Alright, Hamilton!

The latest currency news is that Treasury Secretary Jack Lew is going to put a woman’s face on US currency for the first time. That is good news, of course, and way overdue. But the devil is in the details, and so far the details are not good. I say this as a believer in women’s equality and in modern economics.

First, the bill in question is the ten-dollar bill. Why the tenner? Of the four bills we use regularly — the one, five, ten, and twenty — this is the most redundant and the one we see the least of. You need those ones and fives to make change and pay for drinks, and twenties are what come out of the ATM. If you didn’t see a ten spot for a whole month, would you even notice? So it reeks a bit of tokenism to put a woman on our least important of the top four bills. The names that have been mentioned are fine — Harriet Tubman, Eleanor Roosevelt, Sojourner Truth, etc. — but Lew’s suggestion that there might be multiple ten dollar bills, with different women’s faces, seems to compound the tokenism. There’s not one woman in US history who’s important enough to warrant her own bill?

The other big problem is that the current occupant of the ten-dollar bill is the perhaps the most deserving American of a spot on our currency: Alexander Hamilton. As one of the authors of The Federalist and then as the first Treasury Secretary, Hamilton consistently advocated for the building blocks of a modern, functioning economy, as opposed to the feudal system of slave agriculture that dominated the South or the “nation of small farmers” that Thomas Jefferson idealized (despite being a rather large slaveholding farmer himself). Hamilton’s was a lonely position at a time when about 90% of the American population lived in rural areas and was engaged in farming. And Jefferson, then as now, was the more popular, inspirational, romantic figure of the two. But Hamilton eventually prevailed, as the nation industrialized and adopted a modern system of banking, including two central banks which finally eventually evolved into the Federal Reserve System in 1913. When a central bank does its job properly, recessions, deflation, and financial panics are less severe. Their track record is far from perfect, to be sure, but that’s a debate for another thread. Jefferson opposed a central bank, as did his fellow Founding Virginian and successor, James Madison, who had the bad timing to let its lease expire just before the War of 1812, when the nation could have really used a central bank. Madison relented after the war and Congress chartered a new central bank, but its lease was allowed to expire in another bit of ill timing, just before the Panic of 1837.

The only downgrade that matters

Remember these words: “means of extinguishment.” The full quote is “The creation of debt should always be accompanied with the means of extinguishment,” and it’s from Alexander Hamilton, the father of our national debt. Hamilton believed that the federal government could do the nation a big favor by carrying a debt as long as it had sufficient revenue streams to eventually pay it off; such an arrangement, he said, would give the US “immortal credit,” which could come in very handy whenever we had pressing needs or good public investment opportunities that justified borrowing more money.

This has been on my mind because the (yawn) “fiscal cliff” negotiations, whatever their outcome, are really just the latest round in an endless series of self-destructive battles over whether to honor our own budget commitments by raising the debt ceiling so that we can pay for them. I’ve written about Congress’s debt-ceiling looniness before, and how it would be better not to have such votes at all. Think the proposed budget has too big a deficit? Fine, then don’t vote for it. But to vote for it and then refuse to pay for it is not only cynical and hypocritical, but sows suspicion that the government is a deadbeat.

Standard & Poor’s (S&P) famously downgraded the federal government’s debt in August 2011 (from AAA to AA+), and the other two major bond rating agencies (Moody’s, Fitch) are threatening to do the same if Congress can’t reach some kind of agreement to reduce the debt/GDP ratio in the long term. After the subprime scandal, in which the rating agencies routinely rubber-stamped dodgy subprime mortgage-backed securities as AAA, these agencies have zero credibility, but that doesn’t mean they’re always wrong. The S&P said its downgrade “was pretty much motivated by all of the debate about the raising of the debt ceiling. . . . It involved a level of brinksmanship greater than what we had expected earlier in the year.” Yes — if Congress can’t be counted upon to honor its own commitments, which include paying back the principal and interest on previously issued Treasury bonds, then why should bond buyers regard Treasury bonds as completely safe? The more Congress continues to play these games, the more rational it is to conclude that maybe Treasury bonds are not so safe.