The U.S. government defaulted after the Revolutionary War, and it defaulted at intervals thereafter. After the various branches of government resume talking and investors have recovered from its trauma of the risk of default, the Treasury will have no trouble raising the necessary billions of dollars to pay its bills, since the Federal Reserve can simply create paper money from its computer screen.
The newly formed United States in 1790 was in arrears on $11,710,000 denominated in foreign debt and payable in gold and silver. Alexander Hamilton, the first Secretary of the Treasury, duly paid them to cure the default in “dollars” that were defined as a little less than 1/20 of an ounce of gold.
The dollar retained its structure until President Franklin D. Roosevelt in his “first hundred days” of the New Deal reduced the dollar’s value was reduced to 1/35 of an ounce of gold. Such action constituted a default, since creditors who lent dollars weighing what the Founders said they should weigh and expected to be repaid under the “gold clause” the same amount. Congress voted to abrogate those contracts, and in 1935 the Supreme Court upheld Congress’ right to do so, despite European condemnation of the “American default.”
The lighter Roosevelt dollar did service until 1971, when President Richard M. Nixon lightened it again by allowing the exchange to “float.” No longer was the value of the greenback defined in law as a particular weight of gold or silver. It became what it looked like: a piece of paper. Since the Nixon default, the public’s holdings of the federal debt have climbed from $303 billion to $11.9 trillion.
Today, the U.S. government is paralyzed, and we now face the possibility that the United States will default on its debt again. Congress is unable to resolve the issue, and President Obama is as obstinate as the legislators who oppose him. To some extent, our political system is functioning as intended -- the Founding Fathers meant for it to be cumbersome. Striving for ineffectiveness seems counter-intuitive, but there was a method to the Founders' madness.
The Founders did not want an efficient government. They feared tyranny and created a regime that made governance difficult. Power was diffused among local, state and federal governments, each with their own rights and privileges. Even the legislative branch was divided into two houses. It was a government created to do little, and what little it could do was meant to be done slowly. They fear that it was human nature to be self-serving and prone to corruption.
At the same time, the Founders believed in government for times of emergency or of overwhelming consensus. The Constitution is a framework for gridlock, extraordinary issues of unity, justice, domestic tranquility, defense, general welfare and liberty. They were revolutionaries, yet they were inherently reasonable men.
The Founders' moderation left many things unanswered for the future citizens to quarrel over. The Founders were fascinated by Rome and its notion of governance. Their Senate was both a Roman name and venue for the Roman vision of the statesman. The Founders did not see government as a profession but rather as a burden and obligation for reluctant rulers.
The Founding Father who best reflects these values is, of course, George Washington. He understood that the public would be reluctant to repay debt and that the federal government would lack the will to tax the public to pay debt on its behalf. He stressed the importance of redeeming and discharging public debt. He discouraged accruing additional debt and warned against overusing debt.
Washington was making a moral argument, not an argument for economists. From the Founders' perspective, debt was not simply a technical issue; it was a moral issue. What was borrowed had to be repaid.
Easing debt may power the economy, but the Founders would have questioned the prudence of our current debt. They would ask if it were necessary to incur, and how and whether it would be paid back. They would also question whether economic growth driven by debt actually strengthens the nation character and would have been appalled by our current debt levels.
As for federally mandated health care, I think they would be wary of entrusting such an important service to an entity they viscerally feared.
The design of three branches of government by the Founders and their expectation of great moral character continue to define us. America's early political parties fought viciously -- with Aaron Burr even shooting Alexander Hamilton. The republic of the mind was always greater than the republic itself. Still, when we come to moments such as these, it is useful to contemplate what the Founders had in mind and measure ourselves against that.
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