From its declaration of independence to the start of Thomas Jefferson’s first term as president in 1800, the federal government had consistently taken on a significant amount of debt: $80 million in total. See Gordon Wood, Empire of Liberty, 298. Prior to that, the federal government had taken out millions of dollars from Europe, including from the French government and from Dutch bankers, to finance the Revolutionary War effort. United States Department of State, available at https://history.state.gov/milestones/1784-1800/loans.
By the time Thomas Jefferson took office in 1800, the Revolutionary War debt had been paid off, however, Thomas Jefferson and the Republicans were especially concerned about the growing debt that the United States had taken on. In fact, in 1798, Jefferson considered the idea of amending the Constitution to take the power of borrowing away from the federal government. See Gordon Wood, Empire of Liberty, 298. While Jefferson never accomplished such a drastic step, he prioritized paying the debt down each year. He foretold that the United States would “be committed to the English career of debt, corruption and rottenness, closing with revolution. The discharge of the debt, therefore, is vital to the destinies of our government.” See Gordon Wood, Empire of Liberty, 298.
Throughout the 1790s, the United States shifted all of its obligations from the governments of Europe to private investors. By 1795, America only owed money to private investors. United States Department of State, available at https://history.state.gov/milestones/1784-1800/loans. This, combined with the federal government’s payments created a solid credit rating in Europe, which enabled taking low-interest loans from European lenders for the Louisiana Purchase. Id.
By 1810, the Republicans reduced the debt to approximately $40 million, even after having spent $15 million in cash on the Louisiana Purchase. See Gordon Wood, Empire of Liberty, 298. Thomas Jefferson had made significant progress in moving the federal government away from its borrowing spree. Perhaps Jefferson was fearful that the federal government would default on its obligations as it had in 1785 on interest payments to France and further installments in 1787. United States Department of State, available at https://history.state.gov/milestones/1784-1800/loans.
This brief history of the federal government’s debt illustrates the difficulty of balancing spending with saving. Few would question significant investments like borrowing for the financing a war for independence or for a purchase that effectively doubled the size of the country. The question that arises nearly every year is rather, how much discretionary spending is necessary?
Jefferson’s fear of corruption leading to revolution is likely at the furthest end of the spectrum of possibilities. Regardless, a default on indebtedness held by the federal government would have significant consequences that could not be ignored in the early Republic and cannot be ignored now. Where there are benefits to be gained, investments are necessary.
While some may be opposed to debt as a matter of principle, Jefferson’s concerns show the true threat of excessive liability for the federal government. Simply having debt to pay down is not a threat to the future of the country. When America’s wellbeing is endangered or America’s credit rating is threatened, action is unquestionably necessary to prevent those results.