On Jan. 8, 1835, all the big political names in Washington gathered to celebrate what President Andrew Jackson had just accomplished. A senator rose to make the big announcement: “Gentlemen . the national debt . is PAID.”
That was the one time in U.S. history when the country was debt free. It lasted exactly one year.
By 1837, the country would be in panic and headed into a massive depression. We’ll get to that, but first let’s figure out how Andrew Jackson did the impossible.
It helps to remember that debt was always a choice for America. After the revolution, the founding fathers debated whether or not to just wipe clean all those financial promises made during the war.
Deciding to default “would have ruined our credit and would have left the economy on a very agricultural, subsistence basis,” says Robert E. Wright, a professor at Augustana College in South Dakota.
But, just like today, it wasn’t easy for politicians to slash spending — until Andrew Jackson came along.
To do that, he took advantage of a huge real-estate bubble that was raging in the Western U.S. The federal government owned a lot of Western land — and Jackson started selling it off.
He was also ruthless on the budget. He blocked every spending bill he could.
That created a new problem: What to do with all that surplus money?
Jackson had already killed off the national bank (which he hated more than debt). So he couldn’t put the money there. He decided to divide the money among the states.
But, according to economic historian John Steele Gordon, the party didn’t last for long.
The state banks went a little crazy. They were printing massive amounts of money. The land bubble was out of control.
Andrew Jackson tried to slow everything down by requiring that all government land sales needed to be done with gold or silver. Bad idea.
During the depression, the government started borrowing money again.