Jackson's Ghost Looms Over Debt

A sure-fire applause line early in President Clinton's recent State of the Union address might well have drawn a ghostly chuckle from one of the president's most celebrated and crusty predecessors.

Mr. Clinton forecast huge budget surpluses for years to come. "If we stay on this path, we can pay down the debt entirely in just 13 years... and make America debt-free for the first time since Andrew Jackson was president in 1835," he declared.

Even in Jackson's time, a debt-free government was a mind-dazzling prospect.

"For the first, last and only time in American history, the nation did not owe a cent to anyone," Jackson biographer Robert V. Remini wrote.

Never mind that Mr. Clinton's vision deals only with the $3.7 trillion of government debt in public hands, not the additional $2 trillion held by government trust funds such as Social Security. The total national debt stands at $5.7 trillion.

Jackson -- nicknamed "Old Hickory" for the tree so hard it resists nails -- might reel at those numbers, unable to comprehend why the chief executives who followed him were so willing to put up with an endless ocean of red ink.

For Jackson, national debt was "a national curse," even though the unwelcome and unexpected aftermath of paying it off in 1835 included an overheated economy, a financial collapse and more red ink than ever.

"My vow shall be to pay the national debt, to prevent a monied aristocracy from growing up around our administration that must bend to its views, and ultimately destroy the liberty of our country," Jackson said during his unsuccessful first presidential campaign in 1824.

As Jackson saw it, the chief malefactor was the nation's central bank, the Second Bank of the United States. He denounced it as a corrupt and corrupting financial octopus.

The destruction of the central bank and the dispersal of federal deposits into smaller state banks became the central objective of Jackson's presidency.

"Eliminating the national debt was no small part of that objective," John Steele Gordon wrote in his 1997 book, Hamilton's Blessing, The Extraordinary Life and Times of the National Debt.

By the end of 1834, in the middle of his second term, Jackson jubilantly announced the debt would be paid in full. He said the Treasury's books would show a surplus of $440,000 in 1835, rising to a projected $19 million by the end of 1835 and $29 million more in 1836.

Official Washington celebrated at an extravagant banquet, held with deliberate symbolism on Jan. 8, 1835, the 20th anniversary of Jackson's great victory over the British at the Battle of New Orleans.

The toasts flew as furiously as bullets.

"This month of January 1835, in the fifty-eighth year of the Republic, Andrew Jackson being president, the National Debt is paid!" roared Sen. Thomas Hart Benton of Missouri. "And the pparition, so long unseen on earth, a great nation without a national debt stands revealed to the astonished vision of a wondering world."

The president did not attend, but he sent a toast to be read in his absence.

"The Payment of the Public Debt," it read. "Let us commemorate it as an event which gives us increased power as a nation, and reflects luster on our federal union, of whose justice, fidelity and wisdom it is a glorious illustration."

Modern scholars have their own perspective on the events of 1835.

"Jackson's view of the national debt was terribly naive but it was the naiveté of the ordinary citizen," biographer Remini wrote in Andrew Jackson, The Course of American Democracy.

For them, paying the national debt was the equivalent of "paying off the mortgage on the old homestead," Remini said. "It was a mark of achievement, a badge of freedom."

But the national mortgage did not stay paid for long.

According to Gordon's account, once the state banks had the federal government's money on deposit they rapidly increased the money supply. That, despite Jackson's best efforts to avert it, led to a surge in speculation. And that led to rampant inflation and an economic contraction lasting 72 months.

"Soon, the entire economy was deep in depression," Gordon wrote. "But Jackson, with the luck and timing characteristic of great politicians, had retired from office on March 4th 1837, just before the full brunt of the depression had struck."

Federal revenues quickly faded, shrinking from $51 million in 1836 to less than $25 million the following year. With revenues cut in half, the national debt climbed back to $32 million.

The debt has been growing ever since.

by Lawrence L. Knutson.