Morgan Stanley
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The Legacy of Alexander Hamilton

With Andrew Sheets

Although Alexander Hamilton couldn’t have foreseen the current health crisis facing the U.S., his ideas remain relevant—and key to the recovery—more than 200 years later.

Each week, Chief Cross-Asset Strategist Andrew Sheets, or a member of his team, offers perspective on the forces shaping the markets as well as insights on investment opportunities and risk across global asset classes.

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Current Episode Transcript

Welcome to Thoughts on the Market. I'm Andrew Sheets, Chief Cross Asset Strategist for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about trends across the global investment landscape and how we put those ideas together. It's Thursday, July 2nd, at  2pm in London.

This weekend is the Fourth of July. And in honor of the holiday, I'm going to discuss Alexander Hamilton, the debate over Federalism and how these ideas remain relevant well over 200 years later.Hamilton's remarkable life saw him serve as an officer in the Continental Army and as an aide to George Washington. After the war, he was one of the loudest and most eloquent proponents of the idea that the 13 states should be formed into a single country. To forge that union, and to help it endure, Hamilton was passionate about the idea of Federalism: the idea that centralizing power, especially economic power, contained a number of advantages. I won't do justice to that debate here, although for further details, there are some excellent books and one very excellent play that is now available to stream.

Hamilton saw the centralization of financial power as central to a new government system that could succeed where previous attempts to unite the former colonies had failed. He lobbied for the new American government to assume the debts of the states, simultaneously binding them together and creating a justification that taxation and financial power should be concentrated at the national level.

The value of such a system still reverberates over 230 years later. When Covid-19 first struck the US, it struck unevenly and was heavily concentrated in Hamilton's home state of New York. Imagine if our system had forced New York to bear that entire cost at the moment that it could least support it. Imagine if that was repeated in state after state as the epicenter of the virus has shifted.

Hamilton's genius was realizing that the whole was stronger than the sum of the parts, that the federal government could borrow at lower rates for longer periods of time, especially in times of crisis. I'd like to think that he's being vindicated today. In response to the current recession, the US federal government's deficit is set to rise to almost 20% of GDP, the highest level of borrowing since the Second World War. But investors are only charging the United States 0.7% to borrow that money over the next 10 years, one of the lowest rates of borrowing cost ever recorded. State borrowing costs, in contrast, are currently much higher.

But this debate extends far beyond American shores. The debate over mutual support has long raged in the Eurozone as separate countries share the same currency and monetary policy through the European Central Bank, share many common laws through the European Union, but have little centralized spending power. And that's what makes the prospect of a new European recovery fund, to be debated this July, so exciting. For the first time, Europe could approve significant support at the federal level, supported by new jointly backed debt at very low interest rates. We'd like to think that Mr. Hamilton would approve.

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