Past & Present: Alexander Hamilton and the Start of the National Debt

American statesman Alexander Hamilton (1757 - 1804)

The bill to create the bank passed Congress, and Jefferson, Madison, and the attorney general, Edmund Randolph, sent the president memos arguing that it should be vetoed. Their constitutional reasoning would later come to be called "strict construction," a powerful force in American politics ever since.

Hamilton wrote, in a single night, a 15,000-word essay laying out the counter doctrine of implied powers. He persuaded President Washington, who signed the bill.

Hamilton's program was an extraordinary success. Within a few years, United States bonds were selling above par in European markets because they were regarded as so safe. Brisk trading in government bonds brought capital markets into existence in this country for the first time, and both the New York and Philadelphia stock markets began in 1792.

Daniel Webster, with typical grandiloquence, later described the consequences of Hamilton's program. "The whole country perceived with delight," he wrote, "and the world saw with admiration. He smote the rock of the national resources, and abundant streams gushed forth. He touched the dead corpse of the public credit, and it sprung to its feet. The fabled birth of Minerva from the brain of Jove was hardly more sudden or more perfect than the financial system of the United States as it burst forth from the conception of Alexander Hamilton."

Today, the national debt that Hamilton began with a bank loan of $19,608.81 is the largest single entry on any set of books in the world. The federal government pays $19,608.81 in interest on its current debt every 2.4 seconds.

What would Hamilton think of his creation today? He would surely be impressed with its sheer size, although he would note that relative to the American GDP, about $14 trillion, it is "not excessive." But he would, I suspect, not be happy with what borrowed money is being used for. Hamilton saw the debt as a powerful means of fighting wars, building infrastructure, and getting through economic bad times. For the last 30 years and more, however, the national debt has been increasingly used so that no one in Washington ever has to say no to anyone.

John Steele Gordon is the author of Hamilton's Blessing: the Extraordinary Life and Times of Our National Debt.