Thomas Jefferson favored a government rigorously frugal and simple, applying all the possible savings of the public revenue to the discharge of the national debt. And Andrew Jackson set as a goal for his administration the elimination of the debt, after which our population will be relieved from a considerable portion of its present burthens, and will find not only new motives to patriotic affection, but additional means for the display of individual enterprise.
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(Note, Jackson paid off the national debt within three years after eliminating the central bank.)gs
UNTIL THE MIDDLE of the twentieth century, borrowing to fund war efforts caused the greatest impact on the national debt; the War of 1812, the Civil War, and the two world wars each created mammoth deficits equal to more than half the total government expenditures during those years. The debt reached $127 million as a result of the War of 1812; the Civil War pushed the figure from $90 million to $2.8 billion; and it climbed to $25.5 billion by the end of World War I and to $269.4 billion by the end of World War II.
In the 112 peacetime years between 1791 and 1916, by comparison, there were 82 surpluses, 16 of them so great that revenues exceeded expenditures by more than 50 percent.
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FOR A CENTURY and a half neither good times nor bad substantially influenced economic policy away from the traditional view dating back to Adam Smiths Wealth of Nations , which first appeared in 1776. A balanced budget and limited government activity in peacetime were essential to economic stability. Smith had written that once a nation foresees the facility of borrowing, it dispenses itself from the duty of saving. Then, in the depths of the Great Depression, Franklin Roosevelt embraced the theory outlined by the British economist John Maynard Keynes, who held that government has an active economic role to play- indeed, that increased spending, even at the expense of an inflated national debt, stimulates the economy and promotes growth. I expect the approval of Congress and the public for additional appropriations, the President said in 1938, if they become necessary to save thousands of American families from dire need.
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No doubt the old nineteenth-century fears that a borrowing government could be likened to rapacious wolves seeking whom they may devour have subsided. But contemporary economists note that deficits still are associated with a lack of discipline, with fiscal irresponsibility, with waste and corruption, and even with socialism. Moreover, the debt becomes increasingly expensive to maintain as interest payments to creditors amount annually to a growing percentage of the gross national product, presently about 3.5 percent. Even more important, most experts agree, deficit spending promotes inflation by adding to the nations money supply and boosts interest rates by contributing to increased competition for credit with private investors. As for the current deficit projections, congressional leaders have said that they are terrifying and could lead to a financial collapse.
