To the congress of the United States, and in a particular manner to the representatives of the people in this house, the period of the total emancipation of the nation from the thraldom of a public debt, will be a moment of intense interest, and of heartfelt mutual gratulation. To have co-operated in the accomplishment of this event, is a laudable object of ambition. To have witnessed and contributed to its accomplishment during his own term of service, is a legacy of honor and integrity, which any public servant may be desirous of leaving for the memory of his children, and the gratitude of posterity. As a monument of good faith, of active industry and strenuous exertion for the fulfilment of public engagements, it is an example of morality, well worthy of that community, which was also the first among the nations of the earth to lay the foundations of the government upon the basis of freedom and the unalienable rights of human kind.
The consummation of this purpose was indeed one of the great objects for which the constitution of the United States received its present organization. The public debt had originated in and by the war of our national independence; but so feeble and inefficient was the confederation first formed for the government of the union, that its central power was incompetent to levy upon the people funds adequate even to discharge the interest as it became due upon the public obligations. . . .
Accordingly, no sooner had the government of the United States been organised under the present constitution, than the first object to which the attention of congress and of the executive were turned, was to devise means of providing for the payment of the public debt. From that time, the principle of its total discharge, as soon as by a vigorous exercise of the resources of the union it might be rendered practicable, it was assumed; assumed after full and free deliberations, and in pointed preference to the doctrine then honestly entertained by a portion of the statesmen of the time, that a permanent public debt to a moderate extent and under judicious regulation would prove a public blessing. Happily, a principle of deeper moral obligation and of sounder policy prevailed. In the first report of the first secretary of the treasury to the house of representatives upon public credit, bearing date the 9th of January, 1790, within one year after the first meeting of the national congress, he adverted to this then controverted question of political economy in the following terms: "Persuaded, as the secretary is, that the proper funding of the present debt will render it a national blessing, yet he is so far from acceding to the position, in the latitude in which it is sometimes laid down, that public debts are public benefits, a position inviting to prodigality, and liable to dangerous abuse, that he ardently wishes to see it incorporated as a fundamental maxim in the system of public credit of the United States, that the creation of debt should always be accompanied with the means of EXTINGUISHMENT. This he regards as the true secret for rendering public credit immortal."
And upon this principle was the public debt of the United States, burthensome as it then was, funded. By the sanction which congress then gave to this lofty and honorable sentiment, the total extinguishment of the debt became incorporated as a fundamental maxim in the system of public credit of the United States.
Tuesday, October 15, 2013
"The total extinguishment of the debt" is "a fundamental maxim in the system of public credit of the United States"
Monday, October 14, 2013
"General [William Henry] Harrison will be our next President, if he lives until the fourth of March next ," said the Hudson River Chronicle on November 10 . "Nothing but death can prevent this glorious result."
Harrison barely made it. He died on April 4, 1841, having served one month in office.
The quote is from Alasdair Roberts' America's First Great Depression: Economic Crisis and Political Disorder After the Panic of 1837.
About the illustration, entitled Uncle Sam's Pet Pups! (1840):
A crude woodcut satire showing Harrison luring "Mother Bank," Jackson, and Van Buren into a barrel of "Hard Cider." Jack Downing chases Jackson and Van Buren toward the barrel as Mother Bank crawls into it. While Jackson and Van Buren sought to destroy the Bank of the United States, one of Harrison's election campaign promises was to reestablish it, hence his providing "Mother Bank" a refuge in this scene.
Sunday, October 13, 2013
In the first half of the 1830s many of the states of the Union engaged in an orgy of spending to fund internal improvements - principally canals and railroads. They financed most of the this spending by issuing or guaranteeing bonds, most of which were marketed and sold to investors in Europe, principally in Great Britain. After an initial market decline that began in 1836 and manifested itself in early 1837, the markets recovered somewhat in 1838, only to collapse again into a deeper and more long-lasting depression beginning in 1839.
In the typical state project, revenues from the anticipated improvements (e.g., canal tolls or railroad freight charges) had optimistically been expected to fund payment of interest and ultimately repayment of the notes; the state guarantees would never be called on. The Panic of 1837 and ensuing depression resulted in a collapse in revenues, assuming they had ever been realistic. British and European bondholders demanded that the states honor their guarantees, while states realized that they could not do so without imposing unprecedented and ruinous taxation on their residents.
In the aftermath, during the early 1840s, no fewer than eight states (Michigan [about $5MM], Indiana [$10MM], Maryland [$14MM], Arkansas, Illinois, Mississippi, Pennsylvania [$40MM] and Louisiana [$24MM]) and one territory (Florida) defaulted on bonds with a face value totaling in excess of $100,000,000 and repudiated their guarantees. British and other European bondholders were financially devastated. And they lacked any legal recourse. A combination of the Eleventh Amendment and state sovereign immunity made it impossible for foreigners to sue the states in either federal or state court. The federal government was not a party to the transactions, lacked the power to intervene and, under president John Tyler, was not inclined to do so in any event. The foreign holders were reduced to hurling invective at the states that had stolen their money.
All of which brings me to the point of this post, a wrenching but (softened by the passage of almost 170 years) amusing protest published in the London Literary Gazette in January 1845, to be sung to the tune of Yankee Doodle:
Yankee Doodle borrows cash,
Yankee Doodle spends it,
And then he snaps his fingers at
The jolly flat who lends it.
Ask him when he means to pay,
He shews no hesitation,
But says he'll take the shortest way,
And that's repudiation!
As a bonus: Did you know that Charles Dickens' December 1843 A Christmas Carol contains a brief reference to "a mere United States' security" as a synonym for worthless?
When Scrooge awoke, it was so dark, that looking out of bed, he could scarcely distinguish the transparent window from the opaque walls of his chamber. He was endeavouring to pierce the darkness with his ferret eyes, when the chimes of a neighbouring church struck the four quarters. So he listened for the hour.
To his great astonishment the heavy bell went on from six to seven, and from seven to eight, and regularly up to twelve; then stopped. Twelve! It was past two when he went to bed. The clock was wrong. An icicle must have got into the works. Twelve!
He touched the spring of his repeater, to correct this most preposterous clock. Its rapid little pulse beat twelve: and stopped.
“Why, it isn’t possible,” said Scrooge, “that I can have slept through a whole day and far into another night. It isn’t possible that anything has happened to the sun, and this is twelve at noon!”
The idea being an alarming one, he scrambled out of bed, and groped his way to the window. He was obliged to rub the frost off with the sleeve of his dressing-gown before he could see anything; and could see very little then. All he could make out was, that it was still very foggy and extremely cold, and that there was no noise of people running to and fro, and making a great stir, as there unquestionably would have been if night had beaten off bright day, and taken possession of the world. This was a great relief, because “three days after sight of this First of Exchange pay to Mr. Ebenezer Scrooge or his order,” and so forth, would have become a mere United States’ security if there were no days to count by.
Alasdair Roberts' America's First Great Depression: Economic Crisis and Political Disorder After the Panic of 1837 is the source for both.
About the illustration, entitled New Edition of MacBeth. Bank-oh's! Ghost:
Another satire on the Panic of 1837, again condemning Van Buren's continuation of predecessor Andrew Jackson's hard-money policies as the source of the crisis. Clay shows the president haunted by the ghost of Commerce, which is seated at the far right end of a table which he shares with a southern planter (far left) and a New York City Tammany Democrat. Commerce has been strangled by the Specie Circular, an extremely unpopular order issued by the Jackson administration in December 1836, requiring collectors of public revenues to accept only gold or silver (i.e., "specie") in payment for public lands. The ghost displays a sheaf of papers, including one marked "Repeal of the Specie Circular," and notices of bank failures in New Orleans, Philadelphia, and New York. Van Buren recoils at the sight of the specter, exclaiming, "Never shake thy gory locks at me, thou can'st not say I did it." Jackson, in a bonnet and dress made of bunting, turns away saying, "Never mind him gentlemen, the creature's scared, and has some conscience left; but by the Eternal we must shake that out of him." Planter (a note reading "Cotton Planters Specie in "Purse." Alabama" protrudes from his pocket): "No credit. Huzza!!" Tammany Irishman (raising a glass): "Down with the Bank!!"
Posted by Elektra Tig at 4:49 AM
Friday, October 04, 2013
In all the hullaballoo over the debt ceiling and Obamacare negotiations (or non-negotiations) the Democrats have been complaining, among other things, that the Republican attempt to defund Obamacare is illegitimate. Obamacare, the Dems complain, is legislation that was duly enacted by Congress, signed by the president, and is now "the law of the land." The Republican House cannot in effect now sabotage duly enacted legislation through the back door by refusing to fund it.
As a buff of early US legal history, it immediately occurred to me that there was early - very early - historical precedent. And that precedent, in the form of resolutions passed by the Fourth Congress in 1795, strongly suggests that Republicans are entirely within their rights to refuse to provide funding for Obamacare.
The fracas I have in mind arose out the Jay Treaty – a treaty with Great Britain negotiated by John Jay. President George Washington, who had sent Jay to England for that purpose, submitted the treaty to the Senate for its consent in June 1795. The merits of the proposed treaty were hotly contested. In a nutshell, President Washington and the Federalists urged approval as the best that could be achieved. The Democratic-Republicans grouped around Thomas Jefferson and James Madison viewed it as an abomination, both constitutionally unsound and humiliating.
To make a long story short, even some Federalists balked at one article containing onerous trade restrictions, but the Senate conditionally approved the treaty. After Britain agreed to suspend the offending article, the president signed the treaty.
Then the action moved to the House of Representatives. When the president sought funds to cover expenses associated with the treaty (e.g., funds to cover the expenses of a commission established by the treaty), Rep. Edward Livingston (DR - NY) (pictured at the top of this post) offered a resolution requesting the President to provide the House with Jay’s instructions and other materials relevant to the treaty. “The debate on this resolution lasted an entire month and was one of the most impressive and fundamental ever conducted in Congress.” (All quotes are from David P. Currie’s wonderful The Constitution in Congress: The Federalist Period 1789-1801.)
Federalists argued that the House had no right to look into such matters because only the Senate and the president were constitutionally competent to approve and ratify treaties:
The House had no right to seek information, said Representative [William Vans] Murray (F - MD), without indicating how it related to some subject within the House’s purview. The House had nothing to do with treaties, since Article II, sec. 2 expressly empowered the President to make them with Senate consent. Impeachment, he acknowledged, would be a legitimate purpose, but as [Robert Goodloe] Harper [(F - SC)] noted no one had suggested that Jay or anyone else should be impeached.
Rep. Albert Gallatin of Pennsylvania (later President Jefferson’s and President Madison's Secretary of the Treasury) disputed the point, arguing (among other things) that the House “had a right to information because even if the treaty was valid it could not be carried out without appropriations, which under Article I, sec. 9 only a statue could provide.”
In reply, the Federalists made an argument akin to that made by Democrats now: in the face of a ratified treaty, the House had no discretion to refuse funding:
Not so, said the treaty’s supporters; Article VI made a treaty duly concluded the law of the land, as binding on the House as on anyone else. The House could no more refuse to implement a treaty than a tax collector could refuse to enforce the law; it might as plausibly withhold the salaries of the President and the judges or decline to call a constitutional convention at the request of two thirds of the states. Congressional discretion to refuse an appropriation, in short, would undermine the treaty power.
The Democratic-Republicans submitted these contentions to withering abuse:
Wrong, said Pennsylvania’s John Swanwick; discretion was implied in every grant of legislative authority. To hold that the House was bound to vote funds to implement a treaty would destroy the appropriation power – which, [William Branch] Giles [(DR - VA)] added, was intended as a check on the powers given to other branches. The two-year limit on military appropriations, [James] Madison [(DR - VA)] noted in support of this conclusion, was designed to permit the people’s representatives to review on regular occasions the desirability of maintaining an army. The clauses expressly requiring payment of the salaries of the President and the judges [Art. II, sec. 1; Art. III, sec. 1], Gallatin explained, were narrow exceptions to the general principle. There was no comparable provision with respect to treaties; the supremacy clause served only to establish the subordinate status of state law and (in Swanwick’s words) “does not affect the power of this House, as a component part of the General Legislature, and authority of the United States.” Finally, Gallatin invoked British precedent: Though Blackstone described treaties as law, it was universally acknowledged that Parliament had discretion not to appropriate money to implement them.
The lengthy and impressive debate ended in a dramatic victory for the Democratic-Republicans. “At length the House approved Livingston’s resolution by a lopsided vote of sixty-two to thirty-seven, suggesting that a substantial majority agreed that the House had discretion in implementing the treaty.” And when President Washington refused to turn over the requested information, the House adopted “by a similarly decisive vote,” another, similar resolution “affirming its discretion to refuse to implement and treaty affecting a subject within congressional power and its right to request information without giving reasons.”
The battle having been won, the war evaporated. The treaty, it turned out, was far more popular with constituents than the Democratic-Republicans had realized. Flooded with petitions urging Congress to appropriate the necessary funds, “a number of House opponents gave up the fight; having asserted its right not to appropriate money, the House voted to do so after all.”
Additionally, it is worth noting that Prof. Currie, reviewing the dispute, had no doubt but that the Democratic-Republican proponents of Congressional discretion were correct. While I will not (out of respect for copyright laws and the reader’s patience) recite his reasoning at length, Prof. Currie concluded that “the appropriation power was intended as a check on other branches.” “Congress normally has discretion whether or not to appropriate funds.” (Emphasis in original.)
Finally it is important to understand that the case for House discretion in funding legislation (Obamacare) is stronger than the case for such discretion in funding treaties such as the Jay Treaty. The Constitution provides that treaties are to be ratified by action of the Senate and the Executive; the House has no part to play. Legislation, of course, involves an interplay among both houses of Congress as well as the Executive. If the House has discretion to refuse to fund the implementation of treaties, with which it is otherwise unconcerned, then a fortiori it has the right and power to refuse to fund ordinary legislation, which forms its core function.
Posted by Elektra Tig at 9:28 PM