If the debt was not reduced so much as it was hoped in the following decade, it was not the fault of the administration so much as it was due to unexpected events. In 1801 the total debt stood at $83,000,000, a slight increase. However, during the able administration of Gallatin, the debt was cut to $45,200,000 (1812), in spite of the added Louisiana Purchase debt, which was paid off in five years. The last of the foreign debt was paid in 1809. The excellent record was halted by the War of 1812, the expenses of which raised the debt to a new height in 1816 of During the war 6% bonds were sold at discounts as large as 20% so that the true interest yields were above 7% on many issues. In most of the years from 1816 to 1836 the United States Treasury showed considerable surpluses. So favour able were the finances after 1825, however, that in spite of the handicap of inelastic loans, the entire debt was paid off by 1835, and the Treasury began to accumulate a surplus which proved al most more embarrassing than a debt. The debts of the Revolu tionary War and the War of 1812 had been paid off and the new nation had developed naval resources and internal improvements and had paid for Louisiana and Florida. Some of the Federal revenue had come from the sale of public lands.
The Mexican War created a net indebtedness of $49,000,000. All of the bonds were easily placed at par and some at a premium, which may be contrasted with the financing of the War of 1812, when loans in stock were sold with difficulty. Also the loan was subscribed to in specie for the first time since the foundation of the Government.
When Salmon P. Chase was appointed secretary of the Treas ury by President Lincoln at the beginning of the Civil War, the national debt was $74,985,000, of which $18,000,000 had been incurred since the beginning of the secession movement. The de mands of the Civil War called for financial operations on a scale which made all former Treasury records seem insignificant. Un ceasing drain on credit and reverses in the field made the fiscal year of 1862-63 the darkest in the nation's history. Bonds did not sell at home even at a discount and found no market abroad. Temporary loans and the issue of notes having legal tender rights were resorted to. This resulted in sharp increases in prices and raised the cost of the war considerably. After the battles of Gettysburg and Vicksburg in 1863 matters took a brighter turn and Chase's third report in 1864 was optimistic. The public debt on Sept. 1, 1865 at the end of the war, stood at $2,758,000,000, the highest in the nation's history until the World War. Less than one-half of this was funded. The budget was balanced in 1866 after four years in which revenues varied from only about one-tenth to one-fourth of expenditures. For the first few years after the war a portion of the available revenue was devoted to a partial contraction of the currency by retiring greenbacks, but in 1870 and 1871 funding acts were passed which authorized the issuing of $1,800,000,000 worth of bonds at 4%, 41% and 5%, redeemable in from 10-30 years, to care for the major part of the debt. The funding acts shaped the character of the debt for the next quarter century. By saying that the bonds were redeemable in "coin" and not in gold, a troublesome silver con troversy was later raised. An attempt was made to place some of the bonds abroad, but the Franco-Prussian War and other con ditions prevented much success. In general there has always been much opposition in the United States to borrowing abroad by the National Government, and it was never seriously attempted except under the stress of the Civil War. The 3o year period for the major share of the bonds under the Funding Act was too long. A surplus appeared in the Treasury in 1882 which could otherwise have been applied to their retirement. Long before the bonds were due the Government could borrow money at 21%. Despite the fact that the bonds were selling at a premium and that the effect was naturally to raise their quotations, different secretaries of the Treasury bought in the open market all that could be purchased. Thus the indebtedness was reduced from $1,996,000,000 in 1879 to $891,000,000 in 1890, a remarkable achievement at that time.
The Spanish-American War again raised the debt, but the Funding Act of 1900 arranged for it together with other old loans to be refunded into 3o year 2% gold bonds. A small cash pre mium was paid to induce holders to make the exchange. From 1902 to 1913 there was little change in the debt total, retirements being balanced by increases due to the construction of the Panama canal. In 1913 the debt stood at $1,028,600,000, nearly
three-fourths of which bore interest at the rate of 2%.
During the World War years the national debt reached a new peak. The establishment of the Federal Reserve System in 1913 was most fortunate in that it helped carry out an immense financ ing operation intelligently and soundly. The interest rate on the huge war debt averaged about 4% or slightly higher, and the bonds were largely sold at par. For the fiscal years ending June 3o the public debt of the United States rose from $1,225, 000,000 in 1916 to $2,976,000,000 in 1917 and then jumped to $12,244,000,000 in 1918. On June 3o, 1919, the grand total stood at $25,482,o34,000. Practically all the war-time indebtedness was in the form of bonds held by U.S. citizens. The Treasury De partment immediately after the war began the reduction of the debt, the total dropping more than $1,000,000,000 in 1920. Dur ing the prosperous years from 1921 to 1929 the decrease averaged almost $1,000,000,000 per year. By Dec. 31, 1930, the national debt had been lowered to $16,026,087,087.07. But the effect of depression, through curtailing revenues and increasing expendi tures, was rapidly to raise the Government's indebtedness. From 1929 to 1932 Federal receipts in the United States declined ap proximately 5o% while expenditures increased substantially. As a result, in the three years from the middle of 1930 to the middle of 1933 the national debt rose from $1605,000,000 to 000,000. For several years subsequent to 1933 Government revenues increased measurably, with expenditures rising even more rapidly. For the fiscal year 1938, receipts were more than three times as large as those of 1932 and higher than in any previous year except 1920. Expenditures reached a high of nearly $9,000,000,000 in 1936 which exceeded those of any year except 1918 and 1919. The largest rise in any one year in the national debt for the post-World War period occurred in the fiscal year 1936, when the total increased $4,844,000,000, about half of which was incurred in paying the soldiers' bonus to World War veterans From June 3o, 1933 to June 3o, 1939, the public debt of the United States increased by $18,600,000,000 to a new all time high of $41,131,000,000, which compares with the World War peak of slightly above $26,000,000,000 in 1919. All during this period the United States Treasury Department floated new securities at very low rates of interest, thus obtaining the needed funds at relatively small cost and also reducing the charges on the previous debt. The effect of the huge refunding operations of the Treasury in the later 1930's may be seen from the fact that interest payments on the public debt in the fiscal year 1939 were 52% above those of 1933, whereas the national debt increased more than 8o% from June 3o, 1933 to June 3o, 1939. In the four years 1920 to 1923, inclusive, interest payments were nearly as large as in 1939 whereas the size of the national debt in the latter year was more than half again as large as in the immediate post-war period. It is important to restate the fact that the debt volume of State and local governments is a substantial item in the total of all Governmental debts in the United States. From a level of approximately $5,000,000,000 in the immediate pre-World War period, State and local debts increased uninterruptedly to $19, 500,000,000 in 1933 and then varied within a relatively narrow range during the rest of the decade. Table I. shows the annual debt volumes for all governmental agencies in the United States from 1913 through 1938.
A subject of varying interest is that dealing with the indebted ness of foreign governments to the United States which primarily grew out of the World War. Except for payments by Finland and Hungary, no payments were made on these obligations in 1938. Generally similar experience characterized the major part of the 1930's. Of more than $4,000,000,000 already due as of Jan. 31, 1938, only about $2,750,000,000 had been paid. The consider able concentration of gold in the United States and the continued merchandise export balance of the United States renders repay ment of the war debts difficult. Total payments up to the close of 1938 represented about one-fifth of the principal plus the in terest indebtedness of $13,000,000,000 as of that date. Of this total, nearly 9o% was due from Great Britain, France, and Italy. Table II. shows the detailed figures by countries.