The Net Asset Position of the U.S. National Government, 1784-1802: Hamilton's Blessing or the Spoils of War?

Abstract

The War for Independence left the National Government deeply in debt. The spoils from winning that war also gave it an empire of land. So, post-1783, was the National Government solvent? Was its net asset position, land assets minus debt liabilities, positive or negative? Evidence is gathered to answer this question by constructing a yearly time series of its net asset position, including time series of the subcomponents of that position, from 1784 through 1802. The answer to this question may help explain the constraints that determined why the National Debt was funded in the particular way that it was. The results from the data series constructed indicate that the National Government was solvent, had more than enough land assets to cover its debt liabilities, in this period but only if it maintained the default on the Continental Dollar (its non-interest-bearing debt). To do this and not ruin its creditworthiness it had to distinguish, legally and in the marketplace, between its interestbearing and its non-interest-bearing debt. It did this, in part, by only paying interest and no principal on its debts and by curtailing direct swaps of land for debt.

The Net Worth of the US Federal Government, 1784–1802

“…For heuristic purposes an estimate of $0.30 an acre will also be used. This price does not come from any actual land sale, but was the price Alexander Hamilton as Secretary of the Treasury proposed to Congress in 1790 for directly swapping land for debt (Donaldson, 1884;Grubb, 2005). Why Hamilton proposed this low price will be explain below.…”

“…The land owned by the federal government that was still salable-subtracting out lands already sold-amounted to 106 million acres in 1784, growing to 164 million acres by 1787, where it more or less stayed until growing to 220 million acres in 1802 with the completion of the land cession by Georgia. In 1803, the Louisiana Purchase materially changed the borders of the United States and the government's land asset position-explaining why this study stops in 1802 (Thomas Donaldson, 1884;Grubb, 2005).…”

“…The accumulation of interest arrears caused the face value of this debt to grow from 39 million dollars in 1782 to 55 million by 1790. In 1790 the federal government also 3 assumed the interest-bearing war debts of the states, about 20 million dollars-an action that was not totally unexpected (Grubb, 2005).…”

“…Desperate for specie, Congress also allowed the states, starting in 1780, to meet their money obligations to Congress by paying one dollar in specie in place of 40 Continental dollars-temporarily defaulting on the face value of its non-interest-bearing debt. Through the above payment/retirement mechanism the outstanding face value of the non-interest-bearing debt fell from 200 million dollars in 1780 to 81 million by 1790 (Jonathan Elliot, 1843-1844Grubb, 2005). Pre-1789, having no power to directly tax the public and receiving insufficient sums from the states, Congress paid no principal or interest on its domestic interestbearing debt and paid no principal on its foreign interest-bearing debt.…”

“…Official statistics exist only for the government's interestbearing debt after 1790. The rest of the data in Figure 1 was constructed or estimated (Grubb, 2005). By 1780 a total of 200 million dollars of non-interest-bearing debtContinental (paper) dollars-had been issued (none after 1779).…”