The Treasury Department picked an interesting moment to announce a revision in its plans to change the faces on America’s money. Plans to boot Alexander Hamilton off the $10 bill in favor of a woman have been shelved. Instead, Harriet Tubman—one of the most heroic figures in the history of our nation, or any nation—will move onto the face of the $20 bill.
She will replace Andrew Jackson, a populist who campaigned against elites but was also, unfortunately, very much a racist, arguably an advocate of what we would nowadays call white supremacy.
But let me leave the $20 bill alone and talk about how glad I am to see Hamilton retain his well-deserved honor. And I’m not alone among economists in my admiration for our first Treasury secretary. In fact, Stephen S. Cohen and J. Bradford DeLong have an excellent new book, “Concrete Economics,” arguing that Hamilton was the true father of the U.S. economy.
I know next to nothing about Hamilton the man and his life story. But I have read Hamilton’s path-breaking economic policy manifestoes, in particular his 1790 “First Report on the Public Credit,” a document that remains amazingly relevant today.
In that report, Hamilton proposed that the federal government assume and honor all the debts individual states had run up during the Revolutionary War, imposing new tariffs on imported goods to raise the needed revenue. He believed that doing so would produce important benefits, which I’ll get to in a minute.
First, however, I think it’s interesting to ask how such a proposal would be received today.
On the left, it would surely be denounced as a bailout—a giveaway to speculators who had purchased devalued debt for pennies on the dollar, and would reap large capital gains.
Meanwhile, on the right—well, Hamilton was calling for a tax increase, which modern conservatives oppose under any and all circumstances.
But why did Hamilton want to take on those state debts? Partly to establish a national reputation as a reliable borrower, so funds could be raised cheaply in the future. Partly, also, to give wealthy, influential investors a stake in the new federal government, thereby creating a powerful pro-federal constituency.
Beyond that, however, Hamilton argued that the existence of a significant—indeed, fairly large—national debt would be good for business. Why? Because “in countries in which the national debt is properly funded, and an object of established confidence, it answers most of the purposes of money.” That is, bonds issued by the U.S. government would provide a safe, easily traded asset that the private sector could use as a store of value, as collateral for deals, and in general as a lubricant for business activity.
This argument anticipates, to a remarkable degree, one of the hottest ideas in modern macroeconomics: the notion that we are suffering from a global “safe asset shortage.” The private sector, according to this argument, can’t function well without a sufficient pool of assets whose value isn’t in question—and for a variety of reasons, there just aren’t enough such assets these days.
As a result, investors have been bidding up the prices of government debt, leading to incredibly low interest rates. But it would be better for almost everyone, the story goes, if governments were to issue more debt, investing the proceeds in much-needed infrastructure even while providing the private sector with the collateral it needs to function.
It’s a persuasive story to just about everyone who has looked hard at the evidence.•
Krugman is a New York Times columnist. Send comments on this column to email@example.com.