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Category Archives: Debt

THIS is how to get U.S. out of debt! Part 2 of 3

The state of our finances continues to fulfill our expectations. Eleven millions & an half of Dollars recieved in the course of the year ending on the 30th. of Sep. last, have enabled us, after meeting all the ordinary expences of the year to pay 3,600,000. Dollars of the principal of the public debt. This paiment, with those of the two preceding years, has extinguished upwards of twelve millions of principal and a greater sum of interest within that period, and, by a proportionate diminution of interest, renders already sensible the effect of the growing sum yearly applicable to the discharge of principal.
To United States Congress, November 8, 1804

Patrick Lee’s Explanation
Principled leaders make debt their servant, not their master.
President Jefferson’s annual report to Congress detailed in simple fashion the nation’s financial health.
1. Income for the fiscal year ending September 30 was $11.5 million.
2. Expenses were $7.9 million.
3. The $3.6 million surplus was applied to paying down the national debt.
4. $12 million had been applied to that debt in the previous three years.
5. Interest saved and applied to the debt would lower it even faster in coming years.

Jefferson reduced the size of the federal government, including its army and navy, repaying debt with the savings. His administration reduced that debt in seven of its eight years, from $83 million to $57 million.  The one exception was 1803, when the U.S. borrowed $11.25 million to finance the purchase of Louisiana.

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I am tapped out!

… no man is less in condition to aid his friends pecuniarily [financially] than myself. I have always endeavored so to live as just to make both ends meet; but imperfect calculations disappoint that endeavor, and occasion deficiencies which accumulating, keep me always under difficulties. my resources of every kind have for some time been on the stretch so that I can with truth assure you that at this time they could not be made to place one thousand dollars at my command. under these circumstances I can only express unavailing regrets that it is not in my power to be useful to you …
To Ferdinando Fairfax, September 13, 1804

Patrick Lee’s Explanation
Even smart leaders can deceive themselves.
Fairfax asked two things in his letter to the President, for the national government to buy his ironworks and for Jefferson to loan him $10,000. Jefferson declined both, and perhaps Fairfax’s status in Virginia earned him Jefferson’s reasoning in both cases. The ironworks issue was explained in the previous post. This excerpt is an unusually candid glimpse of his finances.

Although he claimed to match outgo to income, he was kidding himself. As early as his French Ambassador days in the 1780s, he was living beyond his means, occasionally borrowing money for living expenses and then borrowing more to pay off previous loans. His “imperfect calculations” about future income were often overly optimistic, assuming higher crop prices and better weather. When neither happened, he was “always under difficulties.” He couldn’t put together $1,000 in cash.

Many of Jefferson’s financial difficulties were caused by factors beyond his control. Still, he often lived beyond his means, with few restrictions on his creature comforts.

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What do we owe, & where does the money go?

… [Should we present to] Congress at some time of every session a Calendar of 1. the interest of the public debt paid in each year. 2. the principal paid, or added. 3. the principal remaining due at the end of each year …  also …  a similar calendar of the expenditures 1. for the civil, 2. the military, 3. the naval departments, in a single sum each? the greatest security against the introduction of corrupt practices & principles into our government, which can be relied on in practice, is to make the continuance of an administration depend on their keeping the public expences down at their minimum. the people at large are not judges of theoretic principles, but they can judge on comparative statements of the expence of different epochs.
To Albert Gallatin, February 11, 1804

Patrick Lee’s Explanation
Honest leaders help their constituents hold them accountable.
The President decried the undecipherable mess of government finance created by the first Treasury Secretary, Alexander Hamilton. He wanted Gallatin, his Secretary, to make sense of it, not just for Congress but for the common man. Thus, he asked Gallatin about the wisdom of an annual report to Congress related to national debt and annual expenditures:
Debt –
1. How much interest was paid on the debt?
2. How much the debt was reduced or increased?
3. Was is the total debt at the end of the year?
Annual expenditures, a single total for each –
1. Civil government (all non-military expenditures)
2. Military (land-based forces and defenses)
3. The navy

Jefferson also asked if these numbers could be established annually from the nation’s founding. A protection against corruption was an on-going effort to keep government spending at a minimum. The public would be well able to judge of their government by comparing these totals year by year.

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Cash out & in, 1804, plus sad news

Jan. 1                   Gave in charity 5.D. [$5]. …
Feb. 13                 Paid for 13. glass pens 2.43 3/4. …
Mar. 28                Sent Mrs. Madison for a mantua [lady’s dress] maker 3.50. …
Apr. 3                   Culpepper C.H. [Court House] oats & etc. .58.   barber .50…
May 13                 Thomas Shields for finding pistol   .1.D…
June 7                  Gibson & Jefferson have sold my tobo [tobacco]… 1267.D.
July 20                 Pd. S.H. Smith for newspapers 10.D. …
Aug. 30                Pd. shoeing horses at Mr. Madison’s 1. …
Sept. 14                Recd. of J. Barnes 500.D. …
Oct. 31                  Tooth pick case 1.75. …
Nov. 13                 Paid at the races 1.D. …
Dec. 10                 Recd. back from Jos. Daugherty 3.50 overpaid [for] contingencies.
Memorandum Books, 1804

Patrick Lee’s Explanation
Careful leaders keep a record. (They should also keep a balance.)
The link above lists all of Jefferson’s expenditures and receipts for 1804. I excerpted one entry from the 50 or so listed for each month. These are not meant to be representative but to illustrate a variety of money coming and going.

Mr. Jefferson was an avid list maker. He would have jotted these amounts day-by-day during the year and summarized them all at year’s end. I have read (but cannot verify) that while he kept a careful record of every expense, he never struck a total at the end of the month or year, never a profit or loss statement, never an accounting of his net worth. Had he done so, he might have been more aware that his general financial health was slowly deteriorating through the years. He died deeply in debt.

Not all entries concerned money. On April 17, after recording a payment of $156.67 for corn, he also noted, ” This morning between 8. & 9. aclock my dear daughter Maria Eppes died.”

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Smoke ’em if you got ’em? (NO!)

I now lay before Congress the annual account of the fund established for defraying the Contingent [random, unforseeable] charges of government. No occasion having arisen for making use of any part of it in the present year, the balance of eighteen thousand five hundred and sixty dollars, unexpended at the end of the last year, remains now in the Treasury.
To the Senate and House of Representatives of the US. of America, December 31, 1803

Patrick Lee’s Explanation
Self-limiting leaders exercise restraint with money not their own.
In May 1802, Congress approved $20,000 for “defraying the contingent expenses of government.” By the end of that year, the President reported a single expenditure of $1,440, to return to the United States 72 American seamen stranded abroad. The balance in that fund stood at $18,560.

A year later, the President reported again to Congress on the status of that fund. He had “no occasion” in 1803 to use any part of it. The full balance of $18,560 remained in the nation’s treasury.

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Death. Diversion. Duty.

I have heard of your misfortune and lament it, but will say nothing, ha[ving] learnt from experience that time, silence, & occupation are the only medicines… I should have regretted the necessity of writing to you on a subject of business, did I not believe it useful to withdraw the mind from what it is too apt to brood over, to other objects.
You know the importance of our being enabled to announce in the message that the interest of the Louisiana purchase (800,000. D) can be paid without a new tax … to be quite secure. the [budget] estimate recieved from your office, which I inclose you, amounts probably to 770, or 780. & were it possible to reduce it to 600. it would place us at ease.
To Robert Smith, October 10, 1803

Patrick Lee’s Explanation
Leaders know life goes on even when it does not.
In a recent post, the President encouraged Secretary of the Navy Smith’s attendance at an important Cabinet meeting about the purchase of Louisiana and its funding, but acknowledged the illness in Smith’s family demanded his attention. Shortly after that request, Smith’s youngest daughter died.

Jefferson had experienced the death of four of his six children. (A fifth would die six months hence.) He knew from experience there was nothing he could say to his friend that would help. He would have preferred not to write at all, except that there was important business at hand, and he knew a diversion from tragedy was sometimes helpful.

The United States had only half of the $800,000 interest payment required by the new debt for the purchase of Louisiana. Asking Congress for a new tax would probably scuttle the sale. Thus, the President asked each of his department secretaries to tighten their belts to free up the needed cash. Other secretaries had done so. Jefferson asked Smith to cut $180,000 from his budget.

Not only did the President eventually get the funds he needed, he gave his friend a difficult task to distract his mind.

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Read my lips. NO new taxes!

[There was a hiccup in cyberspace, or in my brain, because this notice didn’t go out as it should have. Maybe this time?]

… the purchase of Louisiana will require the aid of all our resources to pay the interest of the additional debt without laying a new tax, and of course call for the adoption of every possible economy.
To Tobias Lear, July 14, 1803

Patrick Lee’s Explanation
Bold initiatives don’t always require tax increases.
Lear (1762-1816) was best known as George Washington’s personal secretary for the last 15 years of Washington’s life. Lear’s reputation was a checkered one, but he also served President Jefferson as commercial agent in St. Domingo and then as Consul General to several North African city-states. Lear’s duties in Algiers and Tripoli included ongoing negotiations to protect American shipping in the Mediterranean Sea. That protection was secured, in part, by annual payments to those nations. The President was intent on holding the line on, if not decreasing, those payments.

Why? In part, because he wanted to pay the interest on new debt for the purchase of Louisiana without a new tax. To do so would obviously require “every possible economy.”

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My debt keeps me from helping you now. Maybe later.

my great object at present is, within the course of my present term of office to get compleatly thro’ the old debts of mr Wayles’s estate & my own … if by the end of my second term of office (which will certainly be my last) I can see all of us out of debt, and my mill & farms in such a state as to supply the expences of living … if March 1809. can see me in that condition all my desires will be crowned with contentment to myself, and I hope to leave the public circumstances so much improved from what they were in March 1801. as to carry into retirement the contentment of the public.
To Thomas Mann Randolph, July 5, 1803

Patrick Lee’s Explanation
Debt cripples everyone’s capacity to act, leaders included.
After reporting to his son-in-law about America’s fortuitous opportunity to buy all of Louisiana from France, the President turned to a personal matter, Randolph’s request for financial help. Jefferson was in no position to assist, because his own situation was strained.

More than 25 years before, Jefferson inherited heavily indebted lands from his father-in-law (“mr. Wayles estate”). He sold some of the land and with the proceeds, paid the English-held debt into escrow, awaiting the end of America’s war for independence. Though complicated to explain, the escrowed funds became worthless, and he had to pay the debt a second time. That debt, with its accrued interest, was still dogging him a quarter century later, as were the debts of his own making.

Jefferson thought his cash crops, tobacco and wheat, plus proceeds from his nail-making and grain-milling operations at Monticello, plus whatever he could spare from his own salary would see him debt free by the end of a second term in early 1809. He hoped to leave office, not only debt-free but with sufficient income for his retirement years, and to enjoy the public’s approval for the work he’d done.

He would be disappointed. His public standing in 1809, while generally  good, was considerably diminished from what it was in 1803. His personal debt was still far from being eliminated.

Personal money-management is not what Thomas Jefferson brings to your meeting,
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I will deal with the devil if I have to.

you mentioned that the receipt of the 400. D. in March would be quite sufficient, or even later if it should be inconvenient to me. I am not yet certain how that will be; but either then, if I have it not in hand, or at any other moment when your calls require it, I can get it from the bank here; but that being in the hands of federalists, I am not fond of asking favors of them. however I have done it once or twice when my own resources have failed, and can do it at all times.
To John Wayles Eppes, February 21, 1803

Patrick Lee’s Explanation
Indebted leaders are humbled by their financial insecurity.
Eppes was married Maria Jefferson, the President’s younger daughter. Always solicitous of his two daughters and their families, Jefferson was quick to come to their financial aid, even when his own resources were lacking.

There was little cash in circulation. Financing was most often by credit – personal loans, advances on future tobacco and wheat crops, and mortgages on property, plus the buying and selling of the “paper” created by those advances. Borrowing money from one source to pay another was a common practice, one Jefferson had been forced into since his ambassadorship to France in the late 1780s. Only those prudent enough to buy only with cash, or “ready money,” had control over their financial health. Jefferson was rarely in that category.

Eppes had $400 coming due in March and had asked his father-in-law for help in meeting those “calls.” Jefferson didn’t have the cash and didn’t know if he would when the time came. If so, he would go to the bank for another advance. He hated that last resort, as the bank was controlled by his political opponents. Whether they charged him harsher terms or simply exulted in humbling the President or both is unknown, but his liberal personal spending, coupled with political and economic reverses he had no control over, left him at their mercy.

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Is this shrewd or underhanded?

the cheapest & most effectual instrument we can use for preserving the friendship of the Indians: is the establishment of trading houses among them. if we could furnish goods enough to supply all their wants, and sell them goods so cheap that no private trader could enter into competition with us, we should thus get rid of those traders who are the principal fomenters of the uneasiness of the Indians: and by being so essentially useful to the Indians we should of course become objects of affection to them. there is perhaps no method more irresistable of obtaining lands from them than by letting them get in debt, which when too heavy to be paid, they are always willing to lop off by a cession of lands.
To Henry Dearborn, August 13, 1802

Patrick Lee’s Explanation
What’s a leader to do?
Dearborn (1751-1829) was Jefferson’s Secretary of War. This letter dealt with issues surrounding whites and Indians living on either side of the lower Ohio River. Whites were continually moving further west into Indian lands, and the President had to deal with the conflict that inevitably arose. He tried to do that in two ways, first to pacify the Indians and second, to encourage (or force) them to transfer ownership of some (or all) of their lands.

Here, Jefferson proposed an approach he favored for many years:
1. Establish trading stores for the Indians.
4. Drive out competition from private traders who stirred up trouble among the Indians.
2. Sell necessities at low prices, encouraging Indians to become farmers like the white men.
3. Be so helpful to the Indians they would come to like the white men.

The final sentence is uncharacteristic for this humane man. He proposed creating indebtedness in the Indians and then forgiving that debt in return for their relinquishing some of their land.

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