Video now available on Hamilton’s principles of bankruptcy reorganization
By Nancy Spannaus
Jan. 24, 2023—By any reasonable standard of measurement, the United States today is bankrupt! Not because of the huge debt overhang, per se, but because we don’t have the manufacturing, infrastructure, skilled workforce, and healthy population to build a future for ourselves and our posterity. We have thrown our money into speculation and war, and not invested in what will make our nation thrive.
But there’s good news as well. Four times in our history, we have faced similar such crippling bankruptcy, including in the immediately post-Revolutionary period. And each time, the principles of First Treasury Alexander Hamilton were used to put us back on track, and take us to a higher level of prosperity. Hamilton knew how to bring our nation out of bankruptcy. With proper education and leadership, we can do it again.
The story of how Hamilton’s ideas brought us out of bankruptcy crises is the subject of a current class I’m giving by Zoom at the lifelong learning center (Hutton House) at Long Island University. As the class has been recorded, I have been able to make it available on this blog’s You Tube channel. The first video is already posted: click here.
Credit is the Key
When Hamilton took over the Treasury Department in the fall of 1789, the very survival of the nation was very much in doubt. We had incurred tens of millions in debt, and had no way to pay – thus making it impossible to borrow more. Widespread physical devastation, British economic warfare, and interstate conflict threatened to make a mockery of our Constitutional commitment to “a more perfect Union.” We were literally bankrupt.
Yet Hamilton devised a plan that allowed us to not only survive, but to begin to prosper. The key was to realize that the only way that the legitimate debts would ultimately be paid, was to begin producing again. Debt payment could not take priority to the point of stifling necessary economic activity. And the only way to begin producing again was to issue public credit.
The crucial concept is not unknown today. A similar principle is applied in Chapter 11 corporate bankruptcy, which was instituted in the 1930s in order to permit honest firms facing hard times to be able to freeze debt payments, in order to maintain production. This included being able to get credit for continued operations.
To be clear, Hamilton did not propose freezing all debt payments; to the contrary, he insisted upon starting absolutely regular interest payments to the nation’s creditors (which had been abandoned over the years before). But he did set aside principal payments, and he reorganized the terms of the bonded debt so as to reduce the rate of interest to make it more payable. Most importantly, he used the mass of debt to capitalize a source of public credit for the economy – agriculture, commerce, and manufacturing: the Bank of the United States.
By getting the economy progressing, he knew that debts could ultimately be paid.
The Crucial Periods
The second class in this LIU series will deal with the three major bankruptcy crises that followed the founding period and which were resolved with Hamiltonian principles: 1) the aftermath of the War of 1812; 2) the Civil War period; and 3) the Great Depression. The video should be posted for that presentation as well.
For elaboration, I recommend reading my book Hamilton Versus Wall Street: The Core Principles of the American System of Economics, which deals in some depth with the same periods. As our current social-economic crisis should make clear, mastering Hamiltonian principles is becoming more important by the day.