It will be noticed that although the national debt was much reduced during the twenty-five years which followed the Civil War, it never dropped anywhere near its pre-war level. The enormous debt which we piled up during the World War is already being reduced. Will it ever be cut to the level of 1916?
THE NATIONAL DEBT
1860-1920
Long- and short-term loans.
How Borrowing Takes Place.—When governments decide to borrow money there are two ways of doing it. If the money is needed for a short time only, for example, to pay expenses until the taxes come in, it can be borrowed from the banks on short-term notes. The national government, for its short-term borrowing, issues treasury notes, running for a year or less. These bear interest and are sold to the banks which re-sell them to private investors. But if the money is needed for a longer period, the usual plan is to issue bonds. These bonds, as already pointed out (p. 445) are promises to pay, and the government pledges its credit to repay them promptly when they mature, with interest every year or every half-year meanwhile. National, state, and local bonds are for the most part exempt from taxation.[[228]]
How the war increased the national debt.
The Burden of the Public Debt Today.—The borrowing power of the national government is not limited by any provision of the constitution. Congress may borrow money up to any amount. The national debt today is about twenty-three billion dollars, as against only one billion before the war. The yearly interest on the present debt, in fact, is about as large as the whole of the old debt. Arrangements are being made, however, to lessen this interest-burden by obtaining interest payments from foreign countries upon the loans made to them by the United States during the war.
Debt limits.
In the case of the states and cities the power to borrow money is not unlimited. The state constitutions usually contain provisions as to how much money may be borrowed and for what purposes. Sometimes they provide that state debts may not be created except by vote of the people. Cities are also, in most cases, bound by debt limits which are fixed by the state constitution or by state laws. The limit, as a rule, is flexible; it enables the city to borrow money up to a certain percentage of its assessed valuation, so that when the value of property goes up the borrowing power becomes enlarged. State and city debts have been increasing at a rapid rate; on the whole more rapidly than population or wealth.[[229]] The tendency is to put a large share of the burden on the shoulders of the next generation. It is right that future taxpayers should bear their share, as has been said; but they should not be called upon to do more than that.[[230]] It is probably within bounds to say that thirty to forty cents out of every dollar which we pay in taxes today goes for interest and debt repayments. Before long, if we keep on, half the taxes will go to pay for past obligations. The large cities are the worst offenders; some of them are mortgaging the future at an alarming rate. Stricter laws relating to local borrowing are needed, but more essential still is the awakening of public opinion to the realities of the situation.