An issue as old as the republic

By Charles Rappleye

With Congress and the White House at odds over the question of debt, it may be reassuring, even instructive, to consider that our nation was embroiled in a crisis over public debt at the very dawn of its history.

In fact, the delegates' primary motive in convening the Constitutional Convention of 1787 was to sort out vexing questions of debt and taxes.

The debt in question was owed by the American rebels to the governments of France and Holland, two key allies that had provided funds to support Washington's army. Those loans were necessary because the currency issued by the Continental Congress in the early stages of the war had been exhausted, first through unrestrained spending and finally through inflation and loss of confidence. Funds were also owed to American businessmen who had purchased domestic bonds in an effort to prop up a faltering Congress.

The funding situation of the nascent American government slipped into genuine crisis in 1780, prompting Congress to appoint Robert Morris, a celebrated Philadelphia capitalist, to the new position of superintendent of finance.

The first object of the program Morris put in place was to acquire for the government what he termed "the inestimable jewel of public credit."

This was a relatively new conception: the idea that public debt, supported by public confidence, or credit, could actually be a boon to the people at large.

With debt financing, Morris advised, the government could undertake and achieve large projects: fielding an army, for example, or, after the peace, building roads and "internal navigations."

This had been demonstrated in the early stages of the war, when Congress financed the army by printing money, but public confidence in the new American currency had been squandered.

That confidence could be restored simply enough, Morris said, by the payment of taxes. That strategy may seem prosaic, but consider the tone Morris adopted in pressing the governors of the states to fund the operations of Congress. "It is by being just to Individuals, to each other, to the Union," Morris insisted, "by generous grants of solid Revenue, and by adopting energetic measures to collect that Revenue; and not by complainings, vauntings, or recriminations that these states must expect to establish their Independence."