A Day Without a National Debt

On this day in economic and financial history...

A nation without a debt seems inconceivable today. The United States currently has more than $16 trillion in public debt, and no sensible proposals exist to bring this massive sum down to a more reasonable level. But there was a day when the U.S. proclaimed itself a debt-free nation: Jan. 8, 1835.

The brand-new United States emerged from the Revolution with some $75 million in war debts, and this sum grew to $127 million after the War of 1812. After these wars, the young nation embarked on a 20-year period of positive cash flow and debt reduction, which picked up steam after the election of President Andrew Jackson in 1828.

Jackson was a staunch anti-debt and anti-central-bank crusader -- attitudes learned much earlier from a land deal that went sour. In addition to his destruction of the Second Bank of the United States, which resulted in a decades-long period with no United States central bank authority, Jackson was also active with the veto pen, rejecting proposals to build American infrastructure in his efforts to accelerate the country's debt reduction. Another factor in Jackson's favor was a real-estate bubble on the frontier, which allowed the nation to sell off a great deal of land at inflated prices. Jackson's battle against the country's "moral failing" of debt found victory in early 1835 at a public gathering of Washington's most notable politicians, where it was proclaimed with great pride that "the national debt ... is paid."

It's unlikely that this gathering was the true moment of zeroed-out debts for the nation, and it was not the only day that the United States operated with no debt whatsoever. But the massive public celebration serves as a historical touchstone and has come to represent a singular moment in American history. By the start of 1836, the nation again carried a small amount of debt, and the nation plunged into a deep depression after Jackson's term ended that year, resulting in a dramatic increase in the national debt as deficit spending kicked in. By the 1860s, the Civil War would raise the national debt to $1 billion for the first time in American history. The debt has been growing ever since, reaching $1 trillion at the end of 1982.

Tabulating and computing: The first business machines
Before there was IBM (NYSE: IBM  ) , there was the Computing Tabulating Recording Company, which produced the business machines that later inspired a name change. Before CTR, there was the Tabulating Machine Company, founded by Herman Hollerith, inventor of a punched-card tabulator that helped build the foundations of the information-processing industry.

Hollerith's rise to prominence gained legitimacy on Jan. 8, 1889, when the U.S. Patent and Trademark Office granted him a patent for the underlying mechanisms of that tabulator. The patent, first filed in 1884, described a system that could quickly tally up a large amount of data with a largely automated system. This made it the perfect tool for the U.S. Census Bureau, for which Hollerith had worked a decade earlier. Assembling the identifying data of millions of Americans by hand took so much time that by the time the 1880 census data was tallied, it was nearly time to begin gathering data for the 1890 census. Hollerith's tabulating machine, which was leased by the Census Bureau, cut the time to process 1890's census data down to a single year, and the population total was announced after only six weeks of processing.

IBM remains very much a company inspired by Hollerith's innovations, as many of its present-day endeavors focus on compiling and understanding massive amounts of data. It's also a company built on visionary leadership, which Hollerith lacked despite his technical brilliance. CTR didn't make much of an effort to modernize Hollerith's antiquated machines after its 1911 merger, and Hollerith himself actively resisted upgrading his designs. It took executive Thomas J. Watson's guidance to move Hollerith's tabulators into the "modern" era of the 1910s, establishing the company's early bona fides as a leader in advanced technology.

A five-year Dow double
The Dow Jones Industrial Average (DJINDICES: ^DJI  ) first broke 1,000 points in 1972, but it took the index another decade to put that level behind it for good. Less than five years after the Dow left 1,000 in the dust, it reached 2,000 points for the first time on Jan. 8, 1987. The market was then in the in the midst of a spectacular multiyear rally, which would be interrupted only briefly by a record-breaking crash later that year before continuing on one of the greatest bull runs in history.

The Dow was actually lagging other indexes during this rally, as the Nasdaq (NASDAQINDEX: ^IXIC  ) had nearly tripled from the same point in 1982. But by the end of 1985 the entire market was set to go parabolic: The Dow rose from 1,400 points in November 1985 to 2,000 barely a year later, and the Nasdaq virtually doubled in the same period. This huge surge made traders pause, and the floor of the exchange was subdued. Anthony Woodruff, a co-director of trading at Kidder Peabody, summed up the attitude by saying, "I don't see a lot of hootin' and hollerin'," but he thought the fresh record "ought to bring new confidence into the market."

Two of the Dow's newest additions were major drivers of this megarally. McDonald's (NYSE: MCD  ) and Altria (NYSE: MO  ) (then Philip Morris) had been added at the end of October in 1985. Between that point and Dow 2,000, McDonald's shares grew 47%, and Philip Morris' grew by 115%.

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  • Report this Comment On January 10, 2013, at 4:37 PM, jasongrenville wrote:

    Jackson's Kitchen Cabinet, led by Van Buren, Burr, and Randolph, wanted to pay off the national debt in order to drop protection to manufacturing and drop the promotion of national infrastructure projects, and spread slavery throughout the South, not for any of the populist slogans Jackson stated about being free from debt.

    The historical comparison of the Federal Reserve and the Bank of the United States is the number one error preventing the proper replacement to the current system. The Bank of the US was not allowed to by the debt of the government like the Fed, and its main function was lending for roads, rails, canals, industry, and agriculture–the Fed performs no such function. Credit was put into circulation in accord with production and trade, not for large speculative private banks. We should replace the Federal Reserve system with a new Bank of the United States. The Fed is in contradiction to Hamilton’s maxim of always linking the creation of debt to its extinguishment in increased revenues, and was created in 1913 to prevent a government credit system like the Bank from returning. Google “How Andrew Jackson Destroyed the United States”

  • Report this Comment On February 06, 2013, at 5:23 PM, KaptBlasto wrote:

    the first thing to understand, is WHO HOLDS ALL THIS DEBT that America OWES...and for the most part, it's US, the TAXPAYERS.

    Now, in our approach in handling how our Government is supposed to "PAY DOWN" this debt owed to US, as well as the rest of the world...

    What happens if we've been missing something all along?

    You see, WE'RE BASICALLY TAXING OURSELVES...just to turn around and pay Ourselves back....TAX-FREE!

    That's what it all boils down to, here....

    We're basically HEAD-FAKING OURSELVES, into thinking that we're "saving for the future, every time we BUY BONDS!

    Now, of course we want to feel PATRIOTIC about the "Guaranteed SAFETY FROM *UNCERTAINTY*" and that's WHY we "BUY AMERICAN..."

    But when you BUY and then HOLD that bond of the Government's....then, that basically gives Government PERMISSION to TAX YOU, the OTHER GUY, and EVERYONE ELSE around you...as well as EVERYTHING being TRANSACTED for....just so that YOU can be paid that TAX-FREE sum, over time, with the yields and maturities....

    We know that a HUGE FACTOR in Monetary Depreciation happens when CORPORATIONS and other businessess get Taxed on their profits, and must follow regulations concerning how to balance their books so that the Costs are shown as MINIMUM and the Selling Prices are shown as MAXIMUM (as if they haven't already done so...) so that the most MAXIMUM PROFITS could be had, to be TAXABLE....even IF all the DEDUCTIONS to offset that TAX could be taken...

    the Taxes still have a BITE, that gets passed along in the PRICES asked for and gotten....

    and, even if One Company does that, and it doesn't seem like it would matter much...

    ALL COMPANIES do it....

    and therefore the PRICES SNOWBALL UPWARDS, making the DOLLAR WEAKER BY COMPARISON....

    Even with all the BUFFERS in place, that could DELAY or OFFSET any Monetary Strength weakening...it STILL WEAKENS, because of the concept of "VICIOUS CIRCLE," or, "What Goes Around, comes around"

    And here's probably something that might be even MORE offsensive to your sensibilities.....

    Imagine that same Bondholder, understanding that as long as he's holding the Bond, he has the ability to say "I AM A CREDITOR OVER THE GOVERNMENT!"

    Imagine that same Bondholder, in the NEXT BREATH, start talking about all the "Welfare Queens" or the "Corporate FatCats on Welfare" and how the Government should Cut all that WELFARE out, because it's TOO COSTLY OF AN ENTITLEMENT to keep doing....

    Well, Mr. Bondholder, wouldn't you suppose, just for a minute, that, purchasing the Ability to say that you have POWER OVER the GOVERNMENT, THE LAW, to make them do your bidding....

    ...IS AN ENTITLEMENT?

    At last check, wasn't it INTEREST on the NATIONAL DEBT, one of the BIGGEST "Mandatory expenditures" (i.e. ENTITLEMENT expenditures) that this Nation seems to have?

    I Mean, Mr. Bondholder, let's be honest here....

    Don't YOU feel entitled to SAVE FOR THE FUTURE?

    Don't you think the GOVERNMENT OWES YOU SOMETHING LIKE THAT, that you feel you're ENTITLED TO, because you PURCHASED IT, and are now HOLDING IT, ENTITLING YOU to MAKE THE GOVERNMENT OWE YOU, _MORE_ than what you put in, over the course of TIME that you purchased that Bond for??

    Well?

    I mean, isn't it HELPING YOU to have enough money in X amount of time, to pay for Junior's College Education, or maybe Your Retirement Nest Egg?

    And don't you believe that if the Government HELPS SOMEBODY OUT, that's covered under the "General Welfare" clause in the Preamble to the Constitution? Maybe the SAME CONSTITUTION that you've sworn OATHS to preserve, protect and defend, maybe?

    (continued...)

  • Report this Comment On February 06, 2013, at 8:10 PM, KaptBlasto wrote:

    Now I have come upon a solution, of sorts, but...it's going to take a little time to explain the simple concept.

    Some of you know what I am talking about, when I say "the Marx Brothers," you know...Groucho, Harpo, Chico, and Zeppo? Well, if you don't, that's alright, go down to the closest video store and ask for one of their movies, or you can Google "Marx Brothers" and read up on them....

    they were a Comedy team that had a string of movies called "the Cocoanuts," "Animal Crackers," and others, as well as had a very big Vaudville Stage act...of which this NEXT anecdote I'm about to tell you, if you know anything about the Marx Brothers, makes things be put into perspective...hopefully....

    Now, for those of you who Googled "Groucho," or "Harpo,"

    then, you probably know that Groucho is the guy with the one-liner put downs, and the Mustache and Glasses and he always wears DARK clothing...

    and Harpo is the blonde guy with the clownish grin and the Horn, and like a MIME, he never speaks a WORD, much like Teller, in the "Penn & Teller" act, Teller never even whispers a word!

    to this date EVERYONE believes that Harpo was always MUTE....

    But Groucho Marx's Daughter...knows Different!

    you see, her story was of a missed opportunity...and it was a VERY SAD happening, for her, because it was only done ONE TIME...just once....and it never happened again....

    You see, she missed out seeing a showing of her father and her uncle's act, she related to a reporter, where, something VERY DIFFERENT happened in the same act that she probably seen 100's of times before...and it was THIS ONE AND ONLY TIME, where, she should have NEVER MISSED IT, because, it was meant as a GIFT for her...

    THIS was the one and only time, where the brothers who played HARPO, and GROUCHO.....switched...and the ONE BROTHER played the OTHER BROTHER's role, and vice versa!

    Imagine the guy that played HARPO, now dressed as GROUCHO,

    SPEAKING (!!!) all the one liners that Groucho would have done....and Groucho doing all the PANTOMIME work, honking the horn, and being MUTE!

    (And for Groucho, being SILENT on STAGE was a feat in an of itself!)

    So what does any of this story have to do with the DEBT?

    alright.....

    As long as you hold that Bond...then you know you're going to be TAXED, to be paid back TAX FREE, because THAT's WHAT the GOVERNMENT has to DO, in order to PAY YOU, per the promises you're holding....that simple!

    Now, as long as you know it...why not do a switch, instead?

    You bought the Bond from the Government...in your thinking, maybe you LOANED money, or you INVESTED into the Future....maybe it's YOUR FUTURE, maybe indirectly...

    Take a look at the Bond...it says The Government OWES YOU money...it's a PROMISE that because it has the power to TAX YOU to make good upon, then, even though you can't go and spend it at the store, it's STILL ought to be considered MONEY (albeit, in a limited sense)

    So here's what you do.....

    Go back to the Treasury that issued that Bond you're holding....

    Take out a RECIPROCAL LOAN....

    Work it out with the Treasury that, not only what you're loaning for would make you MORE MONEY TAX FREE, than what the yields and Maturities would have netted you, but, hash out the terms that would GUARANTEE IN CONTRACT LAW, that, you never pay a CENT out of pocket to always keep THIS loan, "CURRENT and in GOOD STANDING"

    ...and you use your held Bond, containing whatever's left of the promises you're holding against the Government...

    ...as DOWNPAYMENT upon the LOAN.

    In that way, what you would be doing, is ACTUALLY FULFILLING ALL THE PROMISES LEFT for the GOVERNMENT to Honor, ALL AT ONCE, rather than over time making you WAIT and collect yield along the way, toward the maturity date....

    And the Government, HAS TO HONOR the TENDERING of that Bond BACK...where all it has to do, is ACCEPT THE BOND BACK, and CREDIT YOU toward the purchase of that something that the Government could offer you, that this RECIPROCAL lending arrangement could facilitate....

    you see, We've been racking our noggins to hell and back, trying to figure out HOW Government is going to PAY DOWN to the Holders holding the purchased piece of IOU...

    And Every single economist will be able to tell you that, as long as the current conditions surrounding the DEBT, hold....it would be MATHEMATICALLY IMPOSSIBLE for this Government to "PAY DOWN" the DEBT to ZERO (essentially, No National Debt to hang over your head!)

    but where there is a WILL....there's a WAY....

    NOT GOVERNMENT "PAY IT DOWN" to you....but YOU use that held debt as DOWNPAYMENT, for something better!

    Look folks...it's OUR DEBT, why CAN'T WE?

    What have we got to lose?

  • Report this Comment On February 06, 2013, at 8:17 PM, KaptBlasto wrote:

    You see as long as YOU play "creditor" holding that Bond against Government...and Government plays "Debtor" having to owe you....

    then you're always going to have a National Debt.

    But,

    LET THE "DEBTOR" and the "CREDITOR" switch hats...or switch roles...

    Not so that one can make the OTHER suffer, or vice versa...

    BUT BOTH MIGHT STAND TO PROFIT.

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