Looking Back on President's Day
As we celebrate President’s Day, here is a look at our two presidents of the day, Washington and Lincoln, and some of their experiences with debt during their presidencies.
George Washington said the following in his farewell address to the nation:
“As a very important source of strength and security, cherish public credit. One method of preserving it is, to use it as sparingly as possible; avoiding occasions of expense by cultivating peace, but remembering also that timely disbursements to prepare for danger frequently prevent much greater disbursements to repel it; avoiding likewise 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 burthen, which we ourselves ought to bear.”
When Washington became President, the federal debt of the nation was over $50 million, with foreigners holding around $11 million of the debt. The Revolutionary War itself required that we borrow over $75 million in cash and supplies. His Treasury Secretary, Alexander Hamilton, was largely responsible for stabilizing debt securities and providing revenue needed for debt service.
The first presidents chipped away at the country’s debt steadily, and by 1836 we actually began running a surplus. The Civil War, however, under Lincoln’s presidency, resulted in a spike in national debt, as wars generally do. During the Civil War though U.S. debt reached $2.7 billion. The war was funded by Government-issued paper money, or “Greenbacks,” as well as the implementation of a broad system of internal taxes, including the first federal income tax -- put in place in August 1861. This income tax, along with a number of other tariffs, helped to assure the government would have the revenue necessary to pay interest on the war bonds issued. The Union ended up raising 21% of its war revenue through taxation. Still, however, total debt skyrocketed. In July 1860 U.S. debt stood at $64.8 million; by July 1865 it was $2.7 billion. Although debt growth slowed significantly in the fifty years after the Civil War, by the time World War I rolled around debt grew so much that Congress put the first debt limit in place, partly in order to make borrowing more efficient. Today, our debt stands at $12.35 trillion (it is tracked almost daily at this Treasury website).
How would the founding fathers feel about $12.35 trillion in debt? We end with one more quote from Washington:
"There is no practice more dangerous than that of borrowing money; for when money can be had in this way, repayment is seldom thought of in time, the interest becomes a loss, exertions to raise it be dent of industry cease, it comes easy and is spent freely, and many things [are] indulged in that would never be thought of if [they were] to be purchased by the sweat of the brow."