Alexander Hamilton and Thomas Jefferson, who disagreed on almost every aspect of the Constitution, stood shoulder to shoulder in support of a federal government whose expenditures were limited by our “fiscal constitution.” When our Constitution was ratified, it was universally accepted that in times of peace, no federal expenditures could be made unless a source of revenue other than debt could be identified to pay for them.
For 142 years, from the establishment of the republic in 1789 until 1931, our political leaders honored this unwritten promise. In peacetime, federal expenditures never exceeded 4% of the GDP . Politicians of that era were no more noble than today’s, but their natural tendency to pander was constrained by the universally accepted notion that the federal government’s budget—except during times of war—was no different than the individual family’s budget.
Herbert Hoover was the first to break that tradition in 1931, when he embraced massive spending on public works in a futile attempt to “fix” the Depression. By the end of the Hoover Administration, federal expenditures doubled to 8% of the GDP.
Franklin Roosevelt, who railed against Hoover’s profligacy during the election of 1932, abandoned his campaign rhetoric as President, and dramatically increased peacetime spending to 10% of GDP.Page 1 of 4 | Next Page