America's Fiscal Constitution (69 page)

10
. Schlesinger,
The Coming of the New Deal
, 309.

11
. Quoted in Altermeyer,
Formative Years of Social Security
, 89.

12
. OMB, Historical Tables, “Table 2.1–Receipts by Source: 1934–2018.” See also Appendix C.

13
. Pachand Richardson,
The Presidency of Dwight D. Eisenhower
, 77.

14
. Dwight D. Eisenhower quoted in Mayer,
The Eisenhower Years
, 191.

15
. George W. Bush quoted in Kotlikoff and Burns,
The Coming Generational Storm
, 55.

16
. OMB, Historical Tables, “Table 1.4—Receipts, Outlays, and Surpluses or Deficits (-) by Fund Group: 1934–2018.”

17
.
Budget, Fiscal Year 2003
, 101.

18
. Tom DeLay quoted in Surowiecki, “A Cut Too Far.”

19
. Congressional Budget Office estimate on the 2003 tax cut. See also Bureau of Labor Statistics, “Overview of BLS Statistics on Unemployment.”

20
. John Boehner quoted in Greenspan,
The Age of Turbulence
, 243.

21
. Peterson,
Running on Empty
, 82.

22
. Benjamin Franklin,
The Way to Wealth
(1774), 13.

C
HAPTER
2

1
. George Washington to Benjamin Harrison, January 18, 1784,
The Papers of George Washington.

2
. Washington, “Speech to Officers at Newburgh,” March 15, 1783, in
Rediscovering George Washington
.

3
. Higginbotham,
George Washington
, 121.

4
. George III quoted in Brookhiser,
Founding Father
, 103.

5
. Weintraub,
General Washington’s Christmas Farewell
, 157.

6
. In the seventeenth century, Dutch cities had pioneered the modern form of public debt. European royalty had previously financed wars in part with mortgages of property, including assignment of the rights to rent. The innovative Dutch cities created notes secured by mortgages on future tax revenues. By the 1780s, the Dutch Republic had been crippled by excessive use of public debt.

7
. Johnson,
Righteous Anger
, 1.

8
. Ibid., 85.

9
. Madison,
Writings
, vol. 2, 398.

10
. Madison,
Notes of Debates
, 10.

11
. Berkin,
A Brilliant Solution
, 25.

12
. Madison to Washington, November 8, 1786, in Madison,
Letters and Other Writings
, vol. 1, 255.

13
. Caplan,
Constitutional Brinksmanship
, 26. After a majority of states had agreed to send delegates, and months after the Annapolis call to action, Congress pathetically called for the Philadelphia meeting to draft amendments to the Articles of Confederation for later consideration by the body.

14
. Madison,
Writings
, vol. 2, 404–405.

15
. Beard,
An Economic Interpretation
, 297.

16
. Johnson,
Righteous Anger
, 75.

17
. Franklin, “Speech to the Federal Convention.”

18
. DeRose,
Founding Rivals
, 237.

19
.
Reports of the Secretary of the Treasury
, 14,
https://fraser.stlouisfed.org/docs/publications/?pid=194
.

20
. Johnson,
Righteous Anger
, 41.

21
. Madison made the case for the import taxes with the help of spreadsheets prepared by Jefferson that showed the amount of debt owed to Europeans and related schedules for debt service. Jefferson also passed along advice from Dutch bankers that a 5 percent tax on the value of imports would raise enough money to pay foreign creditors.

22
. Chernow,
Washington
, 597.

23
. Jefferson to Madison, August 28, 1789, in Jefferson,
Memoirs,
25.

24
. Jefferson felt the issue of hereditary rights helped define the War of Independence itself. He felt so strongly about the principle that, in 1776, Jefferson had proposed that the earlier Saxon leaders of England be depicted on the Great Seal of the United States, reflecting his belief that feudal doctrines had compromised the principles of the early Saxon rulers of England.

25
. Jefferson to Madison, September 6, 1789, in Jefferson,
Memoirs
, 30–31.

26
. Ibid., 32.

27
. Miller,
The Business of May Next
, 19.

28
. Madison to Jefferson, February 4, 1790, in Madison,
Letters and Other Writings
, vol. 1, 506.

29
. Madison quoted in Sloan,
Principle & Interest
, 178.

30
. Jones quoted in Sloan,
Principle & Interest
, 179.

31
. Wright,
One Nation Under Debt
, 134. Though once Hamilton commented that national debt could be a “blessing,” in context he was actually expressing appreciation for creditworthiness arising from the repayment of debt and an effective credit system.

32
. Jefferson to James Monroe, June 20, 1790, in Jefferson,
Works: Volume VI
, 78–79.

33
. Alexander Hamilton, “Report on the Public Credit,” in
Reports of the Secretary of Treasury
, 14–15,
https://fraser.stlouisfed.org/docs/publications/treasar/AR_TREASURY_1790.pdf
.

34
. In 1789–1790 there was no good estimate of state debts from the Revolution. The battle over the assumption of state debts at times was less a dispute over philosophy than a product of fear and confusion. North Carolina, for example, delayed ratification of the Constitution and opposed assumption of state debts because of its concern that Congress would require taxes to be paid in scarce gold or silver. Ultimately the state was a net creditor of other states.

35
. In 1783, when Hamilton and Madison had worked on means of paying Washington’s soldiers, Madison had proposed that the Continental Congress assume responsibility for the war debts of the states. Madison, in his notes at that time, underlined his premise: “Justice requires that the debts be paid.” Five years later, though, in the tough fight for ratification of the Constitution, he had to assure
Virginians that the Constitution did not obligate the federal government to pay those debts. Even in late 1789, when Hamilton asked for Madison’s views on paying the Revolutionary War debts, Madison said he had not formed “any precise ideas.” He did tell Hamilton that he favored paying off the debt, in part, to avoid it “slid[ing] into the hands of foreigners.”

36
. Madison to Jefferson, March 8, 1790, in Madison,
Letters and Other Writings
, vol. 1, 511.

37
. One Massachusetts Congressman, Theodore Sedgwick, angrily said that any attempt to collect taxes in Massachusetts without the federal assumption of debt would lead to violence. In the weeks leading up to the Constitutional Convention, Madison realized that one of the principal challenges of the convention would be to create some system that would allow tax collection to be enforced by courts against individuals, rather than by the use of military force against a delinquent state.

38
. Jefferson quoted in Winik,
The Great Upheaval
, 162.

39
. Madison to Monroe, April 17, 1790, Founders Online, National Archives,
http://founders.archives.gov/documents/Madison/01-13-02-0109
.

40
. Jefferson quoted in Kaplan,
Thomas Jefferson
, 77–78.

41
. Jefferson quoted in Sloan,
Principle & Interest
, 178.

42
. Hamilton, “Report on the Public Credit,” 14–15.

43
. Ibid., 14.

44
. For GDP, see McCusker, “Estimating Early American Gross Domestic Product,” and
http://www.measuringworth.com/datasets/usgdp/result.php
. For population, see Bureau of the Census,
First Census of the United States
. See also Blodgett,
Economica
, 60.

45
. See Appendix F for the history of trade balances. The United States was consistently a net importer for almost ninety years, until 1878. For most of the ninety years after 1878 it was a net exporter.

46
. Jefferson had written to Madison about the need for a ban on monopoly charters in the Bill of Rights. British laws were designed to encourage private investment projects with a public purpose, such as bridges or toll roads or even shipping companies, in return for an implied monopoly. This monopoly privilege was treated as a form of property by those receiving it. Since a corporate charter had been understood as creating an implied, exclusive property right, the charter of a competing new corporation was considered as a potential violation of the rights against government taking of property or as the impairment of contract rights. As a result, while the party of Jefferson and Madison
did
oppose certain uses of federal power by Hamilton, many who write of the early Republic are too simplistic in characterizing opposition to the Bank as
simply
an objection to the scope of federal activities.

47
. Jefferson to Madison, May 12, 1793, in Jefferson,
Writings: 1792–1794
, 251.

48
. Madison quoted in Wood,
Empire of Liberty
, 161.

49
. Jefferson to Madison, June 21, 1792, in Jefferson,
Works: Volume VII
, 125.

50
. Appendix B shows this measure of the burden of federal debt throughout the nation’s history, which was the reason for Jefferson’s fears in the nation’s first decade and also for the exceptional nature of the debt crisis by 2010.

51
. Jefferson quoted in Perkins,
American Public Finance
, 211.

52
. Hamilton quoted in Johnson,
Righteous Anger
, 255.

53
. Gallatin,
Writings: Volume 1
.

54
. Walters,
Albert Gallatin
, 118.

55
. White, “Biographical Notice.”

56
. Chernow,
Washington
, 722.

57
. Federal budgets were based on a calendar year until 1843. The first fiscal year encompassed the partial years 1789 and 1791. In 1792, the federal government “expensed” a $2 million investment in stock of the Bank of the United States, which appreciated. Net of this amount, the federal government had modest budget deficits in 1792, 1794, and 1795, totaling $4.25 million. During Hamilton’s four years as treasury secretary, interest payments accounted for half of all federal spending. The loan balance of the nation to the Bank of the United States was repaid by a credit for surrender of the federal investment in the bank. The net amount owed was offset in part by cash balances in the bank. The bank’s directors became nervous about the unplanned loan to the United States, and it was paid down with surrender of the federal investment in the bank.

58
. Walters,
Albert Gallatin
, 89.

59
. Ibid.

60
. Ibid., 91.

61
. Gallatin,
Writings: Volume 3
, 150.

62
. Walters,
Albert Gallatin
, 90.

63
. Adams,
The Life of Albert Gallatin
, 156.

64
. Before becoming foreign minister, Talleyrand—a former Catholic bishop—had unsuccessfully tried to make money on land speculation while living in exile in the United States for two years. Talleyrand considered it amazing that Secretary Hamilton would resign to make money practicing law rather than simply accepting bribes. Talleyrand had been brought back to France on the recommendation of a childhood friend of Gallatin’s, Madame Germaine de Stael, who lived in Paris.

65
. Adams,
The Life of Albert Gallatin
, 170, 189.

66
. Department of the Treasury,
National Loans
, 43–44. These navy bonds were sold at 8 percent interest. Congress was afraid that the rate would be even higher if it had waited until a declaration of war before borrowing for the navy. A small navy had been built to deal with pirates, and Hamilton had paid for some ships with interest-bearing notes issued to shipbuilders.

67
. Jefferson,
Writings: Volume IV
, 259.

68
. Jefferson to Gallatin, April 1, 1802, in
Oxford Dictionary of American Quotations
, 206.

69
. Jefferson to Gallatin in Gallatin,
Writings: Volume 1
.

70
. In 1800, before the change in the administration, Gallatin’s allies in Congress had mandated that the secretary of the treasury report to Congress annually “on the subject of finance, [with] estimates of the public revenues and public expenditures, and plans for improving and increasing the revenues from time to time for the purpose of giving information to Congress in adopting modes of raising the money requisite to meet the public expenditures.”