In “Thinking About Capitalism,” economic historian Jerry Z. Muller tells us that 16th and 17th century wars were “decided by whichever government was the first to run out of money.” Astoundingly, the American colonies did not run out of money.
George Washington’s military leadership, Thomas Jefferson and the Declaration of Independence, Ben Franklin, and John Adams (and Abigail) all come to mind when we think about winning the American Revolution. But whom are we forgetting?
We had to pay for the war. A new book, Robert Morris: Financier of the American Revolution by Charles Rappleye has just been published. In the review by John Steele Gordon it sounds wonderful. Robert Morris was the man who “corralled stores of blankets, gunpowder, lead and muskets…” for Washington’s Delaware River crossing. When Washington needed money to pay for spies, he went to Morris.
To fund the war, Morris primarily depended on loans at home and abroad. By 1790, the U.S owed $50 million. And yet, we were able to fund it all.
The Economic Lesson
Following Morris’s advice, George Washington appointed Hamilton as his first Secretary of the Treasury. Hamilton’s proposals for the debt, a banking system, and manufacturing formed the foundation for our economic growth.
Alexander Hamilton reminds us that debt can be good if paid back promptly. A nation with good credit can repeatedly borrow and then fund necessities with other people’s money.
Hamilton then and Europe today are interesting contrasts for pondering sovereign debt.