Just One More Thing

Alexander Hamilton said debt is a blessing: It oils the wheels of business and enhances national power.  Jefferson said debt is a curse: It binds future generations without their consent, striking at the very heart of the Republic—the consent of the governed.  Bloomberg News reports (February 9) that the so-called financial crisis has added $9.7 trillion in borrowing and guarantees to the national debt.  In one swoop, the national debt jumped from $10 trillion to $19.7 trillion.  Hamilton has won.  The country is burdened with a perpetual debt—a debt that cannot be repaid.

On November 26, 1798, Thomas Jefferson wrote to John Taylor that we need one more thing to complete the Founding Fathers’ work:

I wish it were possible to obtain a single amendment to our Constitution.  I would be willing to depend on that alone for the reduction of the administration of our government to the genuine principles of our Constitution.  I mean an additional article, taking from the federal government the power of borrowing.

Lyndon Johnson and George W. Bush understood that the people would not pay taxes to pay for their unpopular wars.  They could only be financed by borrowing.  The cost had to be hidden.  Yet, the cost must be paid, and the cost of evading the basic democratic check is horrific: The citizenry is alienated from the government.

On September 6, 1789, Jefferson admonished James Madison from Paris that the country should get straight, “at the threshold of our new government,” how we are going to keep debt from destroying the democracy.  Jefferson’s premise, which he believed to be “self-evident,” is that one generation cannot—either morally or in fact—bind another.  It follows that “No generation can contract debts greater than may be paid during the course of its own existence.”  The “earth belongs in usufruct [trust] to the living . . . [T]he dead have neither powers nor rights over it.”  If one generation can charge another for its debts, “then the earth would belong to the dead and not to the living generation.”  Jefferson continued: “The conclusion then, is, that neither the representatives of a nation, nor the whole nation itself assembled, can validly engage debts beyond what they may pay in their own time.”  Madison wrote back that he generally agreed but thought debt was justifiable if it built a project that benefited the future taxpayer—a useful bridge, for example.  Jefferson answered that the power to borrow was too dangerous to allow exceptions—any exception would expand to destroy the prohibition.

Madison’s argument is plausible, but Jefferson’s camel’s-nose-under-the-tent concern was right.  No government will stay within Madison’s exception.  World War II, the last time this country could make any kind of legitimate case for a benefit to future generations, was in fact financed 47 percent by pay-as-you-go taxes, which provided $137 billion out of a total cost of $304 billion.

Almost all of our debt is what Jefferson called “Louis XV debt.”  “Suppose,” Jefferson wrote Madison,

Louis XV . . . had said to the moneylenders of Holland, “Give us money, that we may eat, drink and be merry in our day; and on condition you will demand no interest till the end of thirty-four years, you shall then, forever after, receive an annual interest of 15 per cent.”  The money is lent on these conditions, is divided among the people, eaten, drunk, and squandered.  Would the present generation be obliged to apply the produce of the earth and of their labour, to replace their dissipations?  Not at all.

Jefferson could not get his 1798 amendment adopted, but the country got more chances to adopt Jeffersonian principles in 1994, 1995, and 1996, when Sen. Sam Nunn (D-GA) proposed a Balanced Budget Amendment.  At the time, the national debt was large (about four trillion dollars) but could have been dealt with.  It was not yet a perpetual debt.

Senator Nunn called his legislation the “Jefferson Amendment.”  It required that Congress balance expenses with revenues.  The public consistently supported Nunn’s amendment by 75-percent margins.  The states, which must balance their own budgets, would certainly have ratified Nunn’s amendment, making it part of the Constitution, if the Senate would have submitted it to them.  Nunn needed a two-thirds vote in the Senate and came very close—within a few votes, time after time.  But he was defeated by the Clinton Cabinet, which argued that the economy would crash if the federal government couldn’t borrow.  A New York senator said the amendment’s passage could “lead to the devastation of the banking industry.”  With the defeat of the Nunn amendment, the boat sailed for the Republic.

Our present situation is the same as Jefferson’s hypothetical, except our lenders are mostly Chinese.  The country is burdened with an accelerating Louis XV debt.  Are we stuck?  Are future generations obliged to apply the produce of the earth and their labor to pay for past dissipations?  “Not at all.”

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