He applied the “Page 99 Test” to his new book, A Hercules in the Cradle: War, Money, and the American State, 1783-1867, and reported the following:
Ford Madox Ford did not come up with the Page 99 test with A Hercules in the Cradle in mind. I only wish there was something a little more riveting on this particular page. Nevertheless, it deals with an important innovation in American public finance.Learn more about A Hercules in the Cradle at The University of Chicago Press website.
When the United States became independent, it was bankrupt. The person asked to fix this was Secretary of the Treasury Alexander Hamilton. He did well. On page 99 we have reached the year 1794, when US securities have gone from close to worthless to par value. But to make American public credit rock solid, one important element remains. Hamilton has yet to provide for the amortization of the debt. Like other statesmen of the time, Hamilton, too, thought that public debts were an evil. The ability to borrow in times of crisis was crucial, but the government should always strive to be debt free. It was Hamilton who formulated the “fundamental maxim, in the system of the public credit of the United States, that the creation of public debt should always be accompanied by the means of extinguishment.” It remained a pillar of American public finance into the early twentieth century.
The rest of Hercules is less about amortization and more about borrowing, however. In the 80+ years after independence, the US was an avid borrower that financed both three major wars and a spectacular territorial expansion with other people’s money. When the Civil War ended, the US was already the world’s second- largest debtor, trailing only Britain. But far from a sign of weakness, this was a show of strength. Public credit is a vital resource that allows governments to do things they could not otherwise do. In the period covered in this book, borrowed money made possible both the conquest of North America and the preservation of the American union. In later years, public credit underpinned the nation’s transition first into a great power in the late nineteenth century and then into superpower at the close of the Second World War and, finally, into a hyperpower at the end of the Cold War.
A Hercules in the Cradle is the history of how it all began.