Originally posted on Friday, February 3rd, 2012
Paul Volcker: “As I see it, Europe is at an Alexander Hamilton moment, but there’s no Alexander Hamilton in sight….”
Reuter’s Portfolio.com, on January 17 2012, published Analysis: What Europe can learn from Alexander Hamilton — drawing Volcker’s astute parallel between the challenges confronting the European Union today and the formative United States.
It almost surely is no coincidence that the European Union’s acronym, EU, echoes the acronym for France’s designation for the US: États–Unis.
“As I see it, Europe is at an Alexander Hamilton moment, but there’s no Alexander Hamilton in sight,” Paul Volcker, a former chairman of the Federal Reserve, the U.S. central bank, told a recent conference in The Hague.
As Harvard University’s Josiah Pertz wrote in the Gilder Lehrman History Scholars Projects on Alexander Hamilton, 2004,
Following the Revolutionary War, the new nation, its member states, and a great many of its citizens were deeply in debt. By 1790 the national debt stood at $54 million, and collectively the state governments owed creditors $25 million. Secretary of the Treasury Hamilton estimated the combined state and federal debt to international investors at almost $12 million. Under the Articles of Confederation, Congress had no power to levy taxes, and relied on borrowing for revenue. The ratification of the Constitution in July of 1788 changed this, but for several years the nation lacked a federal economic program to manage this debt. In January of 1790, Alexander Hamilton attempted to introduce such a program. In his Report Relative to a Provision for the Support of the Public Credit, Hamilton, a Federalist, argued that the financial unification of the nation was essential to its political unification; to achieve this end, Hamilton proposed amalgamating all the debt of the thirteen states under the umbrella of the central government of the United States.
In the report the he stressed that the federal government needed to “borrow upon good terms,” which he claimed would extend trade, promote agriculture and industry, and curb inflation by lowering interest rates. To firmly establish the credit of the nation’s government in the eyes of both foreign and American investors, Hamilton proposed that all state debt be paid out of the federal treasury, and thereby be assumed by the federal government. Hamilton also offered a more ethical line of reasoning: the nation fought a “common war,” and so the debt from that war should also be common.
It is difficult for contemporary people to grasp the drama of 1790, or the passion and deft political leadership, in addition to the technical insight, which Hamilton brought to the challenge of federal assumption of the state debts. Pertz:
Hamilton faced opposition from such politicians as James Madison of Virginia, who favored repaying only the original holders of government bonds, not subsequent owners, a policy known as discrimination. By far the largest portion of the states’ debt had been held by members of the Continental Army, who were paid in government bonds for their service in the war. Short on cash, many soldiers and non-combatant citizen investors sold their notes to speculators, derogatorily called “stock-jobbers,” for well below the original stated value of the bond. According to Madison the government needed to reward the patriots who fought in the war, not the opportunistic speculators who preyed on the soldiers’ financial misfortune. Madison’s position drew popular support throughout the South, where fewer securities were originally owned, and more subsequently sold away, than in the North.
Hamilton thoroughly rejected this view. He believed that when paying the debt, discriminating between the soldiers and the speculators posed numerous problems. It would not only be a “breech of contract” that would undermine trust in the government, but would also be impractical (finding the original owners of the debt could prove impossible) and even morally dubious (though some were forced to sell out of financial necessity, others were simply betting against the government’s eventual success).
A published interview by Kenneth T. Jackson and Valerie Paley with Ron Chernow, Hamilton’s authoritative biographer, points up how crucial was this moment in the creation of a strong and viable United States of America. Chernow:
Hamilton dearly wanted to have New York continue as the temporary capital, and then become the permanent capital. But he felt that the assumption of state debt was a more important policy objective. Ironically, then, one of the greatest New Yorkers made the deal that bargained the city away. But one of the special characteristics of New York is that it is different from a London or a Paris because it’s the financial capital, and the cultural capital, but not the political capital. Perhaps there’s something about the spirit of this city that is better for having the political capital elsewhere; there may be a kind of intellectual and cultural freedom. In terms of impact, the assumption of state debt was arguably Hamilton’s single most important accomplishment. It was a testimony to his political ingenuity. It centralized power in the federal government and welded the states together at a point when they could have blown apart. It shows how much emphasis Hamilton placed on that assumption issue, that he was willing to bargain away New York. (Emphasis added.)
As noted by “the Sage of Mexico” Hugo Salinas-Price, and previously reported here:
Rueff wrote a little book in 1963, “L’Age de L’Inflation” (“The Age of Inflation”) made up of some articles he had written. He wrote an “Introduction” to his book, and the very first words are these:
“LE SORT DE L’HOMME SE JOUE SUR LA MONNAIE”
A loose translation, taking into account the content of his book, would be:
“THE DESTINY OF MANKIND HINGES UPON GOLD”
Europe is a great mess today because those in power made the wrong choice when deciding what currency the European Union should use. They chose a fiat currency instead of the Gold Standard and currency redeemable in gold at sight. That is the Original Sin of the euro.
Rueff was also active when the European Union was being forged. His book’s fifth essay ends with these prophetic words:
“L’ EUROPE SE FERA SUR LA MONNAIE, OU NE SE FERA PAS”
Translated loosely and considering Rueff’s views, this would be:
“EUROPE WILL BE BUILT UPON GOLD,
OR IT WILL NOT BE BUILT”
Chairman Volcker’s percipient connection of Europe’s present peril with the essential work of Alexander Hamilton in formation of a vibrant United States brings to mind the comment of public intellectual James Grant upon encountering Lehrman Institute founder and Chairman Lewis E. Lehrman’s The True Gold Standard: A Monetary Reform Plan without Official Reserve Currencies, How We Get from Here to There.
“If you have ever wondered,” wrote Grant, “how the world can get from here to there — from the chaos of depreciating paper to a convertible currency worthy of our children and our grandchildren — wonder no more. The answer, brilliantly expounded, is between these covers. America has long needed a modern Alexander Hamilton. In Lewis E. Lehrman, she has finally found him.
Chairman Volcker, perhaps, at this “Alexander Hamilton moment,” in sight there is to be found a modern Alexander Hamilton, as cited by James Grant.
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