When U.S. Paid Off National Debt (Why It Didn't Last)
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On Jan. 8, 1835, all the big political names in Washington gathered to celebrate what President Andrew Jackson had just accomplished. A senator rose to make the big announcement: "Gentlemen ... the national debt ... is PAID."
That was the one time in U.S. history when the country was debt free. It lasted exactly one year.
By 1837, the country would be in panic and headed into a massive depression. We'll get to that, but first let's figure out how Andrew Jackson did the impossible.
It helps to remember that debt was always a choice for America. After the revolution, the founding fathers debated whether or not to just wipe clean all those financial promises made during the war.
Deciding to default "would have ruined our credit and would have left the economy on a very agricultural, subsistence basis," says Robert E. Wright, a professor at Augustana College in South Dakota.
So the U.S. agreed early on to consolidate the debts of all the states — $75 million.
During the good times, the country tried to pay down the debt. Then there would be another war, and the debt would go up again. The politicians never liked the debt.
"What the battle was really about was how quickly to pay off the national debt, not whether to pay it off or not," Wright says.
But, just like today, it wasn't easy for politicians to slash spending — until Andrew Jackson came along.
"For Andrew Jackson, politics was very personal," says H.W. Brands, an Andrew Jackson biographer at the University of Texas. "He hated not just the federal debt. He hated debt at all."
Before he was president, Jackson was a land speculator in Tennessee. He learned to hate debt when a land deal went bad and left him with massive debt and some worthless paper notes.
So when Jackson ran for president, he knew his enemy: banks and the national debt. He called it the national curse. People ate it up.
In Jackson's mind, debt was "a moral failing," Brands says. "And the idea you could somehow acquire stuff through debt almost seemed like black magic."
So Jackson decided to pay off the debt.
To do that, he took advantage of a huge real-estate bubble that was raging in the Western U.S. The federal government owned a lot of Western land — and Jackson started selling it off.
He was also ruthless on the budget. He blocked every spending bill he could.
"He vetoed, for example, programs to build national highways," Brands says. "He considered these to be unconstitutional in the first place, but bad policy in the second place."
When Jackson took office, the national debt was about $58 million. Six years later, it was all gone. Paid off. And the government was actually running a surplus, taking in more money than it was spending.
That created a new problem: What to do with all that surplus money?
Jackson had already killed off the national bank (which he hated more than debt). So he couldn't put the money there. He decided to divide the money among the states.
But, according to economic historian John Steele Gordon, the party didn't last for long.
The state banks went a little crazy. They were printing massive amounts of money. The land bubble was out of control.
Andrew Jackson tried to slow everything down by requiring that all government land sales needed to be done with gold or silver. Bad idea.
"It was a huge crash, and the beginning of the longest depression in American history," Gordon says. "It actually lasted six years before the economy began to grow again."
During the depression, the government started borrowing money again.
No one says that paying off the debt caused the depression. The bubble was going to pop sometime. But the result was that we had to kiss a debt-free U.S. goodbye. The country never came close again.
Note: This post was expanded at 10:15 a.m. to replace an earlier, much shorter post.
As someone deeply immersed in the intricacies of U.S. economic history, let me dive into the fascinating narrative of when the United States managed to pay off its national debt, albeit fleetingly, in 1835 during Andrew Jackson's presidency. The depth of my knowledge in this area allows me to provide a comprehensive understanding of the context and the subsequent consequences of this rare fiscal feat.
The article revolves around the unique moment in U.S. history when, on January 8, 1835, President Andrew Jackson and the political elite in Washington celebrated the complete payment of the national debt. This achievement, as highlighted in the article, lasted precisely one year before the country plunged into a severe economic downturn in 1837.
The historical background is crucial to grasp the significance of this event. After the American Revolution, the founding fathers grappled with the decision of whether to eliminate the financial obligations incurred during the war. Opting to default on these debts was considered, but it was recognized that such a move would tarnish the nation's credit and regress the economy into an agrarian, subsistence-based state.
The U.S. decided to consolidate the debts of all states, amounting to $75 million. The cyclical pattern of paying down the debt during prosperous times, only to see it rise again during wars, persisted. The political debate at the time was not whether to pay off the debt but how quickly to do so.
Enter Andrew Jackson, a president with a deeply personal aversion to debt, rooted in his experiences as a land speculator in Tennessee. Jackson considered debt a moral failing and made it a central theme of his political ideology. He embarked on a mission to pay off the national debt by leveraging a real-estate bubble in the Western U.S., selling off federal government-owned land.
Jackson's fiscal approach involved rigorous budgetary control, as he vetoed spending bills, including those for national highways, which he deemed unconstitutional and bad policy. In just six years, Jackson succeeded in eliminating the national debt, creating a surplus where the government was taking in more money than it was spending.
However, the article details the aftermath of this achievement. With no national bank (Jackson had dismantled it), the surplus money was distributed among the states. This distribution, combined with state banks printing excessive amounts of money and an uncontrollable land bubble, led to a financial crash. Jackson's attempt to stabilize the situation by requiring government land sales to be conducted with gold or silver backfired, resulting in the longest depression in American history, lasting six years.
While the article emphasizes that paying off the debt wasn't the direct cause of the depression, it underscores the intricate web of economic factors that played a role. The consequence was that the U.S. had to bid farewell to its brief stint as a debt-free nation, marking a turning point in its financial trajectory.
In conclusion, this historical episode is a testament to the complex interplay between fiscal policies, economic bubbles, and political decisions. It serves as a valuable case study in understanding the challenges and consequences associated with achieving and maintaining a debt-free status at the national level.
