The Early Federal Government Surplus

Henry Clay Addressing the Senate.

Toward the end of President Andrew Jackson’s second term, the federal government had come to enjoy a substantial surplus, primarily coming as a result of land sales and “proceeds from the Tariff 0f 1833.” Daniel Walker Howe, What Hath God Wrought: Transformation of America, 1815-1848, 499.

Henry Clay, then Senator from Kentucky, had an idea of what to do with the government’s surplus. He sought for the federal government to distribute that money to the states “enabling them to expand both the transportation network and their public school systems, while avoiding constitutional difficulties about the exercise of federal power.” Id. Clay further proposed that going forward, all revenue that the federal government earned from land sales would be funneled to the states for capital improvements. See id. All of this was captured in Clay’s Distribution Bill of 1833, which President Jackson would veto, as he feared that distribution of the funds to the states would contribute to the “speculative boom he so distrusted.” Id.

Democrats and Whigs would then come together to pass a veto-proof bill, which would become the Deposit-Distribution Act of 1836. This law would apply only to the current government surplus and increased the number of state banks where the federal government kept its funds, often called “pet banks.” Id.

Based on the language of the law, the $37 million federal surplus “would be distributed to each state according to its electoral votes,” and while technically it was a loan, the federal government would never seek repayment, and it never has. See id.

President Jackson would ultimately enforce the law, despite his predilection toward not allowing the government to facilitate the speculative boom that was occurring. He only secured the small concession “of a provision forbidding the pet banks to issue paper money in small denominations.” Id. at 500 citing Richard Latner, The Presidency of Andrew Jackson (Athens, Ga., 1979), 191.

The Deposit-Distribution Act of 1836 was one of the last laws to be enacted under President Jackson, and it showed that there was a fundamental tension between the Democrats and the Whigs. While the Jacksonian Democrats were focused on keeping the federal government out of any sort of activity that could further exacerbate the speculative boom that was happening, the Whigs were focused on improving the infrastructure of the country.

These capital improvements would be funded primarily by the federal government, introducing a novel approach to improving the country’s infrastructure. Rather than just leave these improvements to the states, and their funds, Senator Clay was putting forth an idea that the federal government and the states could work together to solve national problems.

These principles have certainly been replicated since then, and Congress, as well as Americans, should remember this as a tool for solving national problems. The states and the federal government need not be opposed to each other, particularly where their interests are aligned in improving Americans’ lives.

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