On Jan. 8, 1835, the U.S. national debt stood at zero, the first and only time in its history. It was a remarkable turnabout from Jan. 1, 1791, when the federal government was in debt to the tune of $75,463,476.52. But that wasn’t the peak amount of indebtedness for the new nation ($120 million), which occurred at the end of the three-year War of 1812.
To be sure, President Andrew Jackson, under whose watch the no-debt day was achieved, was jubilant, and a big Washington party overflowed with superlatives, as illustrated by Missouri Sen. Thomas Hart Benton’s remarks: “The apparition, so long unseen on earth, a great nation without a national debt stands revealed to the astonished vision of a wondering world.”
Indeed, the feds had so much money left over in 1835 — $17.9 million, greater than the actual government expenditures for the year. Hard as it may be to believe, but during the 112 years from 1804 to World War I, the nation was almost torn apart by 82 years of too much black ink. Here’s the math: Revenues upstaged outlays by more than 50 percent in 16 of the 82 years, by 25 to 50 percent in 27 years, and by up to 25 percent in 39 years.
So controversial were surpluses that not a few presidents lost sleep over the abundant funds. Two even devoted parts of their inaugural addresses to lamentations over surpluses they inherited from their predecessors (talk about looking a gift horse in the mouth). “Our present financial condition,” moaned James Buchanan in taking office in 1857, “is without parallel in history. No nation has ever before been embarrassed by too large a surplus in its treasury.” Benjamin Harrison, on the same occasion 32 years later, echoed that “while a Treasury surplus is not the greatest evil, it is a serious evil.”
So what could be so bad about surpluses in Washington’s coffers?
For one thing, surpluses in the 19th century were largely attributable to income from tariffs. The latter were high because American manufacturers wanted protection from foreign competition, and they weren’t about to have tariffs reduced, opening the gates to foreign goods. Of course, presidents called for other tax reductions to limit surpluses, but, outside of tariffs, there were slim pickings. A permanent system of income taxes wouldn’t arise until 1913. Excise taxes, mostly on booze and tobacco, were sin taxes and could scarcely be cut in an era of religious growth and fervor.
Second, surpluses invited special interests to get a piece of the money pie, sometimes for activities of questionable value. And once special interests succeeded, Congress and the presidents found it difficult to prevent expansion of their programs (sound familiar?). Pension legislation for soldiers was a case in point. Originally designed for Union troops disabled in the line of Civil War duty, pensions in time became available to any veteran who could lay claim to a sore toe or finger.
Then there was the avenue of special, individual pension bills, which few presidents had the courage to veto, except for Grover Cleveland, who drew the wrath of the Grand Army of the Republic. Its commander, however, did pray for Cleveland: “May God palsy the hand that wrote the order. May God palsy the brains that conceived it. May God palsy the tongue that dictated it.”
Of course, surpluses could be used to reduce or retire the national debt. But this meant buying securities at the premium prices investors in this favorable position demanded. The government could thus be criticized for using public funds to reward big investors. So after 1835, government debt increased, no matter the surpluses.
Another alternative was for Washington to keep the dough, but this practice also had drawbacks. The Treasury, again to quote President Cleveland, would 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.”
So how did the feds deal with the dilemma of surpluses? Well, you might have guessed. They practiced rigid economy in government.
Which meant bigger surpluses.
• Thomas V. DiBacco is professor emeritus at American University.