A bitterly divided Congress finally reached a budget agreement on Friday that will avoid another “fiscal cliff” showdown over whether to raise the national debt limit or force the government to shut down. What many may not realize is that battles over the national debt are almost as old as the nation itself.

Indeed, one of the most intractable problems of American politics has been the national debt, which currently stands at over $18 trillion and grows daily.

The last time this country was debt free was 178 years ago during the administration of President Andrew Jackson. For two years and 10 months, from 1835 to 1837, the debts of the U.S. — which included the obligations amassed during two wars, the American Revolution and War of 1812, as well as the Louisiana Purchase — were completely paid off.

The story of how and why this happened and the surprisingly thorny problems which arose from debt freedom is recounted in a fascinating little book, entitled “A Nation Wholly Free,” by Carl Lane, published in 2014 (and available at the Auburn Public Library).

The book’s most important takeaway is that during the nation’s infancy, just as today, the national debt issue was bound up in more than budgets and finance. It implicated a philosophy and vision of government’s role. Was the federal government’s job simply to protect and defend? Or was it also to foster economic growth and social betterment, a function often entailing high levels of spending and indebtedness.

The political heirs of Thomas Jefferson, including Andrew Jackson, believed the backbone of the nation were its farmers. Farmers and debt have never formed a happy marriage. Many farmers, including Jefferson himself, had to borrow against future crops for cash to buy slaves, equipment and seed, not to mention the trappings of a country gentleman’s life. If a year’s harvest was bad, they would have trouble repaying their debts. If the harvest was bountiful, excess supply could cause crop prices to fall, leaving farmers just as strapped to repay their debts.

For Jeffersonians, it was as dangerous for the federal government to incur debt as for the farmer. Indeed, it was worse, because public debt placed more money in the hands of the central government, allowing it to grow in size and power and to gain influence by dispensing government jobs (“patronage”) and government contracts (later derogatorily dubbed “pork”). Thus, public debt was seen as a threat to the republic, synonymous with corruption and anti-democratic concentration of power.

The political heirs of Alexander Hamilton, the country’s first Secretary of the Treasury, on the other hand, were far less concerned about the risks of national debt, seeing it as a means to an end.

Hamiltonians believed the federal government should fund public works, then known as public “improvements,” to create infrastructure, mainly roads and canals, which would allow the nation to grow commercially and expand geographically. Such large and expensive projects required substantial government spending and assumption of debt.

By the mid-1830s, two decades of peace had allowed the federal government to keep spending reined in, while growth in trade and commerce had increased revenues, the chief sources of which were the tariff (a tax on imports) and revenues from the sale of public lands in the West. Revenue growth and controlled spending permitted a steady reduction in the debt. Thus, from the end of 1824 to the time President Jackson gave his first annual message to Congress in 1829, the debt had shrunk to $48.5 million from $79 million.

Jackson, who was determined to entirely eliminate the debt during his administration and to avoid the accrual of new debt, resisted measures proposed by various members of Congress to fund public improvement projects which would benefit their own states or districts.

As the year 1835 approached, the nation was on the cusp of becoming debt free. But it also found itself in the oddly embarrassing position of having a surplus of revenue without any clear idea of what to do with it, and this created its own set of problems.

One proposal was to use surplus funds for defense, such as forts, but there was no immediate threat to the nation’s security. A second was to lower taxes to bring revenues into line with expenditures, but the Northeast wanted to maintain high tariffs, since they elevated the cost of foreign imports and protected indigenous manufacturing enterprises from foreign competition. On the other hand, South Carolina, an agricultural state, believed it was paying more than its fair share of the tariff and claimed the right to “nullify” (prevent enforcement of) the tariff within the state’s borders, a notion which threatened the federal system and raised the specter of civil war.

A third proposal was to reduce the cost per acre of Western land sales, but Eastern business interests feared that the lure of cheap land might drain population to the West, lowering Eastern land values, creating a scarcity of workers and increasing labor costs. A fourth proposal was to refund excess tax revenues. However, since these moneys weren’t collected from individual taxpayers (like the later income tax), it was legally unclear who should get the refunds.

In the end, after a prolonged political struggle between Jackson and Congress and between various regional factions in Congress, laws were passed to reduce the tariff gradually over a decade, keep part of the surplus as a contingency fund, and distribute the rest among the states in proportion to the number of legislators each state sent to Congress.  

In any event, the embarrassment of riches didn’t last for long. By the time Martin Van Buren, Jackson’s successor, entered the White House in 1837, the nation was in the grip of a severe depression, the result of a bursting economic bubble caused by the collapse in speculative trading of Western lands. As with all such economic calamities, public revenues fell and the nation once again went into indebtedness, a condition from which it has never fully emerged.

It’s unlikely our national debt will be paid off during the lifetime of anyone reading this column, but much can be learned from the experience of 1835-37 about how the debt affects America’s wellbeing.

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