The last posting on this book focused on the Founders views and practices on national debt. Today’s focuses on the changes to attitudes and practices during the nineteenth century in U.S. history.
Chapter #4: The Nineteenth Century – Old Hickory, Honest Abe and Harpy Fangs
President Andrew Jackson knew how to throw a party and that would seem to portend poorly on his views of “financial stewardship,” but that would be incorrect. Jackson hated debt and called it a curse that “helped destroyed personal liberty in favor of the elites” (Beck 35).
OLD HICKORY’S WORD: STRONG AS OAK
Andrew Jackson gambled his career on a single promise: to pay off the national debt. This was not a new view as James Madison and John Quincy Adams had started this trend. What is amazing is that despite the “restrictive view on debt the nation continued to grow and expand. The mind-set never changed during this time, debt was the enemy, even when necessary. Jackson saw debt as wrecking havoc on the rights of the individual. Jackson supporters compared the debt to the harpies of Greek mythology; it sucks the lifeblood out of nation while playing a beautiful melody. “You are so happy and content with all the ‘free stuff’ being handed out that you don’t realize you will soon be dead.” How did Jackson retire the debt? He didn’t increase the amount of taxes collected, he increased the tax base by letting the free markets work and entrepreneurs innovate (Beck 35-38)
BROTHER BANKRUPTING BROTHER
It was just a few decades later that the Civil War began which lead to increased governmental spending. Unfortunately when spending increases due to wars it hardly goes back down again to prewar levels without radical approaches. The federal budget was never more than $74.2 million before the Civil War; at the end of the Civil War (1865) we spent $1.297 billion, the first ever billion budget in the history of the world. Despite the huge sums paid out by the federal government, domestic financing funded the war effort. Samuel Chase, Lincoln’s Treasury secretary, pledged that this new debt would be whittled away, over time. To do this, he sold bonds to American citizens, not just bankers, the citizens would support the war effort instead of passing the debt on to future generations by foreign nations. Congress also passed the first income tax because they thought spending cuts would not alone help reduce the debt. “The lesson to take from this is that the national income tax began as an extreme measure to pay for an extreme occurrence… America’s leaders did no use the crisis to saddle future generations with debt” (Beck 38-40).
THE PRINTING PRESS AND POLITICIANS: A MATCH MADE IN HELL
The debt incurred was so large, it obvious that the income tax would not be enough to pay the bills. Against the wishes of Treasury Secretary Chase, because of the worries of inflation, the government printed $450 million in greenbacks without the backing of a hard asset. Before paper currency each bank produced its own notes or money that was a guaranteed value of gold or silver in their reserves. During panics people would run on the banks to exchange the notes for gold or silver and the banks would suspend converting notes. These notes were completely open to market forces, meaning notes from different banks might be worth more or less based on their reputation. This competitive system was stable for many years until the printing of “greenbacks.” State banks were shut down and taxed ten percent on all non-national currency, driving private banks out of business (Beck 41-42)
THE WAR’S TOLL: PHYSICALLY, MENTALLY, AND FINANCIALLY
Lincoln created a debt of $2.8 billion by wars end and spun it like any good politician. The amount of debt per person in the nation was lower than that of the Revolution due to our expansion and growth. This was still no excuse for any delay on paying off the national debt. All Presidents, regardless of party, after the Civil War committed themselves to continuing the methods of going to the citizens with bonds, raising the heights of “patriotic debt ownership” (Beck 42-46).
A TEAM EFFORT
In the years following Lincoln’s death the Presidents still remained committed to paying off the debt. Johnson paid off $100 million, Grant another $500 million. The next four presidents worked the debt down to $1.6 billion by 1892. The U.S. ran surpluses for twenty-eight straight years after the Civil War with the war debt almost paid off entirely by 1900. This was one of the lase bipartisan victories for the U.S. even if they had different priorities (Beck 46-47)
The next chapter of this book focuses on the impact and influence of the Progressives on our national debt.
Questions? Comments? Concerns? Class dismissed!