The Balanced Budget Amendment: What Would Hamilton Say?

There is a paradox in the position of the “tea party” conservatives that has so far escaped much comment. On the one hand, they think the country would be better off if we governed ourselves according to the principles of the Founders and the Constitution, from which the tea partiers think we have departed drastically. On the other hand, they favor an amendment to the Constitution requiring a balanced budget. Such an amendment, however, would not simply add to the work of the founders; it would positively undo part of it. For the Constitution, as it stands and as the Founders crafted it, empowers the Congress to “borrow money on the credit of the United States.” The Founders, evidently, intended that the government be capable of incurring debt.

This observation, of course, does not itself obviate the call for a balanced budget amendment, nor does it demonstrate that those who want it are not true disciples of the Founding. It is possible that circumstances have changed and that a balanced budget amendment is now necessary to realize those basic principles, such as limited government, to which the Founders were committed. Nevertheless, for those who respect the Founding and seek to be guided by it, the fact that such an amendment would take away or restrict a federal power that the Founders thought necessary should be a cause for hesitation and further reflection. Before deciding to support a balanced budget amendment, we ought to ask: why did the Founders empower the government to borrow?

Here we might turn with particular profit to that Founder most associated with the establishment of America’s public finances, the first Secretary of the Treasury, Alexander Hamilton. Upon taking office, Hamilton was confronted with an infant republic, saddled with considerable debt from the revolution and far behind in its repayment obligations. In late 1789, the House of Representatives charged him with devising a plan to put the nation’s finances back on a sound footing, and he responded with his masterly and much-admired Report on Public Credit; Congress subsequently adopted its recommendations. While the Report’s primary purpose was to provide a financial plan, Hamilton, seeking perhaps to educate public opinion and influence the views of legislators, opened the Report with some general reflections on the importance of public credit. It is here that we might gain some insights to enlighten the contemporary debate on the balanced budget amendment.

What, then, would Hamilton think about the balanced budget amendment? I think it is fair to say, on the basis of the Report on Public Credit, that he would not have approved of it. I do not intend here, however, merely to appeal to Hamilton’s authority. The Hamiltonian arguments for public credit have a force of their own, because they are based on the common experience of nations and on the wisdom of America’s founding principles themselves.

Before bringing to light the incompatibility of a balanced budget amendment with Hamilton’s arguments in the Report on Public Credit, it is worth noting that this incompatibility does not in any way suggest that Hamilton would approve, on the other hand, contemporary liberals’ approach to public borrowing. In the Report, Hamilton contends that public borrowing is to be undertaken to meet certain “exigencies” or “emergencies” that inevitably arise in the life of nations—exigencies including, but not limited to, war. Hamilton’s critics at the time regarded him as too complacent about public debt, but his position is certainly a far cry from the present liberal tendency to use public borrowing as an ordinary tool of policy, to be employed on a continual basis to fund government expenditures that are perfectly predictable. Indeed, Hamilton concludes his Report by admonishing those who think that a “public debt is a public blessing,” and claiming that it is only so if the debt is accompanied by means to extinguish it. Hamilton’s argument, then, does not point to a continually growing public debt. Indeed, he warns that a nation that finds itself more and more in debt over time will be imperiling the pubic credit and thus, by inviting higher interest rates, impairing the nation’s ability to borrow advantageously when genuine necessities arise. In this light, we can see that Hamilton’s arguments predict the kind of difficulty into which many Western governments have gotten themselves through undisciplined borrowing.

Why, then, do Hamilton’s principles seem to condemn a balanced budget amendment to the Constitution? Though Hamilton claims that public borrowing should be undertaken in response to unforeseeable “exigencies” or “emergencies,” he nevertheless claims that public borrowing is a “necessity.” This is the case because, while the exact nature of such exigencies cannot be known in advance, we can know, with great confidence, that they will arise, in one shape or another, and that they will overtax the ordinary revenues of the government. We know this, he indicates, from the experience of nations. Even the wealthiest of them find themselves, at times, in need of credit, especially in times of war. Here, again, is food for thought for the present proponents of a balanced budget amendment. Most of them regard themselves as conservatives. Conservatism, however, involves respect for what experience has to teach about politics, and as Hamilton observes—and he is surely correct—recurrence to public borrowing is an almost universal practice of modern states, a fact that should suggest, to conservatives at least, that the practice is to be disciplined by prudent governance but not forbidden by the nation’s fundamental law.

To this, the proponents of the balanced budget amendment might respond that it can be crafted in such a way as to allow for public borrowing in cases of war or crisis. As a matter of fact, such an exception is currently being discussed as part of any balanced budget amendment. Such an exception, however, would not solve the problem. Depending on how it were framed, it would accomplish either too much or too little. On the one hand, it would surely be foolhardy to write the amendment in such a way as to allow public borrowing only in cases of war, because it does not take too much imagination to summon to mind many potential crises short of war that might be addressed best through public borrowing. Hamilton spoke of public credit as a necessity in relation not only to war but also to other exigencies that might require the government quickly to raise a lot of money. Such exigencies are no less probable today than they were at the time of the Founding. To take two obvious examples: a violent natural disaster or a widespread epidemic might cause terrible damage to the nation unless met with a quick public response. Yet government might not be able to raise the necessary funds in a short amount of time in the absence of a power to borrow.

Moreover, an inability to borrow would not only hamstring the government in responding to grave public evils; it might also prevent the government from seizing positive opportunities that could produce public benefits for generations. America might, at some point, have a chance to purchase some valuable new territory, perhaps rich in natural resources, that will enhance the nation’s prosperity. Such a purchase, however, might require an immediate transfer of money that would be impossible without the ability to borrow.

One could, of course, try to avoid all of these problems by framing the necessary exception broadly enough in the language of a balanced budget amendment. The amendment might, for example, allow public borrowing not only in cases of war but also in cases of public crisis. But if a narrowly drawn exception accomplishes too much by preventing borrowing when it is really needed, a broadly drawn exception would accomplish too little and would, in fact, make the amendment useless for all practical purposes. To borrow Hamilton’s language from his critique (in the Federalist) of a constitutional protection for freedom of speech, there is no definition of public crisis that could be included in a balanced budget amendment that would not allow “the utmost latitude for evasion.” In other words, a definition broad enough to allow the government to borrow in all justifiable cases would equally empower it to borrow at will for whatever causes a majority of both Houses of Congress would approve.

In view of these Hamiltonian considerations, the balanced budget amendment appears misguided. The proponents of a balanced budget amendment might instead try to discipline borrowing by establishing a serious procedural obstacle to incurring debt. For example, the amendment might require a two-thirds majority of each House to authorize borrowing on behalf of the public. Based on the American experience, it is not clear that such a requirement would seriously deter the government from incurring new debt. In the Senate, the filibuster already creates a supermajority requirement (of three-fifths) for increasing the nation’s debt, yet debt-ceiling increases have routinely passed the Senate. Indeed, debt-ceiling increases have been routinely enacted with overwhelming support in both Houses of Congress. In the most recent, and most hotly contested, debt-ceiling debate ever, 62% of the House of Representatives and 74% of the Senate voted to issue more debt.

One might try for an even more stringent requirement—calling for, say, a three-fourths vote in each House of Congress—but this would only exacerbate an already serious failing in any supermajority requirement: namely, any supermajority requirement is anti-majoritarian, and the higher the bar is set, the more anti-majoritarian it is. A balanced budget amendment framed in this way thus strikes at one of the vital principles of American republicanism: majority rule. It would be a step backwards in the direction of the Articles of Confederation, which required supermajorities for important actions of the Federal government. As Hamilton noted in the Federalist, this requirement effectively allowed any determined minority to dominate governance, at least negatively, by defeating measures that enjoyed majority approval. With a balanced budget amendment, the evil would be more confined but still considerable. It would, after all, give a considerable minority power over the fiscal measures of the government, which, in the end, touch on the government’s ability to execute everything it does.

In light of Hamilton’s concerns and recommendations, the principles of which contain timeless wisdom for our nation, the balanced budget amendment appears to be a well-intentioned but ill-considered proposal.