Cyclopædia of Political Science, Political Economy, and the Political History of the United States

Edited by: Lalor, John J.
(?-1899)
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First Pub. Date
1881
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New York: Maynard, Merrill, and Co.
Pub. Date
1899
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Includes articles by Frédéric Bastiat, Gustave de Molinari, Henry George, J. B. Say, Francis A. Walker, and more.
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DEBTS

I.349.1

DEBTS, National, State and Local. The history of the national debt of the United States may be fairly divided into five periods, the first of these extending from Sept. 5, 1774, to March 4, 1789. By various resolutions of the continental congress from June 22, 1775, to Nov. 29, 1779, inclusive, the several issues of paper money amounted, in the aggregate, to $241,552,780. In addition to a subsidy of $1,815,000, given to the colonies by the king of France, three loans were made from the same source, amounting to $6,352,500, inclusive of $181,500 secured from the French farmers-general to be paid for in tobacco. In addition to a subsidy of $181,500 from the king of Spain, small loans were obtained from private bankers, amounting to $174,017,13. Four loans were made in Holland through the agency of John Adams, amounting to $3,600,000. Included in this period should be the certificates of indebtedness given to the French officers who served in the American army. These certificates, amounting to $186,988.78, were to bear interest at 6 per cent. from Jan. 1, 1784.

I.349.2

—The second period extends from March, 1789, to Jan. 1, 1812. During this period the whole amount of loans made by the government amounted, in the aggregate, to $109,450,183.71, divided as follows:

From Holland... $9,400,000.00
Temporary loans from bank of the United States... 9,700,000.00
Temporary loans from bank of New York and bank of North America... 923,204.37
Stock loans, bearing 6 per cent. interest... 14,791,700.00
Revolutionary debt, refunded at 6 per cent. 30,088,397.75
Revolutionary debt, refunded at 6 per cent.
Interest from Jan. 1. 1800... 14,649,328.76
Revolutionary debt, being interest due, refunded by the issue of 3 per cents... 19,718,751.01
The balance due on the French debt, paid off by issuing 4½ per cent. stock... 176,000.00
The balance due on the French debt, paid off by issuing 5½ per cent. stock... 1,848,900.00
Old 6 per cent. stock, refunded in 1807... 6,294,051.12
Old 3 per cent. stock, refunded at 6 to 5 per cent. in 1807 and 6 per cents issued in lieu 1,859,850.70

I.349.3

—From January, 1812, to Jan. 1.1837, may be considered the third period, during which the whole amount of loans amounted to $153,565,315.70, divided as follows:

Treasury notes issued... $36,680,794.00
4½ per cent stocks... 10,000,000.00
5 per cent. stocks... 12,735,295.43
6 per cent. stocks, including temporary loans during the existence of the war... 71,761,173.55
7 per cent. stock issued... 9,070,386.00
Mississippi stock, bearing no interest, issued in settlement of the Yazoo frands... 4,282,151.12
Old 6 per cent. stocks, refunded in 1812... 2,984,746.72
War loans of 1812-14, refunded into 5 per cent. stock... 56,704.77
War loans of 1812-14, refunded into 4½ per cent. stock... 5,994,064.11

I.349.4

—In the fourth period, from Jan. 1, 1837, to March 1, 1861, the whole amount of loans negotiated amounted to $232,024,592.63, embracing:

Treasury notes bearing interest... $110,823,700.00
5 per cent. interest stock loans... 45,002,782.15
6 per cent. interest stock loans... 76,198,110.48

I.349.5

—The fifth period began with the outbreak of the war and continues to the present time, though for convenience I have placed the date from March 1, 1861, to June 30, 1880. During this period the following loans were contracted:

6 per cent. bonds... $2,429,919,291.65
4 per cent. bonds... 1,455,266,370.07
3 per cent. bonds... 99,155,000.00
4½ per cent. bonds... 250,000,000.00
5 per cent. bonds... 714,112,450.00
Interest-bearing notes... 552,972,640.00
No interest... 3,673,068,906.97
 $9,174,494,658.69
7 3-10 interest-bearing coupon notes... 970,094,750.00
  $10,144,589,408.69

I.349.6

—To briefly summarize the ground covered, the following table has been prepared:

First period... $10,313,505.91
Second period... 109,450,183.71
Third period... 153,565,315.70
Fourth period... 232,024,592.63
Fifth period... 10,144,589,408.69
  $10,649,943,006.64

I.349.7

—The fluctuations of the national debt, from the first period to the close of the fifth period, are full of historic interest. Its tremendous rise during the war until Aug. 31, 1865, when the principal reached its highest point ($2,844,649,626), and then the steady decrease until, to-day, it is less than $2,000,000,000, and the gigantic transactions by which this was accomplished, form a rich field of study alike for the exact statistician, the financier and the political economist. The following carefully prepared table shows the fluctuation of the debt from 1791 to the present day:

PUBLIC DEBT OF THE UNITED STATES, 1791 TO 1881.
[Outstanding Principal.]
1791... $75,463,476 1837... $336,957
1792... 77,227,924 1838... 3,308,124
1793... 80,352,634 1839... 10,434,221
1794... 78,427,404 1840... 3,573,343
1795... 80,747,587 1841... 5,250,875
1796... 83,762,112 1842... 13,594,480
1797... 82,064,419 1843 (Jan. 1)... 20,601,226
1798... 79,228,529 1843 (July 1)... 32,742,922
1799... 78,408,669 1844... 23,461,652
1800... 82,976,294 1845... 15,925,303
1801... 83,038,050 1846... 15,350,202
1802... 80,712,632 1847... 38,826,534
1803... 77,054,686 1848... 47,044,862
1804... 86,427,120 1849... 63,061,838
1805... 82,312,150 1850... 63,452,773
1806... 75,723,270 1851... 68,304,796
1807... 69,218,398 1852... 66,199,341
1808... 65,196,317 1853... 59,803,117
1809... 57,023,192 1854... 42,242,222
1810... 53,173,217 1855... 35,586,956
1811... 48,005,587 1856... 31,972,537
1812... 45,209,737 1857... 28,699,831
1813... 55,902,827 1858... 44,911,881
1814... 81,487,846 1859... 58,496,837
1815... 99,833,660 1860... 64,842,287
1816... 127,334,933 1861... 90,580,873
1817... 123,491,965 1862... 524,176,412
1818... 103,466,633 1863... 1,119,772,138
1819... 95,529,648 1864... 1,815,784,370
1820... 91,015,566 1865... 2,680,647,869
1821... 89,987,427 1866... 2,773,236,173
1822... 93,546,676 1867... 2,678,126,103
1823... 90,875,877 1868... 2,611,687,851
1824... 90,269,777 1869... 2,588,452,213
1825... 83,788,432 1870... 2,480,672,427
1826... 81,054,059 1871... 2,353,211,332
1827... 73,987,357 1872... 2,253,251,328
1828... 67,475,043 1873... 2,234,482,993
1829... 58,421,413 1874... 2,251,690,468
1830... 48,565,406 1875... 2,232,284,331
1831... 39,123,191 1876... 2,180,395,067
1832... 24,322,235 1877... 2,205,301,392
1833... 7,001,698 1878... 2,256,205,892
1834... 4,760,082 1879... 2,349,567,482
1835... 37,783 1880... 2,120,415,370
1836... 37,513 1881 (July 1)... 2,053,353,961

I.349.8

—The interest-bearing debt has decreased from $2,381,530,294, in 1865, to $1,621,111,000, and the annual interest charge from $150,977,697, in 1865, to $69,461,244, at the present time. Here we have an annual rate of decrease of $51,000,000. But this, as Mr. H. C. Adams has recently pointed out, does not adequately represent the rapidity with which this portion of the debt was extinguished, while it alone received the attention of congress. Previous to July, 1876, the annual payments amounted to $61,000,000.

I.349.9

—The years 1877 and 1878 were devoted to preparation for the resumption of specie payments, which was successfully accomplished in 1879. It would not be quite accurate to say that resumption had effected a practical payment of the non-interest-bearing portion of the debt although, maintained as it is by reserve, it has provided for this debt and taken it out of the domain of changing politics.

I.349.10

—It must also be borne in mind that the volume of United States notes outstanding has, since our national debt reached its highest, been reduced about $82,000,000, and $26,000,000 of fractional currency have been withdrawn from circulation.

I.349.11

—In 1865 the per capita debt of the United States—the total debt less cash in the treasury—was $78.25. The rapid increase of the population and the reduction of the debt decreased the per capita to $37.74 in 1880. Great as this reduction has been, it can hardly be said it has been accomplished by excessive taxation.

I.349.12

—OWNERSHIP. In 1803 the national debt was about $70,000,000, and an inquiry into the ownership of the stocks, according to Seybert's Statistical Annals of the United States, shows that it was distributed among 14,236 owners—an average per capita of less than $5,000, or half the present per capita. The inquiry which I have recently completed for the census office shows that $825,917,150 registered bonds were owned by 80,802 individuals and corporations, an average per capita of about $10,221. The debt in 1803 was distributed as follows:

Table.  Click to enlarge in new window.

I.349.13

—Seventy-seven years later I find the 4, 4½ and 5 per cent. registered bonds distributed as follows in the several states:

Table.  Click to enlarge in new window.

I.349.14

Seventy-seven years has not changed the position of Massachusetts. In 1803 that state had more bondholders than any other state. To-day it has 23 4/10 of all the bondholders in the United States, while New York has but 20 24/100. But New York has 32 6/10 of the aggregate amount held, while Massachusetts can not boast of quite 7 per cent.

I.349.15

—In 1803 Pennsylvania held a larger amount of bonds than either New York or Massachusetts, but it was then, as New York is now, second to the great New England state in the number of its bondholders. At the beginning of the century South Carolina ranked fourth as a bondholding state; to-day it is twenty-ninth, and owns $2,000,000 less bonds than it did nearly 80 years ago—It is not at all probable that over $220,000,000 of our national debt is now held abroad; this would leave about $1,400,000,000 of the registered and coupon interest-bearing debt distributed throughout the country among individual holders and corporations, and deposited with the comptroller of the currency to secure the circulation of national banks. It is probable that while 36 per cent. of the holders reside in the New England states, not more than 11 per cent. of the aggregate amount of bonds can be credited to New England. On the other hand, over 42 per cent. of the holders have their residence in the middle states, and upward of 43 per cent. of the aggregate amount of bonds is held in that section. Over 3½ per cent. of the holders reside in the southern states, and about 2 per cent. of the bonds are owned there. In the western states are 15 per cent. of the holders, and nearly 8½ per cent. of the bonds. The banks, insurance companies, and other corporations, representing in number only 2 per cent., own about 35 per cent. of the bonds. Massachusetts, with only 3½ per cent. of the total population of the country, has 23 per cent. of the total number of bondholders; while New York, with over 10 per cent. of the total population, has 20 per cent. of the bondholders. Ohio has over 6 per cent. of the total population, and 5½ per cent. of the bondholders. Illinois and New Hampshire each has over 4 per cent. of the bondholders, while the former state has over 6 per cent. of the total population of the country, and the latter has only 6/10 of 1 per cent. Oregon has the least number of holders (14), and Massachusetts the highest (16,855).

I.349.16

—STATE DEBTS. One of the first questions agitated in the first congress was that of the assumption of the state debts. As early as 1790 a senate committee reported that it would be greatly conducive "to an orderly, economical and effectual arrangement of the public finance," should an equal distribution be made of the burdens of the several states among the citizens of the United States. Such a course, it was said, would not only promote more general justice to the different classes of public creditors, but would also serve to give stability to public credit. The justice of this assumption was also strongly urged, on the ground that the debts were essentially contracted in the prosecution of the revolutionary war, and that it was just that such a provision should be made. The following statement shows the amount authorized to be assumed in the redemption of the debt of each state and the amount actually assumed by the federal government:

Table.  Click to enlarge in new window.

I.349.17

This was the beginning of state debts in the United States.

I.349.18

—The states seem to have incurred no liabilities to speak of, if we except some loans to assist the federal government in the war of 1812, until 1820, between which latter period and 1825 the indebtedness increased, until, at the close of 1825, it reached $12,790,728. The next five years $13,679,689 more stock was issued, and from 1830 to 1835 $40,012,769 additional and so rapidly had the debt-creating mania developed; that in the three years following 1835 no less than $107,823,808 of state stock was issued, and in 1838 the debts of the several states had reached $174,306,994. By 1840 the indebtedness of these states had reached $200,000,000. The two principal causes which led to the contracting of the debt were undoubtedly an improved credit abroad and an ardent desire at home to push improvements even beyond the wants of population.

I.349.19

—In 1834 the last installment of the national debt was paid. This fact had a tendency to raise the spirits of the people at home and increase the confidence of foreigners in American securities. Most of this enormous aggregate of state debts was contracted for the purpose of covering the expense of important works of public improvements. "New communications," said one writer, when commenting on the financial embarrassments of 1840, "have been opened by railroads and canals between different parts of the country, generally at points where they were really wanted, and will be of important service. In some few cases the rage for speculation and facility for obtaining loans which characterized the period when the debts were contracted may have given rise to projects not precisely of this character. But the worst that can be said of them is, that they are premature." But at that time the population and business of the country were rapidly growing up to these improvements, and as subsequent events have shown, many of the enterprises which at that period of our history seemed to bid fair to bankrupt the states that had promoted them, now are profitable investments. The most embarrassed states at this time were Pennsylvania, Maryland, Mississippi, Michigan, Louisiana, Indiana and Illinois. Some had defaulted in interest, some refused to pay the principal, and some could not pay either the one or the other.

I.349.20

—Early in 1840 the question of the United States assuming the states' debts contracted during the period described, was agitated in congress. The first figures that bear evidence of authenticity as showing the amount and the purposes for which the state debts had been contracted, appear in the speech of senator Benton, made before the senate in January, 1840, and which he borrowed from Mr. Flagg, the comptroller of the state of New York. From these tables it seems that $170,000,000 of debt had actually been contracted or authorized by the 18 states previous to 1840, without counting the $28,101,644.91 received from the surplus revenue funds of the federal government. Taking into the calculation the amount probably incurred in the period between the report of Mr. Flagg and the report of senator Benton, together with the Florida debt of $5,000,000, (and making allowance for possible omissions from Mr. Flagg's tables), the whole debt was estimated at more than $200,000,000. The aggregate as ascertained by Mr. Flagg ($170,806,177), was distributed about the states of Maine, Massachusetts, New York, Pennsylvania, Maryland, Virginia, South Carolina, Alabama, Louisiana, Tennessee, Kentucky, Ohio, Indiana, Illinois, Missouri, Mississippi, Arkansas and Michigan. Eight of the states of the Union at that time, viz, New Hampshire, Vermont, Rhode Island, Connecticut, New Jersey, Delaware, North Carolina and Georgia, enjoyed the distinction of not finding their names on the list. Maine and Missouri were only nominally in debt, the former having created but $500,000 of debt.

I.349.21

—Of this $170,000,000, $52,640,000, or about 31 per cent., had been incurred in aiding state banks; $60,201,551, or about 35 per cent., in building canals; $42,871,084, or about 25 per cent., for railroad aid; $6,618,958, or about 4 per cent., for turnpikes and macadamized roads; and for miscellaneous objects, $8,474,684. Thus it will be seen that nearly $103,000,000, or about 60 per cent., of this entire amount, was expended for improvement of the system of internal transportation.

I.349.22

—On July 9, 1842, Mr. William Cost Johnson, of Maryland, made his first move in congress, with a view of having the national government assume the state debts. In his resolution he set forth the fact that the states not foreseeing the embarrassments which now beset them, had, with a laudable desire to advance their interests, to develop their resources, and by multiplying the means and facilties of intercommunication, to bring into active operation and value much of their otherwise dormant wealth, had involved their credit and incurred heavy debts in the prosecution of works which are calculated to strengthen the bonds of union, multiply the avenues of commerce, and augment the defenses from foreign aggression. That these debts, contracted in times of prosperity, when capital was more plenty, and confidence more stable, have now become onerous upon the people, and provisions for the annual interest, and final payment of the principal, would undoubtedly lead to a system of taxation which would still further depreciate the value of property, and become an unbearable burden to the taxpayer. The resolutions admitted that many of the obligations were improvident, but that they were not the less binding, and the idea of legal and honorable debts being repudiated, must be repugnant to an honest people; and that any inconvenience ought to be endured rather than that a nation's or a state's honor should be tarnished. The matter was brought up several times, and a good deal of opposition was exhibited against paying the state debts in this manner.

I.349.23

—In December of the same year, however, the question was referred to a select committee, who filed their report in March, 1843. The tables which accompanied the report of the select committee contain the first official information relative to state debts. They show that the total amount of the debts of the states was $207,894,613.35, and that the amount of the interest paid or due annually was $10,394,730.64. Many of the states had omitted to pay the interest as it accrued, consequently greatly increasing their debt, while the gradual but general depreciation of property in such states continued to render the payment of accruing interest, and the final liquidation of the principal, more and more difficult and doubtful with every delay. The main objection to the report of the committee, set up by those who were opposed to the proposition, was, that the plan contemplated the assumption of the debts of the indebted states, without extending any benefit to the nonindebted states, and that the latter would be responsible for the debts of the former; that if the states were intrusted with the stock or bonds of the general government, they might apply them to other uses than the payment of their debts; that if the states were relieved from their present difficulties and embarrassments, they would, in all probability, get heavily into debt again; and finally, that, although the states might be relieved, the issue of the amount of stock proposed would greatly embarrass the general government. To meet these objections a plan of distributing the stock equally among all states was adopted, and other amendments made, but the project fell through.

I.349.24

—Ever since 1830 efforts had been periodically made to distribute the land revenue, or surplus revenue, or to induce the government to assume the stocks of indebted states. The public appetite for this sort of thing was undoubtedly stimulated by the distribution among the several states, of what was termed the surplus revenue fund. The fund originally proposed to be distributed among the states was $36,000,000, and $28,101,644.91 was distributed in three quarterly installments among the various states, the first amount transferred being under date of February, 1837, the second amount in April, and the third amount in July of the same year. The fourth and last installment, however, was not paid. A series of disasters, culminating in the panic of 1837, so disordered the finances of the general government, before the distribution had been completed, that after the first three payments had been made to the different states, it became necessary to have recourse to a new act of congress, which was passed on Oct. 2, to direct the postponement of the transfer of the remaining fourth until Jan. 1, 1839. A subsequent act was passed, postponing the payment indefinitely. This last law further provided that the amount deposited should remain with the states until otherwise directed by congress. Here the matter has rested for forty years.

I.349.25

—Undoubtedly this distribution of national funds tended to stimulate improvident undertakings, and at the first signs of embarrassment it was not unnatural that the state should turn to the national government for succor and relief from their financial burdens.

I.349.26

—The increase and decrease of state debts in the United States from this period to the present time, may be seen from the following table, which I have carefully prepared from original sources:

Table.  Click to enlarge in new window.

I.349.27

The aggregate of the state debts to-day only exceeds by about $37,000,000 the aggregate of the same class of indebtedness 40 years ago. The table also shows a decrease of over $102,000,000, or of nearly 29 per cent., since 1870. Unhappily this has not been all paid, and while some of the states have honestly reduced their debts, we have had of late years too many painful examples of state repudiation and dishonor to see any cause for congratulation in this decrease of state indebtedness. The table presented further along makes the state debts proper $10,000,000 more than the above. The difference is mainly in the southern states, which aggregate about $114,000,000 in the one case and about $125,000,000 in the other. Owing to the financial tinkering that has characterized these states of late years it is difficult to say which of the two statements is correct.

I.349.28

—MUNICIPAL DEBTS. The first statistics of municipal indebtedness were published in 1843, from which it appears that the aggregate amount of debts of all the cities of the United States was $27,536,422, and the annual interest charge for state debts was $12,259,602, and for all indebtedness, including national debt, $14,894,232. I have been able to find no other statistics of this class of indebtedness until 1870, when the census gives the debt, other than national, as follows:

Table.  Click to enlarge in new window.

I.349.29

As the old census law would not allow the superintendent to deal directly with the minor subdivisions of the country, it is not likely that the above figures were correct. The amount of debt was merely summarized by counties, and no account made of the sinking fund. The county, city, township, village and school district debt was not given separately, and in many other respects the work was unsatisfactory.

I.349.30

—The plan adopted in 1880 has proved satisfactory. This branch of the census work, the wealth, debt and taxation division, as it is termed, has been carried on entirely in Washington, and the facts all obtained by the aid of direct correspondence with the local offices throughout the United States. Schedules were prepared with the view to suit the size of the places to which they were to be sent. To the large cities elaborate schedules were mailed, which not only called for an exact statement of the bonded and the floating debt, but also for the date of issue of the various classes of bonds, the date of maturity, the rate of interest, and the purposes for which the bonds were issued; also the amount of sinking fund or other assets and credits set aside for the payment of the debt. To the smaller cities and towns and villages a simpler form of blank was issued, and in some of the townships and school districts a postal card proved effective and secured answers to the seven important questions. The extent of this correspondence, and the difficulties of securing lists, not only of the names of financial officers, but of the municipal corporations themselves, were great. The preliminary work was as difficult as the actual work of gathering statistics. The authorities of every county had to be applied to for the names of the municipal corporations within its area, and after replies had been received from the 2,400 counties, I found that in many states the entire work must be revised, and circulars addressed directly to the places named by the county clerks or auditors, asking the question, "Is——an incorporated village or not?" In this way hundreds of the names originally placed on the lists were excluded. The lists of the minor civil divisions of the United States are formidable documents, as may be imagined when we realize that there are about 2,400 counties; 311 cities and towns, with a population of 7,500 and upward; about 8,000 incorporated cities, villages, and other small places, with a population below 7,500; about 12,000 townships having a financial existence; and 105,000 school districts, possessing a debtcreating and tax-levying power. To some of the larger and more important of these places as many as 20 letters were written before the schedule could be absolutely declared complete. There were others, probably 50 per cent., that replied with both accuracy and promptness. In several cases I succeeded in interesting the editors of newspapers and prominent individuals, and requested them kindly to call the attention of the local authorities to the importance of this work. Almost unanimously did these letters meet with response. Editors called attention to the delinquency in their newspapers, governors and state auditors touched the state pride of the delinquent officers, and in some instances prominent business men dropped their work and filled out the schedule with their own hands. [One city schedule sent to this division of the census was filled out by an ex vice-president of the United States.] With such an awakened interest, and thousands of willing assistants in all parts of the country, it is not surprising that this class of statistics is complete and satisfactory. Every municipal incorporation of over 1,000 population has sent in a correct report, which has been amended, approved, and tabulated. There still remain, scattered over the country a few post-towns in the south and backwoods places in the northwest and in the territories, from which no returns have been received. But these delinquencies can not affect the results, and for all practical purposes the report is complete. The counties, too, have all reported their indebtedness, and substantially the same holds true of the 105,000 school districts.

I.349.31

—The following table shows the state and local indebtedness of the United States for 1880:

I.349.32

Table.  Click to enlarge in new window.

I.349.33

According to these figures it may be stated in round numbers that about 22 per cent. of the gross debt other than national is state debt; about 10½ per cent. county debt; about 2½ per cent. township debt; about 1½ per cent. school district debt; about 59 per cent. large cities debt; and about 4½ per cent. small cities debt.

I.349.34

—From the total of over $1,200,000,000, over $145,000,000 must be deducted for sinking funds and other credits set aside for the payment of maturing bonds. Over $117,000,000 of this amount belongs to the large cities, and reduces the debt from $710,535,924 gross to $593,344,418 net.

I.349.35

—The remainder largely belongs to states, though in a number of cases sinking funds have been returned by counties and the other minor civil divisions. The total net debt, state, county, city, township and school district, was, in 1880, $1,055,308,393, against $868,676,758, in 1870, an apparent increase of $186,631,635. The actual increase is not known, because there are no means of ascertaining whether the total for 1870 was the net or the gross debt; if it was the latter, the comparison should be made with the gross debt in 1880, which would make the increase over $145,000,000 more, or $331,682,756. After carefully weighing all the facts, and allowing for the inaccuracies of the work of 1870, I think it may be safely said that state debts have decreased about 25 per cent.; county, township and school district debts about 8 per cent.; while the debts of cities have probably increased over 100 per cent. Indeed, if the census of 1870 be correct, the increase in the last class of indebtedness was over 133 per cent.

I.349.36

—Great care has been exercised in the collection of the statistics of debt and taxation of the principal cities of the country, and below I have prepared a statement showing the bonded, floating and gross debt, the amount of the sinking fund, and the net debt of the cities having a population of over 7.500 in each of the five geographical sections of the Union:

Table.  Click to enlarge in new window.

I.349.37

Of this enormous debt 3.05 per cent. was incurred for bridges; .05 per cent. for cemeteries; 3.3 per cent. for fire department; 18.02 per cent for funding floating debt; 2.46 per cent. for improvement of harbors; 5.94 per cent. for parks and public places; 3.75 per cent. for public buildings; 10.02 per cent. for railroad and other aid; 10.42 per cent. for refunding old debt; 2.04 per cent. for schools and libraries; 3.07 per cent. for sewers; 11.95 per cent. for streets; 4.22 per cent. for war expenses; 3.89 per cent. for miscellaneous; and no less than 20.79 per cent. for water works. Many of these purposes are extremely useful and beneficial, and in the case of water works, even remunerative investments. It may be that large sums of money have been squandered, but it might be well to bear in mind the wonderful growth of the cities of the United States; that about one quarter of the population is urban; and that many of the expenditures are but the results of the massing of population in large centres of industrial energy. To the continued growth of these cities, under the more stringent organic laws of many of the states, we must look for the payment of the debt.

I.349.38

—State and local debt presses unequally on different localities, sometimes hardest in the places least able to pay. For example, the New England states have about 20 per cent. of the state debts; about 2¼ per cent. of the county debts, and 17 per cent. of the municipal debts. The middle states have about the same proportion of state debts, but about 25 per cent. of the county debts, and nearly 54 per cent. of the municipal debts. The south, on the other hand, has nearly 50 per cent. of the state debts, only 19¼ per cent. of the county debts, and but 11 per cent. of the city debts. In the western states, counties have often aided railroads with their credit, and hence nearly 43 per cent. of the total county indebtedness is located here. The west has but little state indebtedness, and only 18 per cent. of the municipal debts. In New England and the middle states the state debts proper have never assumed a serious aggregate. As I have shown, in 1842 Maryland, Pennsylvania and New York were embarrassed. To-day New York has less than $7,000,000 of unprovided debt, Maryland has assets enough to liquidate its debt at any time, and Pennsylvania a debt of $22,000,000.

I.349.39

—Some of the New England states and New Jersey and Delaware virtually had no state debt until after the war, yet in these two sections of the country, owing to the excess of municipal indebtedness, the highest per capita debt exists. In this calculation I have included all debt other than national, which bears alike on the several sections of the country. For example, the population of New England is 4,010,438; the aggregate of its different species of indebtedness, $199,771,967; in this calculation the sinking fund is not deducted; and its per capita debt, $49.81. In the middle states the population is 11,756,503; total debt, $508,926,141, and per capita debt, $43.20. The southern states have a population of 15,254,115, a total debt of $215,534,164, and the per capita, $14.13. The western states, with a population of 17,229,810, have a debt of $235,386,261, and a per capita debt of $13.66. The Pacific states, with a population of 1,962,000, have a debt of $27,918,065, or $14.67 per capita.

I.349.40

—The per capita of debt other than national for the United States is $23.68. To this add $40 for the national debt, and we have $63.68 per capita for every man, woman and child in the country. Estimate five persons to a family, and our public debts to-day amount to $318.40 for each head of a family. The assessed valuation of the country for 1880 is something over $16,000,000,000.

I.349.41

—The public debt other than national equals 7 3/10 per cent. of the assessed valuation. The interest-bearing national debt is about 10 per cent. of this valuation, making a total burden, upon which interest must be paid, of 17 3/10 per cent. of the assessed valuation of all the property—In summing up this array of statistics, but little can be said in regard to the national debt. It is evident that the American people are determined to pay it as rapidly as possible. I believe government should not lose control of the debt. The high premium on the bonds of 1891, and especially of 1907, point out the danger of long time loans. Nearly $1,000,000,000 of the debt is tied up in this way. The sound policy for the future will be rapid reimbursement, rather than extremely low interest. To effect this, a very low interest must not be the only consideration. In view of this, the adopted policy of the United States treasury is, to my mind, a sound one, and should be continued until the last dollar of the national debt is paid.

I.349.42

—The only effective remedy for excessive state and local indebtedness is constitutional legislation. In some of the early state constitutions the states were actually authorized to early on and aid internal improvements. Forty years ago Illinois was struggling with projects which, including state banks, involved capital of over $23,500,000; and yet there were then but 70,000 log cabin farmers in the state, and these loans equaled about $300 for each family. Indiana had started vast schemes for railroads and canals, and commenced operations on the whole simultaneously. The result was, that vast sums of money were expended before any work was complete, and the state for years verged on bankruptey. Michigan had the misfortune to enter the Union in times of great speculative excitement. This extraordinary fever had culminated in a bank mania in Michigan; and, though the population of that state was but 31,369 in 1831, in 1833 the state had 20 banks, and, at the close of 1837, 40 banks, with aggregate loans of nearly $4,000,000. A reckless spirit of speculation universally prevailed throughout these states. All seemed to be deluded by deceitful visions of imaginary wealth. Industry and economy were disregarded, and recourse was had to extensive credits, and the pernicious system of borrowing. No sooner was Michigan admitted to the Union than the legislature appointed a board of commissioners of internal improvements, and authorized, March 1, 1837, the survey and construction of 557 miles of railroads, 231 miles of canals, and the improvement of 321 miles of river navigation. A loan of $5,000,000 was authorized for these objects. Fortunately for Wisconsin the constitution of that state forbade the creation of a state debt to an amount greater than $100,000. The state of Missouri had embarked in the perilous course of lending her credit to corporate companies, but was not seriously embarrassed during this period. Ohio had carried on an extensive system of improvements; but, partly owing to her early settlement, and partly owing to the fact that in the year 1825 she established a co-ordinate and co-extensive system of taxation, she suffered less than some other states; and, while the abandonment of some of the works was seriously talked of in 1841 and 1842, the state managed to meet her obligations without any serious embarrassment. Iowa, Kansas, Nebraska and Minnesota were states that came into existence at a later day and under different environments. Iowa has a constitutional provision limiting the state debt to the sum of $250,000, except to repel invasion. The state debt of Kansas may never in the aggregate exceed $1,000,000, and the state can never be a party in carrying on any works of internal improvements, or a stockholder in any banking institution. For the purpose of defraying extra-ordinary expenditures the state of Minnesota may contract a debt not to exceed $250,000, and it can never contract any debt to aid in internal improvements. In Nebraska the constitutional limit is $100,000. In Nevada the limit is $300,000; the purpose or purposes for which it is issued must be distinctly specified; and the law creating the debt shall provide for levying an annual tax sufficient to pay the interest semi annually, and the principal within 20 years. Every contract of indebtedness entered into or assumed by or on behalf of the state, when all its debts and liabilities amount to $300,000, shall be void and of no effect, except in cases of money borrowed to repel invasion. As a result of this, the western states are to-day (with the exception of Missouri) practically out of debt.

I.349.43

—Before the war many of the southern states had loaned their credit to railroads and to aid other internal improvements. The old constitutions did not forbid this. Much of this property was destroyed during the war, and though struggling on the verge of bankruptcy the state legislatures were again called upon under entirely new social conditions to assist. The result of this mistaken policy is too well known; the painful experiences of the past can be traced in the new constitutions, and the recent amendments. The constitution of Florida (1868), as amended in 1875; that of North Carolina of 1876; of Tennessee of 1870; of Texas of 1876; of Virginia of 1870; of West Virginia of 1870; of Alabama of 1875, and of Arkansas for 1874, all contain very definite provisions forbidding the state to lend money or credit to corporations. To-day no less than 31 states have provisions of this kind in their constitutions, and the determination to stop these abuses by organic law can not fail to effectually combat the state debt evil.

I.349.44

—I have shown how it has prevented the newer states from contracting debt, and, after great injury to credit and suffering to creditors, brought about a more satisfactory condition of affairs in the south. If the lessons of 1842 were needed, and surely the facts I have presented warrant me in saying this much, may not the lessons of 1868-72 be also valuable, and may we not look forward to the day when $260,000,000 of state debt proper will melt away in the sunlight of wise constitutional legislation?

I.349.45

—And now, in conclusion, a word on the constitutional restrictions on municipal debt. Massachusetts and Vermont are the only two states that have no constitutional limitations respecting indebtedness, taxation, or the power to become stockholders, loaning or giving aid, etc., etc., by the state or any political division thereof. With these exceptions all the states in their later constitutions or amendments place some restrictions on state debts proper. The constitutions of Rhode Island, Maine, Louisiana, Kentucky and Kansas have no provision authorizing the state to restrict county or municipal debts. In the other states municipal corporations are prohibited by the constitution from subscribing or becoming stockholders in any corporation, company or association, or loaning their credit. These provisions, while aiming at the same thing, differ in form; for example, Alabama, Arkansas, California, Colorado and Florida absolutely prohibit minor political divisions loaning their credit. In Georgia the legislature may authorize subscriptions to stock by incorporated cities and towns, if a majority of the inhabitants vote for it. Aid may be granted in the same way. In Illinois the law is virtually prohibitory. In Indiana counties can not become stockholders, unless stock is paid for at the time of subscription; they can not loan the credit of the county nor borrow money to pay for stock; cities are not prohibited. In Iowa the only restriction is, that municipal corporations can not become stockholders in banks. In Maryland counties can not become indebted unless authorized by "an act of the general assembly which shall be published for two months before the next election for members of the house of delegates in the newspapers published in such county, and shall also be approved by a majority of all the members elected to each house of the general assembly at its next session after said election." In Michigan the constitution merely provides that the legislature shall restrict. In Minnesota the minor divisions can not aid to an amount exceeding 10 per cent. of the taxable value of property. In Missouri all minor divisions are to loan credit or become stockholders; also in Mississippi; and in Nebraska cities, counties, precincts and other municipalities can not become stockholders, but under certain conditions may grant aid. In Nevada the constitution makes the one exception of railroad corporations—for no other purpose can aid be granted, but even in this the legislature can restrict. In New Hampshire towns are restricted; also in New Jersey, New York and Ohio. In North Carolina no county, city or municipal corporation can create any debt, pledge its faith or loan its credit, unless by a vote of the majority of the qualified voters therein. In Oregon no town or city, by vote of its citizens or otherwise, can loan its credit or become a stockholder in any corporation whatever, nor can a county create any debt which shall exceed in the aggregate $5,000, except to repel invasion, etc., etc. In Pennsylvania the legislature can not authorize any county, city or borough, township or incorporated district, to become a stockholder in any corporation, or loan credit to same. The debt of minor civil divisions can not exceed 7 per centum of the valuation.

I.349.46

—There are very useful provisions for the levying of taxes and the creation of sinking funds to pay debts, which provisions must be made by the law creating the indebtedness. In South Carolina the state may restrict. In Tennessee the voters of the county or city must consent by a three-fourths majority. In Texas the constitution of 1876 prohibits the loaning of money or credit by minor political divisions. In Virginia the state is simply forbidden to loan its credit to counties or cities. In West Virginia and Wisconsin they have the 5 per centum restriction.

I.349.47

—It can not be denied, in the view of all this organic legislation, that the people of this great republic are earnestly searching for a remedy for state and local indebtedness. The success or failure of constitutional legislation to provide this remedy will soon be known beyond a peradventure. That it was successful in curtailing state debts has been shown; but as most of the provisions relating to local indebtedness have been recently enacted, the effect is as yet uncertain. Over $1,000,000,000 of local debt hanging like a cloud over this fair land, oftentimes most threatening in sections least able to dispel it, is a danger that needs prompt and firm action. Few of the provisions I have called attention to are satisfactory to my mind. The evil is approached with an uncertain hand, and not with the unwavering firmness of a master. There should absolutely be no loop-hole, and the word "except" should be followed only by "to repress invasion." Let this be the uniform provision in every constitution of every state, and in 10 years from now the census will not show an increase of 100 per cent. in municipal debt.

ROBERT P. PORTER.

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