BackStory

This is the transcript of “Borrowed Times: A History of National Debt,” originally broadcast in June of 2011. You can listen to the entire show here.

Peter Onuf:  From VFH Radio in Charlottesville, Virginia, this is “BackStory.”  [music]

Brian Balogh:  At some point this year, the U.S. national debt is expected to eclipse the GDP.  That’s only happened one other time  – at the height of World War II, and we can be sure that when it happens again, it will usher in plenty of doom and gloom about what it means for America’s future.

Ed Ayers:  But debt wasn’t always seen as a such a terrible thing for the nation.  Alexander Hamilton famously said it could be a “national blessing,” so what changed, and when?

Peter Onuf:  Today, on “BackStory,” the history of our national debt and our anxiety about it.  Why did Hamilton embrace the IOU and what would he say if he were around today?

Tape:  I think what he would say is don’t lose heart, that most of what an economy is about and most of what a government is about is confidence.

E. Ayers:  We’ll also look at what happened when the government turned to ordinary Americans to help pay for World War I.

B. Balogh:  All that and your calls coming up on “BackStory” after this news.

[BREAK]

E. Ayers:   Major production support for “BackStory” is provided by the Joseph and Robert Cornell Memorial Foundation and by the National Endowment for the Humanities.  [music]

P. Onuf: This is “BackStory,” with us, the American History Guys.  I’m Peter Onuf, 18th century guy.

E. Ayers: I’m Ed Ayers, 19th century guy.

B. Balogh: And I’m Brian Balogh, 20th century history guy.  [music]

P. Onuf:  “A national debt, if it is not excessive, will be to us a national blessing.”  Those were the words of Alexander Hamilton, the nation’s first Treasury Secretary, in the years following the Revolutionary War.  Turn on the TV these days, of course, and you’ll hear a very different tune.

Tape (debt apocalypse montage):  The next great political battle over how to deal with America’s debt is being described as Armageddon…  The U.S. government reached its 14.3 trillion dollar debt ceiling this morning….  That will add another three trillion dollars to our national debt.  This would be a disaster….  That is going to catastrophic levels.  We will have a debt crisis. What we are possibly looking at is something far worse than the Depression…  We will not be able to grow our way out of this problem.

E. Ayers:  On each episode of our show, we take a topic from the world around us and explore its historical context.  Today, with the national debt at more than 14 trillion dollars, almost as much as the entire GDP of the nation, we’re asking when the national debt became such a problem for us.  Have there been times in American history when debt wasn’t seen as such a dangerous thing?  And if so, what changed?

B. Balogh: We’re going to start by handing things over to the man who can shed a little light on that Hamilton quote about national debt being a national blessing, and that’s none other than our 18th century guy, Peter Onuf.  Now, some of you might know him as a Thomas Jefferson expert, so you have to take his words about Hamilton with a grain of salt.  You see, this debt issue was one of the biggest points of disagreement between Hamilton and Jefferson and so with that caveat to our listeners, why don’t you tell us, Peter, how in the world Hamilton could have possibly have thought that the national debt might be a good thing.

P. Onuf:   Yeah, well, listen, the one thing we all have in common now is that debt and that is a sort of an echo of what Hamilton was saying.  In Hamilton’s day, to have a debt was to create a common interest and that is creditors would have a stake in America incorporated, they would feel bound and obligated to support the enterprise and remember this, we’re talking about the collapse of the American system now.  Well, that’s probably not going to happen right away but it could’ve happened in 1770.

E. Ayers:  A lot more imminent in the 18^th century than it is the 21^st.

P. Onuf:  Absolutely, and you needed debt to create a kind of cement to hold things together.

E. Ayers:  Because what else was there?

P. Onuf:  Nothing, because we have a group of states that had no common history until the Revolution, who don’t trust each other—

B. Balogh:  And, Peter, is it true, that all those states had individual debts.

P. Onuf:  Yes, absolutely.

B. Balogh:  So that to bring that together was to literally forge a nation as much as writing that Constitution.

P. Onuf:  You’re so right, Brian, and that’s the genius of Hamilton’s financial plan was to assume those individual state debts for the cost of the Revolution.

E. Ayers:  He’s not creating the debt.

P. Onuf:  No, he’s transforming what everybody says is a burden and he’s making it into the foundation of a financial system that’s going to give the United States the capacity to borrow in the future.  Nobody’s going to lend to you in the next war if you defaulted on the last war.  That’s the end of you as an effective government.

E. Ayers:  So, he’s not just saying it’s great to borrow as much money as we can.

P. Onuf:  No, no, no.

E. Ayers:  What he’s saying is, folks, we owe this money.  What we can do is we can make it a national debt rather than this fragmented kind of specious local debt.

P. Onuf:  Right.  And he’s making a political argument for it, that it can be used as a fundamental instrument of nation-making and that’s precisely what Jefferson disagreed with, because Jefferson was concerned that this was the equivalent of bombing the village to save it, that is, if we created a strong central government in the United States, what was the point of the Revolution in the first place because that was a revolution against centralized authority.

E. Ayers:  What would Jefferson do about the money that was owed?

P. Onuf:  Well, and he and other optimistic Americans believed that there are resources that the country has, both in import duties and land sales, that can quickly service that debt so that it will not be an encumbrance on future generations.

E. Ayers:  So what’s really at stake is how quickly the debt is paid off.

P. Onuf:  Yes.  Right.

E. Ayers:  And Hamilton says, look, there’s no rush, folks, because the longer we have it, we’re kind of indebted to each other.

P. Onuf:  Nice way to put it.

E. Ayers:   It’s a glue that will hold the country together and Jefferson says, look, folks, we’ve got these resources, why do we want debt?  We’ll find other things to hold us together.

P. Onuf:  Yes, and after all, the purpose of the Revolution was not to create a business enterprise, not to institutionalize the position of creditors.

B. Balogh:  And Peter, let me ask you about those creditors because he didn’t imagine everybody owning a piece of this debt, right?

E. Ayers:  Or the Chinese.  [laughter]

P. Onuf:  No, that is really is a 20^th century invention, or maybe a 19^th with the Civil War.

B. Balogh:  So, who did he imagine and who did he want to own this debt?

P. Onuf:  Well, you know, in the 18^th century, you would be focused on political and economic elites, what you might call a monied aristocracy and that term is crucial because that’s what Jefferson and his colleagues called the creditors of the U.S.

B. Balogh:  Yes, why do you rob banks?  Well, that’s where the money is.  Where’re you going to go to borrow money?

P. Onuf:  Right, here’s the problem.  Aristocracy suggests a particular privileged class that has an advantage over and dominates the rest of society.  That’s according to Jefferson what we fought the Revolution to get away from.

B. Balogh:  Right.  And what’s worse, to pay off that debt, we’re going to have to raise our taxes.

P. Onuf:  That’s right.

B. Balogh:  That’s also what we fought the Revolution against.

P. Onuf:  Every man is going to pay taxes so that a few privileged people can live high on the hog.

B. Balogh:  Well, there’s no doubt that Peter does a very compelling job of channeling his man Jefferson and Peter, I want you to know this might come in handy for you if you ever give up this radio gig.  Demand for Jefferson impersonators, we’re told, is strong as it’s ever been.  Hamilton impersonators, on the other hand, have been having a little harder time finding work, but there is at least one guy who still makes it his mission to keep Hamilton’s flame alive.  We found him at home on his farm in, of all places, southern Virginia.  [sound of phone dialing]

Tape (Bill Chrystal):  Hello.

P. Onuf:  Is this Alexander Hamilton?

Tape (Chrystal):  Yes, sir, this is.

P. Onuf:  Yeah, right.

B. Balogh:  All right, I gotta ask you.  With the huge run-up of debt and the crisis over the debt ceiling, are you taking a lot of heat these days?  Do you have to wear a paper bag over your head when you perform?

Tape (Chrystal):  Absolutely not, sir.  To hold me responsible for what’s going on in your economy today is like holding Augustus responsible for the burning of Rome.

P. Onuf:  Whoa.

B. Balogh:  We only do American history, Al.  [laughs]  Let’s stick to this country. Let’s not change the topic here.

Tape (Chrystal):  Let me just say that there are a great many things that were done to derail elements of the Hamiltonian system that might have been useful.  I think a lesson that may have gotten lost somewhere is that many of your agents of government are also—well, they’re speculators, they’re involved in your markets—and I think those two functions may be mutually exclusive.

P. Onuf:  Well, now, Jefferson always thought you had in your personal and private life, that is, with respect to finances and so forth, that you were on the up and up, absolutely an honorable man.  It was just your ridiculous preference for monarchy and aristocracy that got in the way.  [laughter]

Tape (Chrystal):  I’ve always found it ironic that a man who was carried about on a pillow—that’s one of his earliest memories—to call me an aristocrat when I, on the other hand, was an orphan living on the island of St. Croix making my own way at the age of 11.

P. Onuf:  Yeah.  Maybe illegitimate, too.

Tape (Chrystal):  Only because women were disenfranchised, sir.

P. Onuf:  Now, that is a very progressive way to respond to that.  Terrific.  [laughter]

B. Balogh:  That’s actual news.  Hamilton advocates women’s suffrage.  [laughter]

P. Onuf:  We’re going to unmask Alexander Hamilton now and reveal the crystal within.  [laughter]  This is Bill Chrystal.  Bill is the Alexander Hamilton impersonator.  If you’ve just tuned in, you might have thought we really had Alexander Hamilton on the line, so Jefferson is seen as a visionary and I think I hear you saying that Hamilton was a visionary, too, but we just don’t see his vision.  I mean, Hamilton—you got shot, you died, and you didn’t get a chance to consolidate your reputation for posterity, so what is the vision, the Hamiltonian vision, that we just don’t see.

Tape (Chrystal):  You isolate something key.  For 24 years, Adams and Jefferson were free to say anything they wanted about Hamilton and he couldn’t respond and he has been saddled with this legacy. What was his vision?  I think his vision was one of an America that was truly possessed of a mixed economy where wealth was not perceived to come only from the land, but wealth could be created through trade and especially through manufacturing and that this could become a country where not only a small percentage of people would create wealth and therefore work for everyone else, but that everyone could have a decent standard of living.  I think that’s the Hamiltonian dream and I think it has worked well for us up to a point.

P. Onuf:  So, what you’re saying is that the real aristocrat is Thomas Jefferson and other people who fetishize the land, the agrarians, that the real Democrat is Alexander Hamilton.

Tape (Chrystal):  That would be my take on it and I know that’s a complete reversal of what  most people have been taught to believe, but we need to remember, Jefferson was a physiocrat, wealth comes from the land and that means wealth goes to the landowners and they parcel it out by buying luxuries that are produced by other people, but there’s certainly not going to be a lot of wealth in a system like that.

B. Balogh:  Bill, Hamilton was also a problem solver, so I want to ask you what Hamilton would have to say to Boehner or Obama about the current situation we face with a colossal debt that threatens to become as large as the GDP of the nation.

P. Onuf:  It’s not a national blessing.

Tape (Chrystal):  [laughter]  Well, as Hamilton said, it’s a national blessing if the means to extinguish that debt are also present.  That’s the second part of the sentence that he’s not usually credited with.  I think what he would say is don’t lose heart, that most of what an economy is about, most of what a government is about, is confidence and as long as the people are confident and are willing to invest in the government and in its debt, then you don’t have a problem.

P. Onuf:  But it seems to me the key thing, though, Bill is in order to service the debt, in order to create the confidence in the nation’s creditors, you have to show the capacity to raise revenue and it comes right down to this—you have to impose taxes and that’s what certainly Hamilton was prepared to do so you’re suggesting that Jefferson kind of pushes the libertarian button and makes us feel good about our liberties.  Hamilton is a realist and he pushes the taxation button, that is, if there’s going to be real confidence in a government, it’s because it has the capacity to raise revenue and that’s, of course, the third rail these days.  You can’t talk about taxation.  That may be one of the problems with Hamilton now.

Tape (Chrystal):  Have you thought about going on the road as Hamilton?  I think you’ve got it.  [laughter]

P. Onuf:  Hey, Bill, thanks so much for talking with us.

B. Balogh:  Hey, it’s been terrific.  Thank you very much.

E. Ayers:  Thanks a lot.

Tape (Chrystal):  My pleasure.  Thank you so much.  [music]

B. Balogh:  That’s Bill Chrystal, an Alexander Hamilton impersonator in southern Virginia.  Leave a question for him at backstoryradio.org, and we’ll see if we can’t get a response from Hamilton himself.  [music]

E. Ayers:  It’s time for a short break. When we get back, we’ll go to the phones, and take a few of your calls about the history of our national debt.

P. Onuf: More “BackStory,” coming up in a minute.  Don’t go away.

 

P. Onuf: We’re back with “BackStory,” the show that takes a topic from the news and spends an hour exploring its history.  I’m the 18^th century guy, Peter Onuf.

E. Ayers: I’m the 19^th century guy, Ed Ayers.

B. Balogh: And I’m your 20^th century guy, Brian Balogh.  Today, we’re taking on one of the big issues fueling conflict on Capitol Hill these last few months, and that’s the national debt.  How much is too much and how has the answer to that question changed over the past two centuries? As we do with each of our shows, we’ve been inviting your questions and comments about today’s topic on our website and Facebook.  Our producers have invited a few of the people who weighed in there to join us on the phone.  [dial tone]

P. Onuf:  Our first call today is coming from all the way across the Pacific.  It’s Andy in Tokyo, Japan.  Andy, welcome to “BackStory.”

Caller (Andy):  Well, thank you very much.  It’s good to be with you.

P. Onuf:  Hey.  So, we’re talking about debt today and you’ve got a question for us.

Caller (Andy):  I do.  I am an American living abroad so I have maybe a little different perspective than some other people and I’ve seen a lot of people who are fighting right now about one side or the other on what we should do about the debt and I’m curious if maybe people are kind of missing something that history would tell us about what other kinds of factors pop up when there’s that crisis in the national debt, so I’m wondering, guys, what do you see in your centuries?  What else is going on when there’s an explosion in the national debt?  Is it war?  Is it trade?  Is it energy?

P. Onuf:  Wow.  Man, this is the big question and we’re going to set up the entire program and maybe the next two with this question.  What else is happening during periodic debt crises and I’ll kick that one off, guys, if you don’t mind and get it to you as fast as possible.  No debt, no country.  The Americans go into debt, the patriots, in order to win independence because, of course, they couldn’t pay as they went because they had nothing to pay with.  Scarcity of currency and capital and credit, they had to turn to Europe and they had to turn to Dutch bankers and the whole history of the U.S. is predicated on creditability, that is creating a government that was capable of borrowing, so, in a way, if you want a short version of the Constitution, the Constitution is a device that enables Americans to service long-term debts and that’s another name for the country.  The country is a long-term debt.  [laughter]

E. Ayers:  That’s amazing.  So, the United States is basically a debtor.

P. Onuf:  Yeah, absolutely.

E. Ayers:  That’s what we are.

P. Onuf:  Think about this, Ed, for just a minute.  It’s the fantasy that the nation is immortal.

E. Ayers:  Yeah.

P. Onuf:  What does that mean really?  I mean, we think of it romantically in mystical terms across the generations but what we’re really talking about is that obligations made now are good in the future, that is, we commit ourselves and we commit our children to meet these obligations.  That’s what a country is.

E. Ayers:  So, it’s almost as if our motto could be too big to fail.

P. Onuf:  You’ve got it.  [laughter]

B. Balogh:  Although, Ed, I would just add, in Peter’s period, it’s more like we hope to become too big to fail.

E. Ayers:  That’s right.

P. Onuf:  Oh, yeah, that’s right.  We were on the brink of failure.  That’s why it was so important to get this financial situation straightened out.

E. Ayers:  So you came out with this big statement in response to Andy’s big question.

P. Onuf:  Well, it’s a very big question.

E. Ayers:  And my big answer is the key variable in the history of American debt is war.  From 18^th, 19^th, 20^th centuries, 21^st century, the driver is war, even though we often think of it as governmental policy.

B. Balogh:  No argument from me, Ed.

E. Ayers:  Well, that’s not an interesting—  What can I say that would make you argue with me, Brian?

B. Balogh:  No, no, no.  I want you to elaborate in your century what did it.

E. Ayers:  Well, you know, I think in many ways the United States would not have the confidence to go to war against half of itself in the Civil War—

P. Onuf:  That’s a great point.

E. Ayers:  Without the capacity to secure debt, and the Confederacy would not have had the confidence to go to war against the United States had it not believed somewhat correctly it proved, that it could secure the wherewithal to fight by borrowing the money and materiel from England and France, so without the success, Peter, of your Founding Fathers, we never would have had the Civil War because the two—

P. Onuf:  Well, every war is a bet on the future and we take out loans with the idea that the future will turn out in a certain way and we can service those things.

E. Ayers:  So, Andy, I don’t want to deflect attention away from the United States, but I just want to ask—isn’t there quite a bit of debt over there in your adopted country?

B. Balogh:  I understand that the Japanese national debt is twice the Japanese GDP.

Caller (Andy): Not only is there a ton of debt here, but there’s a ton of buying of the U.S. debt.

P. Onuf:  They don’t get enough.  They need ours, too.  [laughter]

Caller (Andy):  Yeah, and we’re in a very strange position right now because of the recent disasters here where everyone knows that the debt is going to have to explode, so the one thing you see here everywhere on signs on the train, on advertisements on television, it’s from the government but it’s also from companies and schools and organizations of all sorts.  Everywhere you see this little message that says [Japanese], which means everybody keep working, keep trying, [laughter] don’t give up, and there’s a sense that, well, we’ve been here before.  The Japanese completely lost in World War II and not only did they succeed, but they thrived by saying all right, well, let’s give up on what we thought was going to be the future and see what we can build next and there’s a real sense of that even now.

P. Onuf:  Andy, what you’re saying is that there isn’t a lot of finger pointing.  It hasn’t become a cleavage in the body politic the way it has in the U.S.

Caller (Andy): No, and maybe more importantly, there’s a sense that maybe the national government is not doing the best job, but regionally, people are really doing what needs to be done.

B. Balogh:  Yes, so, Andy, you’re telling us that if we increase the debt, maybe finally we’ll get rid of all these partisan divisions.  We’ll be in the same debt boat together.

P. Onuf:  We need a Japanese-level debt.

B. Balogh:  Right.

P. Onuf:  Well, that’s an inspirational message.  Thanks a lot, Andy.

Caller (Andy): You bet.  Thanks, gentlemen.

E. Ayers:  Bye bye.  [music]

B. Balogh:  Ed, I get the feeling and Peter’s period, I think if we’re doing a scorecard, debt—well, you got its supporters and its detractors, it’s good, it’s bad, it’s complicated.  In the 19^th century, it’s a simpler time.  Debt is a bad thing, right?  National debt?

E. Ayers:  And here’s a case where America really is exceptional because you could go into debt if you were going to build one of the largest nation states in the world, or you could just sell immense amounts of land that you happened to own and you happened to take away from the indigenous people in order to fund the growth of the state.

P. Onuf:  Right.

E. Ayers:  So the United States is actually able to dodge this crucial question for generations, except for wartime.

B. Balogh:  Because we have this surplus, so to speak.  Wouldn’t you say, and it’s in the shape of land?

E. Ayers:  Yeah.  We’re selling off the family silver.

P. Onuf:  Well, but there’s also internal improvements.  It’s important to keep in mind how much British capital flows into the early republic and to your period, Ed, in forms of railroad financing.

E. Ayers:  Which makes that land more valuable and more accessible.

P. Onuf:  And so states like Indiana are going to borrow in order to finance an elaborate internal improvements program and then they go belly up.

B. Balogh:  Because every other state financed one, too.  [laughter]

P. Onuf:  And that is the big fact of mid-19^th century public finance before the Civil War is that the credit ratings of American states go into the toilet and it took until well until the 20^th century for states to get the highest credit ratings again.

E. Ayers:  So, Peter, what you’re saying is that in some ways we shifted the burden of debt from the federal government to the states and the states didn’t really handle it all that well.

P. Onuf:  No, they sure didn’t.

E. Ayers:  And there’s another irony in what you describe that the people that the United States were in debt to were the English.

P. Onuf:  Yes.

E. Ayers:  So, we fight a war.  So, let me see if I understand this story you’ve told.  Basically, the founding of America is created by a crisis of imperial debt by the English, right?

P. Onuf:  That’s right.

E. Ayers:  Because they go into debt to protect the American colonies, they come and say, hey, guys, how about helping us pay off that debt that we incurred to save you from the French and the Indians.

P. Onuf:  Seems reasonable, doesn’t it?  [laughs]

E. Ayers:  And, oh wait, no, don’t rebel.  Oh, God, we lost America, but, hey, how about this?  We will loan you money on the private side.

B. Balogh:  Ed, I know we ran up some debt during the Civil War but I don’t see it showing up 20 years later, 30 years later.

E. Ayers:  What?

B. Balogh:  As a big percentage of GDP.  How did that debt get paid off?

E. Ayers:  I thought you were going to say you don’t see it turning up 20 years later as the defining issue in Gilded Age politics which, my friend, I know you know in fact it was the defining issue.

B. Balogh:  So, in what form did it take?

E. Ayers:  Well, you know, it never really dies down from the 1870s and 1880s and 1890s, the debt from the Civil War is the defining issue of American politics.  That’s really what people are fighting about is how that debt’s going to be repaid—on the cheap with greenbacks.

B. Balogh:  Right.

E. Ayers:  Or in a moderate way with silver or in the soundest way, with gold.  Right?

P. Onuf:  Yes.

E. Ayers:  Now, at the same time, massive investment in the United States, especially in these transcontinental railroads, massive investment in steel and coal mines and all this sort of stuff, and a lot of the times back in the shadows, that’s actually foreigners who were doing this, and so some people look at all of this, and this becomes a popular and a scary vein in America history, what’s the connection between all this kind of shady private investment of foreigners and somebody manipulating this public debate over how this big debt’s going to be repaid.  Some people look and say, you know what I think it is?  I think it’s a global banking conspiracy.  I think that Jews are behind this and it becomes ironically sort of the one virulent strain ever since.  When the Federal Reserve System is created and all this, this sense that somebody who’s not America is controlling our financial future.  [music]

P. Onuf:  Hey, guys, we have a call from Delray, Florida.  It’s Kate.  Kate, welcome to “BackStory.”

Caller (Kate): Hi, and thanks for having me.

P. Onuf:  Debt is on the table today.  We’ve got to deal with it.  What’s your question?

Caller (Kate):  If you look at where our national debt was in 1860, we had about 65 million dollars in the national debt and then by 1863, it had spiked up to a billion dollars and this was the first major spike in our national debt, so I think you’ve got to draw the line from somewhere and my question is in what ways did the re-entry of an economically devastated South contribute to the national debt after the Civil War?

E. Ayers:  Ahhh, good question, Kate.

B. Balogh:  And I’m all over it, Ed.

E. Ayers:  That’s right.  Well, you notice who’s stepping up.  The guy with the southern accent here on all this.  You know, upside down you might think that the devastation of the South contributed to the national debt, but in all honesty, the North actually took advantage of the South.

P. Onuf:  Get over it, will you?

E. Ayers:  I know.  I’m just telling the truth.  And I’m not saying this was even wrong, but the banking system was recast during the Civil War itself while the Republicans were in power.  The currency system based on greenbacks was actually preferential to the North.  The tariffs structure benefited the North and the pension system benefited northern veterans and the South was actually a net payer of the debt.

P. Onuf:  Reparations, you might say.

E. Ayers:  Yeah.  Really, that’s a really good point, Peter.  I’ve never thought of it that way, but it was a kind of a direct reparation, so it devastated southern state debt but as far as the nation, it barely looked back and, in fact, just continued taking advantage of the advantage of the North that came out of the war.

P. Onuf:  So, the Confederate debt was wiped out, right, Ed?

E. Ayers:  All the individual bondholders—

P. Onuf:  They just lost it.

E. Ayers:  They just lost it.

B. Balogh:  That’s one way to wipe out debt.

E. Ayers:  So you have the sources of resources that might have helped the South deal with the debt that it incurred.  Land prices plummet.  The abolition of slavery in economic terms for white people was the loss of three billion dollars and the state governments had to pay for things like artificial limbs, things like that, which were an enormous part of the economy of the post-war southern government.

B. Balogh:  And, ironically, Ed, I think some of those state governments, in fact, you may have taught me this, I think some of those state governments started going into debt to do things like build railroads that northern states gave up on in the 1840s and 1850s.

P. Onuf:  It was pretty much privatized by the Civil War….

E. Ayers:  The southern states say, hey, these are going to be engines of economic development.

B. Balogh:  And so they went into debt to England to help fund a lot of this.

P. Onuf:  So, Kate, the first point I think we’re making here is that you have to distinguish the federal from state debts and what Ed’s talking about is a financial crises for state governments in the South after the Civil War, actually because the federal government had developed such a financial apparatus so effective in such a capacity to raise revenue that as he suggests, the South was actually a net loser paying for servicing the debt.

E. Ayers:  And there’s another way of thinking about this.  Now, you remember FDR refers to the South in the Great Depression as the nation’s  no. 1 economic problem and that’s partly because the South had not really been invested in by the nation in all the generations after the Civil War.  Now, frankly, white southerners did okay.  They kind of regained their balance.  They were poorer than white northerners but the black southerners were never given a chance.

B. Balogh:  That’s right.

E. Ayers:  The 40 acres and a mule did not come to pass.  Any kind of real investment in the future of African Americans in the South was not made and you could argue that the South began to drive up the national debt really after the re-integration of the South into the nation after World War II and that it’s only with the civil rights movement and the use of the federal government and sometimes through defense spending, frankly, and through other kinds of investment in the South, so I think we might think about this regionalization of the debt also by thinking of it in terms of who the real victims of all this were…

P. Onuf:  That’s a great point, Ed.

E. Ayers:  …and how long that took…

B. Balogh:  That’s terrific, Ed.

E. Ayers: …for the debts to begin to be repaid.

P. Onuf:  And what you’re saying is that in fact if you’re looking at federal transfer of payments, the federal investment in different parts of the country, the South is doing very very well in the modern post-World War II period.

B. Balogh:  Even though they’re the biggest critics of federal spending.

P. Onuf:  That’s true.

E. Ayers:  But, you know, that goes back to—

P. Onuf:  The West does pretty well, too.

E. Ayers:  So, it’s interesting that those who are receiving the transfer payments from the federal government somehow resent it.

P. Onuf:  Yeah, ingrates.

E. Ayers:  Yeah, well, I think it’s partly because of this memory of for so long the South felt as if it was paying in but not getting anything back.

P. Onuf:  That’s right.

E. Ayers:  Even though really for two or three generations now, the South has been the net recipient of tax dollars, but it’s come in the form often of defense spending and of welfare payments.

P. Onuf:  And that’s why we’re going to secede.  We’ve had enough of this, Kate.

E. Ayers:  Anyway, so I think your question is so good.  I think we pulled the camera back a little bit.  We can see that the regional stage of this also needs to be reconsidered as a sort of racial stage and when we do that, we see that in many ways we’re still paying the debts of the Civil War and of the slavery that preceded it.

B. Balogh:  Hey, Kate, why would someone in Delray Beach be interested in the debt?

P. Onuf:  Yeah, that’s not really part of the South, is it?

Caller (Kate): You know, I’ll be honest.  I’m originally from Knoxville, Tennessee.

E. Ayers:  All right.  Where I received my education.  Good talking to you.

Caller (Kate): And when I moved down here, I just started reading about the Civil War and it’s just become a part of my everyday activities now.

P. Onuf:  That’s sick.

E. Ayers:  Hey, Kate, don’t you think you should be out there earning a living and paying down the debt instead of reading about the Civil War?

Caller (Kate): You know, no. Not at all. [laughter]

P. Onuf:  Thanks, Kate.

E. Ayers:  Thank you, Kate.

Caller (Kate):  Absolutely.  [music]

B. Balogh: It’s time for another short break, but don’t go away. When we get back, we’ll push the story of the national debt forward into my century—the 20^th century.

P. Onuf: You’re listening to “BackStory” with the American History Guys.  We’ll be back in a minute.   [music]

 

P. Onuf: This is “BackStory,” the show that turns to history to explain the America of today.  I’m Peter Onuf, speaking for the 18^th century.

E. Ayers: I’m Ed Ayers, representing the 19^th century.

B. Balogh: And I’m Brian Balogh, voice of the 20^th century. Today on the show, we’re looking at the national debt throughout each of our centuries and asking whether Americans have always worried about it as much as they do today.

E. Ayers: So, guys, it seems like a pattern is beginning to emerge in this show.  I’ve been paying attention and this is what I’m hearing.  We’ve considered the Revolutionary War in Peter’s period, and the Civil War in mine, and in both these cases, the national debt spiked in wartime only to be followed by long periods of peacetime debate about what to do about that debt.  So let’s push the story forward.  When the 20^th century finally rolls around, we’ve just had this big debate about the debt back in the late 19^th century, but we’ve also managed to pay it down to almost pre-Civil War levels, which is next to nothing.  I can’t wait to find out what happens next.  Brian?

B. Balogh: Well, what happens, Ed, is World War I.  Now the important thing to remember here is that this wasn’t a very popular war.  In fact, Woodrow Wilson had been re-elected partly because he was going to keep out of that war.  So in 1917, when Congress declared war, Wilson realized that he was going to have to really work pretty hard to whip up support for the war.  So, what does he do?  He takes a card from the deck of none other than Alexander Hamilton.  You’ll recall that Hamilton’s big idea was getting citizens to invest financially in the nation, but Hamilton was mainly interested in fat-cats—

P. Onuf:  Right.

B. Balogh:  So he could yoke all that money and wealth and power to the nation.  Well, Wilson’s problem was almost the opposite.  He wanted to get average Americans invested in the debt so that they would support this war, so they would have something directly at stake.  He went after women who couldn’t even vote.  He went after disenfranchised southern African Americans.  He went after the very kinds of people who Hamilton wouldn’t have cared about in terms of supporting a debt and it was a really terrific strategy.  In a new book called When Wall Street Met Main Street, historian Julia Ott describes the Liberty and Victory Loan campaigns, in which war bonds were sold in denominations as small as 50 dollars, war bonds that ended up raising 21 and a half billion dollars and that got 20 million Americans invested in the war.  Almost twice as many people participated in a savings campaign that sold government securities for as little as a quarter.  Compare that to before the war, when no more than half a million people had ever owned any type of publicly-traded financial security.  Ott told me that the Treasury Department was so successful in part because it relied on pre-existing groups to spread the word.

Tape (Julia Ott):  Everything from labor groups, ethnic societies, women’s clubs, African American churches, trade associations, newspapers, and these groups in turn are given relatively wide latitude to promote war bonds however they see fit.

B. Balogh:  So what’s the most outrageous appeal that you came across in your research?

Tape (Ott):  Oh, I don’t know if it’s fit for radio.  [laughter]

B. Balogh:  Give it a try.

Tape (Ott):  The civic leaders of Memphis, Tennessee decide that they’re going to have a billboard downtown, a moving billboard, and it’s going to be the Kaiser and Uncle Sam is standing behind him with a bayonet and as Memphis citizens subscribe ever-increasing amounts—

B. Balogh:  The bayonet gets closer?

Tape (Ott):  It gets closer to the Kaiser and the Kaiser bends over.  [laughter]  And it ends with Uncle Sam sort of sodomizing the Kaiser with a bayonet.

B. Balogh:  And did they meet their goal, Julia?

Tape (Ott):  Yes, they did.

B. Balogh:  Okay.

Tape (Ott):  So, that’s sort of the most outrageous, but there’s all kinds of publicity and stunts and parades and the thing that’s interesting is that all of these different groups report their activities back to the War Loan organization in Washington and they in turn report what other locales are doing as a way of both indicating the broad base of support that the administration and the war enjoy, but also in an effort to inspire or shame those who do not subscribe into doing their civic duty.  In fact, in order to get as many subscriptions as they do, there is a fair amount of coercion.  Foremen in factories, if they find out that a guy elsewhere in the plant isn’t doing his duty, they might go cover him with a coat of yellow paint and you might find that if they felt like their boss had not subscribed sufficiently, he might find a brick thrown through his window later that night.

B. Balogh:  So, Julia, you make this sound like protection money.

Tape (Ott):  Well, there is this one incident where the Treasury Department sends people out to ask how are things going and at one particular plant, I think in Providence, they asked the plant manager what he’d been doing and he said, “well, we give our workers these buttons if they subscribe,” and the Treasury Department  representative says, “well, what if somebody doesn’t subscribe and they don’t have a button?” and the plant manager responds, “well, that guy’s actually in the hospital.”  [laughs]  They literally are paying for the button because the button then protects you from violence.

B. Balogh:  But, Julia, it wasn’t all coercion, right?  There were lots of appeals from people who really thought that they could make a much better claim to citizenship if their race, their demographic group, would step up to the plate and buy these bonds.  Am I wrong about that?

Tape (Ott):  That’s absolutely correct.  One of my favorite quotes from my book is written by an editor of The Savannah Tribune which is an African American newspaper.

B. Balogh:  Do you have that quote with you?  Could you read us the quote, Julia?

Tape (Ott):  I do.  He asks that, “every Negro man and woman of the state of Georgia to come with your unmeasured determination, to pour out your money, that in the close of this world struggle, an international carnage of war, the flickering rays of the star of hope may scintillate into a fully and complete brilliancy of rights and privileges long longed for and prayed for by our fathers and mothers who sleep beneath the soil of a country made rich by the labor and toils of a race which has never produced a Benedict Arnold, an assassin of a president, or a thrower of bombs to destroy life and property.”

B. Balogh:  Wow.

Tape (Ott):  So this editor obviously imagined that if African Americans made a strong showing on the subscription lists, that they would be able to claim full political rights in the post-war period, having suffered a complete absence of political rights under Jim Crow since the end of the Civil War.

B. Balogh:  So, look, there’s an alternative to asking people to volunteer to give a quarter and that’s to tax them a quarter.

Tape (Ott):  Right.

B. Balogh:  They could’ve done that.  They decide to go with this bond program and savings program because they thought they’d get more buy-in that way, right?  It would show support for the war, so my question to you, Julia, is did it work?

Tape (Ott):  Well, I should first say they’re successful in the sense that the war bond campaigns are part of the way in which open opposition to the war is silenced.  It creates a civic culture in which dissent, both in terms of missing out on the celebration and then also having possibly suffered coercive reprisals make it very difficult to publicly oppose the war effort.  In terms of the lasting consequences, it’s very interesting because the government savings program which is the continuation of the war savings programs remains quite popular in the early 1920s and it puts the Treasury Department in a bit of a pickle because you’ve got these working-class and middle-class Americans who write to the Treasury Department saying we want this program, I would rather invest my money in financial securities of the federal government than to put it into an unsafe bank or into the unsafe stock market, but the problem is you’ve got fiscally conservative Republican administrations who really don’t have any plans or desire to spend that money, so ultimately, this program, it it’s so successful that the banking industries lobby to make sure after 1924 is terminated, but there is the kind of like shift in the way that Americans think about their relationship with the federal government, that their relationship with the federal government can include this financial component.

On the other side of things, from the point of view of securities distributors, corporations, and financial institutions, they had never perceived of the kind of average American as being a particularly good business, a good risk for them, but what they see when millions and millions of people subscribe to federal bonds in World War I is that actually every man can maybe afford a hundred dollar security if we lend them money to do so.  Maybe this would be a good business to get into and so it sort of introduces Wall Street and Main Street to each other in a way that corporate stock distributors kind of pick up and run with, particularly in the later 1920s.

B. Balogh:  Julia Ott is an assistant professor of history at the New School.  Her new book is called When Wall Street Met Main Street:  The Quest for an Investors Democracy.  Thanks a million, Julia.

Tape (Ott):  Okay.

B. Balogh:  Bye bye.

Tape (Ott):  Bye.   [music]

E. Ayers:  You know, we don’t traffic in nostalgia here at “BackStory.”  To the contrary, but, boy, it’s hard not to be a wistful thinking about all that buy-in and a common purpose and people rising to the occasion and all that, but you also have to notice that a large part of Wilson’s success seems to be almost tapping into the psyche of the American people back then and as you think about the history that we’ve surveyed here, you’ve seen there’s a kind of a different psychology of debt in each of our centuries, so I wonder if you could maybe explain that a little bit to me.  I mean, the 18^th century feels so, to use a stereotype, rational and calculated, balance and all that sort of stuff, but how much do they really worry about this debt stuff in sort of these larger psychological terms, Peter?

B. Balogh:  They didn’t have psychology back then, Ed, so we’ll just go to my century.

P. Onuf:  They didn’t know it was psychology, but, I think in many ways, the central paradox of modern life is that as Jefferson put it, the earth belongs to the living and we have this feeling that we shouldn’t be encumbered by the commitments, the responsibilities that have been passed down from previous administrations.

E. Ayers:  And we should not be passing them down to a following generation.

P. Onuf:  Right.  On the other hand, we need to be free so that we can make commitments because the only way that you can create anything bigger than yourself and overcome the kind of solipsism or selfishness of simply protecting yours against everybody else’s, you’ve got to enter into binding commitments.  The whole modern economy is built on trust and confidence.  Modern politics is built on trust and confidence.  And so the question is is there a statute of limitations, in effect, on commitments.

E. Ayers:  So that’s the way the psychology of the founding was framed which is, ahhh, we’re all about independence, we’re all about individuals, and yet we’re having to enter into this compact and the compact is not only across space but across time.

P. Onuf:  Absolutely.

E. Ayers:  And what does debt mean?  Oh, man, is the 20^th century that complicated, Brian?

B. Balogh:  It’s more complicated.

E. Ayers:  Ohhh—

B. Balogh:  And I’ll tell you why.  We inherit everything that Peter was saying and it is embellished, to give you a little credit, during your period, especially the complicated social programs that come out of the Civil War.  Here’s what you get in the 20^th century.  You get John Maynard Keynes.

E. Ayers:  He’s not even an American, is it?  [laugher]

B. Balogh:  No, but what we were going to let him enter our show because his notions that the federal government can provide a stimulative role in the economy by going into debt.

P. Onuf:  Now, when did he make these arguments?

B. Balogh:  Well, he made them in the 1920s, in the 1930s, and in fairness, his ideas were not fully embraced in the United States until well after World War II and that’s because the massive debt that we went into during World War II seemed to confirm exactly what Keynes said.

E. Ayers:  So they became Keynesian after they’d acted like Keynesians, almost against their will.

P. Onuf: Inadvertent Keynsians…

B. Balogh:  That’s exactly right.  Now, if it were just World War II, I don’t think I would say it’s more complicated than what Peter laid out, but after World War II, leaders from both political parties began to argue that ongoing federal stimulus was crucial to the economy, so debt becomes a part of our day-to-day fiscal public policy.  It’s literally woven into the day-to-day political decisions that make our government run and I’ll add one more thing:  I would say the ease with which average Americans can go into debt, into individual debt—

P. Onuf:  I think that’s a great point.

B. Balogh:  Which our listeners know is very different than the national debt, but people inevitably conflate the two and just like Keynes showed us that debt not only can be good, it can be crucial, people understand that you can be very stupid if you walk to your realtor with $225,000 in cash and you don’t take advantage of a debt instrument which started in the 1920s, the home mortgage, which, by the way, is also subsidized by federal tax deductions, if you don’t take advantage of that debt instrument, you’re a fool.

E. Ayers:  And you have to admit that the public debate about this is very gnarled.  Nobody wants to defend debt today, but people who have a complex understanding of how debt is woven into the very fabric of the society are really at a loss other than a language of obligation to take care of the powerless, what else are you supposed to say about it.

P. Onuf:  Well, and just think about the modern economy.  In mean, debt, of course, we’re talking about credit.  We’re talking about the ability to borrow—who doesn’t borrow—and without that borrowing against expectations, that’s the end of economic growth, that’s the end of modern society as we know it.

E. Ayers:  Guys, I’m going to make an analogy that is going to shift us from public radio to satellite radio, but I think the analogy is sex, so in Peter’s era and your era, sex was in general a bad thing—

P. Onuf:  No, no.  We had it.

B. Balogh:  You had it.

P. Onuf:  Your era wouldn’t exist if it weren’t for sex.

B. Balogh:  But it needed to be bounded.  It needed to be used…

E. Ayers:  Institutionalized.

B. Balogh:  …sparingly and morally, it could be a wonderful thing if used in the right context.  In the 20^th century, especially after the 1960s, just about the time that people are accepting Keynesian economics, sex becomes an end in and of itself and what complicates things in my period is debt becomes a good thing in and of itself.

E. Ayers:  And in the same way that there’s a lot of kind of regret in some ways about sort of sex sort of disconnected from all these moral mores.  Now, we feel the same way about debt.

B. Balogh:  That’s right.  It’s the morning after.

E. Ayers:  That’s what I was getting ready to say, it’s the hangover of what it looks like if you have all the debt or all the sex you want.

B. Balogh:  It’s one reason you see the analogies of ourselves in ancient Rome.  There’s the same sense of they just had too much of a good thing, right?  Too much empire.  Too much expansion.  Too much military power.

P. Onuf:  That’s a great theme throughout your century, Brian, of moralizing about excess.  We’re almost over-prepared for the decline and fall because of the way we have moralized about ourselves.

E. Ayers:  Right.  We’re a little taken aback that we seem to still be doing okay.

P. Onuf:  Sorry about that.

E. Ayers:  But the thing is that American history is of not particular value right now as a template of how we might come out of it.  Before, you look at the Revolution, you look at the Civil War, you look at World War II, you fight the war, you do the good things, you pay for it and you move on.  Now, it seems like, God, what’s going to happen?  We don’t know.  And so history’s instructive in this case, not because it offers a quick answer but because it helps us have a sense of perspective about where we are.

B. Balogh:  That’s a great way to put it, Ed.  And a great note, I think, to end today’s show on.  But remember that the conversation continues online.  Drop in at backstoryradio.org or at facebook.com/backstory and share with us your own metaphors for the national debt.  We’ll give credit where credit’s due.

P. Onuf: This is the last show in which we can say that “BackStory” is produced by Tony Field, with help from Catherine Moore.  Catherine is headed off to greener pastures in her home state of West Virginia.  Catherine, we’re going to miss you and we’re in your debt.

E. Ayers:  Jamal Milner mastered the show and Gabby Alter wrote our theme.  Amy Curtis is our intern. “BackStory’s” executive producer is Andrew Wyndham.

P. Onuf: Support for “BackStory” is provided by James Madison’s Montpelier, Weinstein Properties, Trish and David Crowe, Austin Ligon, and an anonymous donor.

Catherine Moore:  Brian Balogh and Peter Onuf are professors in the University of Virginia’s Corcoran Department of History.  Ed Ayers is president and professor of history at the University of Richmond.  “BackStory” was created by Andrew Wyndham for VFH Radio at the Virginia Foundation for the Humanities.