The USA's public debt in the early 19th century
On Thomas Jefferson’s inauguration in 1801 the national debt of the USA stood at US$80 million, an amount unchanged since the consolidation of the Federal debt by Alexander Hamilton, the first Secretary of the Treasury under President George Washington. In the previous 12 years, US$7.5 million of old debt had been liquidated and US$10.6 million of new debt acquired.
The purchase of Louisiana for US$15 million represented a 19 per cent increase in public indebtedness. But these were years of prosperity for the USA and The Treasury was able to reduce the original US$80 million debt by over a half by 1811, notwithstanding the annual US$675,000 interest charge payable on the Louisiana bonds. The issue of the Louisiana bonds, however, meant that the total indebtedness stood at just over US$45 million by 1811.
In the decade beginning 1811 US public finances deteriorated and when the Louisiana bonds were redeemed between 1812 and 1823, The Treasury was covering its deficits through the issue of five and six per cent bonds. Yet there is little doubt that the funding of the Louisiana Purchase, in fiscal terms, had been a great success. As if to emphasise the point, history repeated itself in 1824 when the Province of East Florida, acquired from Spain for US$5 million, was funded through the issue of 4.5 per cents.