In this, the latest of Robert E. Wright's monographs on early U.S. finance, the author integrates a number of recurring themes from earlier work and expands the time frame of study to build an overarching view of the national debt, documenting its rise during the Revolutionary War, its elimination in 1834 under the discipline of Jackson administration, and its run-up to the present day. This book is an important read for economists and policymakers because it demonstrates how debt can be a constructive and possibly even essential step towards sustaining long-run economic growth and development. Indeed, the reader is by the end left to wonder how the virtuous debt of two centuries ago could have gone so awry since the 1980s.

The book begins with an introduction to that Wright calls the “development diamond,” a baseball analogy that describes four milestones that must be passed on the way to achieving modern economic growth. A non-predatory government serves as the “home plate” in this scheme, with an efficient financial system standing atop of “first base.” Able entrepreneurs who seek the financial resources harnessed at first base await its delivery at “second base,” while the managers who help to implement the entrepreneurial ideas once funded take over at third. The story makes sense because the path to financial and economic development seems well rooted in these basic principles, and the sequencing of events aptly matches the experiences of many of history's most successful nations, including the Netherlands, England, and the United States.

Wright offers broad perspectives while discussing the rise of finance in the Netherlands and England in an early chapter, but quickly shifts focus to the monograph's prime example—the United States. And while the stories that underlie the emergence of the diamond in the United States are sometimes familiar ones, Wright's perspective is fresh and his bright writing style keeps the reader engaged. It is fascinating to consider the difficulties that the young nation overcame in leaving home plate and getting on its way to first base, not the least of which was the conflict between Federalists and Anti-Federalists in the course of ratifying the Federal Constitution. Wright recounts in vivid detail a certain celebratory parade that took place in Albany, New York just as the Federalists won the ratification battle—a parade that was apparently seen as going a bit too far by some of the Anti-Federalists, who started a skirmish outside of one of the city's popular saloons. But the narrative turns more serious as Wright provides an executive summary of the Federalist Papers penned by Alexander Hamilton, James Madison, and John Jay. While few economic historians might have the stamina to make it through all eighty-five entries, Wright summarizes the important ones in a way that makes it clear why their authors and the Federalists won the day. One could only wish that today's policymakers could operate with the same degree of transparency as these men did.

The ability of the government to convince most citizens of its good intentions and its ability to understand the importance of making timely payments to foreign creditors served the young nation well in creating a debt that allowed it to win independence from the mother country. It also ultimately allowed for the establishment of a financial system—first base in Wright's diamond—that sprang up to trade a government debt that included new issues and restructured state debts engineered by Hamilton himself as the nation's first Secretary of the Treasury. Wright argues convincingly that the national debt was a blessing, emphasizing how internal improvements, military strength, and a solid financial superstructure could be could be achieved through it. Seen in this way, the debt was a necessary component of the development process for the fledgling nation. Even more astonishing was how the early debt was for the most part used wisely and then sunk completely by 1834.

Second and third base receive less emphasis in the book, though there are interesting stories of entrepreneurial ventures that were both successful and not. An unsuccessful one described in considerable detail was the rise and fall of the beet sugar industry. In this case, we see an idea built upon a continental European example that was thought by some to be capable of reducing the demand for cane sugar grown and harvested by slaves. The early U.S. beet sugar industry seemed to have everything going for it—the technology already existed, there were a number of entrepreneurs willing to make an attempt to use it, and there was even finance to get the business off the ground. Unfortunately for the investors, growing beets in the United States for the purpose of producing sugar was just not a very good idea. Wright's example illustrates just how important second and third base of the development diamond really are, and how there will be both return and risk in any successful entrepreneurial environment. Of course, the hope is that a solid financial foundation can reduce the risk by funding better than average projects and sharing risk among those holding the financial system's liabilities.

So the debt was a blessing early on, but what of today? Wright contends that the debt is no longer employed in a way that facilitates the traversing of the development diamond, but rather in a manner that merely delays the inevitable hard times and higher interest rates that follow debt issues that have somehow gone out of control. Wright seems to have been ahead of the curve on this point given that the book was published in early 2008 and therefore conceived well before the onset of the woes that have descended upon the U.S. economy in the first half of 2009.

Overall, I think that this is Wright's best book yet. Not as scholarly as his earlier Wealth of Nation's Rediscovered (Cambridge University Press, 2002) to be sure, yet this effort represents a masterful bridging of the gap between the general reader and the professional historian and economist. Perhaps it all crystallizes because the story is so compelling and the author's pen so fluid. And though the pace does slow down about two-thirds of the way through with descriptions of various Virginians who held the federal government's bonds, it quickly regains momentum to continue along the path toward its powerful conclusion. This reader predicts that the book will end up being widely read, and sees it as particularly suitable for advanced undergraduates seeking an entertaining narrative of how, despite its recent bad reputation, the national debt actually formed the bedrock of the world's most successful emerging market.