Introduction

The United States has undergone four major periods of debt reduction over its history: the Revolutionary War and War of 1812 debt repayment extended over the first third of the 19th century; the Civil War debt was reduced in the last third of that century; and the debt repayment of World Wars I and II covered the third decade and third quarter of the 20th century, respectively.

Until the time of the Great Depression of the 1930s, the major reason for borrowing by the United States government was the preparation for or waging of war. Until then a relatively narrow stance had been maintained with respect to the kinds of programs considered appropriate to undertake. State governments, on the other hand, had assumed a broader role in the 19th century in financing transportation and other developmental projects. Local governments grew explosively after the Civil War to provide needed urban utilities and infrastructures.

Up to World War II, the expected and well-accepted policy of the federal government was to repay outstanding debt in a more or less systematic way, even when accompanied, as it often was, by substantial subsidies to creditors through price deflation. It could be characterized as a creditordominated policy. In contrast, after World War II debt repayment was minimal; but inflation and economic expansions, even when slow, sharply lowered the debt-GNP ratio in a debtor-dominated policy.

In reviewing these episodes the debt-GNP ratio will be used, when feasible, as a simple measure of debt burden, although other factors are, of course, present.