In this happy land of short memories, half of the states' legislatures are now demanding a balanced budget enforced by constitutional dozen congressmen have drafted language that would also require the government to pay off the federal debt within the next century.
If those ideas seem right and good to you, you owe it to yourself -- and to the country -- to look at their history. Those were the ideas that prevailed in this country until late in the New Deal, and they locked the American economy into a pattern of short booms that quickly crested in financial panics and severe unemployment.
There were six financial crashes and two long depressions between the Civil War and World War II.
Those depressions were periods of violent collisons between labor and management. They brought the United States closer to the European style of social-class politics than ever before or since. Through it all, presidents and Congresses agreed that federal budgets always ought to be balanced except in national emergencies, and they struggled conscientiously to pay off the war debts.
Then, in the late 1930s, things changed.
Does it strike you as important that this country has now gone through 34 years since World War II with no financial panics, and with the unemployment rate never as high as 10 percent? The reason is that the federal government has learned to use budget deficits and debt to stabilize the whole national economy. If you rule out deficits and debt, you return the economy to the jolting instability of the 19th century.
The United States had paid off the federal debt in the 1830s, but it had to borrow heavily in the Civil War. For nearly 30 years after the war, the budget was held consistently in surplus and the debts were slowly reduced. The social costs were severe.
Banks, then as now, used government bonds -- that is, pieces of the federal debt -- as their reserves. When the government retired the bonds, it was inadvertently tightening the money supply. The constraints got tighter than ever when Congress put the country back on the gold standard.
The first of the great American financial panics arrived in 1873 -- triggered, apparently, in Europe by the reparations that France paid to Germany after the war of 1870. Credit collapsed in the United States, throwing the country into a depression that lasted five years.
The 1880s brought a tremendous boom as immigrants flooded into the country, new land came into production and new resources were opened. But this surge in production, against a tightly limited money supply, forced a steady fall in prices -- a disaster for the farmers and small businessmen trying to pay off loans with shrinking incomes.
In 1893 there was another panic, this time incited by financiers' fears that coinage of silver would bring inflation. Again a depression followed. In 1892 the unemployment rate was 3 percent. In 1894 it was 18 percent.
Modern Americans are apt to think of William Jennings Bryan's famous Cross of Gold speech in 1896 as a faintly comic piece of old-fashioned hyperbole:
"You come to us and tell us that the great cities are in favor of-the gold standard; we reply that the great cities rest upon our broad and fertile prairies... We will answer their demand for a gold standard by saying to them: You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold."
Bryan was speaking for the plains farmers who had seen wheat drop to half the price of the early 1880s, in response to steadily tightening money. It was deflation, the opposite of the present inflation.
But the distress was not confined to the plains. The extreme insecurity of industrial life generated a wave of pitched battles between the new labor unions and employers. The Homestead strike was in 1892 and the Pullman strike, that President Cleveland broke with federal troops, in 1894.Thoughtful Americans began to fear that the country was sliding toward another civil war, this time along social and economic lines.
Then pure luck ended the long deflation. Prospectors suddenly found gold in Alaska and Australia, and to recover it from low-grade ores. Gold prices dropped. Ironically, the gold standard became, for a time, inflationary.
The cycles of growth and contraction continued through the early 20th century, with the greatest of the crashes coming, of course, in 1929. The collapse of credit again caused bankruptcies, resulting in unemployment that diminished in a long spiral downward. By 1933 the unemployment rate was 25 percent.
In England, John Maynard Keynes -- in one of the great intellectual triumphs of this century -- was working out his theory of employment and money. He urged governments to use their public credit to replace the collapsed private credit, and to expand public spending to offset the decline in private demand.
In the United States, the New Dealers, far less radical than their reputation, were suspicious of Keynes. When the economy slowly and painfully began to recover in 1937, the Roosevelt administration immediately reverted to conventional economics and tried to cut federal spending. President Roosevelt himself urged Congress to eliminate the deficit. As Keynes had warned, the patient immediately suffered a relapse. Unemployment shot from 14 percent in 1937 back up to 19 percent in 1938. That persuaded Roosevelt, who instantly began widening the deficit again. But it took three years, rearmament and the draft to get the unemployment rate down under 10 percent. It has been there ever since because every subsequent administration, Republican and Democratic, has followed the Keynesian method of using the federal budget as the balance wheel of the economy.
Why do a good many respectable people now want to forbid it, by constitutional amendment? Having grown accustomed to steady growth and stable prosperity, they have lost interest in the mechanism that provides it. They have forgotten what life was like without it.