The Treasury Department picked an interesting moment to announce a revision in its plans to change the faces on America’s money. Plans to boot Alexander Hamilton off the $10 bill in favor of a woman have been shelved. Instead, Harriet Tubman — one of the most heroic figures in the history of our nation, or any nation — will move onto the face of the $20 bill.
She will replace Andrew Jackson, a populist who campaigned against elites but was also, unfortunately, very much a racist, arguably an advocate of what we would nowadays call white supremacy. Hmm. Does that make you think about any currently prominent political figures?
But let me leave the $20 bill alone and talk about how glad I am to see Hamilton retain his well-deserved honor. And I’m not alone among economists in my admiration for our first Treasury secretary. In fact, Stephen S. Cohen and J. Bradford DeLong have an excellent new book, “Concrete Economics,” arguing that Hamilton was the true father of the U.S. economy.
Full disclosure: I know next to nothing about Hamilton the man and his life story. Nor, I’m sorry to say, have I managed to see the musical. But I have read Hamilton’s pathbreaking economic policy manifestoes, in particular his 1790 “First Report on the Public Credit,” a document that remains amazingly relevant today.
In that report, Hamilton proposed that the federal government assume and honor all of the debts individual states had run up during the Revolutionary War, imposing new tariffs on imported goods to raise the needed revenue. He believed that doing so would produce important benefits, which I'll get to in a minute.
First, however, I think it’s interesting to ask how such a proposal would be received today.
On the left, it would surely be denounced as a bailout — a giveaway to speculators who had purchased devalued debt for pennies on the dollar, and would reap large capital gains. Indeed, a fair bit of the report is devoted to explaining why trying to prevent such windfall gains, via “discrimination between the different classes of creditors,” would be impractical and unwise.
Meanwhile, on the right – well, Hamilton was calling for a tax increase, which modern conservatives oppose under any and all circumstances. Luckily for him, there was no Club for Growth to demand his impeachment.
But why did Hamilton want to take on those state debts? Partly to establish a national reputation as a reliable borrower, so that funds could be raised cheaply in the future. Partly, also, to give wealthy, influential investors a stake in the new federal government, thereby creating a powerful pro-federal constituency.
Beyond that, however, Hamilton argued that the existence of a significant, indeed fairly large national debt would be good for business. Why? Because “in countries in which the national debt is properly funded, and an object of established confidence, it answers most of the purposes of money.” That is, bonds issued by the U.S. government would provide a safe, easily traded asset that the private sector could use as a store of value, as collateral for deals, and in general as a lubricant for business activity. As a result, the debt would become a “national blessing,” making the economy more productive.
This argument anticipates, to a remarkable degree, one of the hottest ideas in modern macroeconomics: the notion that we are suffering from a global “safe asset shortage.” The private sector, according to this argument, can’t function well without a sufficient pool of assets whose value isn’t in question — and for a variety of reasons, there just aren’t enough such assets these days.
As a result, investors have been bidding up the prices of government debt, leading to incredibly low interest rates. But it would be better for almost everyone, the story goes, if governments were to issue more debt, investing the proceeds in much-needed infrastructure even while providing the private sector with the collateral it needs to function. And it’s a very persuasive story to just about everyone who has looked hard at the evidence.
Unfortunately, policymakers won’t do the right thing, largely because they keep listening to fiscal scolds – people who insist that public debt is a terrible thing even when borrowing costs almost nothing. The influence of these scolds, their virtual veto over fiscal policy, somehow persists even though their predictions of soaring interest rates and runaway inflation keep not coming true.
The point is that Alexander Hamilton knew better.
Unfortunately, Hamilton isn’t around to help counter foolish debt phobia. But maybe reminding policymakers of his wisdom is one way to chip away at the wall of folly that still constrains policy. And having his face out there every time someone pulls out a 10 can’t hurt, either.