Book Review: Principle and Interest: Thomas Jefferson and the Problem of Debt
[Book Review: Principle & Interest: Thomas Jefferson and the Problem of Debt by Herbert E. Sloan • Oxford University Press • 1995 • viii + 377 pages]
In his History of Economics classes, Murray Rothbard told us that it was important not just to study what policies and theories held sway during the past, but to examine why certain economists or politicians advocated the policies they did.
Principle & Interest: Thomas Jefferson and the Problem of Debt by Herbert E. Sloan is a book that does just that. As today's politicians talk about balancing the budget and reducing the debt, Jefferson's name is often invoked as the standard bearer for a frugal government and sound money. But why?
Professor Sloan's story begins in 1788 while Jefferson was the American minister to France. Although one of the wealthiest men in Virginia (on paper), Jefferson had accumulated enormous debts, including a significant debt stemming from his late wife Martha's inheritance. Martha's father, John Wayles, died in 1773 with a considerable estate that was encumbered by considerable debt.
The Wayles heirs decided to divide up the estate's land and slaves among themselves, and sell off some property to reduce the debt. [T]heir decision, Sloan writes, which seemed appropriate given the circumstances in 1773 and 1774, was to have significant consequences for Jefferson…. Had the Wayles estate been kept together, only the estate's assets could be looked to for repayment. But since the estate was divided between Jefferson and his two brothers-in-law, the estate's liability extended to their own estates. With the Virginia economy depressed, the cash flow from tobacco sales fell far short of that needed to retire the Wayles debt.
Compounding the problem, the Wayles executors accepted bonds from the purchasers of the land they sold. They attempted to use these bonds as payment for the estate's debts. The estate's creditor, Evans, Farell, and Jones, wisely refused, requiring payment in British Sterling. The purchasers of the properties then took advantage of Virginia's legal tender act to repay the bonds in heavily depreciated paper money.
The Virginia Gentry, as Sloan refers to them, hated paper money as much as the heavy burden of debt. Prominent Virginia creditor Richard Henry Lee echoed George Washington's view: The vast sums of paper money that have been issued and the consequent depreciation, has well nigh effected an entire transfer of my estate to my tenants. This year Sir, the rents of 4000 acres of fine Land will not buy me 20 barrels of Corn!
The oppression that Jefferson felt by his inherited debt no doubt shaped his view that the earth belonged to the living. He didn't believe that a previous generation should burden the next with either the slavery of debt or its laws and regulations. Jefferson formulated the idea that a generation lasted 19 years. Thus, Jefferson wrote that, every constitution … and every law, naturally expires at the end of 19 years.
Statists have used these writings to bolster the argument for a living constitution. But Sloan makes it clear that Jefferson's concern was not that future politicians be given the latitude to bind the populace with more and more laws and regulations, but rather that Jefferson feared future generations would be saddled with debt, whether public or private, and the taxes that go along with it. And further, as Sloan writes, public debts are closely associated with the evils of war: Remove the ability to contract debts that run for generations, Jefferson says, and 'it would bridle the spirit of war.'
Sloan spends few pages addressing Jefferson's years as president, perhaps because this ground has been thoroughly covered by others. It's important to note that by the end of his first term in 1804, Jefferson had reduced the federal debt by $12 million. And, with the end of the country's debt in sight, Jefferson began to talk about spending surplus money on the improvements of roads, canals, rivers, education, and other great foundations of prosperity and union.
The national debt stood at $57 million in 1809, and Jefferson predicted that his successor, James Madison, would extinguish the debt during his term. Unfortunately the War of 1812 got in the way, and the debt ballooned over $127 million by the war's end.
Jefferson never lived to see his dream of no government debt fulfilled. Andrew Jackson accomplished the feat in 1836. But the respite was brief. Martin Van Buren, Jackson's successor, resorted to loans the very next year because of deficits caused by the Panic of 1837. The U.S. government has not been out of debt since.