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Norbert Michel: Good morning. Thank you for joining us. It was a bit unusually hectic to get here, so it’s an earnest thank you today. Welcome to Cato, and welcome to our fourth annual CMFA conference. I’m Norbert Michel. I’m the director of our Center for Monetary and Financial Alternatives. Our theme today is Money, Markets, and the American Experiment: 250 Years of Opportunity.

If you’re a financial historian—and let’s face it, you’re probably not—you would know that one of the unique things about America is that from the very, very beginning of the nation, we had a very robust banking and capital markets system. And that was unique to America. And in a very short period of time, it grew to rival, if not surpass, the financial markets of every nation that existed at the time. And they just grew with the country. It was synonymous with the growth of America.

In 1998, Nobel Prize–winning economist Merton Miller, who’s a hero among financial people, argued that whether financial markets contribute to economic growth is, and I quote, “a proposition almost too obvious for serious discussion.” But here we are, still debating it. And one of the reasons that we’re still debating it, as he recognized in that same speech, is that when things go wrong, especially when we have a financial crisis, financial markets get blamed for all of society’s ills. And that happens historically even when there’s not a financial crisis. They pick up the blame for just about everything, and it’s been happening now for decades. Even recent decades. I didn’t do my initial reminder. If everybody could please check their cell phones to make sure that they’re on silent.

So that phenomenon of blaming financial markets for pretty much everything predates the current populist movement, and it goes back literally thousands and thousands of years. Part of the reason is that financial markets let people take risks, and sometimes those risks don’t work out so well. But the flip side of the risk is opportunities. And unfortunately, you can’t really separate the two. So if you want to have the opportunities, you’re going to take the risks, and financial markets help that process along. That’s kind of where our theme comes from today. It also comes from a lot of the work that we’ve done here at Cato, and my colleague Anne Rulon, who came up with the idea to focus specifically on this and tie the theme to the 250th anniversary. Anne has helped us, incidentally, put together all four of our CMFA conferences, but this is her last one. So if you do get to see her today, please tell her goodbye for us all. We’re going to miss her. Her family is doubling, literally. And if you run into her, you’ll see what I’m talking about.

So compared to previous conferences, today’s will be a little bit compressed. It’ll be a little bit different for a couple of reasons. But we’re going to do our first panel moderated by me. Then we’ll take a quick break, and then our second panel will be moderated by Emily Russell from Barron’s. Then we’ll have lunch. And then our last panel will be moderated by Jeb Hensarling, House Financial Services chair. And then closing remarks again by me. So there’s a lot of me. I’m sorry.

And we’re going to get going now with our first panel, which is down a person, not because of traffic, but because of an unexpected illness. So instead of three people, we’re going to have me and two other folks on our panel. Our first panel is Hamilton versus Jefferson: The Founding Debate That Is Still Shaping American Markets. So please help me welcome our panelists to the stage.

Veronique de Rugy: Where do you want us?

Norbert Michel: Either one. And as you’ve probably figured out, we are missing Judge Glock, but we do have Veronique de Rugy and Charlie Calomiris. And Veronique is the George Gibbs Chair in Political Economy and Senior Research Fellow at Mercatus—and that’s, of course, at George Mason. And Charlie is the director of research and senior fellow at Manhattan, and—

Charles Calomiris: Oh, no, no.

Norbert Michel: I’m sorry. Was—

Charles Calomiris: Was.

Norbert Michel: Was. And is now—you can describe this better than I.

Charles Calomiris: Yes. So I’m a senior scholar at something called the Andersen Institute for Finance and Economics.

Norbert Michel: Sorry.

Charles Calomiris: Oh, no, no, no. That’s okay. They’re paying me, so I’ve got to tell them. And it’s a good story, but we’ll get to that.

Norbert Michel: And we would have had Judge Glock, who is at the Manhattan Institute, which is my mistake again, but Judge is still loved, though not with us today.

Okay. So to get things going, in 2024, we at Cato released a book titled Financing Opportunity, and it was co-written by myself and Jennifer Schulp, who is now at the SEC in Paul Atkins’ office. And it was largely in defense of Merton Miller’s idea, the one that I just opened with. If you think about whether financial markets help the economy grow and the country grow, it should be so obvious that we shouldn’t even have to have this debate. But we needed to defend the idea because there was a debate, and the debate was picking up steam. More than that, the idea was very much under attack by a lot of the populists, and that by itself wasn’t new, but the direction that it was coming from was rather new for us. It was coming from the right, the populists on the right. Folks who would otherwise be very pro–free market were not just cool on financial markets, but were attacking financial markets. But other than being attacked from the right flank, nothing about those critiques was really new. It was the same old stuff that you had heard, being recycled for hundreds of years, and thousands of years with a longer pause. It’s all kind of rooted in the idea that financial markets just help speculators or middlemen, or they don’t really finance enough real activity. They just move things around. It’s just churn and wasteful. And there are just so many examples of that in history that it’s really hard to know exactly where to start.

So we thought, when we were doing the book, why not start with Broadway? And for those of you who are fans of musicals—I’m not—you’ll know what I’m talking about. It was the 2015 musical Hamilton, and apparently I’m one of maybe five people on the planet that has not seen the whole thing.

Charles Calomiris: Wow.

Norbert Michel: But I have seen clips.

Charles Calomiris: I’ve seen it twice.

Norbert Michel: Twice, okay. I can’t sit through it. I’ve tried to sit through it three or four times, and I just can’t. So it’s a me problem. But it’s the perfect starting point for us in this debate today. There’s an early scene in the musical that depicts the debate between Hamilton and Jefferson, with Hamilton on the side that viewed financial markets as beneficial and sort of the key to unlocking America’s potential, and Jefferson on the other side, the agrarian side, sort of viewing financial markets rather skeptically. So I’ll read this passage really fast here, and then we’ll go to you guys for comments. And this is in the book, which, by the way, is available outside. Really great deal. And I’m not getting royalties for that. There’s a lot of interesting history in the book if you’re interested in that. So the quote, and this is Jefferson talking: “In Virginia, we plant seeds in the ground. We create. You just wanna move money around. This financial plan is an outrageous demand, and it’s too many damn pages for any man to understand. Stand with me in the land of the free and pray to God we never see a Hamilton candidacy.” You have to imagine somebody rapping that. I’m not going to do it.

So, was Jefferson right to distrust markets like this? What do you guys—or do you want to, Charlie, do you want to start?

Charles Calomiris: Well, I would like to talk about that, uh—

Norbert Michel: Or you can pivot immediately. At some point it’s okay.

Charles Calomiris: Yeah. Okay. So I actually have some prepared remarks, but trying to exactly deal with this—

Norbert Michel: Okay.

Charles Calomiris: But it’s such a lengthy response, so I’ll give you a short response. I think that what I’m going to argue, when you ask me to give some extended remarks, is that Jefferson and Hamilton both made important contributions to finance thinking. So, for example, in addition to Jefferson being the architect of land reforms for unsettled land in 1784, which then became really the thought process that governed Madison and Monroe’s influence, especially on the Northwest Ordinances. So yes, he was very much about decentralization, but the depiction of Hamilton as a big-government guy is wrong. Hamilton was a limited-government guy, but he was in favor of certain things that centralization of governance could achieve that decentralization of governance couldn’t. And the way I’m going to argue, when I get a few more minutes, is that—I’ll do it whenever you tell me. Let’s do it. But the short answer is that it’s sort of like on your table, the table of the free society needs salt and pepper. Some of the principles that guide preference for decentralization, call that salt, and some of the preferences that guide the necessity of centralization are pepper. Depending on what meal you’re having, you might use a little bit of one rather than the other, and I think that’s how I think about Jefferson and Hamilton.

I would say, and Veronique and I were talking about this earlier, I started off in my career really making fun of Jefferson. I’ll just say that. I wrote an encyclopedia biography of Hamilton. I’ve been a lifelong acolyte of Hamilton. I’ve seen Hamilton twice. The first time I was there, several of us who are Hamilton scholars were really moved to tears, because it’s a very accurate play in many ways—

Norbert Michel: It bothers me that I can’t watch it. I’ve tried. I just—everybody likes it.

Charles Calomiris: So, but I have, and I know Veronique will talk about this too, I’ve actually come to a different view, which is, yes, Jefferson was definitely eccentric, but for many of today’s issues, and I’ll talk about that whenever you like, this notion that we need decentralization of authority is more appropriate, whereas at the founding of the Republic, for certain things—

Veronique de Rugy: Maybe not. Yeah. Okay. Well, what’s interesting, and this is what we were talking about before, is that I came from the opposite side. For most of my career, without knowing a ton—it was a very superficial understanding of this whole thing—I was like, “Jefferson, yeah. Hamilton, ugh.” Because I thought he was a big-government guy. I also thought, you know, central bank, blah. And over time, actually looking at what they believed—it started with the musical. My daughters loved the musical, so I felt I had to listen to the musical, and then I read the book, and I was kind of like, “Huh.” It presented a very different and much more subtle image of Hamilton. And I have realized that we needed both. Jefferson was definitely right on some things, like concentration of power and decentralization. At the same time, Hamilton was also right on very essential things that Jefferson, unfortunately, was not correct about. And it would actually be great to have a mix of the two, as opposed to just one is great and the other one is discarded. It’s kinda grayish. But to answer your question, Hamilton was right on financial markets, and Jefferson had a very narrow, and wrong, I think, understanding of value as based only on agriculture.

Charles Calomiris: Mm-hmm, mm-hmm.

Veronique de Rugy: And in his own version, Hamilton also suffered from the same problem. While he was able to see what was wrong about Jefferson’s thinking that all value will come from agriculture, and hence despising resources shifting to manufacturing, and he was able to make a real good case, he had the reverse problem, which is that he thought that every resource heading to manufacturing was a good thing. And I’ve been wondering, were they here today, whether Hamilton, because of his almost worshiping of manufacturing, would have basically turned into Jefferson when resources started shifting to services.

Charles Calomiris: They had their own blind spots, for sure.

Norbert Michel: Let’s do this, since—first of all, this is Cato, so we can do whatever we want. And we’re down a person. Let me just remind the audience that everybody online can submit questions through our webpage, Facebook, or YouTube. And you can follow us on X using the hashtag CatoEcon. So we’ll do that, and then let’s just go ahead. Charlie, why don’t you—

Charles Calomiris: Oh, I appreciate—

Norbert Michel: Why don’t you do your remarks, and then we’ll re-panel.

Charles Calomiris: Great. Thank you very much. It’s really an honor to be with both of you on this panel and to be at Cato. And I can’t resist saying how important the Cato Institute is now, ten times as much as it was a decade ago, and how much I respect the institute and its mission, and I’m glad to be a part of it now.

Norbert Michel: Thank you.

Charles Calomiris: Thank you.

So, talking about these two people, the first thing I would say, in my opinion, is that I regard them both as geniuses, and both as people who had a very deep understanding of history, who really studied history very closely. I could give you many references to important books, written hundreds of years before their time, that they both were very familiar with.

Veronique de Rugy: By the way, I just happened to be at a reception last night at the Library of Congress and toured through the Jefferson Library. And it was very moving, actually. If 5 percent of Americans have read 10 percent of what’s in the Jefferson Library, we would be a different country.

Charles Calomiris: Okay, so—10 percent is a lot.

Veronique de Rugy: I know, but I’m saying, if only 5 percent—10 percent of what’s there. In other words, if our elite were even 10 percent knowledgeable about things from hundreds of years ago. But we’re not.

Charles Calomiris: Okay, so anyway, they were both also practical scientific thinkers. I mean, Jefferson wrote about botany, about biology. He was a very broad scientific thinker, as was Hamilton. They wrote about financial issues and made key contributions on finance. And I would say that both were institutional builders. They really both thought about how they were building institutions that would fit a free society, keep it free, and preserve it as a society. And that they had in common.

Jefferson, of course, the Ordinance of 1784, which then set up this idea of self-governing districts with a path to statehood, with decentralized structures of governance within those districts, and operating even initially as districts fairly independently from Congress. That was a really interesting view, and it was the view that came to dominate. Another thing to mention is that although in that 1784 proposal he didn’t get the abolition of slavery and involuntary servitude in the new territory, that did happen in the 1785 and 1787 ordinances, where Madison and Monroe, you might say his acolytes, played an important role. And by the way, that takes us to another theme that I’d be happy to pick up on, which is that Jefferson was very much opposed to slavery as an institution. You can read about that both in that 1784 ordinance and in many other places, like his Notes on the State of Virginia, where he gets into it in some great detail.

What’s his contribution to finance? Decimalization, guys. In 1776, Jefferson proposed decimalization of currency as a practical convenience, and that became embodied in the 1785 act, and then later in the 1792 Coinage Act. So that’s a pretty big contribution, and it reflects a practical scientific understanding of how transactions occur. He was a big advocate of hard money. By the way, you should really see the shadow of Jefferson very much in the Jacksonian movement, both in terms of the advocacy of decentralized governance in banking. Remember, Jackson was not against banking. He was just against centralized control of banking, just as Jefferson was, and he was a big hard-money advocate. Jefferson opposed the National Bank. He called it, as you probably know, “more dangerous than a standing army and a blot on the Constitution.” He argued also that each generation should pay its own debts rather than, quote, “swindling futurity on a large scale,” end quote, by accumulating government debt. Now, that might be a very useful perspective today. I’ll contrast that with Hamilton, but then come back to it. He advocated low taxes and limited government so that, quote, “labor might be lightly burdened.” And of course, there are many things, including, as I said, the Jacksonian movement, that then took those ideas a lot farther.

Hamilton, the debt workout after the Revolution. By the way, it’s not widely known, but that was a debt default. Hamilton engineered a partial debt default. We did not repay all of our debts. We restructured them. If we were a developing country today, we would call that a debt restructuring and default. He was a practical person. He made the default as low as it could be. He also discriminated, so on the currency outstanding, it was a 99 percent default. On the bonds, it was, you know, 5, 10, 15 percent, depending on the bond. And he also, of course, figured out how to get the states to assume a proportional burden, in some sense, of the existing debt for the Revolution. And that was done famously with Jefferson at the famous Maiden Lane meeting—and that’s why we’re sitting here in Washington, DC, because of that meeting—where Jefferson agreed to support the Hamilton plan for assumption of debt, which was not favoring Virginians, because they had paid their own debts during the actual war, and now they didn’t want to have to pay a proportion of the debts. It was a free-rider problem, right? And they were correct in arguing that the other states were burdening them more. And so Hamilton did a deal. So they were both practical men. They made a deal that got us our capital and got us to be a union with common debt because of a common war.

What are some of Hamilton’s big achievements in finance? Here’s the one that you haven’t thought of. He made the Department of the Treasury an extra-constitutional leader in government financial policy. The Treasury Department guides financial policy for Congress, and still does, and did from Hamilton. In addition to, of course, establishing rules for funding debt, for making sure the debt would be repaid from tariff revenues, for establishing the Bank of the United States after he had already established the Bank of New York seven years before. His Report on Manufactures was of great futuristic vision, as Veronique already referenced. He’s sometimes, and lately, being invoked by the Trump administration as a defender of tariffs. That is a gross mischaracterization. He mainly embraced tariffs from a revenue perspective, to help get the government on footing. But he did also recognize that it could be helpful to protect the infant industry, sort of argument. By the way, economic research has proven that that was true: that economic isolation of New England and the Middle Atlantic states during the French Revolution and the War of 1812, that whole period, actually helped manufacturing, especially textile manufacturing, get a footing that really did help it. So the notion that giving them a little slack for a little bit of time could help them develop, as a development argument, it was right.

So Hamilton, though, was a classical liberal. What’s the story about how Hamilton came to be different from Jefferson? And this, I think, is really essential. Hamilton was Colonel Hamilton. Jefferson was Governor Jefferson during the Revolution. Jefferson never shot anyone or shot at anyone. He was never in battle. Hamilton was in battle. He was aide-de-camp, of course, to Washington at Valley Forge, but he also led his own, I think it was a regiment, at Yorktown. You may remember that Hamilton also went with Washington to put down the Whiskey Rebellion. They were both on horseback together again. This was a man of military action. Now, when he was in the field fighting, he also wrote some things called The Continentalist. And in Continentalist number three, he writes something really revealing: “Remote as we are from Europe, in a little time we should fancy ourselves out of reach of attempts from abroad.” He means attempts of invasion. “And in full liberty, at our leisure and convenience, they will try our strength at home. This might not happen at once, but if the federal government should lose its authority, it would certainly follow.” Hamilton, from the very beginning, his main concern about strengthening the national government was national security. By the way, he founded the Coast Guard.

Now, with Jefferson, here’s the personal detail I want you to think about: he wasn’t around for the Constitution debate. He was away in France.

Veronique de Rugy: Mm-hmm.

Charles Calomiris: So this whole balancing of the need to create institutions to protect a new nation, a new democracy, was just something Jefferson never had to defend in a real debate about creating a nation-state. He never had to defend his, to some extent I would say, utopian ideas about the ideal, idyllic, decentralized society. And I think if he had, he might have changed some of those views and found more common ground.

Norbert Michel: I also want to emphasize that Ben Franklin plays a role in Hamilton’s evolution. Back in the early 18th century, before Hamilton was born, Franklin was writing about banking, and he was writing about it from a development standpoint, just as you’re saying, right? A Modest Inquiry into the Nature and Necessity of a Paper Currency—that’s by Ben Franklin, when he was in his twenties, in the 1730s, I think it was. The notion that banking was important, as you’ve just said, Miller understood. Franklin was, in some ways, the author of that.

Charles Calomiris: And of course, that was all going around at the time. John Law wrote a famous paper in 1705 when he was in Scotland. He was the guy who created the Mississippi Bubble in France. But before he did that, he wrote a paper about land banks, again, as developmental tools. And by the way, most historians would say Scottish banking was key to Scottish economic development in the first half of the 18th century. So I’m just trying to say that this is not so much a struggle between two viewpoints as, I think, an emerging consensus that really goes back to Franklin and Robert Morris and, of course, Hamilton.

Hamilton, yes, saw that national debt, quote, “if not excessive, will be to us a national blessing. It will be a powerful cement of our union.” That was that assumption point I made before. “It will also create a necessity for keeping up taxation to a degree which, without being oppressive, will be a spur to industry.” That was interesting. So he saw national debt, markets of sovereign debt, as a positive influence on the development of capital markets generally. And by the way, that’s been proven in economic research since. And also, of course, banking. And he saw two aspects to banking: both the development aspect, but then also its usefulness to the state for managing its finances.

Let me remind all of you that when the charter of the First Bank of the United States expired in 1811, unfortunately, then we had the War of 1812. And our outstanding debt fell about half in value during the War of 1812, and we had to do some emergency issuances that were very unpleasant. And the reason why we rechartered the Bank of the United States in 1816 was that we learned during the War of 1812 how right Hamilton was that you needed to have that. And of course, that was based on his knowledge about the Bank of England and its role. The Bank of England, from its beginning in 1684 until 1815, had as its primary mission in the whole period funding the war against France. That was it. It was not a commercial bank, really. It didn’t do anything during that period but fund the war against France. And Hamilton was acutely aware of that.

Okay. I also just want to say a word before I end about Jefferson. Despite his eccentricities, Jefferson was not the person portrayed in the musical Hamilton. That’s the one aspect of Hamilton, the musical, that I think is inaccurate and almost nasty. So people like to portray Hamilton as the great anti-slavery person, which he was. And of course, his wife founded an anti-slavery foundation and ran it after his death. Jefferson also shared that view. Also, the notion that Jefferson was having affairs with Sally Hemings is false. That is well known by scholars to be false. It may be that his brother did, but he did not. And this is something that, even when you go to Jefferson’s home at Monticello or whatever, the guides will use, because it creates a salacious aspect, but there is absolutely lots of evidence against it. I just want to say, I think that we’ve said a lot about the musical. We should point out that that’s not fair and it’s not correct.

But I will blame Jefferson for unit banking. And unit banking was a big problem in the US, as I’ve argued at length. By the way, my book, Fragile by Design, is not available outside for free. But I strongly recommend that you buy it, with Steve Haber.

Norbert Michel: That is a very good book as well.

Charles Calomiris: Thank you. And what we show in that book, and of course many other scholars have shown, is that unit banking created two big problems for American financial development. One was excessive fragility. We had, between let’s say 1820 and 1913, I think 18 major financial crises when Canada had zero. To give you a little bit of a comparison, Canada had a nationwide branch banking system, and it designed that system based on the thinking of Alexander Hamilton. We, after departing from Hamilton’s thinking, went down the Jacksonian path, which was really the Jeffersonian path in many ways, of decentralized unit banking, and that created a great deal of banking fragility, an undiversified, fragmented banking system.

It also made us backward for funding industry during the Second Industrial Revolution. Not the First Industrial Revolution, but the Second Industrial Revolution. There was a size mismatch between firms that had very large minimum efficient scale and very small banks. And banks just couldn’t do industrial finance, and so banks switched to doing almost exclusively commercial finance, helping goods move around, not funding actual enterprises getting started. American capital markets, however, developed to some extent in response to that. But I want to emphasize, not right away, because a fragmented banking system also makes it very hard to set up equity markets, because equity markets eventually depended in the US on things called roadshows. In Germany in the late 19th century, they didn’t use roadshows. The banking system basically helped to organize the capital market. The US was actually behind Germany in capital market development, let’s say circa 1890. But eventually, the problems in the banking system did help to spur US capital markets too. So I would say this was really a big problem. A big negative for Jefferson was the unit banking system legacy, both from a fragility and a development perspective. I know I’ve gone on at length, but I just wanted to share with you those thoughts.

Again, the point being, they are the salt and pepper on the table of a free society. And right now, I would say, on two big topics, I’m much more thinking that Jefferson’s viewpoint is necessary to take into account. One, big banks. Norbert started by pointing out populist sentiments about finance, but, you know, what do those really reflect? Those reflect a question of legitimacy. The financial crisis of 2008 and then the other smaller financial crisis of 2023 really reflected what I would call a corrupt financial system, not a free-market financial system.

Norbert Michel: Right.

Charles Calomiris: One that lacks legitimacy, and Americans are opposed to it. And so free markets have somehow been stapled to what I would call a corrupt system, and it’s precisely the Jeffersonian principles of decentralized power that need to be brought to bear. You ask me, we need to break up the big banks. And I think that’s a very important topic for us.

Now, on the fiscal side, of course, Jefferson’s concerns about making future generations have to pay for your costs—that is so relevant right now. Why aren’t young people out in the streets with pitchforks and torches? I don’t know. Maybe they’re too busy looking at their AI. But I think they need to wake up, and we, as older people, are long past the point where we should’ve been making some sacrifices and thinking about future generations. So that’s the sense in which, depending on what meal you’re served, you need more salt or more pepper. I think right now we need a little more salt than we used to. Thank you.

Norbert Michel: Thank you, Charlie.

Veronique de Rugy: I want to pick up on something you said that I think is actually quite important. There is a caricature of Hamilton that is circulating these days among the right, about how he was a protectionist, to justify the tariff regime that is put in place right now, and I think it is a caricature. And one of the things that’s really interesting is that, yes, there were areas where he favored tariffs as protectionism.

Charles Calomiris: Yeah.

Veronique de Rugy: For the most part, he saw tariffs as a source of revenue, revenue to back the debt. And in fact, he preferred subsidies—not that it’s any better—because he had this, I think, wrong notion that centralization and elites could actually direct resources better than the market could. This is where Jefferson was right, in understanding the invisible hand of the market, in a way that I think Hamilton didn’t see. But the thing that’s interesting about Hamilton, and where you see the caricature of him, the way he’s presented as just a full-on protectionist who would’ve supported what we have now, is precisely what you said about his understanding of the need for revenue. Because revenue came from tariffs and excise taxes, he understood that you could not be a protectionist and have tariffs that would prevent imports from coming, and hence deprive you of the revenue. So I think there are just a lot of places where you see that the way Hamilton is used now as a protectionist, pro-tariff figure is wrong.

And the other thing that I have learned to recognize about Hamilton that I did not appreciate before—and I often think about, were I there at the time back then, I would not have liked it, by the way. I’m a modern girl. I may have adjusted because I had no choice, but anyway. That said, I always wonder which side I would have been on, and I think that, with my libertarian predisposition, I would have been on the side of Jefferson, and I fear I would have been wrong, because I may not have actually appreciated what Hamilton was trying to do. And Hamilton saw—correct me if I’m wrong, because I definitely don’t know this at the level that you do—the failure of the Continental dollar as the product of a lack of backing for American debt. He understood that the debt was basically the way to actually underpin the financial system, which he recognized was important. I don’t know that he foresaw what the American financial market was going to be, but there is no doubt that his understanding was that the credibility of the debt, and the ability to use the debt as a safe asset, relied on having tax revenue—

Charles Calomiris: Mm-hmm.

Veronique de Rugy: Not necessarily tax revenue today, but at least the credibility, to back it up. And on the Jefferson side, I would’ve probably been behind him, thinking there are no enumerated powers for chartering this bank. It is going to lead to corruption, which I think he was not wrong about. I would’ve probably been on that side and maybe totally not been able to see what Hamilton was able to do. But the assumption of the debt, while creating the source of revenue—and by the way, it was very clear that it was assumption of the debt, a one-off. It was not like we’re always going to bail out the states. I think they came through to show that, because in the 18-something, when some states were failing, they did not bail them out, which did not set a precedent of “you’re going to bail them out.” And that was super important. But setting the revenue and the assumption of the debt ended up—and this very explicit commitment that in America we pay back our debt, at least most of it—I think was essential. Because I am very frustrated these days by the taking for granted of this notion of American Treasuries as a safe asset, which underpins our financial system in a remarkable way, without thinking about what that means. And I think this is where Jefferson was right: to take this for granted, and not see that centralization and the bad incentives within government are actually very destructive, and that pushing policies that disturb this notion of a safe asset is the problem that we have today.

And the whole debate, if you remember a few years ago, that we didn’t have to worry about an increase in the debt because as long as interest rates were lower than growth—I mean, there were a lot of caveats in that literature that, of course, people who wanted to use this to increase the debt ignored, which, for instance, is that you increase the debt once and then you have to have a primary surplus forever after that. They ignored that it didn’t apply to the US, because of the size of our primary deficits. There is never actually a thinking about how raising the debt so much would actually change r, the interest rates, right? It’s almost like a Lucas critique of the r minus g. And I think with the safe asset, it’s the same thing. We take the safe-asset notion of Treasuries for granted—

Charles Calomiris: And that undermines the safety.

Veronique de Rugy: Yes, and it undermines the safety. And it is true, right? In a way, we’re keeping our safe asset because we’re not the ugliest in the not-safe-asset beauty pageant that we see around the world. But I think it is essential to always remember that we have this for a reason, and jeopardizing it—there are underlying reasons that—

Charles Calomiris: Mm-hmm.

Veronique de Rugy: And I think Hamilton understood this in a way that Jefferson probably didn’t appreciate. Again, I don’t know if Hamilton could foresee what that system that he put in place would produce—

Charles Calomiris: Yeah.

Veronique de Rugy: And I will say—I think you and I talked about it when you asked me to be on this panel, and I was like, “Why?”—it is true that I have come to realize that, apart from the founding documents, which I think are just unbelievable, but also the culture, the American culture that actually reveres those documents. We respect them because we understand them. We have a culture that reveres these documents—well, hopefully enough. But the financial markets are what make America just unbelievably exceptional, and I did not quite understand this for a long time. I appreciated financial markets, but I didn’t realize just how fabulous our financial markets have been and are compared to any other financial markets—

Charles Calomiris: Ever.

Veronique de Rugy: But anyway, I don’t know that he could foresee this, because ultimately it’s the innovation and the creativity and the willingness to risk things.

Charles Calomiris: But he understood the price system. He understood where the financial markets and interest rates fell into this. And interestingly enough, for all those protectionists and new right, or however you want to call them, who claim him, they want to take the protectionist tariff side of things without taking his actual liking of financial markets.

Veronique de Rugy: And it’s wrong. And I’ll just add, I don’t know that any of them could’ve really foreseen just how powerful those markets were going to become, you know?

Charles Calomiris: Yeah. Well, I think you’re touching on this point that I also think we should talk about, which is: what did they foresee, and to what extent did they foresee what ended up evolving? Remember, this republic is a miracle, and the founders weren’t really so sure it was going to last one or two generations, much less 250 years. So I think we should be pretty impressed by that.

Well, let’s talk about some things they didn’t foresee. So one thing, if you read today The Federalist Papers, I want to make two points about what they didn’t foresee. First, after reading The Federalist Papers, go and read what is now called the Anti-Federalist Papers, which I think Mike McConnell had a hand in drafting, putting together a bunch of papers. And you read them, and they’re all the things that people are saying could go wrong as a result of federalism as envisioned in The Federalist Papers. A lot of what’s in there came true.

Veronique de Rugy: Yeah. Mm-hmm.

Charles Calomiris: Right? But Hamilton and Madison and Jay had good arguments for why, at least for the foreseeable future, those things wouldn’t come true, and I think they were right. But then, on the other hand, they did eventually. So I think that’s really interesting.

The other thing that everybody missed in The Federalist Papers was something that became the main theme of governance problems in America in the early 19th century, in the early republic, and that was corruption in state legislatures through special chartering, which Hamilton had been a part of. But they didn’t see how corrupting it was going to be. Those state defaults you’re talking about in the 1840s, those were the result of canal projects, or turnpikes and other things, but it was mainly the canal projects, where states were getting special privileges. And it was the Jacksonian movement, really, that succeeded in the 1840s and 1850s, throughout the whole country, in establishing general chartering laws and abolishing special chartering and special privileges of corporations through the state legislatures. So I think we have to give Jefferson some credit—

Veronique de Rugy: Oh, yeah.

Charles Calomiris: Right, for that movement, for having anticipated some things. And even the things they didn’t anticipate, it was their ideology, as expressed ultimately in the Jacksonian movement, that fixed a major problem of centralized corruption in the state legislatures.

Then the final thing I just want to say about all of this is, remember that Hamilton supported Jefferson for president. Now, why did he do that? Because the alternative was Trump. I’m sorry, Burr.

Veronique de Rugy: Yeah. It is a great example of politics and how they have not changed at all. And in the musical—

Charles Calomiris: Yeah.

Veronique de Rugy: I mean, it does say, he said, “I would prefer—Jefferson at least has some beliefs,” right?

Charles Calomiris: Mm-hmm. Yeah. Or principles or beliefs.

Veronique de Rugy: And Burr has none.

Norbert Michel: We’re going to open it up for questions.

Veronique de Rugy: One of the things that is so interesting to me about the debate—“the debate”—is that there’s a lot of subtlety, and it’s not as clear of a debate as you might think. There are points that they are very different on, but the general idea, they kind of both had.

Charles Calomiris: Yeah.

Veronique de Rugy: If I may say something else, again, Hamilton wasn’t a hardcore protectionist like he’s painted to be. But I think it’s kind of interesting that Jefferson—was he pro-tariffs? I mean—

Charles Calomiris: I don’t recall. No, but I would be shocked if he was.

Veronique de Rugy: Yeah. No, but it’s so interesting at the same time that he was so anti—he didn’t understand that we weren’t depleting the nation by paying interest to foreigners—

Charles Calomiris: Right.

Veronique de Rugy: —when he actually believed so much in the invisible hand. And I think it’s interesting because this is an argument that protectionists are using now, against imports, that we’re sending our money abroad.

Charles Calomiris: Yes, and that’s actually bad economics.

Veronique de Rugy: Exactly.

Charles Calomiris: So there’s something called the Lerner symmetry theorem. It’s a theorem. It’s not an opinion. And the theorem says that tariffs are a tax on exports, period.

Veronique de Rugy: Yeah, yeah.

Charles Calomiris: Which is why agricultural interests have always, in US history, opposed tariffs. So I think it’s interesting. And there is historical evidence about both of these guys recognizing that selling debt to foreigners and paying that back isn’t sucking money out of the country, or something like that. But I think it’s kind of interesting, and if the protectionists would actually bother to go and read some economics, and—

Veronique de Rugy: Ah. And the debates, you know. Amen.

Norbert Michel: So we do have folks around with microphones. Please wait for those guys to come to you and speak clearly into the microphone. And please, I would implore you to ask your question in the form of a question. It’s okay. We already have several questions online that are not questions. So.

Audience Member: Thank you. Professor Calomiris, great to see you here today. I particularly liked your vignette about Hamilton’s focus on national security. But then you go to great pains, both panelists, to add nuance to his view on tariffs and protectionism, limiting it to infant industries. But isn’t it fair to say that a lot of what President Trump has done has also focused on reclaiming industries that have been offshored to China, that are specifically done for national security purposes, and to provide an incentive to replace and rebuild those industries onshore? And it also shows an understanding that if we don’t have military supremacy, to some extent, in the world, it really questions whether or not we can maintain the primacy of the US dollar and everything that goes with it.

Norbert Michel: Do you want to go first?

Charles Calomiris: I have things to say, but I’m guessing you do too.

Veronique de Rugy: Yeah. No, I mean, I think there’s no subtlety in what the president has done. I think that national security has been an abused label. It is always an abused label, but it’s just been particularly abused. A lot of the tariffs have been put on things that have no national security implications whatsoever. I also think that in the second term—while I think in the first term you can kind of argue that there was a commitment, and I didn’t agree with how it was pursued—to target China this time around makes kind of no sense whatsoever, in targeting our opponent. But also, I’d like to point out that on its own terms, it has actually failed to achieve the goal of really restoring. To the extent that we have a manufacturing boom in the US, it is for investments that have relied on being exempted from tariffs. So it’s hard for me to look at the Trump administration’s tariff policy as subtle, national security–inducing, or—we’ll see, right? I may turn out to be wrong. But it’s hard to see it actually achieving any of the objectives that they wanted, in part because it seems to be confused. It seems to want to use tariffs as a source of revenue, second, as a source of protectionism, and, third, as leverage. And you can’t do all three with one. But I don’t know.

Charles Calomiris: I want to be brief too. I agree with everything you said. I don’t think it’s a legitimate use of national security. There is a legitimate national security argument.

Veronique de Rugy: Yeah.

Charles Calomiris: He hasn’t used it properly, and you can’t defend his tariffs that way. I will just reference Don Boudreaux and Phil Gramm. Read their op-eds in The Wall Street Journal, and read their new book on the myths of American history, which is really an excellent book, and they spend some time especially talking about this view that tariffs are responsible for a hollowing out of manufacturing, which they show is not true.

But I do want to respond more positively. We need to worry about China. We need to respond to unfair trade practices by China. It was a mistake to admit China into the WTO. China has abused that and done everything that’s contrary to the WTO as an organization and created havoc. Europe is right now in great turmoil trying to figure out how to respond. We also—and the biggest risk we face is that we try to imitate China, and that’s what the Trump administration is doing with industrial policy, government ownership of firms, corrupt dealings of the administration with firms, independent of that, and trying to argue that we need an industrial policy run by the executive to basically try to out-Chinese the Chinese government. That is not what we need to do. We need to embrace our institutions of a free society and to counter the Chinese threats. You don’t defeat communism or socialism by becoming communism.

Veronique de Rugy: Yeah. Exactly. By the way, the last third of Hamilton’s Report on Manufactures was actually not great. I think we can say this: he did really believe, and this is where Jefferson was right, that the central government could direct things better than the market, and he liked subsidies, and he just didn’t see the knowledge problem.

Charles Calomiris: There’s a lot in there, though, that I think you could take.

Veronique de Rugy: Oh, yeah, yeah. I said that, to make whichever point you wanted as well.

Charles Calomiris: I want to quote a famous political scientist and economist, Charles Lindblom, who was also my professor back in the 1970s, and he said that a successful market society is like your hand. The government plays the role of the thumb, the market plays the role of the fingers. Thumbs are good for pushing things. Fingers are good for fine-tuning things. And I think that Hamilton was thinking about development and about infant industry arguments, but I very much agree with your judgment on it.

Norbert Michel: Do we have another question? If not, I’ll go—anybody else? We’ll go back here. Is that Larry? I can’t tell. It is. Hi, Larry.

Larry (Audience Member): Hi. Hamilton favored the infant industry argument. I think of that as a protectionist argument. So I wonder what the bar is when you say Hamilton was not a protectionist. Is the criterion that the tariff rate he favored was to the left of the peak of the Laffer curve?

Charles Calomiris: No, no, I didn’t say that. I said that he was not the protectionist being portrayed.

Veronique de Rugy: The caricature.

Charles Calomiris: The caricature of it. I grant you that he did agree with the infant industry argument, and I would say, by the way, that argument was proven to be valid in the case of the United States, coming from the isolation during the Napoleonic Wars. It did spur industry, and we didn’t need any further spurs. So I’m not trying to defend everything that Hamilton said as sacrosanct, but I’m just saying don’t believe any of the current sort of Trump administration caricature. You may not like the infant industry argument. You may say, “It’s hard to run a government that way because it’ll be abused as an argument.” I agree with that, too. We might be better off without it. Maybe that’s right, too. But it’s also true that he wasn’t what is being portrayed.

Norbert Michel: Yeah. Okay. I have five non-questions and two questions online, so I’m going to reward the person who actually asked a question. I find this one interesting, and then we’ll stop. We’ll be out of time. “How can one maintain decentralized governance in institutions when more and more economic activity involves national and international financial markets?” I kinda know what I think, but do you want me to read that again?

Charles Calomiris: No. I think that the answer to our national threat right now, which is from China, a global threat to our nation, is not central planning. It is releasing and empowering individuals, and that’s always been our answer.

Veronique de Rugy: Yes. Yes. Yes. The international market or the national market, all that—I understand what that means, but the nation itself is not doing anything. The people in the nation are doing things, and people are trading with people, and we lose track of that very easily and devolve into this—

Charles Calomiris: It’s the same on trade.

Veronique de Rugy: Yes, exactly. When I hear “America versus Canada,” nations are not trading with one another. It’s individuals who are trading with one another.

Charles Calomiris: Exactly.

Veronique de Rugy: Right. And, Larry, he was a protectionist, but again, he certainly can’t be used to defend the current regime the way it is. And if they want to claim him, they should also understand that his appreciation of financial markets doesn’t seem to be one that some of these guys appreciate today. And so maybe they should look more at that.

Charles Calomiris: I’m going to go out on a limb and say, and I don’t have a crystal ball, and there’s no séance involved, Hamilton would never have supported the Trump administration.

Norbert Michel: And we’re not political here at Cato, so that’s—but I’m with Charlie’s opinion, and that’s that. Thank you all very much. We will take a short break, and we will be back for our next panel at 11:15. Thank you, guys.

Veronique de Rugy: Thank you.

Charles Calomiris: Thanks very much. It’s such a pleasure.

Veronique de Rugy: It was wonderful.