.S. bank,the Bank of North America. But his plans to put the debts of Congressonto a sound footing failed because one state or another underthe Articles of Confederation would not agree to revenue measuresthat might have provided the means to service them. So Morris re-2 H. C. Syrett, ed., The Papers of Alexander Hamilton, Vol. II: 1779-1781 (NewYork: Columbia University Press, 1961), p.635. The letter is dated April 30, 1781.