As negotiations on the European Union's future economic recovery plan continue, references are being made to Europe's "Hamiltonian moment". Giraud returns to the 1790 agreement between Hamilton and Jefferson on public borrowing... transforming the United States into a true political federation.
Introductory words
From Washington to Brussels?
From day one, the constitutional history of the United States of America
has fascinated the promoters of European unity. From Victor Hugo to
Winston Churchill, via Altiero Spinelli imprisoned in Ventotene, the
formula of the "United States of Europe" had become commonplace long
before Robert Schuman's founding speech. In 2002, Valéry Giscard
d'Estaing, who had been asked to preside over the "Convention on the
Future of Europe", proposed to the Convention members that they take the
Philadelphia Convention as a reference. Alas - or fortunately? - the
road to a European political union proved to be longer and more winding
than that leading to the American federation. How could the best minds
in a territory then scarcely more populated than present-day Lithuania
conceive of a system of government so firmly rooted in its principles
and adaptable to a post-industrial superpower of 300 million
inhabitants?
Without in any way diminishing the merit of the founding fathers of the
New World, a more refined analysis leads us to put the European project
back into the perspective of the long term, removing at least one
inferiority complex. Contrary to Epinal's image of an ideal federation
in place since 1787, despite the national unity acquired from the outset
in the war of independence and despite the historical genius of the
wise men of Philadelphia, it was another three quarters of a century
before the United States acquired a single currency comparable to the
euro, a real Central Bank, a standing army embryo and a federal budget
capable of having a macro-economic effect. In the meantime, the
conditions of temperature and pressure that made it possible to move
towards a truly complete federation had been met: a twenty-fold increase
in population, the conquest of the West, the industrial revolution and
the dreadful Civil War, from which the American Union never fully
recovered.
And yet, there are sometimes striking similarities in these very
different historical experiences. Jean-Guy Giraud recalls here how, as
early as 1790, the very first federal budget was born out of the need to
repay the debt that the thirteen impecunious States had been forced to
mutualise. As a nod to history, it now appears that it is the same need
to support a huge common debt after the pandemic crisis that will force
Europe to finance its budget with new own resources, independent of
national budgets.
A former senior official of the European Parliament, Jean-Guy Giraud
remains the infallible compass of the Community's magnetic pole. A
tireless watchdog, from his Occitan hideout, he measures the ebb and
flow of the European wave, passes texts through his legal scanner,
dissects acts that contradict the speeches, and encourages the strongest
believers when the time comes for doubt. With a fine sense of staging,
he helps us to feel when the wind of history is blowing. Is it a wind
from old America that is coming, blowing in the opposite direction,
which is suddenly shaking up a young Europe?
Alain LAMASSOURE
***
It is 3:00 p.m. in New York City (provisional seat of Congress) on 20
June 1790. At his residence on Maiden Lane, Thomas Jefferson (Secretary
of State) chooses the wines - French - that he will offer his guests for
the most famous dinner in the history of the American federation. At
4:00 pm sharp, his only two guests introduce themselves: James Madison
("floor leader" of the Democratic-Republican Congress Party...) and
Alexander Hamilton (Secretary of the Treasury). The invitation had been
issued the day before during a brief unannounced meeting between
Jefferson and Hamilton in front of President George Washington's
residence on Broadway, a meeting recounted by Jefferson as follows:
"Going to the President's, I met Hamilton as I approached the door. His
look was somber, haggard ... He asked to speak with me ... We stood in
the street near the door. He opened the subject of the assumption of the
States debt, the necessity of it in the general fiscal arrangement and
its indispensable necessity towards the preservation of the Union ...".
[1]
The dinner and the topics of debate
The three men knew exactly which topics - seemingly unrelated to each other –the focus of their conversation would be:
the Congress's consent to the assumption of state debts by the new Federal Government ("the assumption plan"),
the choice of the federal capital's definitive seat.
On the second issue, Thomas Jefferson and James Madison were the
plaintiffs. Since independence (1776), the seat of the Confederation's
government - then of the Union (1789) - had remained provisional. The
first US Congress sat in Philadelphia before moving (driven out by a
mutiny of soldiers from the War of Independence claiming back pay
arrears) to Princeton (NJ), Annapolis (MD), Trenton (NJ) then New York
where it still sat in June 1790.
To put an end to this wandering, Jefferson and Madison wanted - pursuant
to Article I, Section 8, paragraph 17 of the Constitution - to
establish quickly the definitive seat of the capital on the banks of the
Potomac and near Mount Vernon, the family residence in Washington. To
do so, they needed the support of the Northern States, represented by
Alexander Hamilton, an elected representative of the State of New York,
and grouped together in the "federalist" party of Congress.
The issue of "assumption"
Regarding the first issue - that of "assumption" - which is more of
interest to us here, Alexander Hamilton was the plaintiff. This project -
just as decisive for the future of the Federation as the choice of its
capital - concerned the United States' "public credit". In short, the
aim was to authorize the Federal Government to assume ("assumption"
plan) the war debts of the States and the Confederation contracted with
foreign government and American citizens - and to finance them with new
loans taken out, this time, in the name of the new Federation resulting
from the 1787 Constitution (of which James Madison and Alexander
Hamilton were the main inspirers in Philadelphia).
In Hamilton's view, it was first of all necessary to remedy, as a matter
of urgency, the catastrophic state of the finances of several States
and of the Federation which threatened the very unity of the young
Republic (and in particular the solidarity between the States of the
North and the South of the Union) and to restore the indispensable
political and financial credit of the Union vis-à-vis its European
backers (banks and governments of England, the Netherlands and France).
But the idea was also to provide for the basis of a broad federal
financial structure - the foundation of the national government's
monetary and fiscal system - designed to "cement the Union" through the
existence of a permanent and controlled public debt and to become "a
financial tool for the development of agriculture, industry and trade"
in the United States.
For Madison and Jefferson, this plan presented the risk of accelerating
the creation of a powerful central administration (a "Treasury") for the
main benefit of the trading and industrializing states of the North.
Madison's fervent constitutional federalism made him reluctant to take
steps towards the centralized organization of a federal financial power.
Jefferson, on the other hand, saw it as confirmation of his
long-standing fears of an English style "big government" at the service
of private interests: His scepticism was, however, tempered by his sense
of responsibility towards a Government and a State of which he was - as
Secretary of State - the third figure.
But let's get back to the dinner...
The guests arrive together and early: Madison because it has been his
habit since the Convention in Philadelphia and Hamilton because he takes
to heart what will be the great affair of his (short) ministerial
career. Table service is provided by discreet "servants" who guarantee
the confidentiality of the conversation. The menu is worthy of the
reputation of Jefferson's table, whose Francophilia (criticized by his
political opponents) and taste for French gastronomy (unanimously
appreciated) are well known to American high society. The scheduling of
the meal is moreover supervised by André Petit, the maître d'hôtel that
Jefferson brought back from Paris as part of his retenue.
After the salads - accompanied with Château Carbonnieux blanc 1786 - a
capon stuffed with Virginia ham and chestnut purée, seasoned with
Calvados is served, together with a Montepulciano from Tuscany because a
French wine "would have dulled the sauce". Then came a New York version
of "boeuf à la mode", served with a Chambertin. The desserts (meringues
and macaroons) are followed by a "vanilla ice cream en croûte", enjoyed
with a precious "champagne without bubbles" of which Jefferson boasted
that he was the only one to import in the "new world".
The conversation is brilliant between these three highest figures of the
Republic (after, of course, the American " Commander, George
Washington). It is mainly led by the ebullient Hamilton, imbued as usual
by the soundness of his cause and anxious to convince his
interlocutors. Madison played the role of the calm, cautious, meticulous
negotiator that he had played at the Convention, which helped him rally
Hamilton to his cause. The master of the house speaks little - except
to comment skilfully on his culinary choices - anxious to maintain the
equanimity of the remarks, but above all aware that it would ultimately
be up to him to decide the outcome of the negotiations (subject to the
President's agreement) and to bear the main responsibility for this as
the government's leading figure.
The topic of debate
It was positive and can be summarised as follows:
the seat of the capital would be established on the splendid, but wild
site planned on the banks of the Potomac, at the end of a period of ten
years necessary for its development; in the meantime, the seat would be
transferred from New York to Philadelphia (the original capital and most
populous city of the United States at the time);
regarding the "assumption plan", Jefferson and Madison undertook to pass
through Congress the text of the "First Report on the public debt",
taking into account the situation of certain states (including Virginia)
which had already paid most of their debts.
The agreement was rapidly implemented:
The "residence bill" was passed by Congress on July 10, 1790, three
weeks after the "dinner". As planned, ten years later, the capital was
moved from Philadelphia to the District of Columbia (DC) bordering
Virginia and Maryland and incorporating the small town of Georgetown;
the "assumption bill" was passed on July 18, 1790. Its adoption
reassured European bankers as to the political consolidation of the
young federation and its solvency. This law allowed the United States to
obtain the foreign capital necessary for its development, but also to
finance, in 1803, the purchase of "Louisiana" (representing in fact more
than half of the current territory of the United States) sold off by
Napoleon! Internally, this law ensured the development of the "Treasury
Department", not without many vicissitudes due to the persistent
opposition of the supporters of the States against those of the
Federation, an opposition which still underlies American political life
today.
By way of conclusion, we will let the reader imagine the conversation
that our three protagonists might have if they were to meet again, 220
years later, at another dinner in Washington! The current financial
power of the Federation - and in particular the use of its "debt" both
internally and internationally - would certainly leave them dreaming!
Hence the importance of dinners in town ...
"United States then, Europe now"
In a speech delivered to the Stockholm Academy on December 8, 2011 entitled "United States then, Europe now"
[2],
American Nobel prize winner Thomas J. Sargent endeavoured to recall the
main features of the creation of the United States Tax Union and to
draw a parallel, if not an anachronistic comparison by nature, between
the American experience at the time and the present situation in Europe
[3]
a parallel which became topical (again) on the occasion of the Recovery
Plan launched by the Commission in spring 2020. One of the components
of this plan aims to enable the launch of a major European loan to
finance the economic recovery of the European Union, which has been
severely affected by the consequences of the COVID health crisis.
Many references have been made to the European Union's "Hamiltonian
moment". For the first time, the EU is considering supplementing its
traditional budgetary resources with funds raised on the capital markets
to finance grants and loans to economic operators particularly affected
by the crisis. This borrowing and lending would be carried out directly
by and for the European Union and managed by the Commission. The
European budget would act as a guarantee and service the repayments,
which would be financed by new tax revenues. However, without going into
the details of the American and European mechanisms, we would like to
outline some particular characteristics of the former while leaving the
reader free to draw possible analogies with the latter.
"A plan, not a plot"
First of all, it should be noted that Hamilton's initiative actually had
a greater purpose: that of enabling "the concentration of governmental
authority and the industrialisation of the United States "
[4].
This vision and plan was based more on rational economic reasoning than
on some kind of political scheme to ensure the supremacy of federal
power. The restoration of "public credit" through the centralisation of
financial resources was mainly intended to enable the subsidisation of
the economic recovery and then the development of the American Union -
according to a plan also devised by Hamilton : the "Report on
Manufactures" which - although initially postponed by the Congress in
1791 - was finally implemented at a later date....
more at Schuman Fondation
© Fondation Robert Schuman