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7: “A war, not of parchment…”

December 17, 2012

7: “A war, not of parchment…”

The Federalist 7: The Same Subject Continued: Concerning Dangers from Dissensions Between the States. First published November 15, 1787. Author Alexander Hamilton. Please see Introducing the American Bible for an introduction to this project.

Stop. Just pause and take a breath. Every second day a headline is screaming at you about the dysfunctional debt ceiling/fiscal cliff/entitlement reform/tax expenditure/fiscal slope debate. It’s all worse than it’s ever been, right?

Well, hold on a minute. Let’s just stop and be thankful we have a national debt at all.

This may sound insane. But at least one world government is unlucky enough to not have a national debt: the European Union.

Now, if you’ve been following the news, you know the E.U. is in fact amply supplied with debt. That’s the whole problem for Europe. Excess debts in the “Mediterranean” countries have raised doubts about those countries’ ability—or indeed willingness—to repay those debts. Meanwhile, the more responsible Northern countries are able to pay their own debts, but reluctant to bail out their Southern neighbors.


Every so often, investors get particularly spooked and begin a run on Mediterranean debt, which prompts tortured negotiations between the South, the North, and EU bureaucrats. So far, these negotiations have prevented a complete collapse of the Euro; but they have done little to convince investors that Europe’s problems are at last solved.

America risked the same basket-case diagnosis 200 years ago. Indeed, had the United States reneged on its debts, the consequences might have been more serious: As Hamilton alludes to in Federalist 7, this was an era in which countries went to war to reclaim money owed.

America had a large public debt inherited from the war. The national war debt was accompanied by state debts—and as in Europe, some states had been careful with their money, and others had borrowed recklessly.

In fact, America was suffering the same sort of money-induced paralysis Europe is now undergoing. The less-indebted states were naturally resentful of assuming their neighbors’ debts. And the Articles of Confederation (America’s previous constitution; see Introducing the American Bible) did not allow the federal government to collect taxes; only to ask for contributions from states. This had predictably mixed results. As Hamilton wryly notes:

For it is an observation as true, as it is trite, that there is nothing men differ so readily about as the payment of money.

The new Federalist constitution, on the other hand, neatly simplified this debate. The debt became the entire province of the national government; its payment, too, was left in federal hands. We need only to look at Europe’s debt debate to see what a momentous decision this was. Europe’s politicians are paralyzed by grandstanding, torn between local voters and European stability.

Imagine, if you will, an early-19th century America torn apart not only by slavery and states’ rights, but by debt payments and voluntary taxation. We would have torn ourselves apart far before 1865!—and been much easier prey for imperialist foreign powers, given how much less developed we would have been.


Or imagine our modern debt debate, complicated not only by Boehner, Obama, Reid, McConnell, and all the other national politicians, but by dozens of regional politicians, each grandstanding in favor of local causes, and appealing to local prejudices. Imagine that state governors could stop their donations to the national government. If just a few banded together, they could force a default. Can anyone doubt this would have been every bit the disaster that Europe has now become?

It is striking, in this light, to see how America and Europe have fared in the recent financial crisis. America was hit hard at first, as its banks contracted and its companies fired millions. But America’s unified national government stepped in, borrowed money without having to talk around 50 fractious state politicians. This money bought America stability, if not growth. Europe, by contrast, has stumbled and negotiated and bickered, and seems no closer now to solving its crisis than it was last year.

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From → The Papers

One Comment
  1. Evelyn Schaefer permalink

    Well-written and an interesting perspective that I wouldn’t have picked up on.

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