10 “Distrust of the Public Ability”

MADISON SAT IN THE LIBRARY OVERLOOKING THE FARAWAY MOUNTAINS, their familiar blue gauze powdered by snow. His purse was filled with Virginia currency that galloping inflation had rendered virtually worthless. The crisis had started the year before. In December 1778, Washington had observed that money was sinking “five percent a day.” Ominously, he said, “I shall not be surprized if in the course of a few months a total stop is put to the currency of it.”¹

Madison spent the winter plowing through advanced texts on economic theory. A half-century later, he would describe this as an “unavoidable detention”; the call came like a force of his own nature. His research ineluctably drove toward an answer, which he began sketching out in a magisterial, 3,500-word essay confidently challenging the major macroeconomic assumptions guiding the country, with all the impatience and tenacity of a young John Witherspoon.

Madison launched his essay with a broadside against public opinion. While it was commonly supposed that the value of money should be regulated by quantity, he proposed to submit to the public a counterargument. Inflation, he declared, was not about paper money itself; printed bills were collapsing because of an underlying decay in the common “distrust of the public ability” to redeem the dollars in the future. The real question, therefore, was not only whether paper money could be exchanged in the future for actual gold or silver—it was whether people believed it could be.

The story of how the country had reached this point of mass disbelief in the redeemability of currency was, according to Madison, as simple as it was insidious. In the early years of the war, the “sinister events” of Congress’s incompetent management of army supplies had increased the “distrust of the public ability to fulfill” the country’s commitments. Misconduct by the nation’s purchasing departments—federal subsidies—had dramatically raised the price of articles like clothing, machines, and grain. That, in turn, had triggered the need to print more money so the public could afford the items. And that, in turn, forced the people—quite rationally—to doubt that the paper bills in circulation would be worth their face value in the future. The amount of currency required to purchase goods then naturally skyrocketed, because the people didn’t believe their stated value.

In other words, the inflation catastrophe had been driven by a crisis in confidence in the very prospect of collective action through a federal center. Madison drew an ominous metaphor of a hapless entrepreneur who pursues a costly business, but lacks sufficient cash to finance the project. Instead, he uses bonds and notes secured by an estate to which he has a questionable title. Even worse, his enemies employ “every artifice to disparage that security.”2 The country’s situation, like the entrepeneur’s, was untenable because of the failure of leadership and the vacuum of united national purpose. Any policy that did not directly attack those problems was boxing at shadows.

Strangely, Madison felt no need to publish the essay. He took twelve years before placing it in his Princeton friend Philip Freneau’s National Gazette. It was a private document that powered his entry into Congress, that helped him become, on the issue of federalism, a man of conviction, superior knowledge, and an unswerving theory of his case.

HIS ESSAY WAS COMPLETE. SPRING ARRIVED. AT LAST, MADISON LEFT Montpelier. He traveled for twelve difficult days to Philadelphia. He came into the city on Saturday, March 18. On Monday, he wrote his father a rushed, excited note describing the “extreme badness of the roads and frequency of rains.” From the moment he stepped off his carriage and entered his boardinghouse, the threat of war rumbled in Philadelphia. Tom Paine was busily distributing his ninth pamphlet in his Crisis series. England, he warned, was about to reap the bitter fruit of its own cruelty. He issued bloodthirsty threats: “The world awakens with no pity at your complaints. You felt none for others; you deserve none for yourselves.”³

In the chilly March air, Madison thrilled to the wartime city’s vitality. He watched well-made carriages bounce past, women in fashionable dresses hurry by, and gentlemen, lobbyists, and foreign diplomats throw back mugs of ale in taverns, plotting for each legislative session. In his first days in the chamber, he watched with barely concealed disgust as the legislators bickered on matters they barely understood. The fiscal situation was even more dire than he had imagined, the public debt an anchor dragging down the nation’s monetary system.

Years before his arrival, Congress had thrashed around the problem, eventually establishing a debt ceiling on September 1, 1779, with a resolution that stated that “on no account whatsoever” should the nation exceed $200 million.4 Now, he watched with disgust as the men in Philadelphia dreamt up another scheme to escape the debt limit by changing old dollars for new currency.

The situation affected Madison’s quality of life as a new arrival in the expensive city. He had brought to Philadelphia ludicrously complicated money: pounds printed in Virginia (which, like all states, had its own currency), the old federal Continental dollars, and the new federal currency called specie. But his two thousand Virginian pounds were declining in value every week and either had to be spent with the few merchants who would accept them or exchanged for federal currency at awful rates. Meanwhile, the bill from March 20 to September 20 at his boardinghouse alone would come to a staggering $21,373 in Continental dollars. He spent over a thousand dollars alone on haircuts.⁵ By April, he would feel he had no option but to ask for a loan from the federal treasury for eight thousand dollars in specie to try to pay his expenses in nondeflated currency.⁶

Now, he watched with amazement as Congress voted for a system to convert the 200 million dollars currently in circulation into a new public debt of 5 million dollars. Their scheme would exchange forty old dollars for a single dollar of specie and a note of credit entitling holders to an additional 5 percent interest in six years. But because the actual return on specie was already plunging due to inflation, the resolution instructed states to pay their quotas to the federal government in hard currency, with “one Spanish milled dollar in lieu of forty dollars of the bills now in circulation.”⁷

This was precisely the sort of madness Madison had diagnosed the previous winter at Montpelier, one that ignored the underlying crisis of confidence in government itself. Even worse, Congress would fill its own coffers with real money—Spanish milled dollars—rather than the bogus currency it was printing, rather fecklessly showing its hand. Finally, he told his father, the scheme would almost certainly backfire, creating “great perplexity and complaints in many private transactions.”8 The nation was marching, arms locked, over a cliff of its own making.

Angry and well informed, he was well prepared to take on the preposterous money exchange proposal. But as a brand-new congressman, he knew he would need to bide his time and pick his moments. He chose to vent to confidantes instead. Madison wrote to Governor Jefferson. Out of all the “various conjectures of alarm and distress,” he cried, nothing was more critical than the parade of horribles in Philadelphia. The army faced an “immediate alternative of disbanding or living on free quarter.” The treasury was “empty.” The government’s credit was “exhausted.” Even private credit had been extended “as far as it will bear.” The weak men of Congress, meanwhile, were “complaining of the extortion of the people,” while the people bewailed “the improvidence of Congress.” Meanwhile, the army’s military leaders blamed both the people and Congress for failing to support soldiers on the front.

The country required, in other words, “the most mature & systematic measures,” but instead they were getting harebrained schemes like Congress’s “untried & precarious” currency exchange. The end result, he predicted, would be a “total stagnation in prospect.”

He tied these strands together in a diagnosis that would serve as his own beacon for the remainder of his long public life. “Congress from a defect of adequate Statesmen,” he told Jefferson, was “more likely to fall into wrong measures and of less weight to enforce right ones.”⁹

Madison’s damnation of Congress was so controversial it was omitted in both the 1840 and 1900 versions of his papers.¹⁰ Now that we know what he said, “adequate statesmen” is the phrase that rings loudest in Madison’s litany. A legion of small men was collectively failing to rise to the occasion. Only statesmen could save America from herself. And extraordinary statesmen were not even needed. “Adequate” ones would do—ones with the humility of Madison himself.

At twenty-nine, James Madison had discovered, at long last, his calling.