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Stedman and Hutchinson, comps. A Library of American Literature:
An Anthology in Eleven Volumes. 1891.
Vols. IX–XI: Literature of the Republic, Part IV., 1861–1889

The Debt of the United States

By Albert Gallatin (1761–1849)

IF the public debt is not an additional national capital, no other disadvantage can result from its extinction except the increase of taxes necessary for that purpose, and the annual loss which will be suffered by replacing to Europe the capital borrowed there, either under the denomination of foreign debt or by the sales of domestic debt. So far as the taxes necessary for that purpose will check consumption, the capital to be thus repaid abroad will be supplied by economy, and its payment will in no shape whatever impoverish the country. So far as those taxes will fall, not on that portion of the annual revenue which would have been consumed, but on that part which would have been saved and have become an addition to the permanent wealth of the nation, so far the progress of the country will, in a certain degree, be checked by the withdrawing and paying the capital due to Europe. To do this too suddenly would certainly be injurious to the community. But any evil that may arise from a gradual extinction of the debt, from a gradual repayment of the capital borrowed in Europe, will be more than counterbalanced by the natural progress of America, will free us from the payment of interest upon that capital, and will, at the same time, strengthen the bonds of our Union and give additional vigor and respectability to the nation.

It may have been supposed by some that the debt, by rendering the creditors dependent on government, gave it an additional stability. But it should be recollected that although an artificial interest is thereby created, which may at times give an useful support, it may at some future period lend its assistance to bad measures and to a bad administration. So far as that interest is artificial, so far as it is distinct from the general interest, it may perhaps act against that general interest and become as pernicious as it is supposed to have been useful. At all events, who can doubt that the jealousies, the apprehensions, the discontents excited by the public debt have been more injurious to our domestic peace, have gone farther to weaken our real union, than any other internal cause? It is a lamentable truth that the Americans, although bound together by a stronger Government, are less united in sentiment than they were eight years ago. Every source of discontent, every permanent cause of taxation which can be removed, adds to the strength of the Union and to the stability of its government.

But, in regard to our strength and consequent respectability and independence in relation to other nations, as speedy an extinction of the debt as circumstances will admit becomes indispensable. As there is not the smallest probability that we ever shall be involved in any war except in self-defence, and as the exhausted situation of all the European nations seems to warrant, at the conclusion of the present war, a continuance of peace for at least ten or twelve years, we should by all means improve that period to discharge the heaviest part of our debt. It requires no argument to prove, it is a self-evident truth, that, in a political point of view at least, every nation is enfeebled by a public debt. Spain, once the first power of Europe, Spain,—with her extensive and rich possessions, Holland, notwithstanding her immense commerce, still feel the effects of the debts they began to contract two centuries ago, and their present political weakness stands as a monument of the unavoidable consequences of that fatal system. Yet what are those instances when compared with that of France, where the public debt, although once discharged by the assistance of a national bankruptcy, has at last overwhelmed government itself! The debt of Great Britain, which began at a later period than that of any of those three nations, has not yet produced such visible effects. The unexampled prosperity of that country has heretofore been sufficient to support its strength and to increase its wealth, notwithstanding the weight of that burden. Yet the revenue now necessary to discharge the interest annually payable on that debt and to support the peace establishment of that nation, that is to say, the annual revenue now raised by taxes in Great Britain, would, if unencumbered, discharge the yearly expenses even of the war in which she is now engaged.

The sum necessary to pay the annuity and interest on the debt of the United States constitutes more than two-thirds of their yearly expenditure; and it is presumable that we would not be much exposed to the wanton attacks, depredations, or insults of any nation was it not known that our revenue and resources are palsied by an annual defalcation of five millions of dollars. It does not seem that any possible object of expense, without even excepting the creation of a navy, can be so eminently useful in adding to our external security and respectability as that which, by paying the principal of our debt, will give us the command of an unimpaired revenue, and enable us to dispose, if necessary, of all our resources.

A circumstance which seems to render this still more requisite in America, is the difficulty for the United States of raising moneys by loans, except in time of profound peace. It is well known that the great demand for capital in America, the usual high market-rate for interest, the peculiar circumstances of the country, render it nearly impossible to borrow any large sums at home; and experience has lately proved that the circumstance of an European war, even though we ourselves were not engaged, was sufficient to prevent us from any further loan in Europe. Hence it results that as we cannot in case of any emergency put much reliance on that resource, we should during our state of peace and prosperity hasten to disencumber our domestic resources. We have, indeed, severely felt the obligation of repaying during the present European war the anticipation at home and the instalments of the foreign debt abroad. We have thereby been compelled to borrow on the most disadvantageous terms, to contract the obligation of paying an interest of at least six per cent. for 24 years, and to remit to Europe stock purchased at par, and which will probably sell there under its nominal value. These considerations, supported, it is believed, by the general opinion of the people of America, forcibly point out the necessity of an immediate recourse to our domestic resources, of an immediate increase of revenue.

It has already been shown that our present receipts are hardly adequate to our present expenditure; in fact, that we have heretofore made only a nominal provision for paying the principal of any part of our debt. For although (supposing the present receipts to be equal to the present rate of expenditure) it may be said that we have provided for the yearly payment of 2 per cent. on the principal of our six per cent. debt bearing a present interest, yet we have not made any provision whatever for the payment of the annuity payable after the year 1800 on the deferred stock. Indeed, the interest (exclusively of the additional 2 per cent.) payable on this stock exceeds the yearly payment of 2 per cent. upon the 6 per cent. stock; and the fact is that our present revenue is not even sufficient to pay after the year 1800 the interest on our debt. Our faith is now pledged to pay from after that year an annuity of 8 per cent. upon both stocks; and whatever difference of opinion may exist upon the extinguishment of other parts of the debt, it is necessary to increase our revenue from after that year by a sum sufficient to discharge that annuity, which has already been stated at about 1,100,000 dollars.