Digitized by the Internet Archive
in
2011 with funding from
Boston Library Consortium
Member
Libraries
http://www.archive.org/details/episodesinpublicOObrow
working paper
department
of economics
EPISODES IN THE PUBLIC DEBT HISTORY
OF THE UNITED STATES
E.
No.
540
Gary Brown
October 1989
massachusetts
institute of
technology
50 memorial drive
Cambridge, mass. 02139
EPISODES IN THE PUBLIC DEBT HISTORY
OF THE UNITED STATES
E.
No.
540
Gary Brown
October 1989
DEC 2
1 1989
EPISODES IN THE PUBLIC DEBT HISTORY OF THE UNITED STATES*
E.
Gary Brown
October 1989
Abstract
Prior to the Great Depression of the 1930's, debt of the United States
government was created in connection with wars and substantiaUy liquidated
postwar through budget surpluses from tight fiscal policies. These tight fiscal
policies, dominant in the 19th century, developed from a revenue system solely
dependent on custom duties into a protective system that yielded far more
income than was necessary for the limited role accepted by the 19th century
federal government. Moreover, these war debts were generally repaid at lower
prices than when accumulated, in marked contrast to the later debt accumulations, thus increasing the amount of real debt was owed.
This paper reviews these periods of debt accumulation and repayment,
separating the changes in the debt into those resulting from repayment (or
accumulation) and those resulting from price changes. In the 19th century, and
especially after the Civil War, the falling price level sharply increased the
burden of the debt without a corresponding adjustment of interest rates. The
opposite is nearer the truth initially after World War II, and surely from 1974 to
the present.
Debt/GNP ratios in the United States have never been extremely high for
long periods of time. After the Civil War, this ratio rose to nearly 50 percent, by
far its highest figure up to that time, and unapproached ir^ World War I. The
highest ratio, reached at the end of World War II, was rapidly reduced from 114
percent by inflation and growth to a postwt:iT' low of 23 percent in 1974, and has
risen since to more than 40 percent.
*Prepared for the Conltrence on Capital Markets and Debt Management of the
Macroeconomic Policy Group and the Centre for Economic Policy Reseeirch,
Castelgondolfo. Italy, June 15-17, 1989.
Italian
EPISODES IN THE PUBLIC DEBT HISTORY OF THE UNITED STATES
I.
Introduction
The United States has undergone four major periods of debt reduction
over
its
history:
tended over the
the Revolutionary War and War of 1812 debt repayment exfirst third of the 19th
in the last third of that
century; the Civil War debt was reduced
century; and the debt repayment of World Wars
I
and
II
covered the third decade and third quarter of the 20th century, respectively.
Until the time of the Great Depression of the 1930s, the major reason for
borrowing by the United States government was the preparation for or waging
of war.
Until then a relatively narrow stance had been
to the kinds of
programs considered appropriate
maintained with respect
to undertake.
State govern-
ments, on the Other hand, had assumed a broader role in the 19th century in
financing transportation and other developmental projects.
grew explosively after the
Civil
War
to
Local governments
provide needed urban
utilities
and infra-
structures.
Up
to
World War
government was
to
II,
the expected and well-accepted policy of the federal
repay outstanding debt in a more or less systematic way,
even when accompanied, as
it
through price deflation.
could be characterized as a creditor-dominated
It
often was, by substantial subsidies to creditors
In contrast, after World War II debt repayment was minimal, but inflation
policy.
and economic expansions, even when slow, sharply lowered the debt
ratio
—a
GNP
debtor-dominated policy.
In reviewing these episodes the
le,
to
debt/GNP
ratio will be used,
when feasib-
as a simple measure of debt burden, although other factors are, of course,
present.
Changes
in this ratio
come about
(1)
because the real debt increases or
decreases through borrowing or repaying, and through fluctuations
and
(2)
because the real GNP expands or contracts.
in prices;
For the 18th and 19th
—
Public Debt History
centuries, consistent annual estimates of
GNP are
Only
level.
II.
in
which probably exaggerates movements
in the 20th
Tables
available.
changes
(1933)
7
and
2
unavailable, and measurement
of annual price changes requires the use of the wholesale price index of
and Pearson
-
in the
Warren
general price
century are annual estimates of real and nominal GNP
8 contain the
annual data used, and Table
debt for particular periods when
Revolutionary and War of 1812 Debt:
it
4
sums up
expanded and contracted.
1775-1835
The Revolutionary government, virtually unable
to
borrow
until the vic-
tory at Saratoga in 1777, depended almost entirely on the issuance of paper
currency as the only way
however,
it
it
could secure resources.
By the end of
was on a specie basis and emerged with a debt of $36
hostilities,
million.
When
the constitutional government was organized in 1789, the debt had grown half
again as much, as the government struggled with essentially insoluble fiscal
problems and met only one-fourth of
action of the
new government was
to
its
debt service.
The
first
major legislative
provide a revenue structure that relied
almost exclusively on customs duties, a choice that was to plague the young
nation in a variety of ways for at least a century, supplemented by modest
amounts from the sale of public lands from the huge public domain.
A highly
legislative enactment further increased the debt in 1790 to $76 million
states'
war debts were assumed.
The
total
when the
debt at that time was perhaps 20-30
percent of GNP.'
Activist in strengthening the national government, the twelve-year Fedei
alist administration, 1789-1800,
debt grew only 10 percent
in
enlarged the tax structure.
Consequently, the
nominal terms (after the assumption of state debts)
and decreased almost one-fourth
in real terms.
Despite real net borrowing of 9
percent, price inflation had reduced the debt by 32 percent (Table
When Jefferson's administration replaced the Federalist
a decade of fiscal restraint:
4).
in 1801, it initiated
expenditures were reduced, especially military, from
Public Debt History
-
3
the high levels of Adam's administration; internal taxes were eliminated; a booming foreign trade doubled customs duties; and large budget surpluses were
applied to debt reduction (Table
5).
Up
to the
eve of the War of 1812. both the
nominal and real debt were reduced by 45 percent entirely attributable to explicit
debt retirement (Table
4).
The debt had
fiscal policy that cut both taxes
through a
fallen to 6-8 percent of
GNP
and expenditures/
The War of 1812 tripled expenditures, increased internal revenues by much
less
and with a
lag,
through reenactment of the direct property tax and the
Federalist excises, while customs revenues dropped substantially although rates
were doubled.
real debt
The nominal debt had increased
to a
had more than doubled by the end of 1815
new peak
— increased
ing (140 percent), decreased by inflation (30 percent) (Table
Deficits
of $127 million; the
by net borrow-
4).
were quickly turned into surpluses as the United States was
flooded by imports, especially from Britain.
In the years 1816-19 more customs
duties were collected than ever before, partly because of the doubling of rates,
but also because of large pent up demands for British goods.
Serious unemploy-
ment overtook the domestic industries that had gained a foothold during the
wartime interruption of trade, and the crisis of 1818 developed into the depression of 1820-21.
This depression and the repeal of wartime taxes eliminated these surpluses
briefly.
Recovery brought many years of budget surpluses that were
heightened in the mid-1830s by heavy speculation
averaged 40 percent more than expenditures
1812 (Table
high point
5),
in public lands.
in the 20
years after the War of
and the public debt was completely liquidated
in 1815.
Since prices were falling in
value of debt repayments exceeded the
much
initial real
Revenues
in 1834
from
its
of this period, the real
debt by 60 percent (Table
4).
This redistribution from taxpayers to bondholders recurred even more dramatically after the Civil War.
Public Debt History
The elimination
ing in fiscal history.
of a public debt
by a central government
-
4
a rare happen-
is
The maintenance of such large budget surpluses and their
application to debt repayment
demanded a disciplined approach on both the
The
expenditure and the revenue side.
rigid control of expenditures exercised
by the several administrations was extraordinary, especially
eifter
1820
when
internal improvements and the provision of enterprise capital became a growing
need and a major policy issue for a developing nation.
Various presidents, with
the ineffective exception of John Quincy Adams, opposed the federal govern-
ment's undertaking such programs, usually expressing the belief that the constitution
prevented
it.'
States on the other hand had no such constraints.
after the assumption of the states'
was only $13
state debt
million
Essentially debt free
war debts by the federal government
by 1825 (Table
6).
in 1790,
States were performing only a
few elementary functions; their budgets were quite small; interest constituted 50
to 90 percent of their total expenditure,
was unpopular.'
cess of the
and raising taxes for interest payments
Faced by expanding capital demands and the spectacular suc-
New York state-financed
Erie Canal,* state borrowing took off after
1830 most importantly to develop canals, railroads, and, after Jackson's 1832 veto
of the
bill
rechartering the Second Bank of the United States, banks.
By 1838
state debt of $174 million exceeded federal debt.''
With such a clearly defined and implemented expenditure policy and with-
out any debt, one could imagine the federal government eliminating
budget surplus and achieving
nues
to fit the
fiscal bliss
expenditure program.
forever after:
that
is,
its
primary
cut the reve-
However, once customs duties were made
almost the sole revenue source, their protective usage became irresistible.
the
initial
tionism
From
debate over the modest rates proposed by Madison in 1789, protec-
moved
swiftly forward:
rates were doubled in the War of 1812; manufac-
turers were pi'otected from postwar competition beginning with the act of 1816,
Public Debt History
especially of products that had
-
5
sprung up during the war such as cotton and
woollen goods, iron, and glass; the tolerable political threshhold of the
nonmanu-
facturing sections was even exceeded by unsustainably high rates in the 1828
Tariff of Abominations, which led
legislation that
some states
was then temporarily moderated
A strong defensive argument
fruitful
to threaten nullification of the
in the early 1830s.
for high customs duties had been their
revenue yield that could retire the debt.
But
in the
years 1834 and 1835
with no further debt to retire, protectionist supporters had to regroup and
develop a new rationale.
have
to
Political
genius found a way.
Tariff rates would not
be reduced (or raised, as was attempted near the end of the century);
more federal spending, clearly anathema to President Andrew Jackson, could be
avoided; excess revenues would be given back to the states, and they could
expand crucial programs foresworn by the federal government.^ Thus
voted
in 1836 to
it
was
turn back to the states an estimated $36 million in surplus
revenues, more than half the revenues collected in that year.
Because of
its
novelty and perhaps for constitutional reasons, the expenditure was labelled a
loan, callable if
needed, though
it
never was.
Before the final quarterly installment was paid, the panic of 1837 termin-
ated this fiscal experiment.
This panic also caught most states in the midst of
internal-improvement programs with uncompleted canals and railroads.
severe deflation continued until 1843,*
it
brought losses
in
market
As the
veilues
and
default on half of the outstanding state debt, 10 percent of which was repudiated.'
Unsuccessful efforts were made to persuade the federal government to
assume or support these debts, and many foreign lenders
delineate the two levels of government.
failed clearly to
Thus, default and repudiation of state
debt may have affected the otherwise impeccable credit standing of the federal
government.*"
The financial
difficulties
and mismanagement that were exposed
led to the enactment of various types of constitutional debt limits in most states.
——
Public Debt History
By the time of the
6
the federal debt had grown to $65 million
Civil War,
and the Mexican War, less
after fluctuations resulting from the business cycle
than 2 percent of GNP (Table
-
State government debt, after shrinking in the
6).
programs were reactivated.
1840s, had a miniboom in the 1850s as developmental
In the latter decade local government debt rose five-fold to $200 million and,
though
smaller than state debt, surpassed the federal (Table
still
expansion was mostly
debt
in city
in
which the rapid increases
This
6).
in population
and
income extended city programs and services, and some competition for railroad
connections through offers of loans and subsidies.
became a heavy burden
III.
The
Civil
War Debt:
Civil
depression and, again, defaults resulted.'^
1860-93
The War Period:
III.l
The
in the 1857
1860-65
War resulted
in
an explosion in size of the public debt, an expan-
sion of expenditures to 12 percent of
1812),^'
tially
This substantial borrowing
GNP (compared with
4 percent in the
innovations in taxation, both qualitative and quantitative, that substan-
broadened tax sources and brought
in large
amounts of revenue; innova-
tive marketing of the public debt; conscription of military personnel;
changes
War of
in the
banking system.
Congress took the lead in designing wartime
first federal
tance tax.
and major
fiscal policies, enacting the
income tax which reached a top rate of 10 percent, and an inheri-
The bulk
of the
taxes, both ad valorem
and
revenue was provided by a massive array of excise
specific, that
covered a large portion of meu'ket
transactions, multiple taxes on manufactured products
much
like a
stamp duties on a variety of transactions, and gross receipts
dustries as railroads and
utilities.
new administrative apparatus
and were slow
— the
teixes
on such in-
These taxes required the creation of a whole
Office of Internal
to reach their potential.
year 1866 raised over half a
turnover tax,
Yet,
billion dollars
Revenue
in
the Treasury
revenues at their peak
— edmost
in fiscal
13-fold more than in 1861
Public Debt History
compared with peak expenditures of
$1.3 billion in fiscal year 1865.
-
The nominal
public debt rose from S65 million at the beginning of the war to $2.7 billion at
end.
By far the largest debt yet incurred,
ratio, 41 to 49 percent, for the
it
7
its
resulted in the highest debt/GNP
country up to that
time.^^
The Confederacy, on the other hand, could not develop an effective tax
program given the structure of
its
central government from scratch.
economy and the need for creation of a
During the war only about 10 percent of the
government's expenditures were covered by taxes, $2
almost as
much
were borrowed,
billion
as the North but mostly in the form of paper money, and repudi-
ated after surrender.
III. 2
The Period of Debt Repayment:
1866-93
In the immediate postwar years the federal government reviewed the
tariff-tax structure to adjust
political prostration of the
it
to
long-term peacetime needs.
The economic and
South in the reconstruction and postreconstruction
periods weakened the effective opposition to protectionism.
Budget surpluses
were crafted around protective customs duties that were increased substantially
above their prewar
In the decade of the 1850s they averaged $50 million;
level.
by the 1866-1875 period they jumped
The
ratio of duties to free
to
an average of more than $200
and dutiable imports rose from a prewar low of 14
41-46 percent up to 1871, then moved down to around 30
percent
in 1861 to
percent
in the 1870s
and
1880s. '^
The wartime tax structure was dismantled.
its
million.'*
Income and inheritance taxes,
progressive elements, were eliminated by 1872.
Almost
all
the
many
excise,
stamp, licensing, and other internal duties were swept away by 1874 with the
major exception of liquor and tobacco
rates than they had during the war
ditures,
ta.xes that
— 30
provided more revenue at lower
percent of toted 1874 revenues.
though well above prewar, were cut back from their wartime
Thus, average nominal surpluses were expanded dramaticedly
Expen-
levels.
—from an average
- 8
Public Debt History
of $3.6 million in the prewar decade to an average of $66 million in the decade
1875-84 following repeal of wartime taxes. ^'
In the period following the Civil
War
to the depression years after 1893,
the nation witnessed a remarkable series of economic developments:
GNP growth averaged
5
percent per annum;'^
(2)
prices
2 or 3
percent per annum;*"
over
percent in the late 1860s to 2-2.5 percent in the
6
1890s;''
and
The
(4)
(3)
budgets were
in
gold premium;
(1)
(2) real
fell
from
1880s and early
late
surplus almost continuously.
ratio of real debt to real
change were:
an average rate of
nominal yields on U.S. bonds slowly
GNP
fell
sharply
39 percent in 1871 to 8 percent in 1891 (Table
this
fell at
(1) reed
1).
in the
postwar period:
from
The factors accounting for
the resumption of specie payments in 1879 eliminated the
debt repayment only reduced the real debt by 10 percent
after adjusting the data in Tables 4
and
7 for
Table
the difference between Kuznets'
1
Factors Reducing the Debt/GNP Ratio
1871-91
Debt/GNP
Debt/GNP
Adjusted
implicit
Ratio. 1871
39
Resumption of specie payment
- 4
Real growth to 1891 (2.87 fold)
-23
Net reed debt repayment
-10*
Net price changes
+ 6*
Ratio. 1891
%
%
-31
8
for difference between price indices (see text).
GNP
price indices and the wholesale price indices of Weurren and Pearson;
Public Debt History
(3)
-
9
price decreases offset 60 percent of the net debt repayment, again after
adjusting for the difference between the two price indices as in
(4) real
growth of 2.87-fold
cleeu-ly
dominated
edl
(2)
above, and
other factors."
Reed debt repayment exceeded the initiad reed value of the debt at the end
of the Civil War, but the real debt only
fell
est rates could, of course, have adjusted
percent
—and
—in this case to have
Nominal inter-
decreased 2 or 3
thus maintained debtors and creditors in the same real positions as
before the deflation.
fall
15 percent (Table 4).
that much.
However,
it
took nominal interest rates several decades to
Real interest yields for the 10-ye£u~ period 1869-78 were a high
10.3 per cent compeired with the
prewar decade of
2.6 percent.'*
In such a world, one must indeed repay debt rapidly just to hold
it
con-
stant, similar to Alice's frustrating excursions with the
Red Queen. With real
interest rates averaging more than the growth rate for
much
was the hard way
to
of this period,
grow out of debt. Nevertheless, economic growth
at
it
such a
rapid rate came to dominate even the falling price level.
Redistribution via the fiscal structure
is
always a concern when taxes are
used to repay debt. The post Civil-War structure must be described as regressive
a
—very few
tax-teu'iff
benefits on the expenditure side for the lower income groups and
structure loaded heavily on consumers.
was such that price
have been subject
liquor
deflation exacerbated
to this defect, specific
it.
The form of this structure
While ad valorem taxes would not
commodity taxes, such as tobacco and
and many of the customs duties, increased
in real terms
when
prices
fell.
Nevertheless, despite a regressive internal-external excise-tax program
that responded to fedling prices with rising reed tax rates,
it
should not be
assumed that these taxes imposed a heavier burden on individual taxpayers.
While prices were fedling, real wages and income were increeising in the latter
part of the 19th century."
The distributioned question would have
to be ex-
plored in detail to make a reeisonably precise eissessment of the impact of fedling
Public Debt History
prices on teoces and incomes.
of
- 10
This was a period of vibrant business expansion,
heavy immigration, of high protectionism, of growth of large enterprise, of
increasing business concentration, euid of government corruption.
The distributional strategy of a tight
tion taxes
came under increeising
tion increased to
fiscal policy financed
political attack
by consump-
as the century waned.
Opposi-
what was seen as a deflationeu-y redistribution of income from
debtors to creditors, emd a regressive fiscal structure hetrnessed to repay debt.
As the
became increasingly unstable, protectionists tried to
political situation
reduce the surplus by eliminating the excises on tobacco and liquor. They were
unsuccessful because the public regarded them as good taxes.
cess, certain expenditure
programs were expanded,
With more suc-
particuleu?ly
veterans pen-
sions and public works. '^ perhaps in a search for some offsets to the regressivity of the
revenue
side.
The Harrison administration
in
a last major attack on the surplus
furthered the McKinley tariff of 1890 that raised tariff rates
tariff
(in
order to reduce
revenues by increased duties) and increased veterans' pensions. These
tariff policies
were reversed soon after the depression of
1893,
and
tax added after heavy pressures from the Populists eind the West.
Ck)urt,
however, decleLred
could become operative.
it
eui
income
The Supreme
unconstitutional in a controversial decision before
it
Budget surpluses finaUy came to an end foUowing the
panic of 1893 with the debt down to $1 billion~8 percent of GNP.
By 1900 the
depression of the mid-1890s followed by the Spanish-American Weir increased the
debt to $1.3
billion.
The Victoriem prose of Henry
"The claim that
is
C.
Adams
richly
sums up
this episode.
here urged in support of deficit fineinceering
especiaUy pertinent when the machinery of taxation
is
is
used for
other than revenue purposes, for, under such conditions, those
interested in the maintenemce of existing fiscal laws
vrUl.
show them-
Public Debt History
- 11
selves very ingenious in finding occasions for public expenditure.
not too much to say that the Arreeurage Pension Acts, by meeins
It is
of which the treasury
was relieved of
its
plethora of funds, find
their true explanation in the desire of Congress to maintain inviolate
the system of protective duties.
of
eui
This could not be done in the face
ever-increasing surplus, and protectionist politicians did not
detre to
advocate the abolition of the whiskey
tetx; it
only remained
for them to spend the money."'*
He concluded:
"It is
the policy of protection that has paid our debts.
true in the period from 1816 to 1836, and
time [1887].
it is
This weis
true at the present
The wisdom of our statesmen consists
in this, that they
have not used unwisely the surplus revenue forced upon them by a
radicEiUy pernicious system of taxation.""*
III.3
The
The States
Civil Welt weis to meLke
a tangle of the debts of the Southern states. At
the beginning of the war the bulk of Southern state debt was owned by the
North, and, not surprisingly, interest was not paid on these bonds during the
war.
Almost no taxes were imposed by the Southern states at
were turned to more and more
eis
the war went along.
but they
After the war President
Johnson emphaticedly directed the states to repudiate them
tiaUy taken no action.
first,
The repudiation of these debts for
erfter
all
they had ini-
time weis a bitter
piU for them to swaUow, pau'ticulEU"ly because the Southern banks were major
holders of these debts and would be liquidated with the disappearance of such
assets.
Reconstruction in the South presented a sorry picture of vindictiveness
and venedity
in the supervision euid rebuilding of
Upon admission
of the 11 states
by
an impoverished economy.
1870, the control of the
governments was in
Public Debt History
the hands of Congress.
Shoddy
fineuicial practices
- 12
permitted state debts to
increase from $146 million at the beginning of reconstruction in 1870 to $248
million
by the end of
1874, about half of
which was repudiated or scaled down
in
the depression of the 1870s.
The Northern
states,
on the other hand, steadily reduced their debt from
1870-90 largely through taxation and debt retirement.
debt to GNP ratio by 1900 was down to 15 percent
percent of 1870, but higher
increase of local debt
IV.
World War
I
thein
total
—from $0.2 to $1.6 billion —
government
— much lower than the 49
The substantial
the 1860 ratio of 12 percent.
is
notable (Table
6).
Debt
FedereJ Government Accumulation:
IV. 1
The
1917-19
From the depression of the mid-1890s through the era of reform
first Roosevelt euid
Woodrow Wilson up
of the
to 1916, the eve of entry of the United
States into the war, the nominal debt had remained virtually unchanged at $1
billion while the real
sion levels.
War
debt diminished steadily
The debt was a low
3
mobilization accelerated
eis
prices rose from their depres-
percent of GNP in that year.
government expenditures in the three follow-
ing yeEu?s to a peak in 1919 of more than 20 percent of GNP.
the wartime tax structure was innovative.
A
As
in the Civil War.
amendment
constitutioneJ
explicitly
permitting an income tax had received state ratification by 1913; its availability
was quickly exploited and, from a modest beginning of
1 percent,
by 1919 reached nearly 80 percent. An excess-profits tax
first time,
eurid
applied both to unincorporated firms as well
contrast with later practice.
Pcissage of a
wets
teuc
Perhaps the most intriguing
act in 1919 after the
eis
the top bracket
enacted for the
corporations in
fiscal novelty
was the
war had ended with major retroactive tax
increases on 1918 incomes and profits.
Corporate and personal income taxes eind the excess-profits tax provided
the bulk of weu'time revenues
—a dramatically
different distributioned structure
Public Debt History
- 13
from that of the 19th century. This revenue effort developed more slowly than
the expenditure side so that only 30 percent of spending was covered euid the
nominal debt grew to $25 billion by 1919. 30 percent of GNP.
IV.2
1920-30
Repayment:
In the postwar period a return to what was to be called "normalcy"
President-elect Heirding was broadly favored by the public.
by
Expenditures were
quickly reduced to their average for the coming decade, while revenues involved
much more controversy and were lowered
deficit of $15 billion, 18
—a large swing in fiscal policy.
and
in the latter
Output dropped sharply
in 1920
and 1921;
year the inflation turned into a sharp deflation, increasing the
real veilue of the debt,
tetx
and reusing the debt/GNP
ratio to 34 percent.
reductions were applied first to the special wartime levies,
like the excess-profits tax,
corporate income.
Moreover, the large 1919
percent of GNP, was replaced by a modest surplus in
1920
Postwar
less rapidly.
and then
to the high wartime rates
on personal and
The permanent tax structure developed by the mid-1920s
generally followed the views of Secretcury of the Treasury Mellon that taxes on
higher incomes should be cut sharply to provide incentives for saving and risk-
Table 2
Factors Reducing the Debt/GNP Ratio
1919-29
Debt/GNP
Ratio, 1919
30
Real growth to 1929 (1.34-fold)
- 8
Net real debt repayment
- 8
Net price changes
+ 2
Debt/GNP
Ratio, 1929
%
-14
16%
Public Debt ffistory
By 1926 the top income-tax bracket had been lowered to 25 percent.
taking.
The lag
in tax cuts
every year. Applied
to
behind expenditure reductions produced surpluses in
debt repayment, they proved as important as the dec-
ade's income growth in reducing the debt/GNP ratio.
reduced by a third, or $9
billion, eund
by 1929
it
ment and output growth.
stood at
its
postwar low of 16
Price deflation was a modest though present factor
2).
State and LoceJ Debt
IV. 3
State and
loceil
debt was being added to throughout this decade in about
the same amounts as federal debt was being retired.
the total debt/GNP ratio
down from 44 percent
this ratio
up
World Wetr
By
in 1922 to 35 percent in 1927.
to 66 percent (Table 6).
II
Debt Experience
The World
mobilization
An expanding GNP brought
and increased depression borrowing pushed
1932, however, the lowered income
V.
The nominal debt was
This reduction was almost equally accounted for by debt repay-
percent of GNP.
(Table
- 14
—at
Wetr II experience
its
had many novel features: the magnitude of
peak half of GNP; falling yields on government securities
the war progressed; debt exceeding GNP by the end of the
wetr;
eis
and the postwar
reduction of a substantied fraction of the debt by inflation.
With such a huge build-up of expenditures, debt grew rapidly despite
much innovation on the
mass tax
tax side:
conversion of the personal income tax to a
(a 10-fold increase in taxpayers),
made the tax a more
the initiation of withholding which
effective stabilizing instrument,
and an administration
proposal for a progressive consumer-expenditure tax that Congress rejected.
A
major feature of the stabilization program was the distributional compromise that
held together disparate groups in a kind of implicit social contract of fair
sheires:
price controls,
wage
controls, excess-profits taxation, rationing
direct allocation of scarce materials,
and low interest
rates.
and
- 15
Public Debt History
In the postwar period. President
reduced the nominal debt.
Truman followed
tight fiscal policies that
Prices rose sharply in 1946 and 1947 after premature
elimination (by the standards of the administration) of price
From then on
inflation
and other controls.
became virtuedly the only factor reducing
real debt:
it
took a major or equal postwar position with growth in reducing the debt/GNP
ratio.
It
surely was not the intention of the government to follow a policy of
debt reduction through inflation, though
it
should not be forgotten that the
administration's support of early elimination of the excess-profits tax in 1945
probably decisive
this issue.
in
was
breaking the deadlock between the House and the Senate on
Elimination of this tax shattered the weu-time stabilization compromise
and doomed continuation of wartime price and weige
controls.'*
Nevertheless,
President Truman was to take many courageous positions in support of a tight
fisced.
stance:
opposition to premature Congressional tax reductions in 1946 and
1947; support of
prompt
eind
high taxation in the Korean War that eliminated
heavy pressures on direct controls. The Eisenhower administration surely would
not have advocated inflationary poUcies to reduce debt, but by then the wartime
debt/GNP
The
ratio
had been cut almost
in half.
relative weight of output growth, net real debt repayment,
tionary changes in real debt are
shown
in Table 3 for three
and
infla-
postwar periods
beginning with 1945 and ending about a decade apart, the last of which ends
with the lowest debt/GNP ratio of the postweu- period, 1974.
inflation
ratio;
and
overpowered growth and debt repayment
in
In the first decade,
reducing the debt/GNP
growth emd inflation were almost equal in the two-decade postwar period;
in the three-decade period
ending with the
oil
shock in 1974, growth forged
ahead, but by then net borrowing had also begun to be a factor.
has ruled in every postwar year except 1949.
Some
inflation
Public Debt History
- 16
Table 3
Factors Reducing the Debt/GNP Ratio
1945-74
Debt/GNP
110 X
Ratio. 1945
Terminal Year
1955
1965
1974
Real growth to
-10
-39
-55
Net real debt repayment to
-3+3
+10
Net price changes to
-42
-38
-41
-55
-74
-86
Total change
Debt/GNP
Ratio, Terminal
The federal share of
total
37%
56%
Years
government debt
h6is fallen in
23%
the postweu"
period as state eund local governments returned to their normal activities sus-
pended during the war. In 1950 the federal proportion
1980
weis 76 percent;
had reached 26 percent, but has subsequently risen.
it
by
State and local
debt in 1960-85 has kept pace with GNP in the 12 to 15 percent range (Table
VI.
6).
Observations and Ck>nclusions
1.
Fiscal policy of the United States in the 19th century could not be
described as one driven by em autonomous expenditure structure to which taxes
were adjusted: on the contrary. The government began with custom duties as
its
major revenue source;
achieve that end.
it
became gripped by protectionism and used
tariffs to
Revenue yields were generated well beyond the expenditure
programs, barring wars, desired by the public.
Protectionism thus dominated
the generally tight fiscal policies of that century and budget surpluses, with a
consequent rapid debt retirement, created
2.
While a government
political "problems."
may become a captive of
policies that generate
more
Public Debt History
5.
There are some
similarities
between the present
United States and the 19th century experience.
structure, the present one
desire to force
down the
problems of the
Like the 19th century revenue
been fixed by nonrevenue considerations:
heis
the
size of government, rather than promoting protection.
Unlike the 19th century structure,
desired by the public.
fiscal
- 18
it
fails to
support the expenditure programs
As a consequence we are confronted by chronic
instead of chronic surpluses.
deficits
This unstable situation has raised the debt/GNP
ratio to nearly double its level in 1974, the lowest point in the postweu? period.
E. Ceu-y
Brown
Massachusetts Institute of Technology
Notes
^
Trescott (1960) 342
data of Robert Gedlmein,
is
is
the low figure; Barro (1984) 368. using unpublished
the high one.
'
Trescott (1960) 360; Barro (1984) 368.
'
Madison near the end of his administration announced his support of
interned improvements of nationetl interest.
John Quincy Adams had a full-scale
program involving interned improvements, but Ck>ngress successfully thwarted
*
and
Ratchford (1941) 46. This work
heis
"
been relied on extensively
an indispensable source for state finances
in this paper.
The Erie Caned debt was repeud from the canal's revenues
cost of freight dropped dreunatically
ton
is
it.
in 10 years.
—Buffedo to New York City from $100 to $15
The
per
— ultimately diverting substantial amounts of traffic from the Ohio euid Missis-
sippi vedleys to
New York
City.
- 17
Public Debt ffistory
normedly needed for financial reasons, budget surpluses will
revenue than
is
result only
expenditures are contained.
if
The expenditure restraint shown
the first half of the 19th century was remarkable.
The dominant theme of
government was anchored at one end by Jefferson
euid at the other,
face of growing needs for transportation development, by Jackson.
ernments necessarily became involved
in these
in
limited
even in the
State gov-
programs with consequent reduc-
tions in efficiency.
Opposition grew to the distributional effects of these tight monetary and
fiscal policies,
both to the debtor-creditor redistribution and to the regressive-
ness of the revenue system.
As
political
support weakened, the backers of high
customs gave way on the expenditure side, offering pensions euid public works;
and they surely were surprised on the revenue side when they made
tax concession in 1909 that became a constitutional amendment.
changed substantially the impact of the
fiscal
program
eui
income-
The income tax
in the 20th century, euid
permitted the debt repayment of the 1920s.
3.
In the 19th century the government usually borrowed
when
Even after World War
were high and repaid when they were low.
I,
prices
the sheu'p
decline in prices in 1921 increased the reed vedue of the debt, although the rest
of the decade
War
II
was
was one of price
reed debt
Not until the first decade after World
stability.
repayment accompanied by price changes that reduced,
rather than increeised, the reed debt (Table
4.
The
Civil
War debt was doubled
4).
in reed terms
by
falling prices; this
price increment was slightly more than offset by substeuitied debt repayment; but
the growth rate was so substantial that
the debt/GNP ratio.
World Weu*
of repayment and growth.
I
it
dominated both factors in reducing
debt reduction came through almost equed
peu-ts
In contrast. World Weir II's came through inflation euid
growth, in about equed proportions over 20 postweu* years
the first decade, growth caught up in the second.
— inflation
dominated in
Public Debt History
*
Classified
by purpose
of borrowing,
- 19
beinking accounted for $54 million,
canals $60 million, rail]x>ads $43 million, turnpikes $7 million and $9 million was of
a miscellaneous
Transportation
character.
accounted for almost two-thirds.
Ratchford (1941) 87.
^
Trescott (1955) 140 estimates that most of this distribution promoted capiteJ
formation either directly or indirectly, although
many
of the investments were of
doubtful merit.
•
Temin (1969) 155-165.
'
Hempel (1971) 16-18.
32.
Of $245 million outstanding in the period 1837-1843.
$125 million weis in default, and $14 million was repudiated.
*"
Europeein lenders were ready purcheisers of meuiy of the states' debts, but
were understandably put off by the defaults and,
later, repudiations.
of the Treasury Bibb in his AnnuEil Report for 1844 stated:
Secretary
"If aliens, not
under-
stemding the texture of the Nationed Government, do not distinguish accurately
between engagements entered into by the Government of the United States, and
those entered into by the several States
National Government
.... such
.... have
distrusted the credit of the
distrust is to be regretted."
Quoted in Childs
(1947) 29.
" Studenski and Krooss
(1952) 133-136.
"
Trescott (1957) 62.
'^
The government had suspended specie payment
duties and "virtually
resumed
until
edl
January
in 1862, except for
customs
interest euid principal payments on its debt," not to be
1,
1879.
service, therefore, required
Friedman and Schwartz (1963)
premium payments
in
27.
The debt
currency, and the debt should
Public Debt History
logically
be valued at the currency price of gold
made such adjustments
Table
to
- 20
Trescott (1966)
in this period.
budget data for 1862-75, and they are incorporated
in
This premium was highest in 1864 and would have doubled the size of the
5.
The
debt in currency prices.
$2.7 billion debt at the
end of the war shown
Table 7 would be increased to $3.8 billion in currency prices.
in
For the gold vedue
of currency, see Warren and Pearson (1933) 351.
The
implicit nomineil
GNP
in 1865 of $9.2 billion, in
Barro (1984) 368. when
applied to the debt figure adjusted for the gold premium, yields a ratio of 41
percent.
The higher figure
GNP
nominal
is
that obtedned from Kuznets' estimate of average
for 1869-73 of $6.7 billion increased
implicit in Barro's data.
This $7.7 billion
GNP
by
15 percent
— the
proportion
yields the 49-percent ratio in the
For Kuznets' estimates, see Historical Statistics (1957) Series F3.
text.
**
"
Table 5 for the 1850s; Trescott (1966) for the later decade.
Historical Statistics (1957) Series U19.
" Studenski and Krooss
"
Kuznets' real GNP meeisured from the mid-points of his 5-year averages,
1871-91.
*"
(1952) 163.
Historical Statistics (1957) Series F3.
The Warren and Pearson
year from 1866-93;
2.2
(1933) wholesale price index feU 2.9 percent per
percent per year from 1871-91.
Kuznets' 5-year
GNP averages
from 1871-1891.
Historical Statistics (1957) Series F5.
"
the implicit
GNP
Sylla (1975) 287 has computed U. S.
to 1892 that
shows a steady decline from
1889 ending with 2.69 percent.
From the mid-points of
deflator feU 1.9
percent per yeeir
bond yields for the period from 1869
6.87 percent to a low of 2.11 percent in
Public Debt History
"
Before the adjustments, the toteds in Table 4 for 1871 compare with those
shown for 1866-93 as
Change
follows.
1866-93
1871-91
$ -.30
$ -.80
Attributed to debt repayment
-2.35
-2.03
Attributed to price changes
+2.04
+1.22
in real
debt
(in biUions)
Total
" Five-year averages
from Sylla
5.7
- 21
(1975) 287]
percent to
2.4
of nominal yields on U.S.
government securities [data
shows a virtueJly steady decline from the 1869-73 figure of
percent in 1888-92.
real yields for lO-yeeir periods to
When these nominal
yields are converted to
smooth the skittish Warren and Pearson (1933)
wholesale price index, a 10.3 percent average real yield results for 1869-78 that
drops to a low of
3.2
preceding the 1883
crisis,
percent for 1879-88, primarily because of the inflation
and finishes
in 1883-1892, the last 10 years, with 5.6
percent.
Homf>r,Xl963) _287- has^comjEiuted
War decade of
4.3
percent that converts to a real yield of 2.6 percent.
" Warren and Pearson
"
an average nominal yield for the preCivil-
(1932) 197.
Despite the fact that the price level wets faUing, the nominal value of
pensions increeised from a prewar figure of $1 million to $28 million in 1869, $66
miUion in 1883, and $107 million in 1890.
Historical Statistics (1957) Series
PubUc works increases were much smaUer. Studenski
" Adams
(1887) 81.
" Adams
(1887) 274.
"
eind
Y
356.
Krooss (1952) 165.
This difficult decision was undoubtedly intended to soften the
New
Deal
Public Debt ffislory
image of business
hostility.
- 22
Labor experts had weu'ned repeatedly that wage
controls would never survive beyond the excess-profits tax.
Public Debt History
Table
4
Periods of U.S. Government Borrowing and Repaying
1790-1974
Year
Initial Debt
Nominal
Real
1
!
!
Change in Real Debt
Total From Net From Price
{Borrowing!
Change
I
!
(In million of dollars)
1790-1800
75.5
116.6
-27.2
10.1
-37.3
1801-1811
83.0
89.4
-39.6
-40.2
0.6
1812-1815
45.2
49.9
54.2
69.8
-15.6
1816-1835
127.3
104.1
-104.1
-166.9
62.8
1836-1859
0.0
0.0
85.6
101.5
-15.9
(In billions of dollars)
2.40
-.47
-0.30
-2.35
2.04
12
148
165
-18
1860-1865
0.06
0.09
1.9
1866-1893
2.68
2.01
1917-1919
1
1920-1930
25
159
-45
-61
17
1940-1945
41
326
1170
1275
-102
1946-1955
235
1498
-665
-40
-625
1946-1965
235
1498
-724
69
-793
1946-1974
235
1498
-857
262
-1119
Source:
Th rough 1930
,
from Table 7; from 1940. Table 8.
-
23
Public Debt History
Table
-
24
5
Federal Government
Average Receipts and Expenditures
1790-1865
1790- 1801- 1812- 1816- 1836- 1844- 1850- 18611800 1811
1815 1835 1843 1849 1860 1865
Net Receipts
Customs
Land Sales
Internal Taxes
Expenditures
Purchases
Transfers and
Interest
Surplus
6..A
13..J_
5..8
12,.8
(In millions of d<Dllars )
12.9 26.4 25.3 31.5 56.1 178.9+
0..6
0..6
0..3
9.5
1.1
2.3
22.7
2.9
0.8
18.5
6.8
0.0
29.0
2.5
0.0
52.1
4.0
0.0
100.6
0.5
72.4
6^._2
9,
A
28.6
19.1
33.4
36.2
52.5
671.6
3 .4
5,.0
24.9
12.5
24.2
30.6
45.7
610.4
2 .8
4,.3
3.7
6.6
9.1
5.6
6.8
61.2
0^._2
jL.A
-15.7
7.3
-8.1
-4.7
•
....-....,...„<.>
3.6 -492.7
..,1
+Customs receipts and interest payments valued at the gold premium.
*Less than 0.5 million.
Source:
1790-1860:
1861-1865:
Trescott (1960) Tables 10. 11.
Trescott (1966) Tables 2. 3.
Public Debt History
Table
-
6
Public Debt in the United States
Year Federal*
State'
(In
1825
1835
1840
1843
1850
1860
$13
46
176
232
190
257
$81
5
33
63
65
Total
Local'
millions)
$94
5
51
20
28
40
200
201
293
293
522
GNP
Debt/GNP
Nominal'
(Billions)
(Percent)
$1.0
1.4
1.8
2.0
2.5
4.5
10
4
11
15
12
12
(In billions)
1860
1870
1880
1890
1902
0.1
2.4
2.1
1.1
1.2
0.3
0.4
0.3
0.2
0.2
0.2
0.5
0.8
0.9
1.6
0.5
3.3
3.2
2.2
3.0
4.5
6.7
9.2
13.1
20.3
12
49
35
17
15
1913
1922
1927
1932
1.2
23.0
18.5
19.5
0.4
1.1
2.0
2.8
4.0
9.0
12.9
16.4
5.6
33.1
33.4
38.7
39.9
74.8
95.8
58.5
14
44
35
66
1940
1950
1960
1970
1980
1985
42.8
219.0
237.2
284.9
715.1
1509.9
3.6
5.3
18.5
42.0
122.0
211.9
16.7
18.8
51.4
101.6
213.6
346.6
63.1
243.1
307.1
428.5
1050.7
2078.4
100.4
288.3
515.3
1015.5
2732.0
3998.1
63
84
60
42
38
52
*Tabl e 7.
To
1902. Hempel (1971) Table 6
1902-70. Historical Statistics
of U. S. (1970) Series Y747 and Y794: 1980-85. Statis tical
Abstract of U.S
To 1860. Trescott (1960) Table 14 with this writer's linear
interpolations for the years 1825. 1835. and 1843; 1870-1909.
Historical Statistics of the U.S.
Series Fl 1909 to present.
;
.
.
Table
8.
;
25
G
Public Debt History
-
26
Table 7
Nominal and Real U.S. Government Debt
1790 - 1909
Year
(1)
Pri ce
Index
(2)
Pri ce
Change
(3)
Nominal
Gross
Debt
(4)
Real
Debt
Change
Debt
In Real
Total
From Net From Pri ce
Borrowing
(1929)
(5)
(6)
(7)
Change
(8)
(Money Figures in Millions)
1790
1791
1792
1793
1794
1795
1796
1797
1798
1799--
65
61
-6
n/a
n/a
73
78
20
94
21
11
6
105
94
88
-10
91
3
-7
$75.5
77.2
80.4
78.4
80.7
$116.6
126.2
n/a
106.8
103.9
83.8
82.1
79.2
78.4
83.0
$9.6
n/a
-19.4
-3.0
$2.8
n/a
$6.9
n/a
1.6
3.0
-21 .0
88.9
78.2
84.0
89.3
91.6
-14.9
-10.8
5.9
3.3
-1.6
-3.1
-0.9
-18.2
-9.1
5.1
-2.8
83.0
80.7
77.1
86.4
82.3
89,4
79.0
91.6
101.8
90.8
-2.1
-10.4
12.6
10.2
-11.
0.0
-2.3
-4.3
11.0
-4.5
-2.1
-8.2
16.9
-0.8
-6.5
75.7
69.2
65.2
57.0
53.2
74.6
71.8
69.7
68.9
56.9
-16.2
-2.8
-2.1
-0.8
-12.0
-6.5
-6.7
-4.3
-9.9
-4.1
-9.7
3.9
2.2
48.0
45.2
56.0
-6.0
-1.1
9.6
10.5
6.3
-5.5
-3.1
11.5
21.9
14.0
-0.4
2.0
-1.9
-11.4
-7.7
5.3
2.2
-5.9
9.0
6.2
1800
93
2
180-1
102
84
85
10
-18
91
7
1805
1806
1807
1808
1809
101
96
94
83
94
12
-5
-3
1810
1811
1812
1813
1814
94
91
94
-4
117
131
24
12
81 .5
99.8
50.9
49.9
59.4
69.9
76.2
1815
1816
1817
1818
1819
122
109
109
106
-7
-11
90
-15
127.3
123.5
103.5
95.5
91.0
104.1
113.7
95.3
90.3
101.2
27.9
9.6
-18.4
-5.0
10.9
22.5
-3.5
-18.4
-7.6
-5.0
5.4
13.1
0.0
2.6
15.9
1820
1821
1822
1823
1824
76
73
76
74
71
-15
90.0
93.5
90.9
90.3
83.8
118.0
127.4
119.2
121.9
118.9
16.8
-1.3
4.8
-3.4
-0.8
-9.2
18.1
4.6
-4.8
3.5
6.2
1802
1803
1804
1
-12
13
1
4
-3
-4
4
-3
-5
9.4
-8.2
2.7
-3.0
9.1
-7.9
)
Public Debt History
-
27
Tabl e 7 cont
Nominal and Real U.S. Government Debt
1790 - 1909
(
Year
(1)
Price
Index
(2)
Price
Change
(3)
Nominal
Gross
Debt
(4)
Real
Debt
(1929)
(5)
Debt
In Real
Change
Total From Net From Price
Change
Borrowing
r
(6)
(7)
(8)
(Money Figures in Millions)
1825
1826
1827
1828
1829
74
71
71
70
69
1830
1831
1832
1833
1834
65
68
68
68
65
-5
1835
1836
1837
1838
1839
72
82
83
79
81
11
14
1840
1841
1842
1843
1844
68
66
59
54
-15
55
3
1845
1846
1847
1848
1849
60
60
65
59
59
8
1850
1851
1852
1853
1854
60
60
63
70
78
1855
1856
1857
1858
1859
79
76
80
67
68
5
-4
-1
-1
-1
3
1
-5
1
-4
2
-3
-11
-9
8
-9
2
-1
6
10
11
2
-5
6
-16
2
81.1
74.0
67.5
58.4
48.6
109.4
103.9
95.7
83.7
70.4
-9.4
-5.5
-8.2
-12.1
-13.3
-3.6
-10.0
-9.2
-13.0
-14.2
-5.8
4.4
39.1
24.3
7.0
4.8
0.0
59.7
35.9
10.2
7.0
0.0
-10.6
-23.8
-25.7
-3.2
-7.0
-14.5
-21.9
-25.3
-3.2
-7.4
3.9
-1.9
-0.4
0.0
0.0
0.3
3.3
10.4
3.6
0.0
0.4
4.0
13.1
4.5
0.0
0.4
3.6
9.2
-8.7
0.0
0.4
3.6
9.0
-8.4
0.0
0.0
0.0
0.2
-0.2
5.3
13.6
20.2
32.7
23.5
7.8
20.5
34.2
60.6
42.4
3.3
12.8
13.7
26.4
-18;2
2.5
12.5
11.2
23.2
-16.6
0.8
0.3
2.5
3.2
-1.6
15.9
15.6
38.8
47.0
63.1
26.6
26.1
59.9
79.7
107.0
-15.8
-0.5
33.8
19.7
27.3
-12.7
-0.5
35.8
13.9
27.3
-3.1
0.0
-2.0
5.8
0.0
63.5
68.3
66.2
59.8
42.2
105.1
114.4
104.6
85.7
54.3
-1.9
-2.5
-9.8
-18.9
-31.4
0.7
8.0
-3.3
-9.2
-22.7
35.6
32.0
28.7
44.9
58.5
45.0
42.4
35.9
67.1
85.6
-9.3
-2.6
-6.4
31.2
18.5
-8.3
-4.8
-4.1
24.2
19.9
9.3
1.1
1.0
0.9
0.4
1.3
-6.5
-9.7
-8.7
-1.0
2.1
-2.3
7.0
-1.4
)
Public Debt History
-
28
Table 7 cent
Nominal and Real U.S. Government Debt
(
1790 - 1909
Year
Price
Index
(1)
(2)
Price
Change
Nominal
Gross
Debt
(3)
(4)
Real
Debt
(1929)
(5)
Debt
Change
In Real
Total From Net From Price
Change
Borrowing
(6)
(7)
(8)
(Money Figures in Millions)
1860
1861
1862
1863
1864
67
64
75
96
139
-2
-4
17
28
45
0.06
0.09
0.52
1.12
1.82
0.09
0.14
0.70
1.17
1.31
0.00
0.05
0.55
0.48
0.14
0.00
0.05
0.57
0.63
0.50
1865
1866
1867
1868
1869
133
125
117
114
109
-4
-6
-7
-2
-4
2.68
2.76
2.65
2.58
2.55
2.01
2.20
2.27
2.27
2.35
0.70
0.19
0.07
0.00
0.08
0.65
0.06
-0.09
-0.06
-0.03
0.06
0.13
0.16
0.06
0.11
1870
1871
1872
1873
1874
97
-11
-4
2.44
2.32
2.21
2.15
2.16
2.51
2.48
2.26
2.25
2.38
0.16
-0.03
-0.22
-0.01
0.14
-0.11
-0.13
-0.11
-0.06
0.01
0.28
0.10
-0.11
0.05
0.12
a4-
98
96
5
0.00
0.00
-0.02
-0. 15
-0.36
91
-2
-5
1875
1876
1877
1878
1879
85
79
76
65
65
-6
-7
-4
-14
-1
2.16
2.13
2.11
2.16
2.30
2.54
2.69
2.77
3.30
3.55
0.16
0.15
0.08
0.53
0.25
0.00
-0.04
-0.03
0.08
0.22
0.16
0.19
0.10
0.46
0.04
1880
1881
1882
1883
1884
72
74
78
73
67
11
2.09
2.02
1.86
1.72
1.63
2.91
2.73
2.39
2.37
2.44
-0.65
-0.18
-0.33
-0.03
0.07
-0.29
-0.09
-0.21
-0.19
-0.13
-0.36
-0.08
-0.13
0.17
0.20
1885
1886
1887
1888
1889
61
59
61
62
58
-9
-4
1.58
1.56
1.47
1.38
1.25
2.58
2.64
2.40
2.23
2.15
0.15
0.06
-0.24
-0.17
-0.09
-0.08
-0.03
-0.15
-0.15
-0.22
0.23
0.09
-0.09
-0.03
0.14
1890
1891
1892
1893
1894
59
59
55
56
50
1
1.12
1.01
0.97
0.96
1.02
1.90
1.71
1.77
1.71
2.03
-0.25
-0.19
0.06
-0.06
0.31
-0.22
-0.19
-0.07
-0.02
0.12
-0.03
0.00
0.14
-0.05
0.20
3
5
-6
-8
4
1
-6
-7
3
-10
,
Public Debt History
-
29
Table 7 (cont)
Nominal and Real U.S. Government Debt
1790
Year
Price
Index
(1)
(2)
Price
Change
Nominal
Gross
Debt
-
Debt
In Real
Change
Total From Net From Price
Borrowing
Change
Real
Debt
(1929)
(4)
(3)
1909
(5)
(8)
(7)
(6)
(Money Figures in Millions)
1895
1896
1897
1898
1899
.44
2.15
2.49
2.51
2.41
2.60
0.13
0.34
0.02
-0.11
0.19
0.16
0.25
0.02
0.00
0.38
-0.03
0.10
0.00
-0.11
-0.19
1.26
1.22
1.18
1.16
1.14
2.14
2.09
1.91
1.85
1.82
-0.46
-0.04
-0.19
-0.05
-0.03
-0.31
-0.07
-0.06
-0.03
-0.03
-0.16
0.03
-0.12
-0.02
0.00
1.13
1.14
1.15
1.18
1.15
1.78
1.76
1.68
1.78
1.61
-0.04
-0.02
-0.08
0.10
-0.17
-0.02
0.02
0.01
0.05
-0.04
-0.02
-0.04
-0.09
0.05
-0.13
51
1
1
49
49
-4
1
51
55
4
8
1.23
6
1900
1901
1902
1903
1904
59
58
62
63
63
1905
1906
1907
1908
1909
63
65
68
66
71
1
-1
6
1
1
2
6
-3
8
1
.10
.22
.23
Wholesale price index for calendar years, Warren and Pearson
The year 1792 is
1. pp. 10-14. adjusted to percent of 1929.
missing, hence the subsequent computations combine 1792-93.
Sources
:
(2)
(1933) Table
Percentage
(3)
(P. - P,.o/P.-,.
change
in
price from previous year.
For year
t =
Historical Statistics of the U.S. (1957) Series 257. End of
(4)
calendar year through 1842; end of fiscal year, June 30, from 1843. In
Series 368 the same source reports the same data but from 1791 through
1842 the previous year is shown.
(5)
Column (4)/Column
(2).
(6)
First difference of
Column
(7)
{First difference of
(8)
Column
(6) -
Column
(5).
Column (4)}/Column
(7) = D,.,(P,.i -
(2).
Pj/P^.^P..
Public Debt History
U.S.
Table 8
Government Debt and GNP
1910
Year
Price
Index
Gross
Debt
GNP
(1982)
1)
(2)
(3)
(4)
Debt/
GNP
Ratio
(5)
-
1986
Real Change
In Real
Debt
Debt Total From Net From Price
Borrowing
Change
(1982
)
(6)
(8)
(7)
(9)
(Money Figures in Billions)
34
36
36
40
40
39
0.03
0.03
0.03
0.03
0.03
0.03
14
14
14
14
14
14
12
25
40
49
61
77
85
0.03
0.03
0.05
0.16
0.30
13
12
24
92
159
18.9
15.5
14.4
14.9
14.7
24
24
23
22
21
92
70
75
86
86
0.26
0.34
0.31
0.26
0.25
129
155
159
150
145
-31
1925
1926
1927
1928
1929
15.0
14.8
14.5
14.6
14.6
21
20
19
18
94
98
96
98
17
104
0.22
0.20
0.19
0.18
0.16
1930
1931
1932
1933
1934
14.2
13.0
11.5
11.2
12.2
16
17
20
23
27
76
59
56
66
1935
1936
1937
1938
1939
12.5
12.5
13.1
12.9
12.7
29
34
36
37
41
73
83
1940
1941
1942
1943
1944
13.0
13.8
14.7
15.1
15.3
43
48
68
1909
1910
1911
1912
1913
1914
8.2
8.4
8.3
8.7
8.6
8.8
1915
1916
1917
1918
1919
9.2
10.3
12.6
13.5
16.0
1920
1921
1922
1923
1924
1
1
1
1
1
1
1
1
3
128
185
-1
-1
-1
12
69
67
14
70
81
-1
-1
-2
-2
-14
-24
28
-9
-5
-6
-2
-7
-4
-7
137
133
128
121
116
-8
-4
-5
-7
-5
-5
-6
-8
-6
-5
-3
0.18
0.22
0.33
0.40
0.41
114
129
170
201
222
-2
15
40
-5
3
5
11
17
91
0.39
0.41
0.40
0.44
0.45
230
270
278
288
326
100
126
159
193
211
0.43
0.39
0.43
0.66
0.87
329
351
461
846
1208
91
91
85
26
5
31
21
23
27
38
12
-5
2
2
3
-1
5
-16
-5
13
41
20
-12
6
4
33
5
21
11
41
110
385
361
132
397
373
-8
-19
-21
-12
-11
7
41
7
11
38
3
30
Public Debt History
U.S.
Table 8 (cont)
Government Debt and GNP
1910
Year
Price
Index
GNP
Gross
Debt
(1982)
(1)
(2)
(3)
(4)
Debt/
GNP
Ratio
(5)
-
1986
Real Change
In Real
Debt
Debt Total From Net From Price
Borrowing
Change
(1982
(6)
(7)
(8)
(9)
(Money Figures in Billions)
1945
1946
1947
1948
1949
15.7
19.4
22.1
23.6
23.5
235
242
224
216
214
213
212
235
262
260
1.10
1.14
0.95
0.83
0.82
1498
1247
1015
917
912
1950
1951
1952
1953
1954
23.9
25.1
25.5
25.9
26.3
219
214
215
218
225
288
333
352
372
373
0.76
0.64
0.61
0.59
0.60
916
854
842
843
854
1955
1956
1957
1958
1959
27.2
28.1
29.7
30.4
227
222
219
226
235
406
428
451
457
4 9r6
0.56
0.52
0.49
0.50
0.47
1960
1961
1962
1963
1964
30.9
31.2
31.9
32.4
32.9
237
239'
248
255
258
515
534
575
607
650
1965
1966
1967
1968
1969
33.8
35.0
35.9
37.7
39.8
262
265
268
291
280
1970
1971
1972
1973
1974
42.0
44.4
46.5
49.5
54.0
1975
1976
1977
1978
1979
59.3
63.1
67.3
72.2
78.6
29.
1
290
-251
-232
-98
-5
321
-31
35
-286
-152
-65
-80
-34
-9
4
-15
-44
-13
-13
-13
4
20
-63
-11
-19
1
10
14
23
833
791
754
762
773
-21
-42
-37
-16
-10
0.46
0.45
0.43
0.42
0.40
768
765
779
785
783
-5
-3
14
705
772
816
893
964
0.37
0.34
0.33
0.33
0.29
774
756
745
771
702
285
304
324
343
346
1016
1103
1213
1359
1473
0.28
0.28
0.27
0.25
0.23
678
685
696
693
641
-24
13
7
-3
44
42
39
-52
6
-37
-37
-31
-42
-58
397
480
552
611
645
1598
1783
1991
2250
2508
0.25
0.27
0.28
0.27
0.26
669
761
820
846
820
28
92
59
26
86
132
106
82
43
-57
-40
-48
-56
-69
-
2
24
28
-28
-27
-27
-15
-18
7
-13
4
-7
7
31
19
-3
9
-17
-12
-12
-9
12
-18
-11
26
-69
9
8
11
11
-26
8
8
61
-28
-21
-27
-19
-36
-41
-
Public Debt History
32
Table 8 (cont)
U.S. Government Debt and GNP
1910 - 1986
Year
GNP
Gross
Debt
Price
Index
1982)
(1)
(3)
(2)
Debt/
GNP
Rat io
Real Change
In Real
Debt
Debt Total From Net 'From Price
Borrowing
(1982
Change
(5)
(4)
(6)
(7)
(8)
(9)
(Money Figures in Billions)
1980
1981
1982
1983
1984
85
94
100
103
107
7
1985
1986
111
114
2
9
7
1
Sources
:
715
794
929
1142
1313
2732
3053
3166
3406
3772
26
26
29
34
35
834
845
929
1099
1219
14
11
84
82
84
135
170
120
204
159
-68
-74
-51
-35
-39
1510
1746
4010
4235
38
41
1358
1530
139
173
177
207
-38
-35
(2)
Implicit
GNE
price index as percent of 1982 base, U.S.
Commerce
(1986. 1987).
Through 1939, Historical Statistics of the U.S. (1957) Series 257;
(3)
1940 to present, debt in hands of public. Economic Report of the President
1987), end of fiscal year: June 30, through 1976; September 30, 1977 to
present.
Commerce
(4)
U.S.
(5)
Column (3)/Column
(4).
(6)
Column (3)/Column
(2).
(7)
First difference of
Column
(8)
{First difference of
(9)
Column
(7) -
(1986, 1987).
Column
(6).
Column (3)}/CoIumn
(8) = D,.,(P,_,
(2).
- Pj/P^.^P,.
,
Public Debt History - 33
References
Adams, Henry C, Public Debts (New York:
D.
Appleton and Company, 1887).
Alesina, Alberto, "The end of large public debts?" in Francesco Giavazzi
and Luigi Spaventa,
Eds., High Public Debt:
The
Italian
Experience (Cambridge:
Cambridge University Press, 1988) 34-79.
Barro, Robert
J.,
Macroeconomics (New York:
John Wiley & Sons,
Inc.,
1984).
"U.S. Deficits Since World
88
(1,
War
I,"
Scandinavian Journal of Economics
.
1986) 195-222.
"The Ricardian Approach to Budget Deficits," The Journal of Economic
Perspectives
(3
(Spring 1989) 37-54.
Childs, C. P., Concerning U.S.
and Company,
Government Securities (Chicago:
C.F. Childs
1947).
Dewey, Davts~R.. FmanciB^ History of the United States 12th ed. (New
,
York:
Longman's Green and
Co., 1934).
Friedman, Milton and Anna Jacobson Schwartz,
United States. 1867-1960 (Princeton:
Hempel, George
H.,
A Monetary
History of the
Princeton University Press).
Postwar Quality of State and Local Debt (New York:
National Bureau of Economic Research, 1971).
Homer, Sidney, A History of Interest Rates (New Brunswick,
N.J.:
Rutgers
University Press, 1963).
Paul,
Randolph
E.,
Taxation in the United States (Boston:
Little,
Brown &
Co., 1954).
Ratchford,
B. U.,
American State Debts (Durham, North Carolina:
Duke
University Press, 1941).
Ratner, Sidney, James H. Soltow, and Richard Sylla, The Evolution of the
Public Debt History - 34
Amer ican Economy (New York:
Basic Books, Inc., 1979).
Studenski, Paul and Herman E. Krooss, Financial History of the United
McGraw-Hill Book Company, Inc., 1952).
States (New York:
The American Capital Market, 1846-1914 (New York: Arno
Sylla, Richard,
Press. 1975).
Temin, Peter,
The Jacksonian Economy (New York: W.
W. Norton
& Com-
pany, Inc., 1969).
Trescott, Paul
B.,
"Federal-State Financial Relations, 1790-1860", The
Journal of Economic History 15 (September 1955) 227-245.
"Some Historical Aspects of Federal Fiscal
Policy, 1790-1956,"
Joint Economic Committee, Federal Expenditure Policy for Economic
Development (Washington: Government Printing
in U.S.
Growth and
Office, 1957) 60-83.
"The United States Government and National Income, 1790-1860"
Trends
in the
American Economy in the Nineteenth Century (Princeton:
in
Prince-
ton University Press, 1960) 337-361.
"Federal Government Receipts and Expenditures, 1861-1875," The
Journal of Economic History 26(June 1966) 206-222.
(1957)
U.S.
Department of Commerce, Historical Statistics of the United States
and
(197o)
(Washington:
Government Printing
Office, 1960
and
197^").
The National Income and Product Accounts of the United States, 1929-
Government Printing
82 (Washington:
Office, 1986).
"National Income and Product Accounts,"
Survey of Current Business
67 (July 1987).
Warren, George
Sons, Inc., 1933).
2 3 85
Uil2
F.
and Frank
A. Pearson, Prices
(New York:
John Wiley &
MIT
3
TDflO
LIBRARIES DUPl
1
DDS7fiTbM
h