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The middle class may have woken up to the crisis in agriculture when thousands of farmers marched to the national capital on 30 November 2018, but it is a crisis that has been with us for quite some time now.The Delhi march had been preceded by many protests across state capitals starting with the ‘Long March’ of 12 March 2018 in Mumbai. In fact, there have been numerous farmer protests – small and large – since 2016. There was the long dharna (agitation) by Tamil Nadu farmers in 2017 in Delhi. Then there was the death of five protesting farmers in police firing in June 2017 at Mandsaur, Madhya Pradesh. These have been only a few of the many agitations that have taken place across the country in recent years.One immediate fallout of the widespread protests has been that it has forced the attention of the media and the political parties on the misery of the farmers. The debate around the plight of agriculture has been reduced unfortunately to only two issues: one, the lack of remunerative prices for which the demand is for higher Minimum Support Prices (MSPs) and, the second, the debt trap that farmers find themselves in. As a result, state and central governments and political parties are promising debt waivers and higher MSPs, and more recently income transfers to farmers. However, none of these responses reveal an understanding of the true extent of the crisis in agriculture. It is unlikely that adversity will go away even if these promises of loan waivers and higher MSPs are implemented, and the income transfers of the state and central governments are handed out.The crisis in agriculture is deep-rooted and is a result of an accumulation of distress over the last decade or so. There are a number of reasons why the predicament agriculture now finds itself in is unprecedented compared to previous instances of distress.First, unlike earlier episodes when acute distress was the result of a disruption in production or weather-induced factors, this time it has intensified at a time when the monsoon has been normal. Sure, the crisis was aggravated by the twin droughts of 2014 and 2015, but its genesis and its subsequent intensification have been a result of factors unrelated to monsoon failure. Apart from the impact of a sharp decline in the prices of agricultural produce since August 2014, the current episode of severe adversity is the result more of a larger neglect of the agricultural sector since 2012-13.Second, this time it is not agriculture alone that is in distress but the entire rural economy has been affected by a severe decline in demand including in activities other than farming (what is called the ‘non-farm sector’).Third, unlike earlier when the response of governments to some extent managed to alleviate the suffering of farmers and revive the agrarian economy, this time the government’s actions have only worsened the crisis.Finally, unlike previous such episodes when the plight of agriculture was localised to parts of the agrarian economy, this time it is both geographically widespread with almost all major states being affected, and different segments of the agricultural sector – food crops, non-food crops, and livestock economy – are in the doldrums.The widespread nature of the crisis also implies that any solution has to address all its dimensions. Unfortunately, the narrow approach given the impending elections has meant that the solutions offered are piecemeal and half-hearted without addressing the root causes. While these may provide temporary relief to the farming community, they are unlikely to prevent another crisis a few years from now.Building up to a crisis: 2014-2016Long-time observers are in some ways not surprised by the state of Indian agriculture today. In many ways, agriculture has always been in crisis, the intensity of which may have gone up or down from year to year. This time it is serious and has taken political dimensions, with almost all political parties waking up to the situation. The entire rural economy has been affected with consequences for overall economic growth.The non-farm sector in rural India, which has lately been an equally important part of the rural economy, has been under stress with most of the rural activities witnessing lower growth than during the period 2004-05 to 2013-14. Along with farmers (cultivators) whose incomes have declined in real terms (that is, after adjusting for inflation), the wages of casual workers have been growing much more slowly than earlier. The real wages of labourers in agriculture as well as the non-farm rural sector have even stagnated in the last five years. Taken together, casual workers and cultivators account for almost two-thirds of all workers in the rural economy. So a decline in their real incomes has contributed in recent years to an extreme episode of demand deflation (that is, a decline in demand, as opposed to an increase in inflation).The current situation in many ways mirrors the predicament faced by the agricultural sector during 1997-2003 when another National Democratic Alliance (NDA) government was in power – led by the Bharatiya Janata Party (BJP) with Atal Bihari Vajpayee as Prime Minister. The similarities are a prolonged period of demand deflation led by a collapse of agricultural prices and a sharp slowdown in agricultural wages. The former contributed to the terms of trade shifting away from agriculture and in favour of the non-agricultural sector. (The terms of trade between two sectors broadly measure the purchasing power of the income earned by one sector in order to buy the goods and services of the other sector.)There was also a sharp increase in farmer suicides. It is this backdrop and the anger against the then government that led to the United Progressive Alliance (UPA) being elected to office in 2004. Unfortunately, the NDA-II government again led by the BJP has not learnt from its previous mistakes and has ended up in a similar situation, this time with an agricultural crisis worse than in the early 2000s.Agriculture grew by just 1.76% every year during 1998-2004. However, the rural economy bounced back after 2004 with the growth rate of agriculture accelerating by more than double to 3.84% per annum between 2004-05 and 2012-13 (growth rates are based on the old GDP series). The revival of agriculture was led by an increase in credit availability to agriculture, a rise in farm investment and MSP policies that helped shift the terms of trade in favour of agriculture. The increase in the MSP during the first term of the UPA government (2004-09) may have partially fuelled food inflation during the second term of the UPA (2009-14), but it also led to higher incomes for farmers and a general increase in the wage rate of labour that was unprecedented since the 1980s.At the time, the MSP of paddy was hiked from Rs. 560 per quintal in 2004-05 to Rs. 1,310 per quintal in 2013-14 while that of wheat from Rs. 640 per quintal in 2004-05 to Rs. 1,400 per quintal in 2013-14, both increasing by more than two times. The higher incomes in the hands of farmers certainly helped expand demand in the rural economy, which was reflected in a higher purchase of consumer durable goods like two-wheelers. It was also reflected in a higher demand for labour in employment in the non-farm sector of rural India, the latter being largely led by an increase in private construction.At the same time, the non-farm sector also benefited from an increased transfer of funds from the central and state governments through various rural development and food security programmes such as the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) scheme and the expansion in the public distribution system (PDS). The net result was an equally sharp increase in non-farm incomes and the fastest reduction in poverty in the last three decades.Prime Minister Narendra Modi’s NDA government has promised to double farmers’ income by 2022. That is near impossible since farmers’ incomes have declined in real terms not just during this government’s tenure but also since 2011-12.While there are no reliable and robust estimates of farmer incomes, the background paper outlining the strategy and action plan for doubling incomes prepared by the NITI Aayog (National Institution for Transforming India), shows a trend of declining farmer incomes since 2011-12 (Chand 2017). As against a growth rate of farmer incomes at 5.52% per annum between 2004-05 and 2011-12, the incomes of all farmers actually declined at 1.36% per annum between 2011-12 and 2015-16. Extending the calculations to 2017-18 and using the methodology suggested by the NITI Aayog, it is seen that the trend of a deceleration (slowdown) in growth of farmer income has continued.1In fact, the period after 2011-12 has been the longest such episode where farmers have seen the growth in real incomes slow down year after year.Incidentally, this has happened at a time when, based on the new series of national accounts, the agricultural growth rate has been 2.9% per annum between 2013-14 and 2017-18,2which although lower than the 3.5% per annum between 2004-05 and 2013-14 under the UPA government, is not bad considering the back-to-back droughts of 2014 and 2015. However, this picture of a fairly buoyant agricultural sector in terms of total output is only part of the story. A break-up of the various sub-sectors of the agricultural sector shows a story of stagnation in crop production in the last four years.The crop sector has seen a sharp deceleration in the growth of real gross value added (GVA), a comprehensive measure of net income which has been generated in production that is used in the national accounts) during the first four years of this government, with growth in real terms at only 0.5% per annum.3What makes it significant is the size of the crop sector which accounts for as much as two-thirds of agricultural sector GDP and is the source of livelihood for the huge number of farmers dependent on it. Within the crop sector, it was only the horticulture and allied activities, which showed a sharp recovery while there was a decline in the growth rate of all crop production.Rising costs and falling profitsA declining growth rate of GVA in the crop sector is not just a result of weather fluctuations that affected the output in the first two years of the tenure of the Modi government, but also of cumulative neglect over the years that has intensified during the entire term of the NDA-II government.While the agricultural sector rebounded after the crisis of 1998-2003 with a recovery in farmer incomes, this recovery was short-lived and started showing signs of stress from 2012-13. The sharp rise in real casual wages at more than 6% per annum during 2008-13 along with rising fuel and input costs had already begun to squeeze the profit margin of farmers from 2011-12 onwards.The rise in petroleum prices had led to an increase in irrigation costs. Following the introduction of the Nutrient Based Subsidy (NBS) scheme for fertilisers in 2010, fertiliser prices had also risen. Fertiliser consumption that had increased from 16.7 million tonnes in 2000-01 to 28.1 million tonnes in 2010-11 started declining after the introduction of the NBS scheme, falling sharply to 26 million tonnes by 2016-17. It also led to a worsening of the fertiliser mix. All this together contributed to a squeeze on farmer incomes, affecting rural demand for consumer and investment goods. This is visible, for instance, in the trend in tractor and power tiller sales, where tractor sales increased from 247,000 units in 2004-05 to 697,000 in 2013-14, and then declined subsequently to 582,000 in 2016-17. Similarly, sales of power tillers that had risen from 17,481 units in 2004-05 to 56,000 in 2013-14 later declined to 45,200 in 2016-17. The squeeze on farmers’ incomes also resulted in a declining offtake of bank credit and an increase in the total debt burden.The twin droughts of 2014 and 2015 occurred against this background of rising input costs and a squeeze on farm incomes. Adverse weather conditions then led to a decline in agricultural output. But farmers also suffered from two associated factors. The first was the decline in agricultural commodity prices following a sharp collapse of international prices coinciding with the fall in petroleum prices. The decline in crop output prices took place first in cash crops, when they witnessed a sharp collapse in domestic prices following that of international prices, and soon spread to all commodities as well.Both these factors – adverse weather conditions and the fall in international prices – came as a shock to the agricultural sector that had already started showing signs of stress because of rising input prices. These were further aggravated by the response of the government that contributed to a build-up to a full-blown crisis. The first was the sharp cuts in agricultural expenditure with major declines in spending on agriculture-related schemes. The first full budget of the NDA government in 2015-16 saw a decline in the agriculture budget by almost one-fourth in nominal terms compared to the 2013-14 budget. Although it improved in 2016-17, it still remained lower than the allocation in the agriculture budget of 2013-14.Second, the fall in petroleum prices was not passed on to the consumers, leaving them with an unchanged input bill. The government chose to raise taxes and was the beneficiary of a large windfall of tax revenues.While the terms of trade had already started turning against agriculture after 2011-12, it worsened in the next two years. Figure 1 shows the terms of trade between farmers and non-farmers. The last time the index of terms of trade had moved against farmers was during 1997-2003. It had recovered after that with the index moving up from 85 in 2004-05 to 103 by 2010-11, driven by generous MSP increases and a general rise in food inflation. But it declined soon after and has remained at this level ever since (Figure 1).Figure 1. Index of terms of trade between farmers and non-farmersSource: Ministry of Agriculture (2017).The third factor was the decline in real investment in agriculture. At a time when all indicators of the rural economy were suggesting a deterioration of the agricultural situation with a decline in farmers’ income, the response of the government was to reduce the already meagre investment in agriculture. Public investment in the agricultural sector declined sharply with real investment declining at 1% per annum during the four years of the NDA-II government for which data is available. Figure 2 presents the picture.Figure 2. Investment in agriculture (Rs. Crore, 2011-12 prices)Source: National Accounts Statistics.The non-farm sectorWhile distress in the agricultural sector had been building up since 2012-13, one of the reasons why it later worsened was the slowdown in the non-farm sector. The non-farm sector has been gaining importance in the rural economy for some time now. By 2011-12, agriculture was not the dominant employer in the economy, although it remained important in the rural economy. While aggregate data may not fully capture the extent and importance of the non-farm economy in sustaining the larger rural economy, the evidence from village surveys clearly points to its increasing importance.4The rural non-farm economy is now not just a driver of income and employment diversification, it contributed to a significant reduction in poverty between 2004-05 and 2011-12. However, the rural non-farm economy started showing signs of stress when the construction sector too started slowing down. This slowdown was reflected in the national accounts statistics, but is more starkly visible in wage data.Real rural wages rose at more than 6% per annum between 2008 and 2012, but growth started slowing in November 2013. Real wages of agricultural labourers grew at 0.87% per annum between May 2014 and December 2018, whereas for non-agricultural labourers they grew by only 0.23% per annum. For construction workers, who are among the largest group of workers outside agriculture, real wages during the same period declined by 0.02% per annum.The deceleration in real wage growth and stagnation in real wages was reversed in July 2016, which was a normal monsoon year after two years of drought. However, real wages again stagnated after May 2017, most likely as a result of demonetisation in November 2016, which disrupted agricultural activities as well as the rural non-farm sector (see Figures 3 and 4). Both these sectors are largely informal in nature and suffered immensely due to the withdrawal of cash from the system.The decline in real wages was driven by the decline in agricultural production, as also by the slowdown in the non-farm sector, particularly in construction and manufacturing.The construction sector grew at 7.9% per annum between 2004-05 and 2012-13. Growth then decelerated sharply to only 3.5% between 2014-15 and 2017-18, which affected the demand for non-farm labour. The slowing growth in real wages was also partly caused by the cutbacks in public spending, which had helped raise wages between 2007-08 and 2012-13. Not only did the overall expenditure on MNREGA decline after 2011-12, even the person days of work generated started falling. The NDA government’s attitude to MNREGA can be summed up by Prime Minister Modi’s speech in Parliament, where he declared that it should be seen as a symbol of failure of the UPA.Figure 3. Real wages of non-agricultural labour (Rs. per day, 2011 prices)Note: Real wages have been obtained by deflating nominal wages by the consumer price index, rural​.Source: Wage Rates in Rural India, Labour Bureau.Figure 4. General agricultural real wages (Rs. per day)Note: Real wages have been obtained by deflating nominal wages by consumer price index, rural​.Source: Wage Rates in Rural India, Labour Bureau.The slowing growth of real wages contributed to the general decline in demand in rural areas. The cumulative impact was felt not just on agricultural demand but also on non-agricultural goods and services. Unlike the agricultural sector, where unforeseen circumstances such as weather shocks and the collapse of international prices had a role to play, the decline in the rural non-farm sector was entirely a domestic creation. Partly, it was the NDA government's attitude towards rural development interventions such as MNREGA and other such schemes. It saw such policies as a legacy of the previous UPA government and therefore not deserving attention. The wilful neglect of agrarian distress also contributed to the slowdown in the non-farm sector.Finally, the decline in agricultural exports too contributed to the worsening situation in agriculture. The fall in international commodity prices affected the demand for Indian agricultural products in global markets where the collapse in prices along with the relatively negligible decline in domestic prices made Indian agricultural exports uncompetitive. As a result, agricultural exports, which had increased from a low of US$8.8 billion in 2004-05 to US$39.4 billion in 2014-15, declined to US$33.8 billion by 2016-17. At the same time, agricultural imports that amounted to US$3.8 billion in 2004-05 increased to US$15.03 billion in 2014-15 and further to US$16.9 billion in 2016-17.The fall in exports and increase in imports hurt domestic producers. One of the reasons domestic prices remained high making Indian produce uncompetitive, was that unlike international trends the decline in petroleum prices did not materialise in lower energy costs for Indian farmers. The price competitiveness of Indian agricultural exports was also hurt by an ad-hoc export–import policy, which put unnecessary export restrictions, thus preventing farmers from benefiting from international markets. An unfavourable exchange policy and imports by the government also contributed to unfair competition from agricultural commodities, which were imported from the global markets where prices were lower than domestic prices.Intensification of agrarian crisis: 2016-2018Government policy not only neglected agriculture during the crucial period of 2014-2016, but also played an active role in deepening the crisis. Fortunately, the resilient Indian farmer was strong enough to effect a revival in 2016 when the weather turned favourable. Agricultural growth rebounded to more than 6.3% in 2016-17 and followed it up with 5% growth in 2017-18.5Unfortunately, the recovery was short-lived. Farmers who had harvested a bumper crop in Kharif 2016 found themselves unable to sell once demonetisation was announced on 8 November 2016, which thus caused acute misery. Most of the trade in agriculture is cash based, and the absence of cash led to huge losses for most farmers. It also affected the non-farm sector, which was showing signs of revival following the normal monsoon of 2016. The net result was a continuation of the profit-realisation crisis of farmers alongside job losses. Real wages, which had started showing signs of faster growth, also started showing a slower growth from May 2017. By October 2018, the last month for which the Labour Bureau has released data, real wage rates were lower than February 2017 for agricultural as well as non-agricultural labourers.While demonetisation adversely affected the agricultural sector and the non-agricultural sector, the hasty introduction of the Goods and Services Tax (GST) added to the woes of the informal non-farm sector. The combined impact of demonetisation and GST was a further slowdown in the rural non-farm sector.While the crop economy was under severe distress, matters were made worse by the problems in the livestock economy. The cattle economy is an integral part of the agrarian economy, particularly for small and marginal farmers. The political mobilisation against cattle trade affected the agrarian economy. Several incidents of lynching of cattle traders and tightening of regulation for cattle trade by state governments led to a sharp reduction in the volume of trade. The downturn in the livestock economy, which used to provide emergency cash and in some cases was also a necessary diversification in the rural economy, now also contributed to the decline in rural incomes. The increase in stray cattle, abandoned by farmers after the cows are no longer lactating, added to the cost of farming as labourers had to be engaged to protect the fields from stray cattle. The net impact of these developments was a sharp reduction in income opportunities that were available to farmers along with an increase in the cost of cultivation. The non-crop economy not only added to income but also acted as insurance against losses in crop cultivation.The cumulative impact of all these factors resulted in one of the sharpest declines in rural demand. Reduced domestic demand and external opportunities led to a collapse of prices in the domestic market. The fact that agricultural markets were fragmented also did not help the farmer realise the price for his produce. The collusion and cartelisation of agricultural markets only led to farmers being squeezed out from the demand that was coming from urban areas. However, it was the demand deflation in the domestic economy that has ended up in a situation where food price inflation has turned negative. Since August 2017, the food price index from the wholesale price index (WPI) has not seen any growth (Figure 5).Figure 5. Wholesale price index food inflation (%)Source: Office of the Economic Adviser.Clearly, the crisis in agriculture this time is not driven by the collapse of agricultural output. Its genesis lies in the broader policies that the Indian economy has followed in the last three decades since the economic reforms of 1991. It is embedded in the larger political economy architecture following structural adjustment policies, which make low inflation the objective of fiscal and monetary policies. Since food and agricultural commodities constitute a significant part of the consumption basket, the objective of low inflation also implies keeping food inflation low.The second component of the structural adjustment policies that seek to keep the fiscal deficit under control also emphasises a reduction in subsidies and revenue expenditure on agriculture and rural development. A failure to adhere to the principle of low inflation invites censure from the rating agencies, which seek to keep the real value of foreign investments intact. Inflation erodes the real value of these investments. While there is no substantial evidence either against undertaking expansionary fiscal policies when there is surplus capacity and demand deflation, or that overall inflation is driven largely by food inflation, successive governments have continued to maintain inflation targeting and fiscal fundamentalism as non-negotiable policy.The implication of the deflationary policies has been felt largely by the farmers and rural population in order to keep the middle classes and the foreign investors happy. Despite the acute crisis in the countryside, governments have avoided using the available fiscal space to increase demand in rural areas.Not only is the aggregate growth rate of crop agriculture lower now than during the UPA years, the increase in agricultural output is nowhere close to the increase in production observed during the period 2004-05 to 2013-14, except in the case of pulses. Figure 6 gives the growth rate of major crops and crop groups for the periods 2004-05 to 2013-14 and 2013-14 to 2017-18.Figure 6. Growth rate of output of different cropsNote:Growth rates are compound annual growth rates. Figures for 2017-18 are based on 4thAdvance Estimates.Source: Ministry of Agriculture and Farmers’ Welfare.Except for pulses, which have seen output grow faster between 2013-14 and 2017-18, all other crops and crop groups have seen a sharp deceleration in output growth.In the case of pulses, untimely imports resulted in a price collapse. But commercial crops such as soybean and cotton that have seen an output decline have also seen a fall in prices. The current spell of low and declining prices is therefore certainly not due to overproduction as has been claimed by the government and some sections of the media, and nor does it follow international prices that have not shown any sharp decline, after falling between 2014 and 2016.The responseOne way to gauge the response of the government and its commitment to agriculture is by examining the budget allocations for agriculture. While the budget of the ministry of agriculture increased almost 10 times from Rs. 21.67 billion in 2003-04 to Rs. 216.09 billion in 2013-14 during the UPA years, the allocation in the first full budget of the NDA government declined by one-fourth to Rs. 166.46 billion in 2015-16. It increased to Rs. 204 billion in 2016-17, which remained lower than the budgeted allocation for 2013-14. In normal course, governments would increase budgeted expenditure on agriculture, particularly in drought years, but the two budgets after the droughts clearly showed the present government’s lack of concern for agriculture.While the budget allocations did show a jump in 2017-18 and 2018-19, much of this was due to smart accounting where the amount spent on interest subsidy, which was earlier reflected in the budget of the finance ministry was brought into the budget of the agriculture ministry. Excluding the interest subsidy component, the overall budget for agriculture increased by 26% per annum during the UPA years but by only 8.7% per annum under the NDA-II government. It is also important to note that except in 2016-17, in none of the years has the actual expenditure been close to the budget allocation. The marginal increase in the agricultural budget in recent years has largely been on subsidy on interest and on insurance premium. But this increase has come at the cost of a decline in investment in agriculture. Real investment in agriculture declined by one percentage point per annum during the first four years of the Modi government.6While the government continued to reduce public investment in agriculture alongside the marginal increases in overall agricultural budgets, the cut in some of the vital schemes such as Rashtriya Krishi Vikas Yojana (RKVY)7also had adverse effects on the farm sector.In the context of the increased protests by the farmers and resulting politicisation of the farmers’ crisis, the response has largely been of three kinds: loan waivers, MSP increases, and some form of direct income transfers, which have now found favour with political parties and have also been implemented in several states. The total amount of loan waiver announced so far is almost Rs. 1.9 trillion with promises of more after the Lok Sabha8elections.While there is some justification for providing relief to farmers unable to pay their debt due to unforeseen circumstances such as a failure of the monsoon or a collapse in prices, loan waivers have now become the dominant way of addressing the agrarian crisis. The last big loan waiver was in 2008 when the UPA government announced a national loan waiver with loans worth Rs. 700 billion being waived. Given the extent of indebtedness and the crisis in agriculture following the drought and price collapse after 2014, there was some justification for these interventions.The latest data on the extent of indebtedness among farmers is available from the Situation Assessment Survey (SAS) of 2012-13. According to the SAS, 52% of all farmers in the country had on an average unpaid debt of Rs. 47,000. However, there is a large regional variation with a higher incidence in southern states, with 93% of farmers being indebted in Andhra Pradesh and 83% in Tamil Nadu. At the all-India level, 60% of these loans were from institutional sources with the remaining from local moneylenders and other informal sources. The data also shows that the extent of dependence on non-institutional sources was much higher among small and marginal farmers with more than 50% of the loans for these groups coming from non-institutional sources.While loan waivers are desirable in some cases and necessary in the case of extreme indebtedness, they come with their own set of problems. There is the issue of moral hazard,9which penalises the sincere and rule-abiding farmer. It gives rise to a tendency to default on loans, especially if the loan waivers are not a one-time solution but keep recurring every decade, which is the case this time with multiple loan waivers. It also has an impact on the banks, which are already stressed with large non-performing assets. However, the real problem with loan waivers is that they contribute little to providing a solution to the problem of declining farm prices which are seen as the primary reason for worsening of the crisis.Even the attempts to increase the MSPs are unlikely to help raise market prices of crops in rural areas. The idea of providing a fixed mark-up over the cost of cultivation has been quite dominant for some time now. It was also among many recommendations of the National Commission on Farmers chaired by M.S. Swaminathan. An MSP at 50% over costs was also promised by political parties including the BJP which took advantage of the agrarian unrest during the run up to the 2014 election. But the BJP’s actions once it assumed power were contrary to its promises. The government raised MSPs only notionally, and it used administrative measures to reduce procurement. The bonus that was given by the state governments was also discontinued. But the government finally had to respond to the pressure to raise MSPs by announcing increases in the 2018-19 budget. The MSP for paddy was increased by Rs. 200 from Rs. 1,550 to Rs. 1,750 for Kharif 2018, a 13% increase over the previous year. The MSP increase for other crops varied between 3.7% for moong bean to 45% for Niger seed. The MSP makes a significant difference for paddy and wheat for which there is a proper procurement and distribution mechanism in the form of the Public Distribution System (PDS) but not as much for other crops where there is almost negligible procurement. Even for paddy and wheat, the impact has been muted since the market prices were higher than the announced MSP.The third kind of response to the agricultural crisis has been the more recent one of making direct benefit transfers to farmers. Such income transfers have so far been implemented fully only in Telangana. Similar schemes, with some variation, have been proposed in Odisha and Jharkhand which are going for legislative assembly elections this year.The direct income support scheme in Telangana was seen as a political success with the Telangana Rashtra Samiti (TRS) retaining power in the state with a thumping majority in the assembly elections of December 2018. The Rythu Bandhu scheme of the Telangana government provides Rs. 4,000 per acre for every season to all the farmers of the state, with an annual budget of Rs. 120 billion. The scheme in Jharkhand is similar to the Rythu Bandhu scheme with an enhanced pay out of Rs. 5,000 per acre to 2.28 million farmers at the cost of Rs. 22.5 billion to the state government. The third scheme is the Krushak Assistance for Livelihood and Income Augmentation (KALIA) that has been started by the Odisha government. Unlike in Telangana and Jharkhand, KALIA does not provide any income transfer on the basis of the land holding but for the household as a unit. The pay out at Rs. 10,000 per family per year also extends to sharecroppers and landless agricultural labourers.The central government also announced an income transfer scheme with retrospective effect as part of the interim budget for 2019-20, called the PM-KISAN (Pradhan Mantri Kisan Samman Nidhi). The central government will provide an annual transfer of Rs. 6,000 to be paid in three equal instalments to roughly 125 million small and marginal farmers. The first instalment of the scheme will be delivered before the elections. However, the national scheme does not cover sharecroppers and wage labourers.Concluding remarksThe current crisis in agriculture is a serious one. The precarious situation is basically a result of neglect of the agrarian economy by successive governments. The roots of the crisis, however, are in the broader political economy paradigm that India has followed since the early 1990s. It has resulted in an increased frequency of such extreme episodes, and has also seen the intensity increase over the years. Unfortunately, the solutions being offered are not only inadequate to prevent the recurrence of such crises, but may in the long run actually aggravate the problems.The latest fad of cash transfers is also a part of this broader political economy architecture that sees them as a panacea for all the problems in agriculture. Propagated by a group of influential economists, these are now part of mainstream discourse not just as a resolution of the agrarian crisis but also as solutions for corruption, malnutrition, and jobless growth that the economy has seen in the last two decades.The biggest appeal of the cash transfer scheme is its supposed simplicity. It is certainly popular and politically rewarding, but it is unlikely that it will solve the deep-rooted problems of Indian agriculture.If there is one message from the analysis here, it is that the genesis of the current crisis lies in the faulty and ad-hoc export–import policy, lack of infrastructure, low investment, and cartelisation and collusion in agricultural markets, which have prevented farmers from realising market prices for their produce. It is the combination of these factors along with the twin droughts of 2014 and 2015 which created the current crisis in the first place.It is also true that the situation worsened due to the sudden shocks of demonetisation and the hasty implementation of GST, which affected the rural economy adversely. Cash transfers are not a solution to any of these developments and are definitely no guarantee of protection against unforeseen events, whether natural or policy-induced. They are certainly not a substitute for the structural reforms needed in agriculture. The current crisis may have worsened due to the sharp fall in agricultural crop prices but it is ultimately a result of multiple failures of policy. Further, it is a crisis which is as much agricultural as it is caused by the failure of the non-farm sector in creating enough jobs as is evident from the deceleration in real wages in rural areas.Some of these income transfer schemes, such as the Telangana model, are also regressive with the amount of transfer proportional to the land owned. In case of the national scheme, which targets the small and marginal farmers, the real problem will be of identifying the beneficiaries. Given that the current problems are a result of demand deflation in the rural areas, the transfers may revive rural demand in the short- and medium run. But they are certainly not free and costless. They come at a cost: a decline in investment as well as a decline in other rural development expenditure. With most state governments already committed to loan waivers, an income transfer scheme does have an impact on the states’ ability to invest in agriculture. The transfer scheme will therefore further erode the fiscal capacity of states.While proponents of a cash transfer scheme may argue that it is non-distortionary and therefore more efficient, it does nothing to correct the imbalance that has arisen due to a movement of terms of trade against agriculture or against price transmissions from international markets. With agriculture becoming more diverse with growth in horticulture and crops with a large trade exposure, increased monetisation and mechanisation of agriculture, a rise in input costs has also been seen.What are needed are larger investments in improving access to better technology, extension programmes to enable farmers to take advantage of new technology, market infrastructure, storage and warehousing infrastructure, and easy and assured supply of credit. Cash transfers absolve the government from all such obligations. Rather, by taking away precious fiscal resources, they makes the farmer more vulnerable to both market- as well as non-market induced risks by reducing investments in basic infrastructure and other support measures necessary to support agriculture. Cash transfers and loan waivers may not be the solution to the agrarian crisis, but will surely create an agriculture which is far more vulnerable and crisis-prone than even what it is currently.

A Disreputable Breach of Trust: Hamilton and the National DebtThe American nation has been in debt continually since its inception. In a letter to financier and member of Congress Robert Morris in 1781, Alexander Hamilton wrote, “A national debt, if it is not excessive, will be to us a national blessing.” [i] Few politicians would make such a bold statement today. Even some of Hamilton’s contemporaries found the idea of enshrining debt as a blessing somewhat disconcerting, making of it a persistent point of partisan contention. Yet the question remains at what level (if any) would Hamilton and his contemporaries have considered the accumulating national debt to have grown to be “excessive” thereby turning a blessing into a national curse. [ii]Many among the founders of the nation thought public debt an asset rather than a deficiency—that the obligations it placed on the wider community might prove cohesive for a new republic. Having borrowed and successfully serviced the debt, the republic would establish its credit-worthiness among the nations of the world and more easily maintain its fiscal liquidity.[iii] An ardent nationalist, who emphasized the need for a strong central government, Hamilton also proposed the establishment of a national bank, a central mint and uniform coinage, and the federal assumption of the accumulated debts of the several separate states.Hamilton was no spendthrift. He proposed that the United States secure any debts with its vast acres of undistributed western lands. The sale of these lands could be used in the near future to finance any interest on loans and to make an impression upon the principle of the debt thereby quickly exhausting it. Significantly, Hamilton’s financial conclusions in the 1780s had been drawn “respecting the non-increase of the debt” beyond its present limit and had proceeded “upon the presumption that every part of the public debt … was to have been honestly paid.” These goals have never been realized.[iv]National politics in the new republic generally revolved around the personalities of Hamilton and Thomas Jefferson, both influential leaders who refused to yield on the most divergent of their strongly held and mutually exclusive beliefs concerning the functions and limits of government. Hamilton’s “was a commercial mind-set that threatened the agrarian values that his opponents enshrined.”[v] Jefferson, by contrast, recounted to an associate a frustrated desire for a single additional amendment to the Constitution—one that “removed from the central government the power to borrow money.”[vi]During the early years of the republic and especially during the attempt to ratify a new Constitution, theoretical attacks on Hamilton’s fiscal ideas often came in the form of essays written by Jefferson’s pseudo-anonymous surrogates. These highly partisan essays were widely reprinted and commented on throughout America at the time, and their theoretical arguments sound eerily familiar to similar discussions concerning the debt and taxation today.[vii]The benefit of carrying a public debt was not a new idea, yet in 1783 the debt already stood at more than $43 million (Spanish dollars).[viii] Of this, the state debts amounted to about $30 million with an annual interest payment of $1 million. [ix] Nonetheless, even Hamilton’s critics generally conceded that the portion of the debt owed to foreign allied governments such as Spain, France, and Holland could be carried to America’s advantage. “Loans from nations are not like loans from private men,” wrote anti-federalist William Grayson. “Nations lend money, and grant assistance, to one another, from views of [their own] national interest.”[x]Hamilton believed that revenue depended on trade, hence his singular reliance on tariffs to fund the central government. He also understood that wealth and the availability of ready money were related but not equivalent.[xi] In 1788, Grayson agreed in principle with Hamilton that America was a rich nation temporarily inconvenienced by a severe lack of money. The immense stockpile of real wealth in America resided in its natural resources and in its laborers, mechanics, and artisans (free and slave). Hamilton and his contemporaries recognized the necessity of transforming these riches into negotiable funds in a deliberate and methodical manner.[xii]There arose almost immediately, however, a great controversy concerning the federal assumption of the state debts (particularly of Jefferson’s Virginia and the other large states). If these debts became federal ones, citizens in states that had paid their debts would essentially end up paying twice. Those that had not paid would receive an unearned benefit as their remaining debt was spread across the population.Grayson concluded that federal revenue sources were insufficient to run what he considered the legitimate functions of a central government and to service an expanded debt as well. “The domestic debt is diminished by the considerable sales of western lands,” wrote Grayson, “[but] I must confess that public credit has suffered, and that our public creditors have been ill-used … owing to a fault [in Congress] in not selling the western lands at an earlier period.”[xiii] Another anti-federalist, Arthur Lee agreed. “The sum then, which [Congress] must annually raise in specie [gold and silver], after the first year, cannot be less than 4,800,000 [dollars]. At present there is not one half of this sum in specie raised in all the states.”[xiv]As part of his program, Hamilton had recognized a great need for a national mint to underpin the economy with a stable national coinage. A chronic lack of coinage had been an issue since colonial times.[xv] The paper currency of the revolution in Continental dollars was wildly depreciated and no longer considered lawful money.[xvi] Outside the issuing states, paper bills of credit, known as fiat money, were worth no more than Monopoly® money outside the confines of the board game. Hamilton estimated only about 5 dollars in genuine coin (mostly silver and copper) in circulation on average per free white person in America.[xvii]However, adequate quantities of money did not necessarily translate into a sufficient stock of disaggregated coinage capable of sustaining normal business transactions while also funding the tasks required of state and central governments. Individuals hoarded many specie coins as valued assets and a hedge against inflation. Moreover, the coins were often “denominated” in terms that did not allow them to “circulate as freely and easily as they might have.” It was easier to pay a year’s rent with a single specie coin than to find the few coppers needed to purchase a slab of bacon once a week. This lack of coin was a terrible drag on economic activity and potential growth.[xviii]It can be gleaned from these brief excursions into the financial morass of early America that all sides expected to exhaust the national debt within a few years, or during their lifetimes, rather than carry it at interest for payment by future generations. This objective proved impractical due to a confluence of debilitating factors, among them weaknesses in coinage, confederation, credit, and credibility. Partly for these reasons a new Constitution had been fashioned in 1787. Thereafter, the Treasury Department was created (1789) to help the country borrow additional money and better manage its deficits and other fiscal responsibilities. Hamilton was its first administrator.Hamilton initially felt that getting into a reasonable amount of short-term debt would provide a sound financial underpinning to the republic while the details of its governance were worked out, but with a dominating central government came additional unforeseen obligations. In Federalist 30 (1791), Hamilton reversed his earlier dedication to quickly eliminating the debt and admitted its probable future expansion, “Future necessities admit not of calculation or limitation; and … the power of making provision for them as they arise [taxation] ought to be equally unconfined.”[xix]Hamilton estimated the federal debt to be $77 million in 1791, a 56 percent increase in just eight years. He decided to impose an excise tax beyond the tariff to fill the shortfall in revenue. This first tax-in-order-to-spend solution did not resolve the deficit. As the real cost of central government became evident, the government itself had a price tag absorbing “at least one sixth … as well as the cost of collection” of all revenues.[xx] However, neither Hamilton nor Jefferson probably ever foresaw a national debt as large as that of the present day (2012) at $15+ trillion (USD) where each man, woman, and child in the United States shares in the shortfall to the amount of $50,000 from birth. The interest on the present debt alone is almost $500 billion annually.[xxi]In 1791, the executive and legislative branches created the first Bank of the United States to manage the nation’s finances. Hamilton proposed funding the Bank through the sale of $10 million in stock with the first $2 million in shares coming from government as an unfunded stimulus and the remainder being made available to private subscribers. A skeptical Arthur Lee rejoined sarcastically, “If you have any other plan for this, than by raising money upon the people to pay the interest of the national debt, your ingenuity will deserve our thanks … Let us see how much will be necessary for that end.”[xxii] The Bank remained a point of partisan political bickering for decades, and the struggles—political and practical—to find alternative solutions to deal with the mounting debt continued without success.In an attempt to end the use of fiat money, the Constitution had provided that states accept none but specie coins as legal tender for the payment of public debts. This prohibition gave, according to New York jurist Robert Yates, “the most perfect security against those attacks upon property [real assets] which I am sorry to say some of the states have but too wantonly made.”[xxiii] Nonetheless, there remained a need for the nation to produce a sufficient quantity of specie coins to support such a plan.Hamilton himself favored a specie coinage and considered depreciated paper money to be dishonest. Federalist James Madison also believed that nothing but evil could spring from so-called “imaginary money,” and John Adams, also a Federalist, declared that every paper dollar issued beyond the exact quantity of gold or silver in the nation’s vaults represented “a cheat upon somebody.” [xxiv] Lee, ever the pragmatist, questioned how Hamilton and his supporters planned to arrive at a sufficient quantity of bullion to mint enough hard coin to replace the ubiquitous paper money system. Lee also pointed out that if the government raised these sums from the people by requiring payments in gold or silver, it would suck the life from the economy. “It will certainly support the public credit, but it will overwhelm the people … It will grind the poor to dust.”[xxv]In 1795 Hamilton was publicly embarrassed by an extramarital affair and left government office. He was killed in a notorious duel with former vice president Aaron Burr in 1804. His immediate successors at the Treasury had neither his vision nor his ability.[xxvi] Without Hamilton’s supporting voice, the Bank’s charter was allowed to expire in 1811 and many of his ideas were cast aside largely through the continued partisan opposition of the Jeffersonian party.Jefferson ran for president in 1801 promising to pay off the national debt. Ironically, when the opportunity availed itself in 1803, he added $15 million to the debt with the purchase of the Louisiana Territory. With added land came additional intrinsic wealth, but also new financial obligations to defend and to govern it. Forts and additional troops for the army would soon follow. On the whole, however, historians consider the purchase insightful and a shrewd use of the federal power to deficit spend.Jefferson’s attempts as president to tame the finances of the national economy through the imposition of populist style agrarianism at the expense of banking and commerce were a disaster, however. A deep depression in 1807-1808 followed as nearly all economic activity came to a halt.[xxvii] Many American merchants were forced out of business for lack of financing as those with capital tried to weather the financial disaster by withholding their investments until the president should be voted from office. New England was particularly hard pressed by the foreign trade embargo and threatened secession; while Jefferson, a southern planter, was correctly portrayed as the villain in the failed policy initiative.[xxviii]Under President Madison in 1816, the Bank was revived as the Second Bank of the United States as a means of controlling inflation after the War of 1812 (a conflict that added another $105 million to the debt). The national debt remained at extraordinary levels, however, until the late 1830s at a time when the United States became the undisputed ocean cargo carrier of global trade goods. Dozens of trading vessels made runs to China annually, and many hundreds cleared for the Indies, the South Pacific, the Baltic states, the coast of Africa, and the Mediterranean. Consequently, tariff and excise revenues soared. Land sales skyrocketed as the Native American tribes were decimated and forced west. Almost immediately the principle of the national debt fell precipitously to a mere $34,000—the closest it has ever come to being exhausted and a Pyrrhic victory for Hamilton’s original ideas.[xxix]Meanwhile, President Andrew Jackson made the Bank a particular target of his frontier populism, opening a virtual war on its existence in 1829, removing all federal funds from its vaults in 1833, and effectively killing it by 1836. These policies destroyed the liquidity of American commerce and were followed by a deep depression known generally as the Panic of 1837, the deepest economic downturn of the century. More than 600 banks failed in the on-and-off economic contractions between 1837 and 1843. It was a period of pronounced deflation and of massive default on personal and commercial debt.The Mexican War of the late 1840s added both debt and vast areas of the continent to the United States, particularly the desert southwest, Texas, and California with its gold fields. But the Civil War of the 1860s drove the debt beyond $3 billion, and it has essentially grown ever since, largely fueled by an on-and-off reliance on post-Civil-War-era paper money known as greenbacks.President Abraham Lincoln supported the carefully engraved paper bills with a total face value of $450 million were as a wartime funding measure based only on the good faith and credit of the Federal government. Along with greenbacks, the Lincoln administration also initiated the first federal income tax. The Civil War was the first American conflict funded through involuntary personal taxation rather than only through the voluntary purchase of war bonds. Inevitably, a difference between specie value and greenback value appeared on most commodities, and trading in currency and commodities thereafter became complex and volatile. The Gold Exchange on Wall Street was established at this time. After a long fight through the courts over the conversion of greenbacks back to gold, specie payments resumed in 1879, with the price of gold fixed at $20 (paper) per ounce.[xxx]Gold has been the security of old age, the obsession of the greedy, and the refuge of the frightened. In 1876, however, American economist Alexander Del Mar undertook an in-depth study of the history of gold, currency, and coinage for the Treasury. He concluded that law rather than the free market in gold made a commodity legal tender, created money, and gave currencies their value. He also uncovered a dismal record of hypocrisy, conspiracy, and scheming among politicians and financiers to use the power of government to control money and credit in order to impact and shape the course of human events and society.[xxxi]The historic record is filled with prominent examples. Before the Coinage Act of 1873, the United States had backed its currency with both gold and silver. Thereafter only gold was made acceptable, depressing the value of silver and contributing to a 5+ year depression—the longest continuous contraction in American history. Those who owed money were most damaged as their small stocks of silver coin depreciated. In The Cross of Gold speech (1896), agrarian populist William Jennings Bryan railed against the government for maintaining the gold standard to the detriment of cash-strapped midwestern farmers. “It is the issue of 1776 over again,” he roared during one of America’s most famous political speeches.[xxxii] In 1913, under the progressive programs of President Woodrow Wilson, the Federal Reserve System was created and a Federal Reserve Bank was chartered to better control the nation’s money (essentially to take its place as a third national bank). Thereafter, in 1933, President Franklin D. Roosevelt declared a bank holiday and issued an executive order to confiscate all gold in private hands (other than simple jewelry) in order to relieve the inflationary effects of the (third longest) Great Depression and stabilize the currency as he tried and failed to deficit spend the nation out of recession.[xxxiii] World War II intervened to save the American economy, and the U.S. dollar emerged as the world default currency. In 1972, President Richard Nixon ended the exchange of paper “silver certificates” for specie to help pay for the war in Vietnam and stop the flow of precious metals to Europe.[xxxiv] Inflation in the late 1970s skyrocketed as the paper money depreciated. The United States has been a paper economy ever since and the term inflation-adjusted became common in discussing national finances.Two hundred years earlier, Hamilton and his contemporaries had thought the paper currency system a necessary evil, yet they granted that it had the benefit of enabling the government to cancel its debts upon easier terms as the Treasury paid its fixed obligations in depreciated currency—a stratagem known as monetization. The term monetization is a modern one for the centuries-old practice of adapting assets with little or no intrisic value (in this case paper notes) to generate government revenue in the form of money rather than to tap the nation’s intrinsic wealth. Writing about the mounting debts of his own day, an anonymous anti-paper pamphleteer from the 18th century proclaimed a disappointment commonly heard today: “We had found an easy way of paying for the [debt by] shuffling the Saddle off our own backs on to our Children [with paper money].” Modern money managers have fixated on this method to diminish the immediate effects of deficit spending. Once again, Hamilton would have thought the whole process eminently dishonest.[xxxv]The last time the federal government cut absolute spending (rather than cutting the increase in baseline spending) was 1954. Moreover, since the 1970s, federal spending has grown ten times faster than the increase in median family income in inflation-adjusted dollars—much of the spending in deficit although federal revenues have been between 30 and 35 percent of GDP for more than three decades. In 1913 at the dawn of the so-called Progressive Era, the federal government collected a mere 3 percent of GDP for its programs. [xxxvi] Today nearly half of the households in America pay no income tax whatsoever. The total national debt from the time of Hamilton has doubled in just the first decade of the 21st century at the hands of both major political parties, and politicians now proudly project annual trillion-dollar-plus budget deficits for each of the next ten years and have the arrogance to hold them forth as symbols of parsimony and fairness, or of hope and change!It is clear to any honest observer that America has developed a spending addiction in the last 100 years, and the shortfall in revenue has simply been added to the debt. This situation is a largely unforeseen by-product of a century of several foreign military involvements (including Cold War defense spending) and domestic public works and social reforms (interstate highways, Amtrak, Social Security, Medicare, Headstart, and other federal programs), all with well-meaning goals in mind.Hamilton and his contemporaries never envisioned such intrusion of central government into the daily lives of Americans nor the extent of the present federal entitlement regime, which has created a malignant dependency on deficit government spending and increased debt. Jefferson had warned 200 years ago, “We must not let our rulers load us with perpetual debt. We must make our election between economy and liberty or profusion and servitude …Taxation follows that, and in its train wretchedness and oppression.”[xxxvii]The Federal Reserve is presently (2012) monetizing the mounting debt of the United States through the production and sale of hundreds of billions of dollars of bonds and electronic money transfers—a monetization procedure now called quantitative easing (QE). Much of this staggering paper debt is being purchased outside the country—particularly by financial policy makers in Asia. Consequently, the Standard and Poor’s financial rating service has downgraded the credit-worthiness of the United States for the first time (2011) in the agency’s 150 years. Yet improved credit-worthiness was among the initial goals of the founders in carrying a debt in the first place.Moreover, the total unfunded federal liability for future entitlements is presently approaching $100 trillion! In February 2012, Secretary of the Treasury, Timothy Geithner noted that he had no foreseeable solution to raising the sums needed to fund these entitlements, and Rep. Paul Ryan—an anti-deficit hawk—responded with disgust, “Our government is making promises to Americans that it has no way of accounting for … [Are we] just going to keep lying to people?”[xxxviii]The national debt today in relative terms—corrected for inflation—is approximately fourteen times as large as that which Hamilton and his contemporaries faced more than 200 years ago. Both Hamilton and Jefferson would certainly have considered this level of debt not only “excessive,” but also dangerous and debilitating. More than 200 years ago, Arthur Lee had warned Hamilton—and future generations of American politicians—of the curse inherent in an economic philosophy ruled by budget deficits, currency manipulations, under-funded entitlements, and an excessive national debt:How you will get this sum is inconceivable and yet get it you must, or lose all credit. With magnificent promises you have bought golden opinions of all sorts of people, and with gold you must answer them … The government … by promising too much … will involve itself in a disreputable breach of trust.”[xxxix]Selected ReadingBaker, Jennifer J. Securing the Commonwealth: Debt, Speculation, and Writing in the Making of Early America. Baltimore: Johns Hopkins University Press, 2005.Chernow, Ron. Alexander Hamilton. New York: Penguin Press, 2004.Graham, John Remington. Blood Money, The Civil War and the Federal Reserve. Gretna, LA: Pelican, 2006.Ketcham, Ralph Louis. The Anti-Federalist Papers and the Constitutional Convention Debates. New York: Signet Classics, 2003.Madison, James, Alexander Hamilton, and John Jay. The Federalist Papers. New York: SoHo Books, 2011.Meacham, John. American Lion: Andrew Jackson in the White House. New York: Penguin Press, 2004.Ritter, Grechen. Goldbugs and Greenbacks: The Antimonopoly Tradition and the Politics of Finance in America, 1865-1896. New York: Cambridge University Press, 1997.Unger, Irwin. The Greenback Era: A Social and Political History of American Finance, 1865-1879. ACLS Humanities E-Book (2008). Princeton: Princeton University Press, 1964.[i] Alexander Hamilton, The Works of Alexander Hamilton, ed. Henry Cabot Lodge (Federal Edition) (New York: G.P. Putnam’s Sons, 1904). In 12 vols. Vol. 3. Chapter: Hamilton to Robert Morris. Accessed January 2012. URL: Online Library of Liberty[ii] Simple definition of terms:Debt - unpaid balance on legitimate obligations, carried at interest.Deficit – a shortfall between revenues and payments.Liquidity – the ability to quickly produce cash from real assets.Entitlement – a future benefit owed due to a legislative promise.Liability – the sum of all legitimate obligations present and future.[iii] Jennifer J. Baker, Securing the Commonwealth: Debt, Speculation, and Writing in the Making of Early America (Baltimore: Johns Hopkins University Press, 2005), 67.[iv] Alexander Hamilton, op cit.[v] Jennifer J. Baker, 240.[vi] Thomas Jefferson. Letter to John Taylor, Monticello, VA, May 28, 1816. Teaching American History. Accessed February 2012. URL: http://www.teachingamericanhistory.org/library/index.asp?document=308[vii] Some of the best of the Anti-Federalist papers have been organized into 85 sections, corresponding to the 85 Federalist Papers. Many of the concerns of the Anti-Federalists were ultimately addressed by the adoption of the Bill of Rights. See Clinton, George; Robert Yates; Samuel Bryan (2008-06-23). Anti-Federalist Papers (p. 18). Misbach Enterprises. Kindle Edition.[viii] This was $450 million Continental dollars, equivalent to a much-depreciated $1.2 trillion (USD) in terms of modern GDP. See Samuel H. Williamson, “Seven Ways to Compute the Relative Value of a U.S. Dollar Amount, 1774 to present,” Measuring Worth, 2011. Accessed February 2012. URL: www.measuringworth.com/uscompare/[ix] American financial accounts at the time usually reflected that of the Spanish silver dollar (peso), direct antecedent of the U.S. silver dollar. The exquisite Spanish Milled Dollar came closest at the time to being a global default currency, and it remained legal tender in the United States until 1857.[x] Clinton, George, et al, p. 18.[xi] John Flynn, “The Biography of John Law,” Men of Wealth (1941). Accessed February 2012. URL: http://www.devvy.com/pdf/biography_john_law.pdf[xii] Ironically, the vast mineral wealth of iron, coal, and petroleum were generally unrecognized at the time, and the future sources of American gold and silver resided in lands in the far west that were not yet part of the United States. It has been estimated that the entire national debt (as of 2012) could be exhausted by the sale to private companies of mineral leases on national lands.[xiii] John Flynn, op cit.[xiv] See Samuel H. Williamson, op cit.[xv] Payments in specie coin had been required in several acts of parliament including the Currency Act of 1764, the Townsend Acts of 1767 and 1769, and the Tea Act of 1773.[xvi] Merchants, shippers, lenders, and tax officials constantly referred to vast tables of equivalents to calculate the lawful exchange value of commercial and public accounts into English sterling or Spanish dollars.[xvii] This was equivalent to approximately $17.5 million dollars at the time.[xviii] John J. McCusker and Russell R. Menard, The Economy of British America, 1607-1789 (Chapel Hill: University of North Carolina Press, 1991), 339.[xix] Alexander Hamilton, John Jay, and James Madison, The Federalist Papers. A Project Gutenberg Ebook. Release Date: November 6, 2009 [EBook #1404]. Accessed January 2012. URL: Project Gutenberg[xx] Clinton, George, et al, p. 56.[xxi] This is 3 percent of USGDP in 2012.[xxii] Clinton, George, et al, p. 54.[xxiii] Clinton, George, et al, p. 351.[xxiv] Jennifer J. Baker, 121.[xxv] Clinton, George, et al, p. 57.[xxvi] As the longest serving Secretary of the Treasury (1801-1814), Albert Gallatin was an exception.[xxvii] Foreign trade fell from $108 million in 1807 to only $22 million in 1808, and smuggling increased dramatically as Americans attempted to evade Jefferson’s trade embargo.[xxviii] Ironically, this circumstance helped to fuel the growth of the American textile industry during the next decade as local mills and sources replaced those in Britain.[xxix] In 1792, the percentage of Debt to GDP was 35 percent; by 1834, this number had been brought down to less than 1 percent (0.39). Today the percentage is 102. percent.[xxx] The present official government price of gold is just over $42 per ounce. The commodity price is $1700+.[xxxi] John Remington Graham, Blood Money, The Civil War and the Federal Reserve (Gretna, LA: Pelican, 2006), 53.[xxxii] Official Proceedings of the Democratic National Convention Held in Chicago, Illinois, July 7, 8, 9, 10, and 11, 1896, (Logansport, Indiana, 1896), 226–234.[xxxiii] See Executive Order 6102, Section 2 of the Act of March 9, 1933, entitled “An Act to provide relief in the existing national emergency in banking, and for other purposes.” The American Presidency Project. Accessed May 2011. URL: Executive Order 6102-Requiring Gold Coin, Gold Bullion and Gold Certificates to Be Delivered to the Government[xxxiv] Particularly to France.[xxxv] Jennifer J. Baker, 403.[xxxvi] Heritage Foundation, Reports. Accessed February 2012. URL: http://www.heritage.org/budgetchartbook/growth-federal-spending[xxxvii] Thomas Jefferson, Letter to Samuel Kercheval, Monticello, VA, July 12, 1816. “Famous Quotes of Thomas Jefferson.” Accessed February 2012. URL: Thomas Jefferson Quote/Quotation[xxxviii] “Geithner To Ryan On Debt: We Don't ‘Have A Definitive Solution To Our Long-Term Problem,’” http://RealClearPolicics.com. Accessed February 2012. URL: Geithner To Ryan On Debt: We Don't "Have A Definitive Solution To Our Long-Term Problem"[xxxix] Clinton, George, et al, p. 55.