Exclusive: A Look at the Origin of our National Debt

The U.S. government is $16,828,845,497,183.90 in debt (but who's counting?).

How did we get here?

Talk about the origins of our debt, and you'll start a conversation about policy in the last few years, maybe the last decade.

But I want to go back farther than. Much farther.

I recently met up with David Cowen, CEO of the Museum of American Finance in New York, who gave me a look at the real origins of America's debt. Have a look (transcript follows):

Morgan Housel: Some other museums have George Washington's fake teeth, but you have something else here. You have George Washington's bonds.

David Cowen: That's right. We have his Treasury bond and this is from the origins, this is the origins of our national debt, this $16 trillion worth of debt, this is one of the original notes from the original debt, and the original debt was $65 million of domestic debt leftover from the Revolutionary War and $10 million of international debt. And the Secretary of the Treasury, the first Secretary of the Treasury, Alexander Hamilton, untangles our messy finances, bundles all of these securities and reissues them, and then this is George Washington's bond.

Now why is this important? Well, we were trading at a junk credit status after the Revolutionary War, and if you look at countries throughout history, the Russians when they come to power, the czars have debt out there; when the communists come to power, they renege on their debt. When the Chinese communists come to power, they renege on the previous government's debt. Hamilton says, let's assume this debt, let's absorb it. A very powerful concept which gets us on a sound economic footing.

Not easy to get through Congress. He has to convince the Virginians, and he does so by trading the Capitol to be on the shores of the Potomac, very close to The Motley Fool's headquarters, ten years from the time of that trade because the capital was here in New York at first. So these are the origins of the national debt. Virginians didn't want to pay for it, right? Just like (unclear) the Germans don't want to pay for the Greeks, but Hamilton convinced them by doing this famous trade. They agreed to it in Congress, and off we go on this national debt.

Now the last teaching moment, though, is that Hamilton said a national debt, if it is not excessive, will be a national blessing. And so I ask you some 220-odd years later, is it excessive? And that's what we're grappling with today.

Morgan Housel: What do you think? Is it excessive?

David Cowen: I think at this level, someone's going to have to pay for it, whether it's ourselves, our children or our grandchildren, at some stage, yes, it's going to be excessive.

Morgan Housel: So from George Washington to $16 trillion today and everything in between.

David Cowen: It's a direct line. 

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