Economist James M. Buchanan pointed his finger squarely at Keynesianism for the decline in beneficial “Victorian fiscal morality,” which had constrained the political incentive to deficit‐spend in our early history. With the rise in Keynesianism, the “modern era of profligacy” was born, he said. Looking ahead, official projections show federal debt soaring in coming decades unless we get the profligacy under control.
Battles over federal government debt go back to the beginning of our nation, as I discuss in recent testimony to the House Budget Committee. On one side in the 1790s were Treasury Secretary Alexander Hamilton and other Federalists, who favored a perpetual federal debt, believing that it would create economic and political benefits.
On the other side were Thomas Jefferson and Albert Gallatin, who were appalled by high debt, and led the opposition to Hamilton’s fiscal policies. They believed that government debt was economically dangerous and politically corruptive. And they argued that debt enriched the financial elite at the expense of the people, while unjustly imposing burdens on future generations. They were right on all counts.
Fortunately for the nation, Jefferson’s election to the White House in 1800 was the beginning of the end for the big‐government Federalists. Jefferson and his Treasury Secretary Gallatin substantially cut the debt before the War of 1812 intervened. After the war, Jeffersonian leaders pushed once again to run surpluses and pay down the debt. That anti‐debt drive succeeded with the complete extinction of federal debt under President Andrew Jackson in the mid‐1830s.
Jefferson’s anti‐debt views more or less held sway in national politics through to the 1920s. The government racked up debt during wars, but it always paid it down in subsequent years. The rise of Keynesianism in the 1930s ended all that, reviving misguided Hamiltonian ideas in favor of government spending, debt, and central planning. Those ideas have caused a great deal of damage in recent decades, and have led to perpetually unbalanced federal budgets.
The Treasury recently announced plans to replace Hamilton on the $10 bill. Hamilton was a brilliant man and an important Founding Father, but he was on the wrong side of the crucial debt issue. If he is going to be replaced, we should swap him out for Albert Gallatin. Gallatin’s absence on any of our coins or notes is a major oversight given that he was a highly accomplished Treasury Secretary for 13 years, serving much longer in that post than Hamilton.
Gallatin was also a congressman, senator, foreign minister, a founder of New York University, and an expert on Native American languages. Gallatin was a stellar public servant, and he was on the right side of the government debt issue. He also favored transparency in government finances, and worked to present full and accurate Treasury accounts to the public. Furthermore, Gallatin played a leading role in the Whiskey Rebellion, opposing an unfair excise tax scheme pushed by Hamilton.
With the perils of government debt now more clear than ever, it would be a good time to give Gallatin his due and feature him on our currency. That would honor a man who was every bit as smart as Hamilton, but showed more foresight in recognizing that politicians and credit markets are a toxic combination.