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How the US last paid off its debt: Stealing land from Native Americans

By Matt Phillips
Published Last updated This article is more than 2 years old.

The ongoing political scramble over how to avoid the fiscal cliff has put everybody in a somewhat wondrous mood about the level of US government debt, currently hovering around $16 trillion. How did it get that big? Did the US always have it? Has the US ever paid off its debt before?

On that last point, it’s worth noting that yes, the US did indeed hammer its debt-load down to nearly nothing. As you might have spotted if you looked at our recent complete history of US debt in one chart, President Andrew Jackson’s single-minded focus on debt reduction knocked the US debt load from more than $58 million in the year of his election, 1828—mostly a hangover from the obligations incurred to fight the War of 1812—down to essentially nothing. It was just $38,000 on Dec. 31, 1834 (pdf—see table 19). As a share of GDP, the debt load went from about 5% in 1828 to effectively, well, bupkus in 1834-36.

In the context of the current US economy, that would be more than $800 billion of debt reduction. That’s impressive, but that was still a smaller amount than the $1 trillion that the Congressional Budget Office says the US needs to trim its debt load by over the next 10 years just to stabilize its borrowing. Also in the context of the current fiscal cliff debate, Goldman Sachs says allowing tax rates to rise and other policies to expire for people with incomes over $250,000 would boost revenues by a bit more than $800 billion over a decade beginning in 2013.

So how did Jackson do it? Well, for one thing, he collected more cash—sorry, raised revenue—by jacking up import tariffs. But something else also happened. Uncle Sam balanced his budget on the back of an unsustainable, wildly-speculative land-buying frenzy that occurred during Jackson’s stint at the White House. Federal receipts from the sale of lands surged from $1.5 million in 1829, the first year of the Jackson administration, to $14.8 million in 1835. Expenditures stayed roughly flat over the same period. That’s a recipe for instant, sizable surpluses.

And how did the federal government come to have all this land to sell? Why, by removing the people who lived on it, en masse. The expulsion of Native Americans from the southeastern United States serves as a sizable black mark on Jackson’s tenure as president and on the country’s history. According to estimates, around 100,000 Native Americans were removed and 4,000 people died on the forced trek west known as the Trail of Tears.

In any case, the debt-free years weren’t to last. The surge in land prices was fueled by notes issued by fly-by-night banks around the country. (If you don’t like the “quantitative easing” of today’s US Federal Reserve, you wouldn’t have been very happy in Jackson’s day, when individual banks literally used to be able to create their own money.) Jackson tried to deflate the bubble by saying the Feds would only accept hard currency in exchange for federal land. As a result, the land boom busted and the banking system collapsed in the Panic of 1837. The US debt reappeared. Though debt loads stayed quite low up until the Civil War, the US has never again been debt-free since the days of Jackson.

So what’s the point? The short version: Be careful what you wish for. The United States once made a short visit to the supposedly virtuous, debt-free promised land. But it was only as a result of widespread land speculation that resulted in financial crisis, and widespread dispossession that resulted in terrible human suffering. (We’re not even going into the fact that much of this southeastern land was sold to cotton farmers, who relied heavily on slave labor.) No one is saying that history is going to repeat itself. But it’s worth remembering that being debt free is not the same thing as being good.

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