Stabile on Wright, _One Nation under Debt: Hamilton, Jefferson, and the History of What We Owe_

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Published by EH.NET (July 2008)

Robert E. Wright, _One Nation under Debt: Hamilton, Jefferson, and 
the History of What We Owe_. New York: McGraw-Hill, 2008. ix + 409 
pp. $28 (cloth), ISBN: 978-0-07-1543934-0.

Reviewed for EH.NET by Donald R. Stabile, Department of Economics, 
St. Mary's College of Maryland.


As the public debt of the United States heads for the $10 trillion 
level, Robert E. Wright's book reminds us that a high public debt in 
the U.S. was not always treated as inevitable. In so reminding us, 
Wright, a clinical associate professor of economics at New York 
University's Stern School of Business and curator of the American 
Museum of Finance, provides a wealth of information about the history 
of the public debt during the early years of the U.S. There was much 
debate in those early years over whether the public debt needed to be 
paid off, and Wright's aim is tell both sides of the history of those 
debates. To give context to those debates, Wright employs a model of 
the development diamond. The diamond he refers to is from baseball 
and the four bases are government (home plate), the financial system 
(first base), entrepreneurs (second base), and business management 
(third base). In this book Wright stresses the crucial first step of 
getting to first base, that is, the creation of the U.S. government 
including the funding of its public debt and the part that debt 
played in the establishment of financial markets.

The book contains nine chapters. The first chapter presents an 
overview and sets forth the development diamond model. Chapter 2 
describes how the Netherlands and England established a regular 
system of funding their debts through the use of financial 
securities, especially interest paying bonds that traded in financial 
markets, to be paid off from future tax receipts. In Chapter 3, 
Wright details how the individual colonies in America followed this 
pattern but with a difference; they issued non-interest bearing bills 
of credit that circulated as paper money until they were collected as 
payment for taxes. The Continental Congress used bills of credit to 
finance the revolutionary war but did not have the power to levy 
taxes that might have called in the bills of credit. Congress' 
failure to establish a better system of funding led to the formation 
of a new government under the Constitution, the topic of Chapter 4, 
where Wright tells the story of the debates that took place during 
the writing and ratification of the Constitution.

Once the Constitution and the government it created were in place, 
its leaders had to fashion an effective administration and begin to 
manage the public debt. In Chapter 5 Wright details how Alexander 
Hamilton copied (or pretended to copy) parts of the European debt 
management plans and how he innovated new methods on his own. He also 
describes the financial markets of the U.S. at the time and how the 
funding of the debt helped them expand by offering them securities to 
trade. Hamilton's proposals were hotly contested, notably by James 
Madison and Thomas Jefferson, as Wright outlines in rich detail.

Up to this point, Wright has told a story that is well known to 
scholars of the history of the public debt. In his next two chapters 
he makes his own scholarly contribution by describing in detail the 
way financial markets responded to the public debt. In Chapter 6, he 
researches Treasury Department records to show that bonds were held 
and traded by a broad cross-section of the population. These 
transactions took place quite readily due to the sophistication that 
quickly developed in U.S. financial markets and the marketability of 
U.S. government bonds in European financial markets. This ready 
marketability of bonds proved valuable when the U.S. faced the War of 
1812, another subject of Chapter 6.

As another window into the functioning of those financial markets, in 
Chapter 7 Wright uses archives from the Virginia Historical Society 
to tell the stories of a broad array of bondholders in Virginia 
during the historical period his book covers. By establishing the way 
financial markets had developed to the point where government debt 
was liquid and easily traded, Wright shows how the first leg of the 
development diamond was set in place, the topic of Chapter 8. By 
following the Hamilton system, the federal government had established 
itself as a non-predatory government able to protect its citizens and 
their property; it also offered sound financial securities that 
nurtured the growth of financial markets that could trade the 
corporate securities needed for the development of business. 
Entrepreneurs thrived and by the 1830s the U.S. was on its way to 
becoming a developed economy.

In Chapter 9 Wright describes how, briefly, Andrew Jackson as 
president was able to eliminate the public debt. He did so because he 
thought it important for the government to be debt-free. Wright 
argues that Jackson's efforts were overdone but that his belief that 
the debt should be kept within bounds was important. It was a belief 
that held among politicians in the U.S. at least until World War II. 
Since then, politicians have used the public debt to fund programs 
designed to gain them the loyalty of their constituents. What is 
needed, Wright insists, is a return to the arguments of Jefferson and 
Jackson that paying off the debt is a worthy objective of all 
government.

As the many secondary sources Wright draws on and lists in his 
references will attest, the history of the public debt of the U.S. 
had been often told. Wright adds to that history by including an 
analysis of the way financial markets handled the public debt. The 
book is worth reading by anyone troubled by the current disregard 
over the burgeoning of the public debt in the U.S., because Wright 
serves to remind us of a debate over the public debt that no longer 
takes place. He thus raises an issue that is as old as the country 
and as pertinent now as it was at the beginning.


Donald R. Stabile is Professor of the College at St. Mary's College 
of Maryland and the author of _The Origins of American Public 
Finance: Debates over Money, Debt and Taxes in the Constitutional 
Era, 1776-1836_ (Greenwood Press, 1998). His next book, _The Living 
Wage: Lessons from the History of Economic Thought_, is forthcoming 
from Edward Elgar.

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