American State Debts

American State Debts

American State Debts

American State Debts

Excerpt

During the past twenty-five years the total of state debts in the United States has increased approximately fivefold. This phenomenal increase, starting from the highest point reached by state indebtedness up to that time, added an eventful chapter to the record of the preceding two centuries during which the states had experimented widely in borrowing operations. It is true that even after this great increase the total of state debts was still small in comparison with the debt of the Federal Government or with the total of local government debts. Yet the increase was significant because it indicated profound changes taking place in the field of state finances and because it gave rise, in several states, to critical problems, many of which remain to be solved. During the depression of the past ten years one state defaulted on its obligations, while several others avoided that embarrassment only by the narrowest of margins. For approximately half of the states, debts are a major problem, to be added to other financial worries. The problem is of ancient, if not entirely honorable, origin.

For more than one hundred years--roughly from 1700 to 1815-- the colonies and states experimented with debts, mainly in the form of paper money, for a variety of purposes. Some of the experiments were successful, others were partial failures, while still others were disastrous. The Federal Constitution deprived the states of the power to issue money; so when they began to borrow for internal improvements around 1820, they incurred their first bonded or funded debt. For nearly one hundred years after 1820 the total of state debts rose and fell in response to various developments but never exceeded $400,000,000. Then came the events of the past quarter century which have raised the total gross indebtedness to more than $3,000,000,000 and the net indebtedness to more than $2,500,- 000,000.

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