In which we see Sammy the Speculator go to work on the national debt.
So here’s my question to you, kids: How are we going to keep this thing going? How are we going to keep the republic?
—Damned if I know, Mr. K.
—I’m with Ethan on this one, Mr. K. We don’t have enough information to even begin to answer that.
Not enough information, Sadie? What kind of information do you want? Would you like some statistics? Population figures, perhaps?
—No, more like: what are some of the issues? Give us one.
Any particular kind?
—I dunno. Something where people can’t agree about what to do.
How is that going to help?
—Well, if I know what the arguments are about, I may be able to decide who’s right.
So you want to hear about how other people are thinking.
—Yeah, Mr. K. Sadie’s weird that way.
Indeed, Em. Is suspect you’re a little weird that way, too.
—Why thank you, Mr. K.
All right. Here’s something. At the end of the American Revolution, U.S. army veterans were all promised a bonus. A cash payment they were to receive for their service. Let’s say, for the sake of simplicity, that the amount in question was a thousand dollars. Relatively speaking, it wasn’t a huge sum, but something relatively significant.
—Something you could buy a new computer with.
Sure, Ethan. Of course, it would have been more like something you could buy a new horse with, but you have the right idea.
Now here’s the rub. The government is saying two things. The first is: “We’re going to give you that money.” The second is: “We’re broke. So we don’t know when.”
—Wow. That’s pretty lame. How can they do that?
They don’t really have any choice.
—Can’t they just print the money?
There is no government money, Brianna. Banks issue bills, but the U.S. government doesn’t.
—Well then can’t they borrow the money?
Well, in order to borrow it, somebody has to lend it. And the U.S. government has already borrowed a lot. British banks—most of the banking that’s being done at this point is by British banks—are not likely to lend money that’s not likely to make money, because they’ll worry they’ll never get it back.
—This isn’t helping, Mr. K. This isn’t an argument. It’s a problem. And I don’t see how we can solve it.
Well, Sadie, I’m Sammy the Speculator, and I’m here to help.
—Here we go.
That’s right, Em. Because I want to unlock the value of your money. Here you are sitting on a certificate that says you’re owed $1000. Which you might get—someday. Or you might not. And if you do get it, who knows what it’s likely to be worth by then. Maybe there will be inflation. Or maybe (sorry to be indelicate) you’ll be dead. But I have an offer to make: If you sign that certificate over to me—right here, right now—I’ll give you $200 in cash. On the spot.
Now, Don’t be too hasty, Em. Two hundred dollars is nothing to sneeze at. Think of what you could do with that money. New shoes. For the whole family. Seeds. Cloth. Maybe some delicacies like tea, jelly, candy.
—Not a horse?
Sure. No young thoroughbred. But maybe a decent workhorse. Maybe you have some debts of your own. Be nice to get those off your books, wouldn’t it?
—I don’t trust you.
You don’t have to trust me. You sign the certificate, you get your money.
—Yeah, but what’s in it for you?
For me? Maybe $1000. Maybe nothing. Or something in between. Look: this could pay off for me big time. Or it might not. I’m in the risk business. It’s what I do. I’m not hiding anything here: I could really come out ahead on this deal with 500% profit. Or I could end up with nothing.
—You know something. You have inside information.
—I don’t believe you.
Don’t, then. Assume I’m lying. Even if I have inside information: is that likely to be any use to you? Maybe I have a secret. But if I do, it’s going to stay a secret. And if and when it ceases to be a secret, do you think you’ll be in a position to take advantage of the new information?
Well, that’s your choice. I’ll be leaving town soon. You can hold on to that certificate, and maybe you’ll find out tomorrow that there will be a payoff. Or the next day. Or the week after that. Or the decade after that. Or not.
—Don’t trust him, Em!
—Take the deal, Em!
—Keep the paper! He’s trying to screw you over.
I need a decision, Emily.
—I’ll take the deal. What the hell. It’s only money. Actually, I’m only doing it because I want to see what his angle is.
As you wish. Done.
Now: Kylie. Let’s talk. You’re a widow. A little less carefree than our friend Emily here. Your husband was a true patriot. Alas, he’s left you almost destitute. Three mouths to feed. You literally can’t afford to be like happy-go-lucky Emily. Fortunately, I’m here to help. Would you like to take me up on my offer?
—I guess so.
Not the most enthusiastic of endorsements, but I’ll take it. Adam, how about you?
—Well, I’m no widow.
No. Your husband also died in the war and you’re his heir. But Pablo here has proposed to take you as his wife.
—I always knew Adam was hot.
Yes, well, Ethan, nothing makes a widow better-looking than a little money. Pablo marries Adam and he gets all that money. Sound good, Pablo?
—Sure. Very pretty.
So what do you say, Adam? You want to exchange your certificate for a quick $200 in cash?
—Sure. Anything for Pablo.
Excellent. I now have three takers. Oh wait: I forgot! Pablo, your wife was widowed, but you’re also a veteran. Will you also sell me your certificate for 200 bucks?
I’m on a roll! Jonquil? Is that shrug a yes?
Ladies and gentlemen, you saw that nod. And Ethan, how about you?
No? Oh dear Ethan, I hope you’re not being foolishly contrarian here.
—I want $300.
I’m afraid that’s not possible. Given my overhead and marketing expenses—
—Three hundred. My final offer.
Very well, then. Three hundred.
—Hey! That’s not fair! Why does he get $300 when I only got $200?
Nature of the business, Em.
—That is so not fair, Mr. whatever-your-name is.
Sammy the Speculator, Ma’am. Jonah?
Absolutely not. My business model won’t sustain that price.
I’m sorry, no.
Let me get back to you after I finish. I’m not sure a second $300 payout is worthwhile. Yin, I now turn to you. Would you like to sell your certificate for $200?
—No. I’m not going to sell.
—I’m with them.
Well, I guess that’s everybody. Jonah: $250.
Fine. (You coulda had the $300.) Now, remember: we started in on this whole thing because Sadie she needed more information about which direction she thought the country should go in. And here we come to a real debate of the kind she requested. You remember our friends Alexander Hamilton and James Madison? Who were they, again?
—They were Founding Fathers.
Yes. Can you be a little more specific?
—Weren’t they Constitution guys?
Right. They wrote The Federalist Papers.
—Oh yeah. With that other guy. James Jay.
John Jay. But yes. Madison and Hamilton were key players in framing and making the case for the Constitution. Now it’s 1790, and George Washington is President (he was chosen unanimously), and Hamilton is his right-hand man, just as he was during the Revolution, when Hamilton served on Washington’s staff. Hamilton is the new Secretary of the Treasury. Madison, for his part, is the protégé of Thomas Jefferson. Jefferson is Secretary of State, and Madison is a member of Congress—he’s essentially what we’ve come to know as the Speaker of the House.
So this is where I come into the picture. I’m Sammy the Speculator. I’ve racked up all these certificates I’ve bought from all of you at a discount. (By the way, one of my partners in crime, as it were, was Mrs. Abigail Adams, the husband of the vice-president, who bought these without his knowledge. She loved to invest family money.) The question at hand is: how many cents on the dollar should I get? Do I get the full thousand, which would mean something on the order of an $800 profit on my transactions with the Emilys and Kylies of the world?
Alexander Hamilton (and Mrs. Adams) says: Absolutely.
James Madison says: Are you out of your mind?
What do you say?
—I don’t think you should get anything.
Nothing, Brianna? Why not?
—Because you took advantage of those people.
—No he didn’t.
—Yes he did. He took, he, what’s the word, exploited them.
—He told them what the deal would be. He took a risk. He didn’t know what would happen.
—How do you know he didn’t know what would happen, Adam? These rich guys look out for each other.
—Hey, I don’t like the guy, either, Brianna. I took the deal, too. But that doesn’t mean I don’t think he shouldn’t get paid. Buyer beware.
—I don’t know if Mr. Sammy Speculator should get nothing. But I don’t know if he should get the full amount the way that the people who held on to their certificates did, either.
—You mean like you, Sadie?
—Well, yeah. But I wasn’t really thinking of myself. I was thinking that the people resisted the temptation should get rewarded for it.
—Yeah, well, Sadie, I’m a poor widow, remember? I had to sell. I was desperate.
—Oh, shush, Emily. You’re just feeling dumb because you sold yourself cheap.
—Sadie! I’m shocked! Shocked!
Mr. Hamilton understands that this situation is complicated. But he argues that the notion of who’s deserving and who’s not is beside the point. The nation is new. It’s weak. And it’s having considerable difficulty convincing foreign lenders and other commercial interests that the United States is a good investment. He wants to redeem the certificates for a hundred cents on the dollar because it will send a positive message to that investor class. It will make them feel more confident about the country, and that this in turn will help the country begin to realize its potential.
—Makes sense to me.
That makes you a part of an emerging Hamiltonian faction, Adam.
—What does Madison say?
What he says, Sadie, is that whatever message it may send to Mr. Hamilton’s rich friends, it sends a terrible message to the ordinary people of the United States. This is a nation of farmers and small producers, not a nation of bankers and speculators.
—So does he think the speculators should get nothing?
No, he actually agrees with you. He thinks they should get a discount on their discount, as it were. Original holders should get the full amount, and Sammy the Speculator should get 20-30%. Which would mean he breaks even, maybe comes out a little ahead.
—I like that.
Looks like a lot of you do.
—So is that what they do?
Nope. They redeem the certificates a hundred cents on the dollar to whoever has them.
Well, most of Congress finds Hamilton’s logic compelling. I also think there were some practical problems with Madison’s proposal. Like there would be no easy way to confirm that the holder of a certificate was really the veteran who originally received it. There might also be people who exchanged them—remember, this was a time before there was really money in the way we have it today—to pay debts in ways that had nothing to do with Sammy the Speculator type stuff. Say Paolo here built a new barn for Jonah, for a thousand dollars. It would be a good way to pay.
—It’s interesting, because Hamilton and Madison were on the same side with the Constitution. But they’re on opposite sides here.
An excellent observation, Yin. Before the ratification of the Constitution, both of them were Federalists, and the people who opposed them were known as Antifederalists. But after the ratification of the Constitution, Federalists were increasingly people who were associated with Hamilton. And Madison, along with Thomas Jefferson, became his most vocal critics, even enemies. They were known as Democratic-Republicans, or just Republicans for short.
—Is this how we got the Democrats and Republican parties?
Well, not exactly, Sadie.
—Well, how then?
I’ll tell you tomorrow.
—But Mr. K! The suspense!
I know you’ll shoulder on manfully, Em.
—Thanks, Sammy. Short for Samantha, I assume.
Next: Party: a four-letter word