The National Debt

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A certain amount of funded debt … is a national blessing. The creation of a new species of money by this means naturally increases the circulation of cash, and extensively promotes every kind of useful undertaking in agriculture and mechanics. … In short, a debt originating in … patriotism … may thus be converted into a cement that shall strengthen and perpetuate the Union of America.

THE ABOVE pronouncement is not the defense of policy by a New Deal administrator in the 1930s. Nor is it the political platform of a presidential hopeful in the 1980s. It is the text of a creditors’ petition presented to the nation’s First Congress in 1789.

A national debt is the result of deficit spending by the federal government—that is, when the money the government pays out exceeds the money it takes in. In fact, our national debt was born before our nation was—in the turbulent first months of the Revolution when the colonies found they had to borrow money from the public to carry on the fight against the British. Today that debt has surpassed $1 trillion and is projected to rise by something like $200 billion a year over the next several years. Fewer and fewer people are seeing it as a “national blessing”; the former senator Sam Ervin, Jr., for instance, has joined the critics in calling the debt our most serious problem: “We have borrowed money we have no intention of repaying.” Still, it seems ironic that this red-ink institution that some see as threatening the very economic foundation of the nation is not only older than the government but one of the reasons why it exists.

Financing the Revolutionary War proved an expensive undertaking. The Continental Congress soon found it couldn’t pay its bills simply by new emissions of paper money that glutted the marketplace and shrank to a fraction of its face value. Eventually the stresses created by the vast expense clearly demonstrated that the Continental Congress and the individual states lacked the resources to meet their obligations. This weakness was a major issue in the Constitutional Convention of 1787, which denied states and granted Congress the power “to borrow Money on the credit of the United States.”

Though never popular, the idea of the national debt has had its defenders, among them Alexander Hamilton, who was George Washington’s choice as the first secretary of the Treasury Department. Although he instituted a series of reforms aimed at reducing a debt that by 1790 stood at more than $70 million, Hamilton saw it as a kind of status symbol. “It is a well-known fact,” he said, “that in countries in which the national debt is properly funded, and an object of established confidence, it answers most of the purposes of money.”

FEW EARLY Presidents shared Hamilton’s tolerant view, and thus began a debate that continues to this day. Washington urged “avoiding … the accumulation of debt, not only by shunning occasions of expense, but by vigorous exertions in time of peace to discharge the debts which unavoidable wars may have occasioned, not ungenerously throwing upon posterity the burdens which we ourselves ought to bear.” Thomas Jefferson favored “a government rigorously frugal and simple, applying all the possible savings of the public revenue to the discharge of the national debt.” And Andrew Jackson set as a goal for his administration the elimination of the debt, after which “our population will be relieved from a considerable portion of its present burthens, and will find not only new motives to patriotic affection, but additional means for the display of individual enterprise.”

Abraham Lincoln, however, said in the midst of the Civil War that “the great advantage of citizens being creditors as well as debtors with relation to the public debt is obvious. Men readily perceive that they cannot be much oppressed by a debt which they owe to themselves.”

UNTIL THE MIDDLE of the twentieth century, borrowing to fund war efforts caused the greatest impact on the national debt; the War of 1812, the Civil War, and the two world wars each created mammoth deficits equal to more than half the total government expenditures during those years. The debt reached $127 million as a result of the War of 1812; the Civil War pushed the figure from $90 million to $2.8 billion; and it climbed to $25.5 billion by the end of World War I and to $269.4 billion by the end of World War II.

In the 112 peacetime years between 1791 and 1916, by comparison, there were 82 surpluses, 16 of them so great that revenues exceeded expenditures by more than 50 percent. Ironically even these surpluses became a source of presidential anxiety. In 1836 Jackson cautioned the nation that “it will be in vain that we have congratulated each other upon the disappearance of this evil if we do not guard against the equally great one of promoting the unnecessary accumulation of public revenue.” In 1887, after a string of surplus years, Grover Cleveland worried lest “the public Treasury, which should only exist as a conduit conveying the people’s tribute to its legitimate objects of expenditure, [become] a hoarding place for money needlessly withdrawn from trade and the people’s use, thus crippling our national energies, suspending our country’s development, preventing investment in productive enterprise, threatening financial disturbance, and inviting schemes of public plunder.”