# Think Tank > History >  When The U.S. Paid Off The Entire National Debt (And Why It Didn't Last)

## Zippyjuan

https://www.npr.org/sections/money/2...-it-didnt-last




> On Jan. 8, *1835*, all the big political names in Washington gathered to celebrate what President Andrew Jackson had just accomplished. A senator rose to make the big announcement: "Gentlemen ... the national debt ... is PAID."
> 
> That was the one time in U.S. history when the country was debt free. It lasted exactly one year.
> 
> By 1837, the country would be in panic and headed into a massive depression. We'll get to that, but first let's figure out how Andrew Jackson did the impossible.
> 
> It helps to remember that debt was always a choice for America.* After the revolution, the founding fathers debated whether or not to just wipe clean all those financial promises made during the war.
> 
> Deciding to default "would have ruined our credit and would have left the economy on a very agricultural, subsistence basis," says Robert E. Wright, a professor at Augustana College in South Dakota.
> ...

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## acptulsa

> Jackson had already killed off the national bank (which he hated more than debt). So he couldn't put the money there. He decided to divide the money among the states.


He could have put it in the Treasury against a rainy day.




> But, according to economic historian John Steele Gordon, the party didn't last for long.
> 
> The state banks went a little crazy. They were printing massive amounts of money. The land bubble was out of control.


State banks aren't allowed to 'print money' without the gold or silver to back it up.  That's in the Constitution, which was generally still obeyed in 1837.  If this information came from John Steele Gordon, he's a mighty crappy "historian".

Andrew Jackson tried to slow everything down by requiring that all government land sales needed to be done with gold or silver. Bad idea. 

"It was a huge crash, and the beginning of the longest depression in American history," Gordon says. "It actually lasted six years before the economy began to grow again."[/QUOTE]

Of course, it didn't hold a candle for duration to the Great Depression , the Stagflation Seventies or the current malaise.  But, of course, if you devalue the currency enough, it looks like there's growth where there is just inflation.  Jackson didn't hide the depression that way.




> During the depression, the government started borrowing money again.
> 
> No one says that paying off the debt caused the depression. The bubble was going to pop sometime. But the result was that we had to kiss a debt-free U.S. goodbye. The country never came close again.


Of course, we're implying paying off the debt caused the depression.  If the reader gets confused by the text on that point, that' fine with the author.  And, of course, we didn't have to borrow then, and we sure didn't have to borrow throughout forevermore, even after the recovery.  But, you know, propagandists hate little factoids like that...

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## Zippyjuan

> State banks aren't allowed to 'print money' without the gold or silver to back it up. That's in the Constitution, which was generally still obeyed in 1837. If this information came from John Steele Gordon, he's a mighty crappy "historian".


This was the "free banking era". Lots of "competing currencies" abounded with over 3,000 different notes available at one point. 

https://thismatter.com/money/banking...ing-system.htm




> Because of the importance of banks and money to an economy, a bank could not be formed by just anyone. They required a bank charter from the state to legally exist, and, although not just anyone could start a bank, anyone with the right political connections could, whether they knew how to manage a bank or not. Before 1837, a state bank charter could only be obtained by the approval of the state's legislature; federal charters were not available until 1863. And because banks could print money in the form of banknotes, naturally, many people wanted to start banks. This fostered corruption and favoritism.
> 
> So that bank charters were not just granted to political cronies, Michigan, in 1837, began the trend of free banking where a bank charter could be obtained without an act of the legislature; only very minimal requirements had to be satisfied. Other states followed, with New York enacting a free banking law in 1838, but required that banknotes be backed by government bonds. Presumably, this would protect depositors and noteholders, since if the bank failed, then the collateral could be sold to satisfy the bank's customers.
> 
> The Suffolk Bank in Boston Massachusetts began a new practice of redeeming banknotes of other banks, but only if the banks had enough deposits with the Suffolk Bank to cover the redemptions. Because Boston was a major trade center, many banks in New England began to accept this new system, referred to as the Suffolk banking system, which encompassed virtually all New England banks by 1825.
> 
> New York also developed a safety fund system, in the early 1800s, requiring member banks to contribute a small percentage of its capital annually to a state managed fund that could be used to reimburse noteholders when a bank failed. This was probably the earliest form of deposit insurance. Another law to protect noteholders was an early form of a reserve requirement, enacted by Louisiana in 1842, limiting the number of banks and requiring them to maintain at least 1/3 of their assets in cash and 2/3 as short-term obligations.
> 
> Other states also enacted free banking laws, but there was little regulation, so many banks failed. Indeed, many of them actively conducted fraud. With little oversight of the banks, restrictions were not effective. Instead, banks proliferated and printed more banknotes than what they had in specie. In fact, some banks—referred to as wildcat banks—deliberately located in the remote wilderness expressly to make it difficult for any of its banknote holders to redeem their notes for specie. The free banking years, from 1837 to 1863, became known as the Wildcat Banking era.
> ...


More at link.

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## acptulsa

True, state-chartered banks are not restricted from issuing fiat by the constitution the way the states themselves are.  Though it would have been interesting to have seen a suit on that subject.  If a state is not allowed to do something, how can a state charter allow a company to do it?

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## Swordsmyth

> This was the "free banking era". Lots of "competing currencies" abounded with over 3,000 different notes available at one point. 
> 
> https://thismatter.com/money/banking...ing-system.htm
> 
> 
> 
> More at link.


So you are admitting that the banks were the problem?

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## idiom

> This was the "free banking era". Lots of "competing currencies" abounded with over 3,000 different notes available at one point. 
> 
> https://thismatter.com/money/banking...ing-system.htm
> 
> 
> 
> More at link.


Wow that sounds like cryptocurrencies.

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## kfarnan

> Wow that sounds like cryptocurrencies.


Not really the same situation.

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## Republicanguy

No country can exist without debt, all countries do, sure spending cuts could make a little difference, in reality, there will always be debt, that is the price of life, and people for good and bad. Liberty doesn't work to make the world a more better place, it just makes life even harder than it needs to be. Strict ideology like that only leads to a bigger mess than some here think wouldn't happen.

1837, life was tough then, few want to return to a society which had some similarities with that time.

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## timosman

> No country can exist without debt, all countries do, sure spending cuts could make a little difference, in reality, there will always be debt, that is the price of life, and people for good and bad. Liberty doesn't work to make the world a more better place, it just makes life even harder than it needs to be. Strict ideology like that only leads to a bigger mess than some here think wouldn't happen.
> 
> 1837, life was tough then, few want to return to a society which had some similarities with that time.


Your arguments are very convincing.

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## Chester Copperpot

Oh I get it now..So debt is good and how we keep the economy rolling along.. its so simple.. just keep spending more money

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## Swordsmyth

> No country can exist without debt, all countries do, sure spending cuts could make a little difference, in reality, there will always be debt, that is the price of life, and people for good and bad. Liberty doesn't work to make the world a more better place, it just makes life even harder than it needs to be. Strict ideology like that only leads to a bigger mess than some here think wouldn't happen.
> 
> 1837, life was tough then, few want to return to a society which had some similarities with that time.


Government debt is not needed and makes things worse for almost everyone.

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## Aratus

> https://www.npr.org/sections/money/2...-it-didnt-last


Zippyjuan....  100,ooo thanx for this short, brief & wise essay in Jacksonian Democracy!

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## Aratus

> This was the "free banking era". Lots of "competing currencies" abounded with over 3,000 different notes available at one point. 
> 
> https://thismatter.com/money/banking...ing-system.htm
> 
> 
> More at link.


Yes. Indeedy, yes.

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## Republicanguy

In my country trying to save, hasn't changed anything. Saving more would create more problems.

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## Danke

> In my country trying to save, hasn't changed anything. Saving more would create more problems.


* In my country we have food. But you won't find it. -RG*

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## Danke

In America you have expensive education. In my country we have none. -RG

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## Danke

In my country, hammer nails you! -RG

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## Swordsmyth

> In my country trying to save, hasn't changed anything. Saving more would create more problems.


Nobody anywhere in the world has even come close to doing it right in living memory, sometimes they do it wrong on purpose so they can claim it doesn't work.

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## Republicanguy

Yes because society costs, despite government bull$#@! at the same time. There is also some movement of money, like the banking sector, just today I read the government was considering toying with the middle class pensions to raid to pay for the national health service extra funding. They have to be careful.

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