US Public Debt, 1790-1900

"I can't think about that right now. If I do, I'll go crazy. I'll think about that tomorrow."
--Scarlet O'Hara (Gone With The Wind)

A primary driver behind the rising tide of what I'll call libertarian activism (activism aimed at achieving individual liberty rather than State dependence) is a perceived decline in fiscal responsibility exhibited by the US Federal government.

Fiscal responsibility concerns money management. Central to money management is prudent management of debt. Debt is incurred when an entity borrows resources to create a higher standard of living today than permitted by current income alone. After all, if current income were high enough, then higher standard of living could be funded by soley from resources streaming from income.

Because people possess insatiable desires (2.2 here) that they prefer to satisfy now rather than later (4.1 here), it becomes desirable for some groups to enlist government as an agent for satisfying those needs via political means rather than thru economic effort (3.3 here). Since government has no resources of its own, it must obtain them from productive individuals. While taxing is an infamous approach for doing so, debt usually becomes politically preferable when needs are large.

A primary measure of debt incurred by the Federal government is Public Debt. This is debt incurred thru sale of Treasury debt securities of various durations. Currently Public Debt stands just shy of $13 trillion.

A big number, to be sure. Current Public Debt approaches one year's worth of GDP.

Recently I wondered about levels and trends of Public Debt throughout US history. So I grabbed historical data on Public Debt and graphed away. Because the changes over time are so dramatic, I found it useful to carve up the series into a few subsets in order to get a better feel for various historical periods. Don't worry, we'll display the big picture before we're all done.

Up first is our initial century or so after the Constitution was ratified. The first noteworthy thing is that, from 1790 till 1860ish, level of public debt was relatively flat. Yes, we experienced an uptick in debt with the War of 1812 (it should become apparent before we're done here is that wars generally increase debt). Overally, however, debt didn't change much. In fact, there was actually a stretch during the 1830-1850 period where Public Debt was essentially zero.

The Civil War changed that, and Public Debt shot to unprecedented levels. After the Civil War, note the gradual decline as efforts were made to pay off debt. This trend lasted about 30 yrs until we saw the first ever non-war uptrend in Public Debt starting close to the turn of the century.

This period corresponds to the nascent days of the Progressive era.

What can we conclude from our first century of debt management? First is that debt did not increase every year, in fact there were significant stretches of debt decline. Second, war increases debt, usually dramatically. Third, the first century of Constitutional America found the Federal government paying down debt incurred from war.

Also note from the above chart that the Civil War apex amounted to less than $3 billion in debt. Given today's level of $13 trillion, the final thing to conclude is that a whole lotta debt is still to come.

In an upcoming missive, we'll examine the early to mid 20th century period.