By Charles Rappleye
With Congress and the White House stalemated over the question of debt, it may be reassuring, even instructive, to consider that our nation was embroiled in a crisis over public debt at the very dawn of its history.
In fact, the primary motive that brought delegates to the Constitutional Convention of 1787 was to sort out vexing questions of debt and taxes.
The debt in question was that owed by the American rebels to the governments of France and Holland, two key allies.
The funding situation of the nascent American government slipped into genuine crisis in 1780, prompting Congress to appoint Robert Morris, a celebrated Philadelphia capitalist, to the new position of superintendent of finance.
The first object of the program Morris put into place was to acquire for the government what Morris termed “the inestimable jewel of public credit.”
This was a relatively new conception, the idea that public debt, supported by public confidence, or credit, could actually be a boon to the people at large.
With debt financing, Morris advised, the government could undertake and achieve large projects: fielding an army, for example, or after the peace, building roads and “internal navigations.”
Confidence could be restored simply enough, Morris said, by the payment of taxes.
Preaching the gospel of taxation at a time when many Americans were fighting against the tax authority of Parliament was a doomed enterprise, however, and Morris failed to obtain either sufficient revenues from the states nor taxing authority for the central government, which was then little more than a debating forum for what were sovereign states. Fortunately for the American patriots, the blunders of the British high command brought the war to a close, and the funding questions were set aside.
But not for long. A postwar recession and the deepening political malaise of the newly free colonists brought matters to a head, and in 1787 Morris joined with a coterie of nationalist-minded colleagues – George Washington, James Madison, Alexander Hamilton and the rest – to establish a central government with taxing authority that would finally fund the lingering debts from the war. They replaced the 13 colonial currencies with a single, national medium of exchange, established a central bank and inaugurated a freewheeling market for government securities that set the stage for a decade of robust economic growth.
Lest there be any doubt as to the centrality of debt in Morris’ thinking, he spelled it out in a public address upon leaving office in 1784. “The payment of debts may well be expensive, but it is infinitely more expensive to withhold the payment,” Morris warned. “The former is an expense of money, when money may be commanded to defray it; but the latter involves the destruction of that source from whence money can be derived when all other sources fail. That source, abundant, nay almost inexhaustible, is public credit.”
At a time when congressional bickering and posturing has cost the United States its prime bond rating, and when markets around the globe are looking to Washington for leadership, the solons of the House and Senate might best look to the past for the sort of conviction and sound reasoning that first set America on the path of unprecedented economic success.
Charles Rappleye is the author of “Robert Morris: Financier of the American Revolution.” He wrote this for the Los Angeles Times. He is distributed by McClatchy-Tribune.