The Hamiltonian Moment

In January 1790 Alexander Hamilton presented the First Report on Public Credit to the House of Representatives. His plan called for the federal government to assume the war debts of the states and to meet them by issuing a 4% bond. The plan succeeded and so proper national politics was born, soon represented by the opposition between Federalists and Democratic-Republicans. It had taken from 1783 for debt and a new politics to find their definitive point of equilibrium (not necessarily the optimal one); from the crash of 2008 to December 2011 may be a shorter period of time, but the deal proposed by Merkel and Sarkozy creates the ground for a real European politics in the way Hamilton's plan created the ground on which American politics were conducted for decades.

There are many different and important aspects to this initiative. The technical details will no doubt be haggled over for months, the role of the ECB in issuing bonds is still not clear, the mechanisms for integrating the states' budgets have nowhere been specified, and all of this detail will deeply matter. But if we grant that the parallel to the founding of the United States has some merit to it, then it is probable that this initiative will open a period of political contestation, not close it. The debate will not be between Federalists and Democratic-Republicans, though there will be parallels. As Philip Coggan argues, in his new book Paper Promises, the politics of the next period will pitch debtors against creditors. I suspect, at least in Europe, that we are beginning to see the creation of the political institutions in which such a politics will be played out. When, rather than if, the sentiments that animate the occupy movement break out of the constraints of national politics, they will find expression at the European level, because at that level a resolution/default can be credibly imposed on creditors. How creditors will politically express themselves is not clear. Just where this will leave Britain, which has nailed its future to the City of London and financial services, is anybody's guess. This is where our current circumstance starts to get even more interesting.